Midwest Commercial Funding, LLC v. Kelly, 2022 IL App (1st) 210644 shows the harsh results that can flow from the failure to follow a statute’s service requirements to the letter.
There, dueling creditors fought over song royalties paid to disgraced R&B singer R. Kelly. Heather Williams sued the singer for sexual abuse and obtained a $4M default judgment against him in March 2020. About four months later, Midwest Commercial Funding, LLC (“MCF”), a commercial landlord, was awarded a $3.5M judgment for unpaid rent under a commercial lease against the singer.
Both creditors issued supplementary proceedings to enforce their respective judgments.
On August 17, 2020, Williams mailed a citation to discover assets to Sony – the music company that held a royalty account for the singer. Two days later, MCF sent its own citation by both regular mail and e-mail. MCF e-mailed the citation to one of Sony’s in-house lawyers with whom MCF had prior dealings.
On August 24, 2020, Sony’s in-house lawyer acknowledged receipt of MCF’s citation. (The record is unclear whether Sony’s counsel meant the August 19, 2020 e-mailed or regularly mailed citation.) August 24, 2020 is also the date that Williams mailed citation was delivered to Sony.
When MCF and Williams learned they had served simultaneous citations, they each filed adverse claims in their respective cases: Williams’s personal injury case and MCF’s lease breach action.
Trial Court Ruling
The trial court found that based on Supreme Court Rule 12(c), MCF’s electronic service was complete on day of transmission (August 19, 2020) while William’s “snail-mail” service was complete August 21, 2020 – four days after mailing. Because of this, the supplementary proceedings court found that MCF’s citation lien took precedence over Williams’s and ordered Sony to pay MCF (to the exclusion of Williams) until the judgment was satisfied.
The First District’s Reversal
Williams’s key argument on appeal was that she had a superior lien to Kelly’s royalty account as plaintiff’s e-mail citation did not perfect service under the law.
Reversing the trial court, the First District noted that once a citation is served on a judgment debtor, a judgment lien is perfected on all assets of the debtor that are not otherwise exempt under the law. The Court then wrote that when a citation is served on a third party, the judgment liens all assets of the debtor in the third party’s possession or control. A perfected lien is superior to any later-attaching lien. [Para 7]
The Court rejected MCF’s argument that Williams lacked standing to challenge service of MCF’s citation on Sony. It found Williams was not trying to vicariously assert Sony’s right to proper notice of the citations. Instead, Williams was asserting her prior interest in Kelly’s royalty account because Plaintiff’s e-mailed citation did not perfect service of its citation under Illinois law. The Court added that a contrary ruling would deprive any creditor of a chance to assert a paramount lien upon assets in a third-party respondent’s possession and allow a citation respondent to arbitrarily decide priority among competing creditors. [¶ 14]
The Court then analyzed Supreme Court Rule 11’s text to determine if e-mail service can perfect a citation lien. Under a plain reading of the Rule – titled “Manner of Serving Documents Other Than Process and Complaint on Parties Not in Default in the Trial and Reviewing Courts” – the Court found it contemplates e-mail service of documents only after a party has appeared. As a result, Rule 11 does not provide for e-mail service of documents on a party who has not appeared in the case before the court. Here, Sony had not appeared in either underlying case. [¶ 19]
Looking to Black’s Law Dictionary for guidance, the Court defined the “process” referenced in Rule 11’s title as an initiating case document, like a summons or writ, which triggers a party’s duty to respond.
The Court likened a third-party citation to discover assets to a summons. It held that “absent service of the citation, such party has no duty to appear, nor could the court subject such party to the sanctions provided in Section 2-1402 for noncompliance.”
Since the failure to respond to a third-party citation subjects a respondent to the threat of contempt and sanctions, the Court found that supplementary proceedings against a third party like Sony must be accompanied by service of process and statutory special notices. [¶ 20] As a result, MCF’s e-mailed citation was not proper service under Illinois law and did not lien the royalty account. Since Williams mailed her citation to Sony two days before MCF mailed its citation, Williams’s lien on the account trumped MCF’s.
This case illustrates in sharp relief how a judgment creditor plays with proverbial fire by not personally serving a citation (or at least serving it by certified mail – return receipt requested)
Since a citation to discover assets is the opening, operative document that first activates a recipient’s duty to respond, the citation is tantamount to a summons or writ and beyond the scope of Rule 11’s e-mail service provisions.