Midwest Commercial Funding, LLC v. Kelly

2023 IL 128260

217 N.E.3d 985

466 Ill.Dec. 709

MIDWEST COMMERCIAL FUNDING, LLC, Appellant,

v.Robert Sylvester KELLY (Heather Williams, Appellee).

Docket No. 128260

Supreme Court of Illinois.

Filed March 23, 2023

Joshua G. Vincent and Kimberly A. Jansen, of Hinshaw & Culbertson LLP, of Chicago, for appellant.

Jeffrey S. Deutschman, of Deutschman & Skafish, P.C., of Chicago, for appellee.

JUSTICE O'BRIEN delivered the judgment of the court, with opinion.

¶ 1 This case concerns a dispute between two judgment creditors over lien priority. Midwest Commercial Funding, LLC (Midwest), and Heather Williams, each creditors of Robert Sylvester Kelly, served citations to discover assets on Sony Music Holdings, Inc. (Sony), which paid music royalties to Kelly. Sony received Midwest's citation by e-mail before it received Williams's citation sent registered mail, return receipt requested, through the United States Postal Service (USPS). The Cook County circuit court found Midwest's lien had priority over Williams's lien based on the electronic service. The appellate court disagreed, finding that electronic service was not authorized for service of a citation to discover assets, so Midwest's electronic delivery of the citation to discover assets to one of Sony's attorneys did not perfect its lien prior to Williams. 2022 IL App (1st) 210644, 461 Ill.Dec. 573, 204 N.E.3d 909. It reversed and remanded for entry of an order prioritizing Williams's lien. We affirm the judgment of the appellate court.

¶ 2 I. BACKGROUND

¶ 3 Williams obtained a $4 million judgment against Kelly in March 2020 for his physical and sexual abuse of her when she was a minor. Midwest obtained a $3,484,420.70 judgment against Kelly in July 2020 for breach of a commercial real estate lease. Sony was not a party to either Williams's or Midwest's lawsuits against Kelly. Williams and Midwest each sought to satisfy their judgments through royalties Sony paid Kelly. At the time of the citation proceedings, Sony held $1,544,333 in royalties due Kelly. Williams sent via registered mail a citation to discover assets to Sony on August 17, 2020, with return receipt requested. On August 19, 2020, Midwest e-mailed its citation to discover assets and also sent a copy through the regular mail. Midwest's e-mail was directed to David Castagna, who was a member of Sony's legal staff with whom Midwest had dealt on prior, unrelated matters. On August 24, 2020, Williams's citation was delivered to Sony. Also on August 24, 2020, Castagna acknowledged receipt of the citation e-mailed by Midwest. Castagna answered Midwest's citation on August 27, 2020, via a mailed response to Midwest. Castagna indicated Sony would appear on the citation and informed Midwest that it had received Williams's citation to discover assets on August 25, 2020. However, Williams's USPS receipt indicated delivery to Sony occurred on August 24, 2020.

¶ 4 A. Trial Court Proceedings

¶ 5 Midwest intervened in Williams's citation action and filed an adverse claim to the royalties held by Sony. Williams intervened in Midwest's citation proceeding and also asserted an adverse claim to the royalties. Williams challenged Midwest's priority claim, provided a USPS return receipt showing service on Sony occurred on August 24, 2020, and argued that because Sony was served with both citations on August 24, 2020, equity directed that her lien should be prioritized over Midwest's lien.

¶ 6 Following a hearing, the trial court found that Midwest's lien was entitled to priority. It noted that neither Midwest nor Williams had challenged whether service was proper and that Sony accepted service and responded to both citations without objecting to either service or the citations. Relying on Illinois Supreme Court Rule 12(c) (eff. July 1, 2017), the trial court concluded that Midwest's citation was entitled to priority because it was served on August 19, 2020, via e-mail, several days prior to USPS delivery of Williams's citation on August 24, 2020. The court ordered Sony to satisfy Midwest's lien before it could pay any royalties to Williams.

¶ 7 Williams sought reconsideration of the trial court's order and raised for the first time in her motion to reconsider a challenge to the propriety of electronic service of Midwest's citation. She supplemented her motion with what she characterized as new evidence, purported to reveal that Midwest was conspiring with Kelly to hide funds from his creditors. The trial court denied Williams's motion for reconsideration, finding that she had waived her challenge to e-mail service by raising the issue for the first time in her motion to reconsider. The court also rejected her claims of new evidence.

