MI Mgmt., LLC v. Proteus Holdings, LLC

Decision Date19 September 2018
Docket NumberNos. 1-16-0972 & 1-16-1120,s. 1-16-0972 & 1-16-1120
Citation116 N.E.3d 291,426 Ill.Dec. 442,2018 IL App (1st) 160972
Parties MI MANAGEMENT, LLC, Plaintiff-Appellant, v. PROTEUS HOLDINGS, LLC, Todd Bryant, and Frank Talbert, Defendants, (PHDS Acquisitions, LLC, Intervenor-Appellee; Proteus Group, Citation Respondent-Appellee)
CourtUnited States Appellate Court of Illinois

Francis X. Buckley Jr., J. David Duffy, James L. Oakley, and Patrick Morales-Doyle, of Thompson Coburn LLP, of Chicago, for appellant.

Jordan A. Finfer, of DiMonte & Lizak, of Park Ridge, for appellees.

JUSTICE ELLIS delivered the judgment of the court, with opinion.

¶ 1 In Illinois, proceedings to enforce judgments are strictly regimented by a series of statutes drafted by the General Assembly, with a view that the postjudgment collection process be "swift, cheap, [and] informal." Resolution Trust Corp. v. Ruggiero , 994 F.2d 1221, 1226 (7th Cir. 1993). But don't tell that to our appellant, MI Management, LLC ("MI"). MI obtained a money judgment against Frank Talbert, Todd Bryant, and their company, Proteus Holdings, LLC—and, four years down the road, is still trying to collect its money.

¶ 2 Among other things, MI obtained four enforceable garnishment judgments against a related company named Proteus Group—wage and nonwage garnishment judgments regarding both Talbert and Bryant. MI also laid claim to money held in a Proteus Group bank account with Urban Partnership Bank. But another entity, PHDS Acquisitions, LLC (PHDS) filed an adverse claim over that deposit account, claiming a perfected security interest in the money held with Urban Partnership Bank.

¶ 3 The circuit court ruled in favor of PHDS on the adverse claim. MI appeals that ruling. That ruling is the subject of appeal No. 1-16-0972.

¶ 4 Later, however—that is, more than 30 days after the garnishment judgments were entered—Proteus Group moved to quash all of the garnishment summonses, claiming lack of personal jurisdiction because service was improper. The circuit court agreed with Proteus Group and quashed the summonses. MI appeals that ruling, too, in appeal No. 1-16-1120.

¶ 5 In our view, although the garnishment summonses MI served upon Proteus Group contained technical defects, those errors were not so serious as to preclude the circuit court from acquiring personal jurisdiction over Proteus Group. We reverse that ruling and remand for further proceedings.

¶ 6 As for the ruling in favor of PHDS on the adverse claim, we vacate that ruling because the circuit court did not have subject-matter jurisdiction over that matter when it entered the order. We remand the cause with instructions to dismiss the adverse claim for lack of subject-matter jurisdiction.

¶ 7 BACKGROUND

¶ 8 This case began in December 2011, when MI sued Proteus Holdings, Bryant, and Talbert for breach of a $1,250,000 promissory note. In August 2014, the circuit court entered a final judgment in favor of MI and against (1) Proteus Holdings for $1,317,140.78, (2) Bryant for $526,856.31, and (3) Talbert for $790,284.47. In November 2014, the court entered an order in favor of MI and against Bryant, Talbert, and Proteus Holdings, awarding MI $109,088.46 in attorney fees.

¶ 9 With that, MI assumed the role of judgment creditor, and Proteus Holdings, Talbert, and Bryant became judgment debtors. MI instituted supplementary proceedings under section 2-1402 of the Code of Civil Procedure (Code) to discover the judgment debtors' assets and collect its judgment. See 735 ILCS 5/2-1402 (West 2014).

¶ 10 As part of those proceedings, MI caused the clerk of the circuit court to issue a citation to discover assets to third party Proteus Group, which MI served on Proteus Group via special process server on December 5, 2014. The basis for the third-party citation to Proteus Group was MI's claim that Bryant and Talbert were "the managers of Proteus Group" and that Talbert and Proteus Holdings collectively owned 79% of Proteus Group.

¶ 11 On January 7, 2015, MI filed an application for issuance of a charging order against Talbert's and Bryant's distributional interests in Proteus Group.

¶ 12 Pursuant to the sections of the Code dealing with garnishments (id. § 12-701, et seq. ) and wage deductions (id. § 12-801, et seq .), MI then sought to issue wage and nonwage garnishment summonses to Proteus Group for the Bryant judgment and for the Talbert judgment.

