Federal Deposit Ins. Corp. v. Juron

• Decision Date: 07 March 1989
• Docket Number: No. 85 C 1510.,85 C 1510.
• Citation: 713 F. Supp. 1116
• Parties: FEDERAL DEPOSIT INSURANCE CORP., Plaintiff, v. Marvin JURON, Defendant, v. Paul HELLER, as Chairman of the Marvin Juron/Juron Development Creditors' Committee, Citation Defendant, v. MARVIN JURON/JURON DEVELOPMENT CREDITORS' COMMITTEE, Intervenor, v. CONTINENTAL ILLINOIS NATIONAL BANK, Garnishee Defendant.
• Court: U.S. District Court — Northern District of Illinois

713 F. Supp. 1116

FEDERAL DEPOSIT INSURANCE CORP., Plaintiff, v. Marvin JURON, Defendant, v. Paul HELLER, as Chairman of the Marvin Juron/Juron Development Creditors' Committee, Citation Defendant, v. MARVIN JURON/JURON DEVELOPMENT CREDITORS' COMMITTEE, Intervenor, v. CONTINENTAL ILLINOIS NATIONAL BANK, Garnishee Defendant.

No. 85 C 1510.

United States District Court, N.D. Illinois, E.D.

March 7, 1989.

Beverly Klein, Janice M. Powell, Mayer, Brown & Platt, for plaintiff.

Pamela J. Leichtling, Paul M. Heller, Paul M. Heller & Associates, Ltd., Chicago, Ill., for Marvin Juron/Juron Development Creditors Committee and Paul M. Heller.

ORDER

NORGLE, District Judge.

This matter comes before the court on the motion of plaintiff, Federal Deposit Insurance Corp. ("FDIC"), for entry of a turnover order and other relief in its supplementary proceeding against defendant, Marvin Juron; citation defendant, Paul Heller, as Chairman of the Marvin Juron Creditors' Committee; intervenor, Marvin Juron/Juron Development Creditors' Committee; and garnishee defendant, Continental Illinois National Bank. For the following reasons, the FDIC's motion for a turnover order is granted and all other relief is denied.

FACTS

On September 4, 1985, the court entered summary judgment in favor of the FDIC in its action for breach of a promissory note against Juron for $300,000.00 plus costs, interest and fees. The court denied Juron's motion to vacate the judgment on February 8, 1986. A citation to discover assets was issued on February 13, 1986 and served upon Juron on February 18, 1986.

Apparently, Juron, financially distressed, called a meeting of his creditors in September, 1984. It was determined that Juron and Juron Development had more than 50 creditors who were owed in the aggregate approximately $4.4 million. Eventually the Creditors' Committee was formed, with Heller as chairman. However, there was no written agreement establishing the Creditors' Committee, selecting Heller as chairman or setting forth Heller's responsibilities. At various times from September, 1984 until October, 1986, the Creditors' Committee met and discussed the form of an agreement. The FDIC was not a member of the Creditors' Committee, though through counsel it communicated with the Creditors' Committee, attended certain Creditors' Committee meetings and participated in drafting an agreement between Juron and his creditors.

Juron asserts that on April 8, 1986, he executed and delivered a composition agreement to the Creditors' Committee. This agreement is not before the court. The only agreement before the court executed by Juron is entitled "Composition Agreement" and dated 4/30/86. Response of Defendant, Marvin Juron, in Opposition to Plaintiff, Federal Deposit Insurance Corp.'s Motion for Entry of Turnover Order ("Juron's Response"). In it Juron promises, among other things, to deposit with the Creditors' Committee the sum of $128,055.57 (the "Funds"), which was the proceeds of an action entitled Fairway Shopping Center v. Vanguard Insurance Company, to be distributed amongst his creditors pro rata. However, section 8 of the Composition Agreement provides: "this Agreement shall not become effective unless and until it is signed and delivered by each creditor set forth on exhibit A." Exhibit A lists 52 creditors. The Composition Agreement further requires each creditor to execute a satisfaction of judgment or release of claim in favor of Juron.

On April 9, 1986, the day before his citation examination was conducted, Juron delivered to Paul Heller, as chairman of the Creditor's Committee, a check representing the Funds, payable to the "Creditors' Committee for Marvin Juron & Juron Development Corp." for distribution to Juron's creditors pursuant to the Composition Agreement. Affidavit of Marvin Juron. The memo portion of the check states that it is "Pursuant to Composition of Creditors' Agreement 4/8/86." Heller informed the members of the Creditors' Committee of his acceptance of the Funds "with the understanding that they will be used in conjunction with a Composition Agreement which will eventually be executed by all creditors." Answer of Paul M. Heller, as Citation Respondent to the Citation to Discover Assets of the FDIC ("Heller's Answer") Exhibit C letter of April 19, 1986. The check was negotiated, and the Funds eventually deposited at Continental Illinois National Bank in account number XXXXXXXX, with Heller as the sole signatory. The Funds, with interest, currently amount to approximately $145,070.48.

