Ashenden et al, Brief of April 26, 2000
Nos. 99-3195, 99-4064,
00-1066, 00-1371, 00-1430 and 00-1702
BRIEF OF APPELLANTS
AND JOINT APPENDIX
(2) Table of Contents
I. Brief of Appellants
Appendix of Unpublished Authority
in Committee of the Whole, National Conference of Commissioners on Uniform
State Laws, August 5, 1961.
(3) Table of Authorities
in the United States District Court. The United States District Court
had jurisdiction over the subject matter of the Order appealed from because
the Order was a post-judgment order in aid of execution. The United States
District Court had jurisdiction over the cause giving rise to the judgment
pursuant to 28 U.S.C. §1332(a)(2) in that the plaintiff, The Society of
Lloyd's is a citizen of a foreign state, being a corporation incorporated
under the laws of England and having its principal place of business in
London, England; and each of the defendants who are appealing herein are
citizens of Illinois, except for Henry Daniel Paschen, Jr., who is a citizen
of Florida. The amount in controversy between the plaintiff and each of
the defendants who are appealing herein (exclusive of interest and costs)
exceeds $75,000.00 and are as follows (in U.K.£ and approximate equivalents
(B). Jurisdiction in the Court of Appeals. This court has jurisdiction pursuant to 28 U.S.C. §1291 in that this is an appeal from a final decision of the United States District Court for the Northern District of Illinois disposing of all of the claims between the plaintiff, the Society of Lloyd's, and each of the defendants who are appealing herein in connection with a post-judgment order in aid of execution.
(C). Filing Dates. On April 23, 1999, one day after filing actions against these appellants and others seeking recognition of judgments obtained against them in England, Lloyd's filed Citations to Discover Assets directed to these appellants and others. On May 3, 1999 these Appellants and others filed a Motion to Strike the Citations and a Memorandum of Law in support thereof. On May 18, 1999 the district court entered an order stating "citation to discover assets and motion to quash [sic] are entered and continued generally until further order of court." On November 16, 1999 the district court entered judgment against these appellants and others granting Lloyd's recognition of the judgments entered against them in England. On December 8, 1999 Lloyd's filed a motion "for a Ruling that the Citations Previously Served Upon Judgment Debtors are Valid and Effective," and a Memorandum of Law in support thereof. Said motion was directed only against the defendants who are appellants herein. The district court took Lloyd's motion as a response to the May 3, 1999 motion of these appellants to Strike the Citations and ordered that these appellants file a memorandum in reply by December 27, 1999, which they did. On January 14, 2000 the court denied these appellants' Motion to Strike the Citations. Notice of appeal from that order was filed on February 11, 2000.
(D). Final Order. This appeal is from a final order disposing of all the parties' claims.
Case no. 00-1702
(A). Jurisdiction in the United States District Court. The United States District Court had jurisdiction pursuant to 28 U.S.C. §1332(a)(2) in that the plaintiff, The Society of Lloyd's, is a citizen of a foreign state, being a corporation incorporated under the laws of England and having its principal place of business in London, England; and the defendant-appellant is a citizen of the State of Illinois. The amount in controversy between the plaintiff/counterdefendant and the defendant/counterplaintiff (exclusive of interest and costs) on the plaintiff's claim exceeds $75,000.00 and is (in U.K.£) £271,856.76 (and approximate equivalent in U.S.$) $433,000. The amount in controversy between the plaintiff/counterdefendant and the defendant/counterplaintiff (exclusive of interest and costs) on the counterclaim claim also exceeds $75,000.00 and is (in U.K.£) £170,000.00 (and approximate equivalent in U.S.$) $255,000.
(B). Jurisdiction in the Court of Appeals. This court has jurisdiction pursuant to 28 U.S.C. §1291 in that this is an appeal from a final decision of the United States District Court for the Northern District of Illinois disposing of the last of the claims between the plaintiff/counterdefendant and the defendant/counterplaintiff.
