Midwest Commercial Funding, LLC v. Kelly

2022 IL App (1st) 210644, 204 N.E.3d 909, 461 Ill. Dec. 573

• Court: Appellate Court of Illinois
• Decided: February 17, 2022
• Docket: 1-21-0644
• Status: Published

Opinion

2022 IL App (1st) 210644

No. 1-21-0644

Filed February 17, 2022

Fourth Division

IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT

MIDWEST COMMERCIAL FUNDING, LLC, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County. ) v. ) ) No. 20 L 2158 ROBERT SYLVESTER KELLY, ) ) Defendant, ) ) Honorable (Sony Music Holdings, Inc., Citation Respondent, and ) Patrick J. Heneghan Heather Williams, Adverse Claimant-Appellant). ) Judge, presiding.

JUSTICE MARTIN delivered the judgment of the court, with opinion. Justices Lampkin and Rochford concurred in the judgment and opinion.

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 No. 1-21-0644

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 19th, 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,

1 In adherence with the requirements of Illinois Supreme Court Rule 352(a) (eff. July 1, 2018), this appeal has been resolved without oral argument upon the entry of a separate written order. -2- No. 1-21-0644

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 19th—the day MCF transmitted its citation by e-mail—

and Williams completed service on August 21st—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; 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

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control. Id. § 2-1402(m)(2). A perfected lien is superior to any lien that later attaches to the assets.

Sign Builders, 2015 IL App (1st) 142212, ¶ 16; Pontikes v. Perazicc, 295 Ill. App. 3d 478, 485

(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 19th 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 (quoting In re M.W., 232 Ill. 2d 408, 427 (2009), quoting Fanslow

v. Northern Trust Co., 299 Ill. App. 3d 21, 29 (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 (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. The

petition contained a certification stating that the State had been served with a copy by mail. Id. ¶ 4.

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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. 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.

¶ 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. But a Pennsylvania court had enjoined Northern Trust from paying on the letter of credit.

Id. at 26. 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. 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

2 The facts of Fanslow are far more complicated. We distill them to their essence as relevant to the present discussion. -5- No. 1-21-0644

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.

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.

¶ 14 This case presents a far different situation. Williams is not seeking to vicariously assert

Sony’s waivable right to notice, unlike the attempts of the parties in the cases we just discussed.

Rather, she is asserting her own interest in Kelly’s royalty account by arguing that MCF’s e-mail

did not perfect service and that she acquired a superior lien by being first to mail a citation to Sony.

Thus, she has a real interest in the outcome of this controversy. See Greco, 204 Ill. 2d at 409 (“The

doctrine of standing is intended to [e]nsure that issues are raised and argued only by those parties

with a real interest in the outcome of the controversy.”). Also, unlike Matthews or In re M.W.,

Williams is not seeking a second opportunity to litigate an underlying claim or get a new trial due

to a defect in service to another party. The alleged defect in service is the pivotal issue at the heart

of the matter before us. Neither is Williams seeking to undermine the effect of another court’s

order, as in Fanslow. Further, we believe that Williams has standing to raise issues regarding

service of MCF’s citation to discover assets upon Sony, as a contrary finding would deprive her,

or any similarly situated judgment creditor, of any opportunity to assert her claim of a superior

lien upon the assets in the citation respondent’s possession. Worse, we would effectively empower

the citation respondent to determine priority among judgment creditors by electing when to waive

or object to service. Such power could be exercised arbitrarily, or perhaps nefariously through

agreement with a creditor, and leave other creditors, who may have legally superior claims, without

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recourse. We will not countenance that result. For these reasons, we reject MCF’s argument and

find that Williams has standing to challenge MCF’s citation service on Sony.

¶ 15 C. Forfeiture

¶ 16 Next, MCF claims that Williams waived or forfeited the issue, as she did not specifically

challenge the propriety of MCF’s service by e-mail until she asserted the argument in her motion

to reconsider. As MCF notes, “[a]rguments raised for the first time in a motion for reconsideration

in the circuit court are forfeited on appeal.” (Internal quotation marks omitted.) Tafoya-Cruz v.

Temperance Beer Co., 2020 IL App (1st) 190606, ¶ 83. This rule, however, is a limitation on the

parties, not on the court. Carlson v. Michael Best & Friedrich LLP, 2021 IL App (1st) 191961,

¶ 52. We may exercise discretion to consider the argument on the merits, as it is an issue of law as

applied to undisputed facts, which the parties have fully briefed, and MCF is not prejudiced by our

consideration of the issue under these circumstances. Id.; see People v. Begay, 2018 IL App (1st)

150446, ¶ 55 (party not prejudiced when appellate court considers “thoroughly briefed,” “purely

legal” issue not raised in the trial court). Accordingly, we turn to the merits of this appeal.

¶ 17 D. Service by Electronic Mail

¶ 18 As authority for perfecting service of a citation to discover assets by e-mail, MCF relies on

Illinois Supreme Court Rule 11 (eff. July 15, 2020). We construe Illinois Supreme Court Rules

using the same principles that govern interpretation of statutes. Ferris, Thompson & Zweig, Ltd. v.