Subsequent to his transfer of the Funds, Juron was indicted on a federal offense. In September, 1986, Juron demanded the return of a portion of the Funds in order to pay for his criminal defense. Heller informed the general creditors of Juron's indictment, Juron's demand for the return of the Funds and his opinion that "a composition agreement cannot be effected at this time." Heller's Answer, Exhibit F. Heller asserts that during a Creditor's Committee meeting on October 16, 1986, the agreement between Juron and his creditors was modified to provide for an additional cash payment by Juron, in the event Juron was acquitted, to replace a worthless cause of action which Juron had conditionally assigned to his creditors. In return, the Creditors' Committee "agreed that it would forebear from prosecuting its individual claims pending the outcome of the criminal trial." However, the distribution of Funds would still be "pursuant to the Composition Agreement." Heller's Answer ¶ 16, Exhibit J.

In April, 1988, Juron, having been convicted, again demanded the return of a portion of the Funds in the Creditor's Committee's possession in order to pay for his appeal. Juron's claim of ownership of the Funds was that, as the Composition Agreement was never successfully concluded, the Creditors' Committee held the Funds merely as a custodian. Heller's Answer, Exhibit I. The Creditors' Committee met on April 27, 1988, considered Juron's request, concluded that the Funds belonged to it and refused to return them to Juron. Heller asserts the Funds were tendered to the Committee in return for the creditors' forebearance to prosecute their separate actions. Heller's Answer ¶ 21, Exhibit J.

In March, 1988, Heller was served with a citation to discover assets by the FDIC. On April 10, 1988, an affidavit for a non-wage garnishment was issued and served upon Continental Illinois National Bank. Continental Illinois National Bank, relying on information from Juron and Heller, answered that the funds do not belong to Juron, but rather are the property of the Creditors' Committee.

Heller, Heller's Answer ¶ 25, and the Creditors' Committee, Intervenors' Complaint ¶ 7L, assert that Heller has received many executed Composition Agreements and covenants not to sue, thereby acknowledging that the Composition Agreement has not been executed by each creditor required to do so by Section 8 of the Composition Agreement.

DISCUSSION

The FDIC asserts that the agreement between Juron and his creditors was actually an Assignment for Benefit of Creditors ("ABC") which was either never effective or, if effective, was invalid for incorporating conditions onerous to creditors. Of course, Heller, the Creditors' Committee and Juron (hereinafter collectively the "claimants") disagree. Heller does not deny the FDIC's allegation that the Composition Agreement was ineffective; but rather, claims that the FDIC is estopped from asserting that the Funds do not belong to the Creditors' Committee. The Creditors' Committee, in its Intervenor's Complaint simply, asserts that the Funds belong to it, presumably based upon the Composition Agreement. Juron asserts that the indorsement and delivery of the check representing the Funds to the Creditors' Committee was a valid absolute assignment of the Funds, that the agreement between Juron and his creditors was a composition and not an ABC and thus the FDIC's challenges to the agreement's validity based upon the law governing assignments must fail, and finally that the FDIC is estopped from denying that the Funds belong to the Creditors' Committee.

The FDIC and the claimants do not disagree on the operative facts, only their legal significance. Thus, a hearing to resolve the dispute over the Funds, see Fed. R.Civ.P. 69(a); Ill.Rev.Stat. ch. 110, ¶ 12-710 (1987), is unnecessary. The court determines as a matter of law that the Funds are the property of Juron, not the Creditors' Committee, and thus are subject to garnishment by the FDIC while in the hands of Continental Illinois National Bank. See Ehret v. Eaton, Yale & Towne, Inc., 523 F.2d 280, 283 (7th Cir.1975) (estoppel may be determined as a matter of law).

The Funds Remain the Property of Juron

The court need not determine whether the agreement is an ABC or a composition, for in either case the court would conclude that the Funds remain the property of Juron. However, a brief discussion of ABC's and compositions is necessary to explain why an effective transfer of the Funds has not occurred.

An ABC "is a voluntary transfer by a debtor of his property to an assignee in a trust for the purposes of applying the property or proceeds thereof to the payment of his debts and returning the surplus, if any, to the debtor." Ill. Bell Tel. Co. v. Wolf Furniture House, Inc., 157 Ill.App.3d 190, 194-95, 109 Ill.Dec. 277, 279-80, 509 N.E.2d 1289, 1291-92 (1st Dist.1987). An ABC must be supported by a writing evidencing the trust agreement and delineating the trustee's duties. See Black v. Palmer, 15 Ill.App.2d 207, 216, 145 N.E.2d 797, 801 (1st Dist.1957); Ill. Bell Tel. Co., 157 Ill. App.3d at 194-96, 109 Ill.Dec. at 280-82, 509 N.E.2d at 1292-94 (oral assignment of accounts receivable under purported ABC ineffective). This requirement prevents fraud. It is true that, in other contexts, oral express trusts have been upheld where the evidence is so clear and convincing as to support but one...