Bank of Aspen v. Fox Cartage, Inc.

• Decision Date: 18 January 1989
• Docket Number: No. 65832,65832
• Citation: 533 N.E.2d 1080,126 Ill.2d 307,127 Ill.Dec. 952
• Parties: , 127 Ill.Dec. 952 BANK OF ASPEN, Appellant, v. FOX CARTAGE, INC., et al. (Batavia Bank, Appellee).
• Court: Illinois Supreme Court

Page 1080

533 N.E.2d 1080

126 Ill.2d 307, 127 Ill.Dec. 952

BANK OF ASPEN, Appellant, v. FOX CARTAGE, INC., et al. (Batavia Bank, Appellee).

No. 65832.

Supreme Court of Illinois.

Jan. 18, 1989.

Lambert M. Ochsenschlager, Wayne F. Weiler and James C. James III, of Reid, Ochsenschlager, Piccony & Weiler, of Aurora, for appellant.

Douglas Drenk and David Drenk, of Drenk & Drenk, of Wheaton, for appellee.

Justice RYAN delivered the opinion of the court:

This appeal involves supplementary proceedings to discover assets under section 2-1402 of the Code of Civil Procedure (Ill.Rev.Stat.1985, ch. 110, par. 2-1402), which were instituted in the circuit court of Kane County, and is brought by the plaintiff/judgment creditor, Bank of Aspen (Aspen), a Colorado bank, with a cross-appeal by the third-party citation respondent, Bank of Batavia (Batavia). Two questions are presented on appeal. The first issue is whether the citation to discover assets, which was served upon Batavia pursuant to section 2-1402 of the Code of Civil Procedure, and which the trial court judge continued from time to time, was a wrongfully issued injunction that deprived Batavia of procedural due process. The second issue is whether the trial court's determination that Batavia had superior rights to the stock in question was against the manifest weight of the evidence.

The appellate court held that the citation to discover assets served upon Batavia pursuant to section 2-1402 constituted a wrongfully issued injunction and remanded the matter to the trial court for a determination of damages in accordance with its ruling. (Bank of Aspen v. Fox Cartage, Inc., 158 Ill.App.3d 939 110 Ill.Dec. 914, 511 N.E.2d 1234 (Aspen II ); see Ill.Rev.Stat.1985, ch. 110, par. 11-110.) The appellate court affirmed the trial court's determination that Batavia had a secured, and thus superior, interest in the stock. 158 Ill.App.3d at 945-46, 110 Ill.Dec. 914, 511 N.E.2d 1234.

Because a citation issued pursuant to section 2-1402 satisfies constitutional requirements and is not an injunction, we reverse the appellate court's ruling on this issue. We affirm the appellate court's holding that the trial court's ruling on the ownership of the stock is not against the manifest weight of the evidence.

The facts giving rise to this controversy began when Aspen, a bank in Colorado, made a loan to the judgment debtor, David L. Thomas, in 1981. Thomas defaulted on this loan. On April 19, 1984, a Colorado court entered a judgment against Thomas and in favor of Aspen. Aspen then recorded the judgment in Kane County, Illinois, on December 18, 1984. The Illinois judgment included an order that enjoined Thomas from transferring his property.

On January 7, 1984, before either the Colorado or Illinois judgments had been entered in favor of Aspen, Thomas, as president and sole shareholder of Roselaine Construction, Inc., obtained a loan from Bank of Batavia, and pledged 1,430 shares of Batavia Concrete, Inc., stock to secure the loan. Bank of Batavia took possession of the stock on this date. On December 22, 1984, Bank of Batavia made another loan to Thomas, which was secured by an additional security interest in the stock. When Roselaine Construction, Inc., defaulted on the Bank of Batavia loans on September 20, 1985, Batavia foreclosed on the stock and prepared to sell it in a private sale. Batavia informed judgment creditor Aspen of this intention to sell the stock.

On September 30, 1985, the day before the scheduled sale date, Aspen served a citation to discover assets on Batavia pursuant to section 2-1402 of the Code of Civil Procedure (Ill.Rev.Stat.1985, ch. 110, par. 2-1402). A court clerk issued the citation, pursuant to Rule 277(b) (107 Ill.2d R. 277(b)), which contained language prohibiting Batavia from transferring or otherwise disposing of the judgment debtor's property. The shares of stock now in dispute were not specifically mentioned in the citation. Batavia filed an emergency motion to quash the citation on October 2, 1985. The trial court held a hearing on this motion on that day, October 2, 1985, and continued the citation until October 9, 1985, for a hearing pursuant to garnishment proceedings. (See Ill.Rev.Stat.1985, ch. 110, par. 2-1402(d).) The trial court denied Batavia's motion to dissolve the citation and it remained in effect through the trial on the merits held on December 23, 1985, and until the final decision rendered on May 16, 1986. At that time, the trial court determined that Batavia possessed the superior interest in the stock and dissolved the citation.

