Banking and Business Monthly – May 2023

On March 23, 2023, the Illinois Supreme Court issued its opinion in Midwest Commercial Funding, LLC v. Kelly, 2023 IL 128260, resolving a lien priority dispute between two judgment creditors and holding that email delivery does not constitute proper service of a citation to discover assets in judgment enforcement proceedings.

In this case, two judgment creditors of Robert Kelly sought to satisfy judgments against him. Heather Williams had a $4 million personal injury judgment, and Midwest Commercial Funding, LLC had a $3.4 million judgment against Kelly for breach of a commercial real estate lease. Both sought to enforce their judgments by initiating citation proceedings, seeking to satisfy their judgments out of Kelly’s royalties held by Sony Music Holdings, Inc., which was not a party to either creditor’s lawsuit.

Williams obtained her judgment against Kelly in March 2020; four months later, Midwest prevailed against Kelly. Williams sent her citation to discover assets to Sony via registered mail on August 17, 2020. According to the USPS, Williams’ citation was delivered on August 24. Midwest sent its citation on August 19, 2020 to Sony by email and regular mail to David Castagna, who was a member of Sony’s legal staff. 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, as noted above, Williams’s USPS receipt indicated delivery to Sony occurred on August 24, 2020.

Midwest intervened in Williams’ citation action, where the trial court ruled in Midwest’s favor. Noting that Sony did not object to service of either citation, the trial court concluded that Midwest’s email of its citation on August 19 beat Williams’ mail delivery of her citation on August 24. The court deemed waived Williams’ new arguments on reconsideration that Midwest’s email service was defective and evidence regarding an alleged conspiracy between Midwest and Kelly to hide his money. The appellate court reversed based on its conclusion that Midwest did not properly serve its citation by email. Midwest appealed that ruling to the Illinois Supreme Court.

Upholding the appellate court’s judgment, the Illinois Supreme Court first rejected Midwest’s argument that Williams lacked standing to object to email service on Sony. The Court found that Williams challenged service on Sony in the course of asserting her own right–not any right belonging to Sony–to obtain payment of Kelly’s royalties; Williams had a “real interest” in the outcome of the citation proceedings involving Sony, and thus had standing to challenge Midwest’s method of service. The Court also rejected Midwest’s forfeiture argument that Williams forfeited her challenge to service by raising the issue for the first time in her motion to reconsider in the trial court. Invoking a reviewing court’s prerogative to consider a fully briefed issue of law regardless of forfeiture, the Court excused Williams’ late challenge of Midwest’s service as necessary to reach a just result.

Last, the Illinois Supreme Court addressed the propriety of service by email. Midwest 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 Midwest’s lien to a priority position over Williams’ lien. Ultimately, this was a question of statutory and rule interpretation for the Illinois Supreme Court.

The Illinois Supreme Court reviewed the statutes and rules governing supplemental proceedings and citations to discover assets, and determined that Williams was the priority lienholder. The Court held the plain language of Illinois Supreme Court Rules 105 and 277, as well as 735 ILCS 5/2-1402, did not permit service by email, but did permit service by registered or certified mail, return receipt requested. Nor could Sony be served by email pursuant to Rule 11 because it was not a party in the case and had not filed an appearance with the court. The Illinois Supreme Court also held that Sony’s willing acceptance of Midwest’s email service did not impact Williams’ rights. Because Williams’ service of citation was received by Sony on August 24, 2020, as established by the USPS return receipt, the Court held that Williams’ lien is entitled to priority.

The above case makes clear that electronic service via email is not authorized in citation proceedings. For further inquiries or questions, please contact me at smigala@lavellelaw.com or (847) 705-7555.