Kaibab Industries, Inc. v. Family Ready Homes, Inc.

• Decision Date: 07 January 1983
• Docket Number: No. 81-618,81-618
• Citation: 444 N.E.2d 1119,67 Ill.Dec. 635,111 Ill.App.3d 965
• Parties: , 67 Ill.Dec. 635 KAIBAB INDUSTRIES, INC., a corporation, Plaintiff-Appellee-Cross Appellant, v. FAMILY READY HOMES, INC., a corporation; Fred J. Snyder; and B.F. Waldsmith, Defendants, and Teren Waldsmith; Gary Waldsmith; Linda Burke (ne' Waldsmith) and Rooster I Corporation, Citation Defendants-Appellants-Cross Appellees, and Northwest Bank of Peoria, Citation Defendant-Cross Appellee.
• Court: United States Appellate Court of Illinois

Page 1119

444 N.E.2d 1119

111 Ill.App.3d 965, 67 Ill.Dec. 635

KAIBAB INDUSTRIES, INC., a corporation, Plaintiff-Appellee-Cross Appellant, v. FAMILY READY HOMES, INC., a corporation; Fred J. Snyder; and B.F. Waldsmith, Defendants, and Teren Waldsmith; Gary Waldsmith; Linda Burke (ne'

Waldsmith) and Rooster I Corporation, Citation

Defendants-Appellants-Cross Appellees,

and

Northwest Bank of Peoria, Citation Defendant-Cross Appellee.

No. 81-618.

Appellate Court of Illinois,

Third District.

Jan. 7, 1983.

Rehearings Denied Feb. 16, 1983.

Thomas E. Leiter, Leiter, Leiter & Sahn, Peoria, citationdefendants-appellants/cross appellees.

Brent H. Gwillim, B. Douglas Stephens, Jr. and Nicholas J. Bertschy, Heyl, Royster, Voelker & Allen, for Northwest Bank of Peoria.

Anthony P. Corsentino, Arthur J. Inman, Peoria, for Kalibab Industries, Inc.

SCOTT, Justice:

This case had its birth in the judicial system almost nine years ago and this is its second appearance before this court. See Kaibab Industries, Inc. v. Family Ready Homes (1978), 80 Ill.App.3d 782, 14 Ill.Dec. 334, 372 N.E.2d 139. The factual background of this litigation is set forth in the previous appeal, however, for the sake of clarity and continuity as we address the issues presented in this appeal we will reiterate the historical background of this appeal.

Kaibab, the plaintiff, obtained in Arizona a judgment for $133,269 against defendant B.F. Waldsmith on December 10, 1973. This judgment was subsequently entered in Peoria County under the Uniform Enforcement of Judgments Act (Ill.Rev.Stat.1975, ch. 77, par. 88 et seq.). In 1975 citation proceedings were filed in Tazewell County to discover assets which the citation defendants Gary Waldsmith, Teren Waldsmith, Linda Waldsmith, now Linda Burke, might have fraudulently received from their father, B.F. Waldsmith, the judgment debtor. Rooster I Corporation is also a citation defendant whose role in this litigation will be more amply set forth as we confront the issues presented for determination.

After several evidentiary hearings, final judgment was entered by the circuit court of Tazewell County which found that certain parcels of real estate in the name of Linda Waldsmith were subject to the claim of Kaibab against her father, B.F. Waldsmith, but the judgment held that the general assets of the citation defendants were not subject to the claim of Kaibab.

On January 19, 1978 (rehearing denied April 12, 1978), this court affirmed the Tazewell court's judgment as to the parcels of real estate but reversed the remainder of the judgment order and remanded the case to the trial court for further proceedings, to-wit, further discovery. This court in its 1978 opinion stated:

"The record does not indicate, however, whether any of the disputed funds were returned to one or both of defendant's corporations, or whether defendant's corporate holdings represent assets which could be reached by plaintiff. Therefore, in order to insure justice between the litigants, we believe the parties should be allowed further discovery, particularly as to the corporate records." (14 Ill.Dec. 334, 338, 372 N.E.2d 139, 143.)

After exhaustive discovery proceedings followed by a trial before the circuit court of Tazewell County, a judgment was entered for $103,507, being the amount of plaintiff Kaibab's judgment less set offs, together with statutory interest from and after November 17, 1974, against citation defendants Gary Waldsmith, Teren Waldsmith, Linda Waldsmith and Rooster I Corporation. The trial court refused to declare certain residential property (909 Oakwood in East Peoria) to be subject to the claim of Kaibab. The trial court further dismissed garnishment proceedings against the citation-garnishee defendant Northwest Bank of Peoria.

A further recital of facts will be set forth as the same becomes necessary for a proper understanding and determination of the issues raised in this appeal.