(C). Filing dates. In addition to an Answer and Affirmative Defenses to Lloyd's action seeking recognition of the judgment it had obtained against him in England, Patrick Collins filed a Counterclaim for Setoff. Lloyd's motion to dismiss this Counterclaim was granted by the district court on February 16, 2000. Notice of appeal therefrom was filed on March 16, 2000.
(D). Remaining Claims. This appeal is from a final order disposing of all the parties' claims.
Presented For Review
(A). Whether the holder of a judgment rendered by a court of a foreign country must seek and obtain recognition of that judgment under the Illinois Uniform Money Judgments Recognition Act, 735 ILCS 5/12-618 - 626, (the "Recognition Act") before proceeding to enforcement under the Illinois Uniform Enforcement of Foreign Judgments Act, 735 ILCS 5/12-650 - 657, (the "Enforcement Act") as appellants claim; or whether the holder of the judgment may proceed immediately to enforcement upon filing of the judgment in the court whose process is sought for the purpose of enforcement, as the district court held.
(B). Whether the district court erred in denying appellants' motion to strike Citations to Discover Assets (i) which were not issued by the clerk, (ii) which failed to contain language required by the governing Illinois statute, and (iii) as to which no return of service was made; and whether the district court erred in holding that appellants had waived their right to contend that no service of the Citations had ever been shown to have been effected.
Case no. 00-1702
(A). Whether the district court erred in holding that a counterclaim for setoff was barred by the holding of Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993) and a holding of the district court in Ashenden v. Lloyd's of London, 1996 WL 717464 (N.D. Ill. Dec. 9, 1996).
Motion for Certification of State Law Question
Pursuant to Circuit Rule 52 of the United States Court of Appeals for the Seventh Circuit, appellants in case no. 00-1430 hereby move that question (A) above be certified to the Supreme Court of the State of Illinois as provided in Rule 20 of the Illinois Supreme Court Rules. The reasons for this motion are:
(6) Statement of the Case
The appellants herein adopt the Statement of the Case of the appellants in Society of Lloyd's v. Ashenden et al., No. 99-3195 and Society of Lloyd's v. Callahan et al., Nos. 99-4064, 00-1066 and 00-1371, now pending in this court and with which these appeals have been consolidated, and add the following:
Case no. 00-1430
This case arises out of supplementary proceedings commenced by Lloyd's in the district court to enforce judgments it had obtained in England against these appellants and others. Lloyd's prepared and filed Citations to Discover Assets, a supplementary proceeding authorized by Illinois statute, 735 ILCS 5/2-1402 and governed by that statute and Illinois Supreme Court Rules, e.g., Rule 277 of the Rules of the Illinois Supreme Court. The Citations were filed one day after the filing of the main action seeking recognition of the judgments. They were never issued by the clerk of the court and no return of service of them was ever filed. In their wording they deviated substantially from the requirements of Illinois law. After the filing of a motion to strike them by these appellants and others, the district court "entered and continued" them until further order of court. Lloyd's took no further action until eight months later, when after the district court had ruled on the main case, granting recognition to the judgments, it moved to have them retroactively declared "valid and effective." The district court treated that motion as a response to the motion to strike them, and following briefing, denied the motion to strike them, holding that under the Recognition Act there was no requirement that a creditor holding a judgment from a foreign country request and obtain recognition of that judgment before proceeding to enforcement of it under the Enforcement Act; that the formal defects in the Citations were not fatal to them; and that the appellants had waived their right to object on grounds of want of service because they had not made that objection in their initial motion eight months earlier.
Case no. 00-1702
This case arises out of a Counterclaim filed by Patrick Collins for setoff in the recognition action filed against him by Lloyd's. As a result of protracted and complex litigation in England, in which he was a party, some £170,000.00 pounds in damages which had been awarded him from Managing Agents at Lloyd's were found by the English courts to have been "caught" by the Premiums Trust Deed he had signed when he began underwriting at Lloyd's, and were therefore the property of Lloyd's. Collins sought a setoff in that amount against the judgment Lloyd's sought to enforce against him. Lloyd's moved to dismiss the Counterclaim on the grounds that (1) the only issue before the court in a recognition action was recognition of the judgment sought to be enforced and (2) a General Undertaking Collins had signed agreeing that disputes arising out of his underwriting would be referred exclusively to English courts under English law prevented him from claiming the setoff in this court. The district court did not rule on the question whether a counterclaim would be permitted in a recognition action, deciding that the General Undertaking governed the matter, and the dispute could only be resolved in an English court.
