Post-Judgment Collections

First District Rules Creditor Has No Lien Rights on Payment of Unrelated Debt

October 19, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Chicago business attorneys were interested to see a decision sorting out how an individual creditor with a judgment in his favor may collect on the debt. In Tobias v. Lake Forest Partners LLC, No. 1-09-1054 (Ill. 1st June 22, 2010), Andrew Tobias lent $500,000 to Lake Forest Partners, a Nevada corporation. The company defaulted on the loan and Tobias won a judgment awarding him the loan principal, interest and attorney fees, against Lake Forest as well as three people who personally guaranteed the loan: Mark Weissman, Christopher French and Albert Montano. The judgment originally called for more than $668,000 to be paid to Tobias, but Tobias successfully moved to amend the judgment to call for $662,172.21 “plus costs,” possibly to account for post-judgment attorney fees, costs and interest.

Meanwhile, intervenor Greystone Business Credit II won a judgment against Weissman individually in Florida federal court. Both Greystone and Tobias sought to recover their judgments by discovering assets owned by Weissman and held by another company, MEA Management LLC. Tobias filed his request some months earlier than Greystone, and Greystone’s request was stayed. MEA had $339,444 belonging to Weissman. Tobias requested that MEA release enough to satisfy his judgment and Greystone intervened to point out that it also had an interest in the money. Tobias later petitioned for post-judgment attorney fees and costs. After entertaining out-of-court attempts to resolve this conflict, the court awarded $86,845.12 to satisfy the original judgment for Tobias, and $126,299.44 each to Weissman and Greystone. The petition by Tobias for post-judgment fees was not addressed.

Tobias appealed, arguing that the $86,845.12 award was not “full satisfaction” of his judgment, since the post-judgment attorney fees were not paid. He argued that his post-judgment attorney fees claim should have been given the same priority as the rest of the judgment, meaning priority over any other party, including Greystone. Not surprisingly, Greystone disagreed, arguing that the post-judgment attorney fees had never been reduced to a judgment and could therefore not be enforced in this situation. The First District Court of Appeal agreed with Greystone. Under sec. 2-1402 of the Illinois Code of Civil Procedure, a judgment creditor may discover assets held by a third party for the debtor. But Supreme Court Rule 277 says these proceedings “may be commenced at any time with respect to a judgment which is subject to enforcement.” Under Bank of
Matteson v. Brown, 283 Ill. App. 3d 599, 602, 669 N.E.2d 1351 (1996), the First said, that means credits cannot discover assets until a judgment has been entered.

The First rejected the argument from Tobias that his post-judgment claim should have the same priority as the underlying claim because it is ancillary to the underlying debt. Because of Supreme Court Rule 277, the court wrote, no claim can achieve lien status until there is a judgment. The judgment in favor of Tobias never included post-judgment attorney fees, the court wrote. If he later obtains one, it would be prioritized behind earlier judgments, including Greystone’s. For those reasons, the First found that the trial court’s order was proper and affirmed its decision.

First District Rules Plaintiff Not Entitled to Punitives in Noncompete Clause Lawsuit

November 6, 2009 | Peter S. Lubin and Patrick Austermuehle

An interesting case involving enforcement of an employment contract’s restrictive covenant was recently noted by our Illinois covenant not to compete attorneys. Cambridge Engineering Inc. v. Mercury Partners 90 BI, Inc., No. 1-06-0798 (Ill. 1st Dec. 7, 2007). The suit stems from an earlier lawsuit concluded in Missouri in 2001, in which Cambridge Engineering Inc. successfully sued former employee Gregory Degar and his new employer, Brucker Company (legally Mercury Partners 90 BI), to enforce a covenant not to compete signed by Degar. Cambridge then filed this suit against Brucker to recover punitive damages and attorney fees. Cambridge and Brucker compete in the residential and business heating market in the Midwest.

Degar worked at Cambridge as a sales representative starting in 1996, and signed a contract including noncompete and nonsolicitation covenants. The contract restricted him from competing in any way with Cambridge, or soliciting its employees or customers, anywhere in the United States or Canada, for 24 months after leaving. He was terminated in 2001 and was hired by Brucker about a month later as an inside support person rather than a salesperson. Nonetheless, he admitted to using customer contacts developed at Cambridge. Cambridge sued Deger, but not Brucker, in St. Louis and was granted a permanent injunction enforcing the noncompete clause. (At that time, Brucker fired Degar.)

Cambridge then sued Brucker in Illinois for compensatory and punitive damages, for tortious interference with contract. The parties stipulated to limit compensatory damages to attorney fees but said nothing about the punitive damages. The trial court directed a verdict against Cambridge on punitive damages, saying Cambridge hadn’t proven that Brucker’s actions were so outrageous that punitive damages were appropriate. At trial, the president of Cambridge testified that the company believed the contract would prevent Degar from holding any job, even a janitorial position, with any competitor, including in areas where Cambridge does not do business. The jury found for Cambridge on compensatory damages in the amount of $50,000, but Brucker successfully moved for judgment notwithstanding the verdict on the basis that the noncompetition clause was overly broad and unenforceable. Cambridge appealed both judgments against it.

