Page 21 - John Hundley 2008

Sharp Thinking

No. 13 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. October 2008
Decision Clarifies Questions on Use

Of Citations in Enforcing Judgments

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246
Third parties served with citations to discover assets should insist on
formal orders closing such proceedings as a result of a recent court decision.

Laborers’ Pension Fund v. Pavement Maint., Inc., 542 F.3d 189 (7th Cir.
2008), holds that the 6-month automatic-termination rule for citation proceed-
ings may be implicitly waived. Because the case arose in federal court, the decision is not, strictly
speaking, binding on state courts, but it likely will be accepted by them also.

The decision also holds that the “not substantially disputed” rule does not prevent courts
from resolving disputes raised by third-party citation respondents.

The case arose after plaintiffs obtained a judgment against the defendant in federal court. Using
the supplementary proceeding procedure provided by Illinois Supreme Court Rule 277 and Illinois
Code of Civil Procedure § 2-1402 (as made applicable to federal judgments by Federal Rule of Civil
Procedure 69(a)), plaintiffs served citations on several third parties, provoking intervention by a non-
judgment creditor which claimed a first security-interest lien on defendant’s property. The court ruled
that the non-judgment creditor’s lien had priority, that plaintiffs’ lien came second, and that proceeds
from those and subsequent citations would be applied in that order.
Plaintiffs later commenced supplementary proceedings against third-party MAT Leasing, which
ignored the citation. After issuance of a rule to show cause, MAT had a lawyer file an appearance
and plaintiffs sought turnover of MAT’s assets. After several continuances, the court held an evidenti-
ary hearing focusing on whether MAT owed any money to the judgment debtor. Eventually it ruled
MAT owed the debtor $242,647, which was to be turned over for application as previously decided.

MAT disputed the debt and appealed, arguing first that the order violated the provision of
Rule 277(f) that a proceeding terminates automatically 6 months after one’s appearance in
response to process to enforce a citation unless the court has entered an extension order. As no
such order had been formally entered, MAT argued the court had lost subject-matter jurisdiction.

The 7th Circuit rejected that argument on alternative grounds. First, it said MAT had no support
for its strict jurisdictional theory; second, it said Rule 277(f) could not limit a federal court’s juris-
diction; and third, it ruled that Rule 277(f)’s benefits could be – and had been – waived.

It is not clear that the 7th Circuit understood the context of the subject-matter jurisdiction argu-
ment. Historically, Illinois had courts of limited jurisdiction, and many statutes granting powers con-
trary to common law were treated as jurisdictional and subject to strict construction. Among these
were garnishment statutes, to which citation proceedings have certain parallels.

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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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