Batavia contended throughout the proceedings that the citation was an inappropriate procedure and constituted, in substance, an injunction. When the trial court continued the citation hearing, Batavia filed an interlocutory appeal contending that the trial court's refusal to dissolve the citation was, in effect, a refusal to dissolve an injunction and was an appealable order under Rule 307(a). The appellate court dismissed the appeal, holding that the restraining provision of section 2-1402 was not an injunction and was thus not an appealable interlocutory order under Supreme Court Rule 307. Bank of Aspen v. Fox Cartage, Inc. (1986), 141 Ill.App.3d 369, 373, 95 Ill.Dec. 672, 490 N.E.2d 145 (Aspen I ).

The final determination of the trial court found in favor of Batavia and against Aspen and dissolved the citation as to the 1,430 shares of stock. The court also denied Batavia's motion for a finding that the citation proceedings constituted a restraining order which was wrongfully issued and denied Batavia leave to file a petition for damages. Batavia again appealed. In the appeal, Batavia contended that the restraining provision of section 2-1402 constituted a wrongfully issued injunction and deprived Batavia of procedural due process. Batavia argued that notwithstanding the finding of the appellate court in Aspen I that Rule 307 (107 Ill.2d R. 307) was inapplicable, the citation was an inappropriate remedy that enjoined it from exercising its right to sell its property without the procedural due process protections guaranteed by the United States Constitution (U.S. Const., amend. XIV). Batavia further argued that because the citation was improperly issued, it was entitled to recover damages from Aspen for a wrongfully issued injunction under section 11-110 of the Code of Civil Procedure (Ill.Rev.Stat.1985, ch. 110, par. 11-110). Aspen cross-appealed, contending that the trial court erred when it determined that Batavia possessed the superior interest in the stock.

In this second appeal (158 Ill.App.3d 939, 110 Ill.Dec. 914, 511 N.E.2d 1234), the appellate court held in favor of Batavia on Aspen's cross-appeal, finding that the trial court did not err when it determined that Batavia had a superior interest in the stock. The appellate court, on Batavia's appeal, held that the trial court had erred in continuing the restraining provision of section 2-1402 over the objections of third-party citation respondent Batavia, which had maintained throughout the trial proceedings that it had a proprietary interest in the stock. (Aspen II, 158 Ill.App.3d at 948-49, 110 Ill.Dec. 914, 511 N.E.2d 1234.) The court articulated a new rule in interpreting this statute, stating that "where a third-party respondent brings its claim to the property to the attention of the trial court, the court must vacate the citation's restraining provision with respect to that property." (158 Ill.App.3d at 952, 110 Ill.Dec. 914, 511 N.E.2d 1234.) The appellate court further held that because the trial court had erroneously issued a preliminary injunction, Batavia was entitled to prove any resulting damages it had incurred pursuant to section 11-110 of the Code and remanded the case for a determination of damages. (158 Ill.App.3d at 954-55, 110 Ill.Dec. 914, 511 N.E.2d 1234.) We granted Aspen's petition for leave to appeal.

Considering first the issues involving section 2-1402, we note that Batavia raises two arguments with respect to section 2-1402. First, Batavia contends that the decision of the appellate court in Aspen I, which held that a citation pursuant to section 2-1402 was not an injunction and was thus not an appealable order, should be reversed. (Aspen I, 141 Ill.App.3d 369, 95 Ill.Dec. 672, 490 N.E.2d145.) Batavia argues that the citation was an ex parte restraining order that was appealable under Supreme Court Rule 307(b) (107 Ill.2d R. 307(b)). In support of this contention, Batavia argues that the citation is, in substance, an injunction because like an injunction, a citation seeks to preserve the status quo and imposes penalties similar to those imposed for the violation of an injunction. Batavia's second argument is that section 2-1402 violates the due process clause of the fourteenth amendment to the United States Constitution when the citation is employed to enjoin a third-party respondent from transferring or disposing of property because, Batavia contends, it is accomplished without notice, or an immediate post-seizure hearing, or the posting of a bond, and places the burden on the third-party citee to prove exemption.

We find these arguments unpersuasive. An examination of the purpose and mechanics of this statute reveals why Batavia's arguments must fail. Section 2-1402 provides a method by which a judgment creditor may begin supplementary proceedings against a third party as a means of discovering assets belonging to the judgment debtor that the third party may have in its possession. (Ill.Rev.Stat.1985, ch. 110, par. 2-1402(a).) The judgment creditor may commence the supplementary proceedings by requesting the clerk of the circuit court to issue a citation to the third party who is thought to be in possession of the judgment debtor's property. (Ill.Rev.Stat.1985, ch. 110, par. 2-1402(a).) Supreme Court Rule 277 (107 Ill.2d R. 277) prescribes the procedures by which this section is...