(7) Statement of Facts
The appellants herein adopt the Statement of Facts of the appellants in Society of Lloyd's v. Ashenden et al., No. 99-3195 and Society of Lloyd's v. Callahan et al., Nos. 99-4064, 00-1066 and 00-1371, now pending in this court and with which these appeals have been consolidated, and add the following:
Case no. 00-1430
On April 22, 1999, Lloyd's filed in the district court copies of judgments it had obtained against seventeen defendants in England. The next day it filed Citations to Discover Assets directed to each of them. R. (00-1430) Vol. 1. On May 3, 1999 these appellants and others filed a Motion to Strike the Citations and a Memorandum of Law in support thereof. R. (00-1430) Vol. 1, Docs. 116, 117. On May 18, 1999 the district court entered an order stating "citation to discover assets and motion to quash [sic] are entered and continued generally until further order of court." On November 16, 1999 the district court entered judgment against these appellants and others granting Lloyd's recognition of the judgments entered against them in England. On December 8, 1999 Lloyd's filed a motion "for a Ruling that the Citations Previously Served Upon Judgment Debtors are Valid and Effective," and a Memorandum of Law in support thereof. R. (00-1371) Doc. 73. Said motion was directed only against the defendants who are appellants herein. The district court took Lloyd's motion as a response to the May 3, 1999 motion of these appellants to Strike the Citations and ordered that these appellants file a memorandum in reply by December 27, 1999, which they did. R. (00-1371) Doc. 80. On January 14, 2000 the court denied these appellants' Motion to Strike the Citations. App. 1 and 2.
Case no. 00-1702
Lloyd's filed an action seeking recognition and enforcement of judgments it had obtained in England against Collins and others in the district court. In addition to an Answer and Affirmative Defenses to Lloyd's action Patrick Collins filed a Counterclaim for setoff. R. (00-1371) Doc. 32. The basis for his Counterclaim was that he had participated in litigation in England along with other Names against two managing agencies, Feltrim and Gooda-Walker, for negligent underwriting. The plaintiffs in those cases had been awarded a significant amount of damages, of which Collins's award was approximately £170,000.00 In subsequent litigation in England, however, those funds were declared to be the property of Lloyd's. A history of how this came to happen is contained in the case of Society of Lloyd's v. Robinson,  1 WLR 756,  q All ER (Comm) 545 (House of Lords, March 25, 1999, a copy of which is included in the Supplemental Appendix of Unpublished Authority, tab 9. In his Counterclaim Collins claimed a setoff in the amount of those funds. Lloyd's moved to dismiss this Counterclaim on the grounds that (1) the only question presented in a recognition action was recognition and (2) that Collins had signed a General Undertaking with Lloyd's agreeing that any disputes he had with Lloyd's arising from his underwriting at Lloyd's was to be resolved exclusively in English courts under English law. R. (00-1371) Doc. 54. Citing the General Undertaking, and this court's holding in Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993) and a holding of the district court in Ashenden v. Lloyd's of London, 1996 WL 717464 (N.D. Ill. Dec. 9, 1996), (both of which were ruling on the same General Undertaking) the district court granted Lloyd's motion to dismiss on February 16, 2000. App. 3 and 4.
