Iron Workers St. Louis Dist. Council Pension Tr. v. Bumpy's Steel Erection, LLC

IRON WORKERS ST. LOUIS DISTRICT COUNCIL PENSION TRUST; IRON WORKERS ST. LOUIS DISTRICT COUNCIL ANNUITY TRUST; and IRON WORKERS ST. LOUIS DISTRICT COUNCIL WELFARE PLAN, Plaintiffs, v. BUMPY'S STEEL ERECTION, LLC, Defendant.

No. 20-MC-00004-NJR

United States District Court, S.D. Illinois

April 11, 2022

MEMORANDUM AND ORDER

NANCY J. ROSENSTENGEL CHIEF U.S. DISTRICT JUDGE

This case is before the Court on the Report and Recommendation of United States Magistrate Judge Gilbert C. Sison (Doc. 29) which recommends that the Motion for Sanctions (Doc. 24) filed by Plaintiffs be granted, and that the Motion for Writ of Body Attachment (Doc. 18) filed by Plaintiffs be denied as moot. Defendant Bumpy's Steel Erection, LLC (“Bumpy's Steel”) timely objected to the Report and Recommendation. (Doc. 30). For the following reasons, the Court adopts in part and modifies in part the Report and Recommendation.

Background

On December 4, 2019, a default judgment was entered against Bumpy's Steel Erection, LLC in the amount of $685, 427.85 in the United States District Court for the Eastern District of Missouri. See Iron Workers St. Louis District Council Pension Trust et al v. Bumpy's Steel Erection LLC, 4:18-cv-2032 (E.D. Mo. Dec. 4, 2019). On February 3, 2020, Plaintiffs registered the judgment in the Southern District of Illinois. (Doc. 2). On April 27, 2020 the Clerk of Court issued an Alias Citation in Supplemental Proceedings to Discover Assets (“Alias Citation”) cited to Bumpy's Steel. (Doc. 8). The Court later granted Plaintiffs' motion to serve the Alias Citation via mail and by posting copies of it at the residential address of Ashanti Mitchell (“Mitchell”), the sole manager of Bumpy's Steel. (Doc. 10). The Alias Citation states as follows:

YOU ARE PROHIBITED from making or allowing any transfer or other disposition of, or interfering with, any property not exempt from execution or garnishment belonging to BUMPY'S STEEL ERECTION LLC, whether held individually or jointly, or to which it may be entitled or which may be acquired by or become due to it and from paying over or otherwise disposing of any money not so exempt, which is due or becomes due to it, until further order of the Court or termination of the proceedings. You are not required to withhold the payment of any money beyond double the amount of the Judgment.

(Doc. 8) (emphasis in original).

Despite the Alias Citation, on May 28, 2020, Mitchell sold property belonging to Bumpy's Steel for $50, 000-approximately $14, 000 less than the value of the property^[1]- to her mother. (Doc. 24-4). Mitchell used the $50, 000 to pay Midland States Bank $41, 244^[2]-while retaining $3 454.^[3] (Doc. 27, p. 3).

On November 16, 2020, Plaintiffs filed a motion for writ of body attachment as to Mitchell because Bumpy's Steel failed to appear or comply with the Alias Citation requiring production of certain documents. (Doc. 18). In late November and early December 2020, Mitchell and Bumpy's Steel retained counsel and produced records reflecting the sale of the property at issue. (Doc. 22). On January 29, 2021, Mitchell submitted to a judgment debtor examination. (Doc. 28, p. 2). Bumpy's Steel also produced more than 177 pages of bank records, sales records, and other documents regarding the sale of the property. (Id.).

Plaintiffs also move for sanctions against Mitchell asserting Mitchell willfully violated the terms of the Alias Citation. (Doc. 24, p. 4). Bumpy's Steel timely filed responses to Plaintiffs' Motion for Sanctions on January 15, 2021. (Doc. 27). On May 24, 2021, Magistrate Judge Sison issued the Report and Recommendation currently before the Court. (Doc. 29).

Findings in the Report & Recommendation

Magistrate Judge Sison initially noted that “both parties apply the incorrect standard for evaluating [ ] Mitchell's conduct.” (Doc. 29, p. 7). Magistrate Judge Sison noted that “[a]s [ ] Mitchell is a third party to this action, Plaintiffs do not need to prove that her conduct was willful or contumacious, as this is the standard for criminal contempt applied to parties who violate a citation.” (Id. at pp. 7-8). “Accordingly, Plaintiffs do not need to meet the high burden required to show criminal contempt, but instead need only show that [ ] Mitchell transferred the assets in violation of the citation.” (Id.). Magistrate Judge Sison then found that Plaintiffs proved that both Bumpy's Steel and Mitchell received the Alias Citation prior to the transfer of the property. (Id. at p. 9). Magistrate Judge Sison concluded that “[a]s [ ] Mitchell violated the Alias Citation, the appropriate sanction is to require Ms. Mitchell to either pay the entire amount of the judgment or the amount of the value of the property transferred.” (Id. at p. 10).

