First Bank v. Unique Marble and Granite Corp.

• Decision Date: 17 November 2010
• Docket Number: No. 2-09-1287.,2-09-1287.
• Citation: 406 Ill.App.3d 701,938 N.E.2d 1154,345 Ill.Dec. 233
• Parties: FIRST BANK, Plaintiff-Appellee, v. UNIQUE MARBLE AND GRANITE CORPORATION and Daniel M. Hahn, Defendants (James Gallo, as Assignee for the Benefit of Creditors of Unique Marble and Granite Corporation, Intervenor-Appellant).
• Court: United States Appellate Court of Illinois

938 N.E.2d 1154 406 Ill.App.3d 701 345 Ill.Dec. 233 FIRST BANK, Plaintiff-Appellee, v. UNIQUE MARBLE AND GRANITE CORPORATION and Daniel M. Hahn, Defendants (James Gallo, as Assignee for the Benefit of Creditors of Unique Marble and Granite Corporation, Intervenor-Appellant). No. 2-09-1287. Appellate Court of Illinois, Second District. Nov. 17, 2010.

Marie L. Nienhuis, Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee, WI, for James Gallo.

John H. Boyd, Zanck, Coen & Wright, Crystal Lake, for First Bank.

Justice JORGENSEN delivered the opinion of the court:

[345 Ill.Dec. 234, 406 Ill.App.3d 702]

I. INTRODUCTION

Plaintiff, First Bank, obtained a judgment against defendants, Unique Marble and Granite Corporation and its corporate officer, Daniel M. Hahn, and moved to collect on that judgment. James Gallo intervened, seeking fees and expenses for his duties as assignee for the benefit of Unique Marble's creditors. First Bank moved for summary judgment against Gallo, asserting that, as a perfected secured creditorunder the Uniform Commercial Code (U.C.C.) (810 ILCS 5/1-101 et seq. (West 2008)), it had priority over Gallo, who was a lien creditor. 810 ILCS 5/9-102(a)(52), 9-317, 9-322(a) (West 2008). The trial court granted First Bank summary judgment. Gallo appeals. We reverse and remand.

II. BACKGROUND

Unique Marble was a fabricator of granite and marble countertops. On November 18, 2008, Unique Marble and Gallo entered into a trust agreement and assignment for the benefit of creditors. The trust agreement stated that the assignee (Gallo) "shall receive reasonable compensation" at a $250 hourly rate for his services and reimbursement of his expenses "from the Assets."

That same day, Gallo wrote to Unique Marble's creditors a letter stating that Unique Marble executed the assignment due to the "financial difficulties from the housing slowdown." He stated that an assignment is similar to a liquidation under Illinois law and very similar to a chapter 7 bankruptcy in federal court. He informed the company's creditors that he, as assignee/trustee of Unique Marble's assets, would liquidate the assets by winding down the company's operations and, at the

[345 Ill.Dec. 235, 938 N.E.2d 1156]

conclusion of the liquidation, would distribute the net proceeds to the company's creditors based on their priority status. He did not expect that the company's operations would continue past January 2009. Gallo also informed the creditors that First Bank had a "blanket lien" on the company's assets and that it was not anticipated that the liquidation would yield a distribution to general unsecured creditors. The estimated total value of the company's liquidated assets was $450,000, and its estimated total liabilities were $1,180,000.

On November 21, 2008, Gallo personally delivered a notice of the assignment for the benefit of creditors to Charles Kepner, a First Bank representative. Thus, First Bank first learned of the assignment on this date.

On December 23, 2008, the trial court entered a $451,568.08 judgment (plus interest, $500 in attorney fees, and costs) against Unique Marble and Hahn and in favor of First Bank. The order was based on First Bank's complaint and confession of judgment, filed the same day against Unique Marble and Hahn, wherein First Bank alleged that it owned several notes reflecting $451,568.08 owed by Unique Marble. First Bank attached to its complaint copies of the notes.

One of the notes, which is for a $250,000 loan, specifies that its collateral is a commercial security agreement dated October 22, 2004, between Unique Marble and Northway State Bank. Under the October22, 2004, agreement, Unique Marble granted to Northway a security interest in certain collateral to secure a $200,000 loan from Northway to Unique Marble. On February 15, 2005, Northway recorded a continuation statement/U.C.C. financing statement amendment (of a March 28, 2000, security agreement and financing statement) between it and Unique Marble. On October 31, 2005, First Bank succeeded to the interests of Northway.

On February 19, 2009, First Bank sought to enforce the judgment by way of citations to discover assets. On February 24, 2009, a citation was served upon Unique Marble's registered agent. Hahn was served on March 3, 2009. Unique Marble appeared in court on March 27, 2009, through Hahn. After First Bank examined Unique Marble, the citations were dismissed with prejudice. On April 8, 2009, the judgment against Unique Marble remained unsatisfied, and First Bank sought to reinstate the citations. It sent notice to Unique Marble's registered agent and to Hahn. After no one appeared on Unique Marble's behalf, the trial court reinstated the citation against Unique Marble.