The analysis by the First started by noting that the dispute centered around whether the covenant not to compete was unenforceable under Illinois law. Cambridge argued that the covenant was reasonable on both geographic and activity (despite testimony disputing this), and that the trial court improperly excluded testimony that would show this reasonableness. The court disagreed on all counts. The geographic scope was unreasonable, the court wrote, because it restricted Degar from taking a job with a competitor anywhere in Canada even though Cambridge only had a small amount of business in Canada. This restriction did nothing to protect Cambridge from competitors gaining unfair advantage at its expense, the court wrote. And the evidence Cambridge said was incorrectly excluded would not have changed the court’s decision. Thus, the scope of the covenant was indeed unreasonable.

It next examined the question of the activities prohibited by the noncompete clause, which turned on the interpretation of the contract. However, the court found that the plain language of the contract supports Brucker’s assertion that the contract was overly broad: that Degar may not “engage in any activity for or on behalf of Employer’s competitors,” a phrase that could theoretically bar Degar from taking a job filing papers for a competitor. Furthermore, testimony from Cambridge’s president at trial confirmed this interpretation; he “agreed with counsel’s contention that the St. Louis action was brought to prevent Degar from working for a competitor in any capacity.” Thus, the clause was overly broad and not reasonable, and the trial court’s decision on that issue was also correct.

Company May Not Enforce Judgment Against Individual and Partnership Not Named in Original Claims, Third District Finds

September 16, 2009 | Peter S. Lubin and Patrick Austermuehle

Our Chicago partnership dispute attorneys noted with interest a recent ruling strictly limiting how creditors may hold individual partners liable for the judgment debts of their partnerships. In Sunseri v. Moen, No. 3-07-0468 (Ill. 3rd May 15, 2008), the Third District Court of Appeal ruled that creditor Jack Sunseri and his company, Consolidated Partners Ltd., may not enforce a New York state ruling against Janet Moen, a partner of Macro Cellular Partners. The appeals court said a foreign judgment is unenforceable against an individual partner unless the judgment was against that partner, or the creditor makes a case establishing the partner’s liability.

In the underlying lawsuit, Sunseri successfully claimed that Macro’s general partner took actions designed to deprive Sunseri of partnership distributions. Sunseri was awarded nearly $6 million in damages against Macro in 2005, in New York state court. That court entered judgment against Macro, and later in the same year, an attorney for Sunseri petitioned a Rock Island County court to enter judgment against Moen individually as a partner of Macro. The matter was set for a hearing in early 2006, but on the day before, Moen filed a motion to stay judgment because she was not an individual defendant in the New York case, and because an appeal in that case was pending.

After a series of motions and hearings, a Rock Island County judge ruled that Sunseri could continue discovering the partnership’s assets, but that enforcement against Moen’s personal assets must fail because the original action did not name her as an individual, as required by Johnson v. St. Therese Medical Center, 296 Ill. App. 3d 341, 345 (1998). Sunseri then petitioned for leave to amend his complaint to add Moen as an individual. This was granted, but Moen successfully moved to dismiss it with prejudice under the Illinois statute of limitations. In granting that motion, the court also noted that Sunseri may not, under the Illinois Code of Civil Procedure, enforce judgment against Moen individually when the New York judgment named only the partnership. After a motion to reconsider was denied, Sunseri filed the instant appeal.

On appeal, the Third District first considered whether the trial court erred when it stopped Sunseri’s citation proceedings against Moen’s personal assets. The controlling law is the Uniform Enforcement of Foreign Judgments Act, the court wrote, which is “unequivocal” about its limited scope. Under the Act, the judgment debtor may only be a party named in the foreign court’s judgment order — and a judgment against a partnership is enforceable only against property actually in the partnership’s name. Sunseri’s counsel improperly expanded the scope of the original judgment when they named Moen as an individual partner, the Third District said, causing confusion in the trial court. In fact, the court wrote, “The record indicates Sunseri … desired to expand the New York decision to reach Moen without judicial approval or further court order.”
Sunseri further argued that his right to collect against Moen is settled under res judicata. It’s undisputed that creditors may use a valid foreign judgment against a partnership to establish individual partners’ liability, the court said — but it is not automatic. Sunseri should have registered the judgment against the partnership rather than Moen, the court said, then sought to establish Moen’s individual liability on the grounds that Macro’s assets were insufficient (because it was insolvent). However, he registered it only against Moen. Thus, not only did the trial court properly vacate the citation against Moen’s individual assets, the appeals court said, but it should have vacated the one against Macro as well.

Finally, the court considered the issue of whether the trial court property dismissed Sunseri’s amended complaint, or should have allowed his motion to reconsider that ruling. The parties brought up issues of statute of limitations, the Third wrote, but these are irrelevant — because, again, there was no foreign judgment against Moen. Illinois law won’t allow creditors to collect on foreign judgment debts that don’t exist, so the trial court acted properly when it dismissed Sunseri’s amended complaint with prejudice. Thus, the Third District upheld that decision and the decision to vacate orders, but also reversed the trial court’s decision to allow the citation against partnership assets.