The citation defendants Teren Waldsmith, Gary Waldsmith and Linda Waldsmith assert that the trial court improperly entered judgment against them for indebtedness owed to the plaintiff Kaibab by a third party, namely, their father, B.F. Waldsmith. To place this issue in the proper perspective, the record discloses that the plaintiff Kaibab had a judgment against B.F. Waldsmith but repeated efforts to obtain service on the debtor for citation proceedings failed. At one time or another over the course of years the debtor B.F. Waldsmith was referred to as a wraith, a phantom and a nomadic judgment debtor. Unable to proceed directly against the debtor, the plaintiff Kaibab instituted supplemental proceedings against the children of the debtor and Rooster I Corporation in an effort to discover assets which could be used for the satisfaction of its claim. See Ill.Rev.Stat.1981, ch. 110, par. 73, and Supreme Court Rule 277 (Ill.Rev.Stat.1981, ch. 110A, par. 277).

Through evidence adduced at various court hearings it was established that in the years of 1973 and 1974, but prior to November 14, 1974, certain cash deposits standing in the name of Rooster I Corporation and Projects Management Inc. ¹ were placed in the name of the citation defendants Teren, Gary and Linda Waldsmith. As of November 14, 1974, there had been deposited in the names of said individuals the aggregate sum of $515,000 which was evidenced by a certificate of deposit at the Jefferson Trust and Savings Bank of Peoria, Illinois. On November 14, 1972, the certificate of deposit was exchanged in cash and the entire sum less $20,000 ² was delivered to the president of Rooster I Corporation, namely, the judgment debtor B.F. Waldsmith. The amount of money on deposit in Jefferson Trust as of November 14, 1974, in the names of the citation defendants Teren, Gary and Linda Waldsmith was evidenced by promissory notes payable to Rooster I Corporation. Citations proceedings were not commenced against the citation defendants until April 11, 1975, or almost five months after Teren, Gary and Linda Waldsmith had, with the exception of $20,000, divested themselves of the funds. The Waldsmith children first explained this transaction by claiming that the money represented an investment pool of their money and was given by them to their father for purposes of investment. After remand of this case by this court in 1978, the Waldsmith children abandoned the "investment pool" explanation and in lieu thereof explained that they were handling corporate funds, to-wit, funds of Rooster I Corporation.

The foregoing transaction concerning the transfer of $515,000 was deemed by the trial court to constitute fraud upon the creditors of B.F. Waldsmith and the court concluded that Gary, Teren and Linda Waldsmith were active participants in the fraud and consequently judgment was entered against them.

There may or may not have been a well planned fraud perpetrated on the judgment creditor Kaibab. Our law attempts to provide a remedy for every wrong, but the remedy in the instant case is not to be found within the framework of Section 73 of our Civil Practice Act. Section 73 provides in pertinent part as follows:

"(c) Compel any person cited, other than the judgment debtor, to deliver up any assets so discovered, to be applied in satisfaction of the judgment, in whole or in part * * *." (Ill.Rev.Stat.1975, ch. 110, par. 73(2)(c).)

The facts of this case do not fall within the framework of Section 73. The plaintiff Kaibab in its brief and its counsel during oral argument conceded that the Waldsmith children did not have the funds in question in their control or possession at the time the citation proceedings were commenced, but assert that such fact is of no consequence since the purpose of a citation is to uncover assets which had previously been fraudulently concealed. In support of this tenuous argument the plaintiff Kaibab relies on the case of Alan Drey Company, Inc. v. Generation, Inc. (1974), 22 Ill.App.3d 611, 317 N.E.2d 673. In Drey the judgment debtor, Generation, sold to McGraw-Hill, a citation defendant, a subscriber list for $150,000. The $150,000 was applied to benefit personally officers of Drey and not to the payment of corporate debts. The sale was consummated while the proceeding on the judgment awarded to the plaintiff Drey were stayed by order of court. After Drey's judgment against Generation had been confirmed, the plaintiff Drey in a supplemental proceedings sought judgment against McGraw-Hill, citation defendant, on the theory that the transfer by Generation was a fraudulent conveyance and McGraw-Hill having notice of the fraudulent intent of the vendor was a participant in the fraud. The plaintiff obtained judgment against McGraw-Hill which was affirmed by the reviewing court which held that the evidence was sufficient to support a finding that McGraw-Hill knew or should have known of Generation's fraudulent intent in selling the subscribers list and hence the transferee (McGraw-Hill) was not a bona fide purchaser.

We have set forth the salient facts in the Drey case because plaintiff Kaibab argues so strenuously that it is applicable to the instant case. Plaintiff deems it to be of great import that McGraw-Hill paid money and purchased the subscriber list a long time prior to the issuance of a citation by Drey. He equates that situation to the one in the instant case where the children of B.F. Waldsmith had had funds in their possession a long time, to-wit, approximately five months, before the citation proceedings were instituted against them. What plaintiff Kaibab overlooks or ignores is the fact that McGraw-Hill still had the customer lists in its possession, that they were a valuable asset and that the transferee had actual knowledge that the transfer of the lists would put the Generation out of business and defeat the claim of Drey, the judgment creditor. To accept the reasoning of the plaintiff Kaibab would result in a distortion of the law to the extent...