¶ 8 B. Appellate Court Proceedings

¶ 9 Williams appealed, and the appellate court reversed the trial court's decision. It disregarded Williams's forfeiture of the challenge to service, found that Williams had standing to challenge Midwest's e-mail service on Sony, and concluded that e-mail service was not a recognized method for service of a citation to discover assets. It further found that Williams's citation was entitled to priority, as it was complete four days after she mailed it based on Illinois Supreme Court Rule 12 (eff. July 1, 2017). The appellate court ordered the trial court to enter an order directing Sony to turn over the royalty funds to Williams and to continue to turn over the royalties until Williams's $4 million lien was satisfied. Midwest appealed.

¶ 10 II. ANALYSIS

¶ 11 A. Standing

¶ 12 We begin our analysis with a determination of whether Williams has standing to challenge service on Sony. Midwest contends that Williams cannot object to service on Sony's behalf. In response, Williams maintains that she has a real interest in the citation proceedings, which entitles her to challenge service on Sony. We agree with Williams.

¶ 13 The standing doctrine "assures that issues are raised only by those parties with a real interest in the outcome of the controversy." Glisson v. City of Marion , 188 Ill. 2d 211, 221, 242 Ill.Dec. 79, 720 N.E.2d 1034 (1999). Standing requires "some injury in fact to a legally cognizable interest." Id. 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. We review issues of standing de novo. Piccioli v. Board of Trustees of the Teachers’ Retirement System , 2019 IL 122905, ¶ 12, 434 Ill.Dec. 673, 137 N.E.3d 745.

¶ 14 Williams has standing. She is asserting her own right to payment of the royalties, not any rights that belong to Sony. She, herself, has a real interest in the outcome of the citation proceeding involving Sony. Williams's injury of losing her lien priority is distinct and palpable, it can be traced to Sony's actions, and the relief she requested from this court would prevent or redress her injury. If Midwest's service of process on Sony via e-mail is deemed proper, she is prevented from asserting a priority position to satisfy the judgment she obtained against Kelly. In the alternative, if this court concludes Midwest's service on Sony via e-mail is invalid, her lien takes priority because notice of it was received before notice of Midwest's lien. Moreover, we agree with the appellate court's conclusion that, if we were to find Williams lacked standing, she and similarly situated judgment holders would be barred from any opportunity to assert that their claims were superior to a third party's lien. We thus find that Williams has standing and the appellate court did not err in concluding that she did.

¶ 15 The cases on which Midwest relies do not warrant a different result. Midwest looks to People v. Matthews , 2016 IL 118114, 412 Ill.Dec. 775, 76 N.E.3d 1233, In re M.W. , 232 Ill. 2d 408, 328 Ill.Dec. 868, 905 N.E.2d 757 (2009), and Fanslow v. Northern Trust Co. , 299 Ill. App. 3d 21, 29, 233 Ill.Dec. 164, 700 N.E.2d 692 (1998), as support for its claim that Williams lacks standing to challenge service on Sony. In Matthews , 2016 IL 118114, ¶¶ 4-5, 412 Ill.Dec. 775, 76 N.E.3d 1233, the defendant attempted to challenge the lack of service on the respondent based on his own failure to properly serve respondent despite him certifying that service was effectuated. This court found that the defendant could not challenge his failure to properly serve the respondent because "[n]one of the notice requirements at issue were designed to allow a petitioner to object to lack of service on behalf of the opposing party." Id. ¶ 15. Allowing the defendant to do so would preclude a respondent's right to waive service. Id. The court stated that " ‘a party may "object to personal jurisdiction or improper service of process only on behalf of himself or herself." ’ " Id. ¶ 19 (quoting M.W. , 232 Ill. 2d at 427, 328 Ill.Dec. 868, 905 N.E.2d 757, quoting Fanslow , 299 Ill. App. 3d at 29, 233 Ill.Dec. 164, 700 N.E.2d 692 ).

¶ 16 In M.W. , 232 Ill. 2d at 429-30, 328 Ill.Dec. 868, 905 N.E.2d 757, this court rejected a juvenile's claim that the failure to provide notice to her father violated his due process rights, finding the juvenile's father could waive service and did not claim error in the lack of service and the juvenile could not claim error on his behalf. In Fanslow , 299 Ill. App. 3d at 25-26, 233 Ill.Dec. 164, 700 N.E.2d 692, a Pennsylvania court enjoined respondent despite a lack of service on respondent in the injunction action. The Illinois Appellate Court, applying Pennsylvania law, found that the petitioner lacked standing to assert respondent's challenge to the Pennsylvania court's jurisdiction over it because service was waivable. Id. at 30, 233 Ill.Dec. 164, 700 N.E.2d 692. Matthews , M.W. , and Fanslow are distinguished from the circumstances at bar, where Williams is not seeking to assert Sony's waivable right to notice but is seeking to enforce her own rights as a citation creditor. The...