In a lien priority dispute between two judgment creditors, the Illinois Supreme Court recently held that email delivery does not constitute proper service of process for judgment enforcement proceedings.
A copy of the opinion in Midwest Commercial Funding, LLC v. Kelly is available at: Link to Opinion.
An individual obtained a $4 million judgment against a defendant. A lender separately obtained a $3.4 million judgment against the same defendant for beach of a commercial lease agreement. Both the individual creditor and lender became judgment creditors seeking to enforce their respective judgments by initiating citation proceedings.
The parties both initiated a separate citation proceeding against a non-party music publishing company (“music company”) that held over $1 million in revenue from the defendant’s song royalties. The individual sent her citation to discover assets to the music company via registered mail on Aug. 17, 2020, with return receipt requested. On Aug. 19, 2020, the lender emailed its citation to discover assets and also sent a copy through the regular mail.
On Aug. 24, 2020, the individual creditor’s citation was delivered to the music company. Also on Aug. 24, 2020, counsel for the music company acknowledged receipt of the citation emailed by the lender. Counsel for the music company answered the lender’s citation on Aug. 27, 2020, via a mailed response to lender. Counsel for the music company indicated they would appear on the citation and informed the lender that it had received the individual’s citation to discover assets on Aug. 25, 2020. However, the individual’s postal service receipt indicated delivery to the music company occurred on the day before (Aug. 24, 2020).
At the trial court, the lender intervened in the individual’s citation action and the individual intervened in the lender’s action. The individual challenged the lender’s priority claim, provided the postal service return receipt showing service to the music company occurred on Aug. 24, 2020, and argued that because the music company was served with both citations on Aug. 24, 2020, equity directed that the individual’s lien should be prioritized over the lender’s lien.
The trial court found that the lender’s lien was entitled to priority because neither the lender nor individual had challenged whether service was proper, and that the music company accepted service and responded to both citations without objecting to either service or the citations. The trial court denied the individual’s motion to reconsider and the individual appealed.
The Appellate Court found that the individual had standing to challenge the lender’s email service on the music company and concluded that email service was not a recognized method for service of a citation to discover assets. It further found that the individual’s citation was entitled to priority, as it was complete four days after she mailed it based on Illinois Supreme Court Rule 12. Accordingly, the Appellate Court ordered the trial court to enter an order directing the music company to turn over the royalty funds to the individual and to continue to turn over the royalties until the individual’s judgment was satisfied. The lender appealed to the Supreme Court of Illinois.
First, the Illinois Supreme Court examined whether the individual had standing to challenge service on the music company. The lender contended that the individual cannot object to service on the music company’s behalf. In response, the individual argued that she has a real interest in the citation proceedings, which entitles her to challenge service on the music company.
In Illinois, standing requires “some injury in fact to a legally cognizable interest.” Glisson v. City of Marion, 188 Ill. 2d 211, 221 (1999) The injury may be actual or threatened and “must be (1) distinct and palpable; (2) fairly traceable to the defendant’s actions; and (3) substantially likely to be prevented or redressed by the grant of the requested relief.” Id. In Illinois, the Supreme Court reviews issues of standing de novo. Piccioli v. Board of Trustees of the Teachers’ Retirement System, 2019 IL 122905, ¶ 12.
The Illinois Supreme Court held that the individual had standing because she was asserting her own right to payment of the royalties, not any rights that belong to the music company. In addition, the Court held, she had a real interest in the outcome of the citation proceeding involving the music company and her injury of losing her lien priority was distinct and palpable that can be traced to the music company’s actions and the relief she requested from the Court would prevent or redress her injury. Notably, the Illinois Supreme Court distinguished that the individual was not seeking to challenge whether the music company has the right to accept service of the lender’s citation by email but instead challenged whether the lender’s method of service to the music company in this circumstance can establish a lien priority over the individual’s lien.
Next, the Illinois Supreme Court examined whether the individual forfeited her challenge to service by raising the issue for the first time in her motion to reconsider in the trial court. The Illinois Supreme Court agreed with the Appellate Court and held that forfeiture should be excused. In Illinois, a reviewing court may “overlook general forfeiture principles in a civil case and consider an issue not raised below if the issue is one of law, is fully briefed and argued by the parties, and the public interest favors considering the issue now.” Forest Preserve District of Du Page County v. First National Bank of Franklin Park, 2011 IL 110759, ¶ 28. The Illinois Supreme Court held that excusing forfeiture was necessary to achieve a just result.
Lastly, the Illinois Supreme Court addressed the propriety of service by email. The lender argued that the Appellate Court erred when it found that its service on the music company via email was not authorized and did not entitle the lender’s lien to a priority position over the individual’s lien. Ultimately, this was a question of statutory and rule interpretation for the Supreme Court.
First, the Illinois Supreme Court examined section 2-1402 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1402). Section 2-1402(a) of the Code provides that a judgment creditor may commence supplemental proceedings to enforce a judgment by serving a citation to discover assets upon a judgment debtor or any other person. The lender maintained that service by email was authorized by Illinois Supreme Court Rule 11. However, Rule 11 does not apply to citation proceedings.
The Illinois Supreme Court noted that, although email service is a “method provided by law for service” as identified under Rule 105(b)(1), it does not apply to the commencement of a citation proceeding. Even if Rule 11 did apply to a citation proceeding, the Court continued, the music company was not a party to the case and the scope of Rule 11 is limited to parties who have made an appearance. The Illinois Supreme Court further noted that Rule 105(b)(2) mandates service of a citation to discover assets via registered or certified mail with return receipt requested. Ill. S. Ct. R. 105(b)(2). Accordingly, the Court rejected the lender’s argument that service of the citation occurred via email.
The lender also argued that the Appellate Court should be reversed because its decision and Illinois Supreme Court Rule 277 is contrary to the encouragement of agreements between attorneys. The lender argued that, because it is established that parties may agree to both the manner and method of service, citing National Equipment Rental, Ltd. v. Polyphasic Health Systems, Inc., 141 Ill. App. 3d 343, 347 (1986), the service via email was proper. The Illinois Supreme Court rejected this argument because the ability of parties to agree to accept service and voluntarily appear at court does not allow them to disregard the applicable rules governing service.
In conclusion, the Illinois Supreme Court held that electronic service via email is not authorized in citation proceedings, and that the Appellate Court properly rejected the lender’s contention that it had lien priority based on its service by email to the music company. Additionally, the electronic service by lender was not an authorized method of service in a citation proceeding. Because the individual’s service of citation was received by the music company on Aug. 24, 2020, as established by the postal service return receipt, the Court held that the individual’s lien is entitled to priority.