Esposito, 2017 IL 121297, ¶ 22. Our primary goal is to ascertain and give effect to the intent of

the drafters. Id. “The most reliable indicator of that intent is the language used, given its plain and

ordinary meaning.” Id. We consider the rule in its entirety and keep in mind the subject it addresses.

Id.

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¶ 19 Rule 11 provides for serving documents by e-mail “to the e-mail address(es) identified by

the party’s appearance in the matter.” Ill. S. Ct. R. 11(c) (eff. July 15, 2020). In accord with that

procedure, Rule 11 requires attorneys to “include on the appearance and on all pleadings filed in

court an e-mail address to which documents and notices will be served.” Ill. S. Ct. R. 11(b) (eff.

July 15, 2020). Thus, a plain reading of Rule 11 reveals that the rule contemplates service of

documents only after a party has appeared in “the matter.” Logically, one could not make service

to the e-mail address “identified by the party’s appearance in the matter” if such party has not yet

appeared and provided an e-mail address. Therefore, Rule 11 does not contemplate service of

documents upon a party who has not yet appeared in the matter before the court. Indeed, the title

of Rule 11—“Manner of Serving Documents Other Than Process and Complaint on Parties Not

in Default in the Trial and Reviewing Courts”—suggests the opposite. (Emphasis added.) Ill. S.

Ct. R. 11 (eff. July 15, 2020). Process is required for a party to have a duty to appear or to bear

consequences for the failure to do so. See Black’s Law Dictionary 1222 (7th ed. 1999) (defining

“process” as “[a] summons or writ, esp. to appear or respond in court”). Thus, Rule 11 expressly

excludes the kind of notices and documents that trigger a party’s initial duty to appear or expose

the party to sanction or other legal consequences for failure to appear after receipt of such notice—

put differently, the process that confers the court’s personal jurisdiction over the party. See BAC

Home Loans Servicing, LP v. Mitchell, 2014 IL 116311, ¶ 18 (“Personal jurisdiction may be

established either by service of process in accordance with statutory requirements or by a party’s

voluntary submission to the court’s jurisdiction.”). Consequently, Rule 11 does not provide for

service by e-mail of notices or documents with the features of process—that is, an initial notice of

the matter and summons to appear.

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¶ 20 In our view, a citation to discover assets, when directed against a third party who has not

yet appeared in the action, amounts to process and is akin to a summons. The citation requires the

party to appear and invokes the circuit court’s jurisdiction over such party. Absent service of the

citation, such party has no duty to appear, nor could the court subject such party to the sanctions

provided in section 2-1402 for noncompliance. See 735 ILCS 5/2-1402(f)(1) (West 2020) (“The

court may punish any party who violates the restraining provision of a citation as and for a

contempt ***.”). As the Fourth District observed, “supplementary proceedings may target third

parties who might not even know that a lawsuit has taken place or that a judgment has been

rendered.” Shipley v. Hoke, 2014 IL App (4th) 130810, ¶ 93. Further, “issuance of a citation [to

discover assets] imposes very real restrictions and affirmative duties upon a third party—backed

by the threat of contempt and monetary liability.” Id. ¶ 94. “For this reason, the initiation of

supplementary proceedings against a third party must be accompanied by service of process and

the special notices set forth in section 2-1402(b) of the Code [of Civil Procedure].” Id. ¶ 93.

Accordingly, a citation to discover assets is not the kind of document contemplated in Rule 11, at

least when directed to a party who has not appeared; therefore, Rule 11 does not authorize service

of such a citation by e-mail.

¶ 21 In this case, Sony had not appeared in the underlying action before either party attempted

to serve Sony with a citation to discover assets. Only upon proper service of a citation did the

circuit court acquire jurisdiction over Sony. Thus, a properly served citation would act as service

of process upon Sony. Rule 11 is the sole basis in Illinois law for service of documents by e-mail

but, as we explained, that rule does not apply to a citation to discover assets in this situation.

Therefore, MCF’s August 19th e-mail was not a recognized method for service of the citation

under Illinois law. Consequently, the e-mail did not perfect a lien pursuant to section 2-1402.

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Section 2-1402 does not specify a particular method of service, but it expressly permits service of

the citation by mail. See 735 ILCS 5/2-1402(a), (b) (West 2020). Williams mailed her citation to

Sony two days before MCF mailed its citation. As Rule 12 provides that service is deemed

complete four days after mailing, Williams perfected a lien superior to that of MCF’s on Kelly’s

royalty account with Sony.

¶ 22 III. CONCLUSION

¶ 23 Accordingly, we reverse the circuit court’s order denying Williams’s claim of priority and

vacate the orders directing Sony to turn over funds from Kelly’s royalty account to MCF. We

further vacate the orders recognizing MCF’s lien as superior to Williams’s on any funds that may

accrue in the future in Kelly’s royalty account. We remand this matter to the circuit court to enter

orders directing Sony to turn over to Williams any funds currently in Kelly’s royalty account and

any funds that may accrue in Kelly’s royalty until such time as Williams’s judgment is satisfied.

¶ 24 Reversed, vacated, and remanded with directions.

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Decision Under Review: Appeal from the Circuit Court of Cook County, No. 20-L-2158; the Hon. Patrick J. Heneghan, Judge, presiding.

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

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

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