Illinois has adopted the Uniform Enforcement of Foreign Judgments Act, which provides a procedure for enforcement of judgments of sister states, which are automatically entitled to full faith and credit under the United States Constitution. It has also adopted the Uniform Foreign Money Judgments Recognition Act, which sets out the substantive bases on which a judgment rendered in a foreign country may or may not be recognized in Illinois, and also provides that if such judgments are entitled to recognition, they may be enforced in the same manner as judgments are enforced under the Enforcement Act. The Recognition Act does not state what procedure is to be employed to give effect to its provisions. The only sensible way to construe the Recognition Act is as requiring that judgment creditors seeking recognition must file an action seeking recognition first, before becoming entitled to employ the procedures provided in the Enforcement Act. Such a construction comports with other provisions of Illinois law, the wording of the Recognition Act and the intent of the drafters. To read the Recognition Act, as the district court did, as enabling a judgment creditor to proceed immediately to enforcement upon filing a copy of the judgment with the court, as is permitted with sister state judgments, would be to render the Recognition Act meaningless, as enforcement could always precede recognition. Such a reading would erase the difference between judgments of sister states, which need not be subjected to the tests of the Recognition Act, and judgments of foreign countries, which must be so tested.
Case no. 00-1702
Collins did as Bonny instructs. He had a dispute with two Lloyd's Managing Agents who managed some of the syndicates he participated in, and he litigated that dispute in England, under English law. He was awarded some £170,000.00 in damages, but the money was subsequently awarded to Lloyd's by the English courts on the grounds it replaced money which, had Collins received it in the ordinary course, would have been paid into his Premiums Trust Fund. Hence he has received neither the money nor credit for it in this action in which Lloyd's seeks to enforce its judgment against him. Although partial payment (even involuntary partial payment), and the setoff to which the debtor is thereby entitled, is an integral part of every proceeding to recognize and enforce a judgment, and although the judgment creditor has an independent statutory duty to credit the judgment debtor with amounts paid, Lloyd's refusal to do so was taken by the district court to be a "dispute," which, for the district court's purposes ended the matter, in light of the General Undertaking. The appellant argues that the "dispute" was not governed by the ruling of this Court in Bonny on the General Undertaking.
A Citation to Discover Assets is a tool for the enforcement of judgments, and a powerful one. It is process, a command of the court requiring the respondent to appear in court and answer questions regarding the assets of the judgment debtor available for satisfaction of the judgment, 735 ILCS 5/2-1402(a); failure to respond is punishable by contempt, Ill. Sup. Ct. R. 277(h); the court is empowered to order the respondent to deliver up to the judgment creditor for satisfaction of the judgment all assets of the debtor not exempt from execution, 735 ILCS 5/2-1402(c); and the Citation creates a lien on all of the non-exempt property of the debtor when served, 735 ILCS 5/2-1402(m). Because of its great power, legal safeguards against its misuse must be zealously maintained. A district court's estimation of as-yet unannounced state law is a matter of law, which this court may review de novo. Allen v. Transamerica Ins. Co., 128 F.2d 462 (7th Cir. 1997).
Lloyd's Citations were premature. Citations are supplementary proceedings in aid of judgments. 735 ILCS 2/1402(a). They may only be commenced "with respect to a judgment which is subject to enforcement." Ill. Sup. Ct. R. 277(a). Lloyd's judgments were not "subject to enforcement" when Lloyd's filed its Citations on April 23, 1999, nor did they become "subject to enforcement" until November 16, 1999, when this court entered judgment in favor of Lloyd's under the Recognition Act, 735 ILCS 5/12-618 et seq. "[S]ection 2-1402 proceedings [i.e., citation proceedings] are unavailable to creditors, secured or otherwise, until after a judgment capable of enforcement has first been entered in their favor." State Bank of Piper City v. A-Way, Inc., 135 Ill. App. 3d 1010, 1015, 482 N.E.2d 620, 624 (3rd Dist. 1985)(emphasis supplied); see also, Erickson v. Rush Presbyterian St. Luke's Med. Ctr., 289 Ill. App. 3d 159, 166, 682 N.E.2d 79, 84 (1st Dist. 1997); Bank of Matteson v. Brown, 283 Ill. App. 3d 599, 602, 669 N.E. 2d 1351, 1353 (1st Dist. 1996).