Regarding the Motion for Writ of Body Attachment, Magistrate Judge Sison found that because “[Bumpy's Steel] and Ms. Mitchell are now complying with the Alias Citation, the undersigned recommends the Court deny Plaintiffs' motion for writ of body attachment as moot.” (Id.). Bumpy's Steel filed timely objections to the Report and Recommendation. (Doc. 30). Plaintiffs did not respond to the objections.

Legal Standards

When timely objections are filed, the Court must undertake de novo review of the Report and Recommendation. 28 U.S.C. § 636(b)(1)(B), (C); Fed.R.Civ.P. 72(b); SDIL-LR 73.1(b); Harper v. City of Chicago Heights, 824 F.Supp. 786, 788 (N.D. Ill. 1993); see also Govas v. Chalmers, 965 F.2d 298, 301 (7th Cir. 1992). This requires the Court to look at all evidence contained in the record, give fresh consideration to those issues to which specific objections have made, and make a decision “based on an independent review of the evidence and arguments without giving any presumptive weight to the magistrate judge's conclusion.” Harper, 824 F.Supp. at 788 (citing 12 Charles Alan Wright et al., Federal Practice and Procedure § 3076.8, at p. 55 (1st ed. 1973) (1992 Pocket Part)). The Court may then “accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1). If only a “partial objection is made, the district judge reviews those unobjected portions for clear error.” Johnson v. Zema Systems Corp., 170 F.3d 734, 739 (7th Cir. 1999).

Discussion

I. Mitchell's Liability Under 735 Ill. Comp. Stat. § 5/2-1402 and Civil Contempt

Bumpy's Steel objects to Magistrate Judge Sison's finding that Mitchell be held in civil contempt and recommending that Mitchell pay a financial sanction in the amount of $63, 600. Bumpy's Steel argues that “the District Judge should decline to accept Judge Sison's Report and Recommendation because Defendant and [ ] Mitchell's actions were not willful or contumacious.” (Doc. 30, p. 3). Bumpy's Steel continues noting that “[g]enerally, [ ] courts have held that in order to find a party in civil contempt for failure to obey a court order, the disobedience must be willful and contumacious.” (Id.).

There is a difference between what is required to impose liability under 735 Ill. Comp. Stat. § 5/2-1402 and what is required to impose contempt sanctions. As noted in Mendez v. Republic Bank, 725 F.3d 651, 662-63 (7th Cir. 2013):

A citation recipient who fails to comply with the restraining provision may be liable to the judgment creditor for any transferred funds that belonged to the judgment debtor. Contrary to the view of the district court, no showing of contempt is required to impose liability on the citation recipient. Bank of Aspen v. Fox Cartage, Inc., 126 Ill.2d 307, 127 Ill.Dec. 952, 533 N.E.2d 1080, 1086 (1989).

(emphasis added). The Seventh Circuit noted:

The Illinois Supreme Court has interpreted this language to permit a court to hold a third-party citation respondent liable for any transfer in violation of the citation. The court may also impose contempt sanctions on a respondent who “willfully or contumaciously” violated the citation. See Bank of Aspen, 127 Ill.Dec. 952, 533 N.E.2d at 1086.

(Id.).

A. Mitchell's Liability Under 735 Ill. Comp. Stat. § 5/2-1402 for Value of the Property Transferred

Magistrate Judge Sison is correct that “[a]s a third party to the litigation, [ ] Mitchell would be punished not by criminal contempt but by the remedy contemplated in section 2-1402(f).” (Doc. 30, p. 8). The remedy contemplated in section 2-1402(f) is the value of the property transferred. “To sum up therefore, it can be said that a prima facie case to enter the judgment remedy against a third-party citee includes, at least: a citation issued in furtherance of an enforceable judgment, proper service of the citation on the third-party citee, and a transfer that violated the prohibition.” In re Weitzman, 381 B.R. 874, 882 (Bankr. N.D.Ill. 2008).

Even if Mitchell is not a third party, but a party--“[a] corporate officer's transfer of assets in the ordinary course of business of the cited judgment debtor is a violation of the prohibitions of the citation.” Divane v. Sunstrand Elec. Co., 2004 WL 1323287, at *2 (N.D. Ill. June 14, 2004) (citing City of Chicago v Air Auto Leasing Co., 697 N.E.2d 788 (Ill.App.Ct. 1998)); see also Triumph Cmty. Bank v. IRED Elmhurst, LLC, 173 N.E.3d 647, 660-61 (Ill.App.Ct. 2021) (acknowledging that it did not need to reach an interpretation of section 2-1402(f)(1) to determine whether two corporate officers were “third parties” or whether the trial court's sanction was appropriate under the statute because “[t]he citations issued to [the] [corporation] prohibited anyone acting on their behalf from allowing any transfer or other disposition of any property subject to the citations' restraining provision”). Accordingly, the objection to Magistrate Judge Sison's conclusions regarding the amount of $63, 600...