Kauffman v. Wrenn

• Decision Date: 10 December 2015
• Docket Number: No. 2–15–0285.,2–15–0285.
• Citation: 46 N.E.3d 805
• Parties: James B. KAUFFMAN and Nancy Kauffman, Plaintiffs–Appellees, v. Lawrence B. WRENN and Susan E. Wrenn, Defendants (Wells Fargo Bank, N.A., Third–Party Respondent–Appellant).
• Court: United States Appellate Court of Illinois

46 N.E.3d 805

James B. KAUFFMAN and Nancy Kauffman, Plaintiffs–Appellees

v.Lawrence B. WRENN and Susan E. Wrenn, Defendants (Wells Fargo Bank, N.A., Third–Party Respondent–Appellant).

No. 2–15–0285.

Appellate Court of Illinois, Second District.

Dec. 10, 2015.

Colby Anne Kingsbury, Trina K. Taylor, and Kate E. Middleton, all of Faegre Baker Daniels LLP, Chicago, for appellant.

Reese J. Peck, of Rathje & Woodward, LLC, Wheaton, for appellees.

OPINION

Justice SPENCE

delivered the judgment of the court, with opinion.

¶ 1 Third-party respondent, Wells Fargo Bank, N.A. (Wells Fargo), appeals from the trial court's ruling requiring it to pay $70,457.94 to plaintiffs, James B. Kauffman and Nancy Kauffman, for violating a citation and order to freeze assets of a judgment debtor. The assets in question were in an Interest on Lawyers Trust Account (IOLTA). On appeal, Wells Fargo argues that the trial court erred in its ruling because: (1) the citation could require it only to freeze an account belonging to the judgment debtor, whereas the IOLTA account presumptively contained solely client funds; and (2) it was not responsible for repaying the funds transferred from the account, because only some of the funds were shown to belong to Wrenn, and even those were ultimately exempt. We affirm the portion of the trial court's ruling determining that Wells Fargo should have frozen the account in question. However, we reverse the portion of the trial court's ruling holding Wells Fargo liable for the funds transferred, and we vacate the monetary judgment against Wells Fargo, because (1) there was no proof that $42,898.95 of the funds belonged to the judgment debtor, and (2) the remaining funds were disability funds that were exempt from judgment under section 12–1001(g) of the Code of Civil Procedure (Code) (735 ILCS 5/12–1001(g)

(West 2014)).

¶ 2 I. BACKGROUND

¶ 3 On February 1, 2013, the Kauffmans filed suit against defendant, Lawrence B. Wrenn (Wrenn), who was their former son-in-law, and Susan E. Wrenn, their daughter. Wrenn, an attorney, was living in Florida at the time and working at The Wrenn Law Firm. The Kauffmans alleged breach of contract and related claims. On October 17, 2013, the trial court entered a judgment in favor of the Kauffmans and against Wrenn for $84,278.28.

¶ 4 On January 3, 2014, the Kauffmans issued a citation to discover assets upon Wrenn. They also issued third-party citations to banks where Wrenn maintained accounts, including Wells Fargo. The citation prohibited Wells Fargo from:

“allowing any transfer or other disposition of, or interfering with, any property not exempt from the enforcement of a judgment therefrom, a deduction order or garnishment, belonging to the judgment debtor or to which he or she may be entitled or which may thereafter be acquired by or become due to him or her, and from paying over or otherwise disposing of any moneys not so exempt which are due or to become due to the judgment debtor, until the further order of the court or the termination of the proceeding whichever occurs first.” (Emphases added.)

An exhibit to the citation stated that upon receipt of the citation, “please do the following,” including “[f]reeze all assets of Lawrence B. Wrenn * * * in your possession, custody, or control in the amount of $168,556.56, which amount represents two times the judgment amount. * * * The assets to be frozen include, without limitation, each and every account or deposit held by or for the benefit of Wrenn.” Wells Fargo was also to “[i]dentify all amounts held for, or for the benefit of, Wrenn, Wrenn Law, and/or The Wrenn Law Firm, P.A.”

¶ 5 Wells Fargo responded on January 8, 2014, and indicated that it had frozen six accounts holding a total of $1,283.22. On January 15, 2014, the trial court ordered Wells Fargo to turn over this amount “and any other property of Lawrence B. Wrenn that comes into the possession, custody, or control of Wells Fargo Bank within the duration of the Third Party Citation.”

¶ 6 The Kauffmans thereafter sought documents from Wells Fargo; around the same time, they discovered that Wrenn had been receiving disability payments from Northwestern Mutual Life Insurance Company.

