Midwest Commercial Funding, LLC v. Kelly

2022 IL App (1st) 210644

204 N.E.3d 909

461 Ill.Dec. 573

MIDWEST COMMERCIAL FUNDING, LLC, Plaintiff-Appellee,

v.Robert Sylvester KELLY, Defendant,

(Sony Music Holdings, Inc., Citation Respondent, and Heather Williams, Adverse Claimant-Appellant).

No. 1-21-0644

Appellate Court of Illinois, First District, Fourth Division.

Filed February 17, 2022

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

Jamie L. Burns, of Levenfeld Pearlstein, LLC, of Chicago, for appellee.

JUSTICE MARTIN delivered the judgment of the court, with opinion.

¶ 1 The issue in this case is whether a judgment creditor may perfect service of a citation to discover assets by electronic mail upon a third party prior to that third party's appearance in the matter and, thereby, secure a superior lien over another judgment creditor who later perfected service upon the same third party by U.S. mail. We conclude that Illinois law does not provide for service by electronic mail in that circumstance; therefore, a judgment creditor does not perfect service or a lien by such method of service.¹

¶ 2 I. BACKGROUND

¶ 3 Robert Sylvester Kelly, known professionally as R. Kelly, was a successful recording artist and, as such, receives royalty payments from Sony Music Holdings, Inc. (Sony). Heather Williams filed an action alleging that Kelly physically and sexually abused her while she was a minor. Williams obtained a $4 million default judgment against Kelly in March 2020. In a separate, unrelated matter, Midwest Commercial Funding, LLC (MCF) filed an action against Kelly for breach of a commercial lease. MCF obtained a default judgment of nearly $3.5 million in July 2020. In each of their respective actions, Williams and MCF caused the clerk of the Cook County circuit court to issue a citation to discover assets upon Sony. Williams sent her citation to Sony by first class mail on August 17, 2020. MCF mailed its citation to Sony two days later, August 19, 2020. However, the same day, August 19, MCF sent a copy of its citation, attached to an electronic mail (e-mail) message, to a member of Sony's in-house legal staff, David Castagna. MCF knew Castagna's e-mail address since MCF had corresponded with Castagna in prior legal matters. In an e-mail response to MCF on August 24, 2020, Castagna acknowledged receipt of MCF's citation. The record does not clarify if Castagna was referring to MCF's e-mailed citation copy, or the paper citation MCF sent by U.S. mail. Castagna followed with a more formal response on August 27, 2020, which stated that Sony had also received a citation from Williams. A postal return receipt shows Williams's citation was delivered to Sony on August 24, 2020.

¶ 4 Subsequently, both MCF and Williams filed adverse claims in each other's cases. Before the circuit court, MCF and Williams contested the priority of their citations and, consequently, their liens on Kelly's assets held by Sony. In a written order, the circuit court stated that the issue came down to the timing of service. Relying upon Illinois Supreme Court Rule 12(c) (eff. July 1, 2017), the court found that MCF perfected service upon Sony prior to Williams, since Rule 12(c) provides that service by electronic means is complete on the day of transmission, while service by U.S. mail is complete four days after mailing. Applying those provisions, the court found that MCF completed service upon Sony on August 19—the day MCF transmitted its citation by e-mail—and Williams completed service on August 21—four days after she sent her citation by U.S. mail. Thus, MCF was first, and the court rejected Williams's claim of priority. The court also rejected Williams's equitable arguments in favor of her priority. The court then ordered a turnover to MCF of funds in Kelly's royalty account and any additional funds that may accrue in the account up to the sum of MCF's judgment. Further, Sony was ordered to pay Williams only after MCF's judgment is satisfied. Williams filed a motion to reconsider, which the court denied by written order. Williams timely appealed.

¶ 5 II. ANALYSIS

¶ 6 A. Citation to Discover Assets Creates a Lien

¶ 7 Section 2-1402 of the Code of Civil Procedure ( 735 ILCS 5/2-1402 (West 2020) ) enables a judgment creditor to commence supplementary proceedings to enforce a judgment by serving a citation to discover assets upon a judgment debtor or "any other person." Id. § 2-1402(a), (b). "[O]nce a judgment creditor serves the judgment debtor with a citation to discover assets, a judgment lien is perfected on those assets of the debtor which are not otherwise exempt under law." Sign Builders, Inc. v. SVI Themed Construction Solutions, Inc. , 2015 IL App (1st) 142212, ¶ 16, 391 Ill.Dec. 205, 30 N.E.3d 475 ; 735 ILCS 5/2-1402(m) (West 2020). Likewise, when the citation is directed against a third party, the judgment becomes a lien upon assets of the debtor in the third party's possession or control. 735 ILCS 5/2-1402(m)(2) (West 2020). A perfected lien is superior to any lien that later attaches to the assets. Sign Builders , 2015 IL App (1st) 142212, ¶ 16, 391 Ill.Dec. 205, 30 N.E.3d 475 ; Pontikes v. Perazic , 295 Ill. App. 3d 478, 485, 229 Ill.Dec. 723, 692 N.E.2d 712 (1998).