¶ 13 The Bryant garnishment summonses were served on Proteus Group by special process server on February 20, 2015. On March 9, when Proteus Group failed to appear or respond, the circuit court entered conditional garnishment judgment orders against Proteus Group as to Bryant. On March 25, MI served Proteus Group by special process server with summonses for the Bryant conditional garnishment judgment orders.

¶ 14 The Talbert garnishment summonses were served on Proteus Group on March 19, 2015. On March 30, after Proteus Group again failed to appear or respond, the circuit court entered conditional garnishment judgment orders against Proteus Group as to Talbert. MI served Proteus Group by special process server with summonses for the Talbert conditional garnishment judgment orders on June 4, 2015.

¶ 15 On March 4, 2015, the court entered a charging order in favor of MI and against Proteus Holdings' distributional interests in Proteus Group. The order appointed Alex Moglia as receiver of any distributions from Proteus Group that became due and owing to Proteus Holdings.

The order (1) stated that Moglia was "empowered and directed to make all inquiries of Proteus Holdings and third parties about the income and assets of Proteus Holdings and any transfers or distributions from Proteus Group at their direction" and (2) directed Proteus Holdings to "cooperate with [Moglia]" by making available to Moglia its financial records "for the period beginning January 1, 2009."

¶ 16 In April 2015, Moglia filed a report with the circuit court explaining that he asked Proteus Group to provide him with financial information for January 1, 2009, to the present. The batch of documents Proteus Group tendered in response to Moglia's request was smaller than Moglia anticipated, so he conducted a conference call with Proteus Group's attorney, Stewart Kusper. According to Moglia, during the call, Kusper (1) stated that he instructed Talbert to refrain from tendering any financial information or documents prior to 2012, (2) stated that Moglia was not auditing Proteus Holdings and thus was not entitled to information prior to 2012, and (3) questioned "what right" Moglia had to information dating to before 2012.

¶ 17 On May 11, the court issued a rule to show cause against Proteus Group to demonstrate why it should not be held in civil contempt for violating the charging order. On May 27, the parties appeared for a hearing on the rule to show cause. The same day, the court entered an order stating that "Proteus Group appear[ed] by and through its counsel to contest the Court's jurisdiction over it to enter a Rule to show cause." The court granted Proteus Group leave to file "any responsive pleading to the Rule to Show Cause" by June 10, 2015, and scheduled a hearing on the rule to show cause for July 7, 2015.

¶ 18 The June 10 deadline came and passed, and Proteus Group never filed anything.

¶ 19 On June 24, the court entered an order following a status conference regarding the Bryant and Talbert conditional judgment orders. The order stated Proteus Group had not "answered or appeared to date."

¶ 20 On June 30, 2015, MI filed a motion to confirm the Bryant and Talbert conditional judgment orders against Proteus Group. On July 6, 2015, the court granted the motion and entered four judgment orders against Proteus Group. Each order stated, in relevant part, that (1) MI issued garnishments to Proteus Group for the Bryant and Talbert judgments, (2) Proteus Group "failed to appear and answer the Garnishment," resulting in the entry of a conditional judgment, and (3) Proteus Group was served "as provided by 735 ILCS 5/12-706 and PROTEUS GROUP, LLC again failed to appear and answer."

¶ 21 On August 6, 2015, MI issued fresh citations to discover assets to Proteus Group based on the garnishment judgments, as well as third-party citations to Urban Partnership Bank. On August 13, 2015, Urban disclosed that it was holding funds in a bank account owned by Proteus Group.

¶ 22 On August 26, Proteus Group filed an emergency motion to quash service of the garnishment summonses. That motion alleged three defects in MI's service of the garnishment summonses: (1) MI failed to file a signed and notarized affidavit as required by the Code, (2) the summonses did not contain a signed certification of the judgment against Talbert, and (3) MI failed to obtain a lawful appointment of the special process server who served the summonses on Proteus Group. (The first two arguments are raised on appeal; the third is not.)

¶ 23 On September 4, 2015, PHDS intervened in the supplementary proceeding and filed an adverse claim as to all of Proteus Group's assets, including (relevant to this appeal) the funds in Proteus Group's Urban Partnership Bank account. PHDS alleged that (1) in 2004, Proteus Group executed a promissory note in favor of Amerimark Bank, (2) Amerimark perfected a security interest in the note by filing a Uniform Commercial Code (UCC) financing statement with the Illinois Secretary of State, (3) Amerimark then merged with Inland Bank and Trust, and (4) PHDS then purchased Proteus Group's debt from Inland.

¶ 24 On September 30, 2015, the court granted Proteus Group's emergency motion to quash. The same day, the court entered orders vacating citation proceedings that MI had initiated against 15 third-party citation respondents—including, relevant to this appeal, Urban Partnership Bank. Those orders were entered pursuant to a series of emergency ex parte motions that Proteus Group filed after the court granted Proteus Group's emergency motion to quash service of the...

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