¶ 7 On October 15, 2014, the Kauffmans filed a motion to find Wells Fargo in contempt for violating the citation and the trial court's January 15, 2014, order; they sought judgment against the bank for $70,451.94. They alleged that, according to bank statements, Wrenn was depositing his disability checks and checks from third parties into his IOLTA account at the bank. They alleged that from January 3, 2014, to May 2014, when the IOLTA account reached $0, Wrenn had transferred $70,451.94, largely in person at Wells Fargo branches or stores. This total excluded $1,200 that Wrenn had transferred from the IOLTA account to his personal accounts on January 6, 2014, and that Wells Fargo had paid the Kauffmans, in addition to the $1,283.22 that Wells Fargo originally turned over. The Kauffmans alleged that, by allowing Wrenn to transfer $70,451.94 out of the IOLTA account, Wells Fargo violated the restraining provision of the third-party citation, which prohibited it from allowing the transfer or disposition of property “belonging to the judgment debtor or to which he or she may be entitled or which may thereafter be acquired by or become due to him or her.” The Kauffmans further argued that the evidence showed that at least $26,706.51 of the funds belonged to Wrenn personally, as they were payments on his disability claim with Northwestern Mutual.

¶ 8 In its response, Wells Fargo argued that it did not violate the citation's restraining order. Wells Fargo argued that if it had frozen the IOLTA account it might have needlessly compromised Wrenn's clients' money without any evidence from the Kauffmans showing that the money was withdrawn for Wrenn's own benefit. It argued that, even otherwise, disability payments were exempt from citations.

¶ 9 The Kauffmans responded that the citation required Wells Fargo to freeze all assets belonging to Wrenn or to which he may be entitled and that Wells Fargo's subjective belief that the Northwestern Mutual checks were not subject to the citation was irrelevant. They argued that, even if the payments were exempt, the funds lost such status when Wrenn deposited them into the IOLTA account. Last, the Kauffmans argued that Wells Fargo acted willfully when it violated the express terms of the citation and order.

¶ 10 On February 20, 2015, the parties filed a stipulation of agreed facts, which also admitted the genuineness of documents. The stipulation included the following facts, in relevant part: (1) Wrenn was a partner and shareholder of The Wrenn Law Firm; (2) the account at issue was an IOLTA account opened on June 17, 2011, for the law firm,¹ with Wrenn and another man listed as authorized signers; (3) in response to the citation, Wells Fargo froze money in six accounts holding Wrenn's personal assets, totaling $1,283.22, and it turned over this money following the trial court's January 15, 2014, order; (4) Wells Fargo did not freeze the IOLTA account of The Wrenn Law Firm; (5) at the time of the citation, there was $4,975.95 in the IOLTA account; (6) from January 27, 2014, to April 22, 2014, Wrenn deposited into the IOLTA account a total of $26,856.94 in checks from Northwestern Mutual pursuant to his disability claim; (7) during the same period, a total of $37,923 from other sources was deposited into the IOLTA account, and the parties had no basis to dispute that the payors on the checks were law firm clients, other than one payment for “rent” that bounced; (8) Wells Fargo turned over another $1,200 that had been transferred out of the IOLTA account to Wrenn's personal accounts; and (9) a total of $69,128.95 was withdrawn from the IOLTA account (excluding the $1,200 turned over) until it was emptied in May 2014. The stipulation further contained details of the IOLTA account's transactions.

¶ 11 On March 4, 2015, the trial court entered judgment for the Kauffmans and against Wells Fargo for $70,451.94.² In making its ruling, the trial court stated as follows. Wells Fargo's argument relied on the alleged exempt nature of attorney-client funds and disability funds. However, those exemptions were for Wrenn to assert, not the bank, and Wrenn would be entitled to a finding of such exemptions only after a hearing. “There [was] no evidence one way or other that they were disability payments other than what the bank claims they were.” “The statute” did not allow Wells Fargo to unilaterally determine which funds were exempt, and when Wells Fargo took upon itself to do so, it assumed liability in the event that its decision was wrong. Wells Fargo should have frozen the funds in question and then allowed the court to decide whether the funds were in fact exempt. The funds were withdrawn and no longer available for the court to make such a determination.

¶ 12 The trial court declined to find Wells Fargo in contempt, stating that, although the bank unilaterally and erroneously determined that the funds were exempt, there was no willful failure to obey the court's order.

¶ 13 Wells Fargo timely appealed.

¶ 14 II. ANALYSIS

¶ 15 Wells Fargo argues that the trial court erred in ruling that it violated the citation and order. We review de novo a trial court's ruling in supplementary proceedings where the trial court did not conduct an evidentiary hearing or make factual findings. PNC Bank, N.A. v. Hoffman, 2015 IL App (2d) 141172, ¶ 29, 394 Ill.Dec. 680, 36 N.E.3d 971

. This standard applies to the issues on appeal here.

¶ 16 Wells Fargo cites section 2–1402

of the Code (735 ILCS 5/2–1402 (West 2014) ), which governs supplementary proceedings. Specifically, section 2–1402(f)(1) states:

“The citation may prohibit the party to whom it is directed from making or allowing any transfer or other disposition of, or interfering with, any property not exempt from the enforcement of a judgment

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