Page 25 - Sharp-Hundley 2012

Sharp Thinking

No. 68 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. July 2012

Violation of Citation Justifies Serious Sanctions

Guardianship Assets Not Immune from Supplementary Proceedings’ Reach

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

Violations of the restraint provisions of citations to discover assets justified a finding of contempt of
court and the appointment of a receiver to investigate the defendant-judgment debtors’ financial affairs, a
panel of the Illinois Appellate Court has held.

In a separate case, another panel has ruled that a citation may be used to reach assets of a
guardianship estate and, when so used, it primes other claims upon that estate, including claims for
administrative expenses.

The pair of recent cases demonstrate the often-overlooked power of the citation provisions of
the Illinois Code of Civil Procedure (735 ILCS 5/2-1402) and the Illinois Supreme Court Rules (Ill. S.
Ct. R. 277).

The contempt and receivership case was Bank of America, N.A. v. Freed,
2012 IL App (1st) 113178. At issue there were further ramifications of the
financial collapse during the attempt to rebuild “Block 37” in downtown Chicago,
which led previously to a widely-quoted opinion on appointment of receivers and
mortgagees-in-possession in commercial cases. See Bank of America v. 108 N.
State Retail LLC, 401 Ill.App.3d 158 (2010); Sharp Thinking No. 36 (August
2010).

After foreclosure proceedings resulted in a $110,956,722 deficiency
judgment, plaintiff served citations on the mortgagor’s corporate parent and
principal, who had also been made judgment debtors by virtue of personal
guaranties. The citations contained restraints against transfer of assets or
indebtedness in substantially the language set forth in 735 ILCS 5/2-1401(f)(1).
Nonetheless, some $5,000,000 in transfers occurred. Hundley

Defendants contended they had not acted “willfully and contumaciously” so as to justify the remedy of
contempt. The court disagreed, finding the requisite mental state in the defendants’ failure to take
steps to put freezes in place. Accordingly, the court found defendants were in contempt.

Moreover, the court reasoned, there is no “ordinary course of business” or “proper corporate
purpose” exception to the restraint which applies when a citation is pending.

In another context, the proper remedy for permitting such transfers might have been personal liability
therefor. See 735 ILCS 5/2-1401(f)(1). However, in Bank of America the citation respondents were
already liable as judgment debtors on their personal guaranties.

Accordingly, the trial court invoked that portion of 735 ILCS 5/2-1402 which allows it to “[e]nter any
order . . . that could be entered in any garnishment proceeding” (§ 2-1402(c)(4)), and held that it could

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
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