¶ 8 Williams and MCF dispute which of them first perfected a lien on Kelly's assets held by Sony. Resolution of the issue hinges on whether MCF's August 19 e-mail to Sony's legal department, with the citation attached, constitutes proper service. If so, MCF perfected a superior lien on Kelly's royalty account; if not, Williams perfected a superior lien by mailing her citation on August 17, two days before MCF mailed its citation. Service by U.S. mail is deemed completed four days after mailing. Ill. S. Ct. R. 12(c) (eff. July 1, 2017).

¶ 9 B. Standing to Raise Improper Service on a Citation Respondent

¶ 10 Before we address which party has a superior lien, we examine MCF's contentions that Williams's appeal is barred. First, MCF argues that Williams lacks standing to raise issues regarding service upon Sony, asserting that only Sony has standing to raise such issues. As MCF points out, Illinois courts have stated, on multiple occasions, that " ‘a party may "object to personal jurisdiction or improper service of process only on behalf of himself or herself." ’ " People v. Matthews , 2016 IL 118114, ¶ 19, 412 Ill.Dec. 775, 76 N.E.3d 1233 (quoting In re M.W. , 232 Ill. 2d 408, 427, 328 Ill.Dec. 868, 905 N.E.2d 757 (2009), quoting Fanslow v. Northern Trust Co. , 299 Ill. App. 3d 21, 29, 233 Ill.Dec. 164, 700 N.E.2d 692 (1998) ).

¶ 11 "Standing is an element of justiciability, and it must be defined on a case-by-case basis." People v. Greco , 204 Ill. 2d 400, 409, 274 Ill.Dec. 73, 790 N.E.2d 846 (2003). We find the cases MCF relies on distinguishable from the present matter. In Matthews , a petitioner filed a pro se petition for relief from judgment (see 735 ILCS 5/2-1401 (West 2020) ) in the circuit court several years after his murder conviction, claiming that a witness committed perjury in his trial. Matthews , 2016 IL 118114, ¶¶ 3-4, 412 Ill.Dec. 775, 76 N.E.3d 1233. The petition contained a certification stating that the State had been served with a copy by mail. Id. ¶ 4. A month after the petition was docketed, the circuit court dismissed the petition sua sponte , finding the petition meritless on its face. Id. On appeal, the petitioner argued that the trial court's dismissal was premature because he failed to properly serve the State with notice of his petition, as required by rule, despite his certification. Id. ¶ 5. Our supreme court held that the petitioner was estopped from arguing for reversal based on his own service error, since he certified that he had properly served the State, effectively requesting the circuit court to proceed with the matter as though service was proper. Id. ¶ 14. The court went on to observe that to accept the petitioner's argument on appeal, litigants would have an incentive to improperly serve other parties so that they could get a second opportunity should they receive an adverse ruling in the trial court. Id. ¶ 15.

¶ 12 In In re M.W. , which was discussed in Matthews , a juvenile argued that her adjudication of delinquency was void for lack of jurisdiction, since her father had not been served with notice in accordance with the Juvenile Court Act of 1987 ( 705 ILCS 405/5-530 (West 2004) ). In re M.W. , 232 Ill. 2d at 412, 328 Ill.Dec. 868, 905 N.E.2d 757. Our supreme court reasoned that the father could waive service and the minor did not have standing to object to improper service on his behalf. Id. at 427, 328 Ill.Dec. 868, 905 N.E.2d 757.

¶ 13 In Fanslow , the holder of a promissory note sought to draw on Northern Trust's letter of credit, which secured the note, when the maker of the note defaulted. Fanslow , 299 Ill. App. 3d at 25-26, 233 Ill.Dec. 164, 700 N.E.2d 692. But a Pennsylvania court had enjoined Northern Trust from paying on the letter of credit. Id. at 26, 233 Ill.Dec. 164, 700 N.E.2d 692. The Pennsylvania court issued the injunction, despite the lack of service upon Northern Trust in the action requesting the injunction. Id. Fanslow later brought an action in Illinois against Northern Trust, alleging that it wrongfully dishonored the letter of credit.² Id. at 28, 233 Ill.Dec. 164, 700 N.E.2d 692. Fanslow argued that the Pennsylvania court's injunction did not enable Northern Trust to dishonor the letter of credit, since Northern Trust was not properly served in the Pennsylvania action. Citing Pennsylvania statutes, this court stated that Fanslow lacked standing to object to the Pennsylvania court's exercise of jurisdiction over Northern Trust, since such objections are waivable. Id. at 30, 233 Ill.Dec. 164, 700 N.E.2d 692. Since Fanslow lacked standing to assert Northern Trust's objections, and this court rejected his other arguments, the Pennsylvania injunction gave Northern Trust a valid defense to Fanslow's claims. Id. at 31-32, ...