Via a letter from his attorney, dated May 5, 2009, Gallo informed First Bank's counsel that Gallo would undertake no further steps to liquidate Unique Marble's assets, because he had been informed that, pursuant to the U.C.C., First Bank would assume responsibility for liquidating the remaining assets that constituted the collateral that secured First Bank's loan to Unique Marble.

On May 22, 2009, Gallo, as assignee for the benefit of Unique Marble's creditors, petitioned to intervene (735 ILCS 5/2-408 (West 2008)) in the collection proceedings, seeking $35,000 under the trust agreement and $40,000 from First Bank. In his petition, Gallo asserted that a notice of the assignment was sent to the First Bank on or about November 20, 2008, and that a copy of the trust agreement was hand-delivered to Kepner on November 21, 2008. Gallo further asserted that, on April 10, 2009, he received notice that Hahn had been served with a citation to discover assets in connection with the judgment against him personally. Gallo noted that,

[345 Ill.Dec. 236, 938 N.E.2d 1157]

despite First Bank's knowledge that he held title to Unique Marble's assets, the bank did not serve him with a citation to discover Unique Marble's assets. Further, he asserted that, although First Bank obtained its judgment in December 2008, it was not until April 13, 2009, that Gallo learned that Unique Marble had been named as a defendant in this matter. Gallo also asserted that, although he had begun preparations for the final liquidation of Unique Marble's assets, First Bank informed him on April 30, 2009, that it was going to exercise its rights under the U.C.C. and conduct its own auction of the company's personal propertyassets. Gallo claimed that he paid or directed to be paid to First Bank $40,000 against the company's indebtedness and made five mortgage payments to First Bank totaling $24,625. He also alleged that he had incurred $35,000 in outstanding fees and $841 in outstanding expenses. Gallo was concerned that First Bank was attempting to reap the benefits of his liquidation efforts and to prevent the payment of his outstanding fees and expenses out of the proceeds of the sale of the assets for which he was the assignee. The citation against Unique Marble, he urged, adversely affected him because, being unable to perform the final liquidation, he had to intervene to seek payment of his outstanding fees and expenses. He sought to intervene and for leave to file an answer to the citation, and he requested payment of his fees and expenses from the auction sale proceeds.

On May 22, 2009, the trial court allowed First Bank to conduct a sale of its collateral, but ordered it to place $35,000 in escrow pending the outcome of the hearing on Gallo's petition to intervene. The court also ordered Gallo to provide First Bank an accounting pertaining to the assignment, pursuant to a list to be sent by First Bank. On June 8, 2009, First Bank filed a response to Gallo's petition, arguing that: (1) Gallo was attempting to infuse peripheral property into this case; and (2) Gallo's allegations amounted to a claim of unjust enrichment, which should be brought in a separate proceeding. In reply, Gallo asserted that First Bank had knowledge of the assignment, acted in recognition thereof, communicated with him (as evidenced by various e-mails he attached to numerous filings), accepted the benefits of his efforts ( i.e., received over $45,000), and did not indicate to Gallo prior to April 30, 2009, that it desired him to cease his liquidation efforts. On June 19, 2009, the court granted Gallo's petition to intervene.

On July 6, 2009, Gallo filed a response to the citation to discover assets and a request for setoff of fees and expenses. He argued that First Bank had notice of the assignment; that during the assignment he had made payments to the bank of over $65,000 on Unique Marble's loan and mortgage; that the bank failed to serve him with the citation; and that he had incurred fees and expenses, which the bank informed him it would not pay. In its reply, First Bank denied that Gallo held the company's assets in trust; admitted that it received over $65,000 from Gallo; asserted that it had perfected its security interest in (and attached a lien upon) Unique Marble's property on March 28, 2000 (the date it recorded a financing statement, a continuation of which was recorded on February 15, 2005); and argued that Gallo had executed his assignment with notice of First Bank's perfected security interest.

On September 18, 2009, First Bank moved for summary judgment on its citation to discover assets, arguing that it was a secured creditorwith a perfected security interest (obtained on October 22, 2004) in Unique Marble's collateral and, thus, had priority over Gallo, who was a subsequent lien creditor (and who had notice of

[345 Ill.Dec. 237, 938 N.E.2d 1158]

the bank's perfected security interest).¹ In response, Gallo asserted that he entered into the assignment with knowledge of First Bank's perfected security interest, but that, through e-mail correspondence, he provided information to the bank of his liquidation efforts. Gallo asserted that First Bank acquiesced to and benefitted from his efforts and that, thus, he was...