Lloyd's asserted that it "was able to begin enforcing the English judgments after filing the judgments with this Court, just as judgments from Illinois' sister states can be enforced upon filing." Lloyd's Memorandum (R. (00-1371) Doc. 73) at 1. Lloyd's argued that it did not have to wait until the district court actually recognized those judgments under the Recognition Act. Although noting that this was "an issue of first impression" which "no Illinois court has addressed," Mem. Op. and Order (App. 2) at 3, the district court concluded that "Lloyd's was entitled to initiate supplemental [Citation] proceedings immediately after filing with the court its English judgments." Mem. Op. and Order (App. 2) at 4-5.
The notion that a judgment of a foreign country becomes enforceable under the Enforcement Act immediately upon the judgment's being filed, without waiting for a judicial determination that the judgment is recognizable under the Recognition Act, makes no sense. It entirely ignores the difference between judgments of sister states and judgments coming from foreign countries. Judgments of sister states are accorded "full faith and credit" under art. IV, §1 of the United States Constitution. There is no "full faith and credit" accorded to judgments of foreign countries. That is why the Recognition Act exists. Only if a foreign country's judgment first passes the tests of that act can it be enforced "in the same manner as the judgment of a sister state."
The Recognition Act is a statement of substantive law. It does not specify a procedure for its implementation. At common law, the procedure for obtaining recognition of a foreign judgment, whether from a foreign country or from a sister state, was an action in debt on the judgment. See, Sedler, Recognition of Foreign Judgments and Decrees, 28 Mo. L. Rev. 432, 435-36 (1963). In Illinois, this procedure has been simplified and codified, for judgments of sister states, by the adoption of the Enforcement Act, which now no longer requires the filing of an action, but only the filing of the judgment itself, as a predicate to immediate enforcement. Of course the only reason this is possible is the language of art. IV, §1 of the Constitution, which accords "full faith and credit" by each State to the judgments of sister States.
But the Recognition Act places a series of tests before the judgments of foreign countries which must be met before they can be enforced. The district court noted that the Recognition Act does not specify a procedure for the testing, Mem. Op. and Order (App. 2) at 4-5, and proceeded from that observation to the erroneous conclusion that there is no procedure other than immediate enforcement under the Enforcement Act. The district court stated that "nothing in the [Recognition Act] requires a judgment-creditor himself to petition the court for recognition of the foreign judgment before commencing enforcement proceedings," Mem. Op. and Order (App. 2) at 4, suggesting rather, as Lloyd's had urged, that it is up to the putative judgment-debtor to initiate some sort of proceedings to object to enforcement.
But the lack of specified procedure in the Recognition Act was noted, and addressed, by an Illinois Court which concluded that the putative judgment-creditor is required to file a petition for recognition. In Vrozos v. Sarantopoulos, 195 Ill. App. 3d 610, 614-15, 552 N.E.2d 1093, 1096 (1st Dist. 1990), the court, after noting that "the [Recognition Act] does not expressly set forth the procedural process by which a judgment creditor may initiate the registration of a foreign country judgment," settled the question by reference to the Civil Practice Law and the Supreme Court rules, and in particular, §1-108 of the Code which provides that the provisions of the Civil Practice Law apply to all proceedings not regulated by other statutes. 735 ILCS 5/1-108.
The Vrozos court concluded that a petition seeking recognition, followed by an appearance and answer by the party against whom recognition is sought, is the correct procedure.
The district court's view of the matter largely removes the court from the process. If all that is required, before enforcement begins, is the filing of the judgment, then enforcement may well be (and in the hands of skilled creditors' attorneys almost certainly will be) completed before the debtor ever has an opportunity to raise his objection before the court.
Although there is no legislative history in Illinois for the Recognition Act, the Vrozos court's conclusion accords with both the language of the statute and with the intent of the drafters of the Recognition Act, the National Conference of Commissioners on Uniform State Laws.
The Recognition Act requires in §12-620 that the foreign judgment be tested. It must meet the requirements of §12-619 (of which there are three)*(ftnote 1), and must not fall into any of the categories set forth in §12-621 (of which there are nine)*(ftnote 2). Only then is it "enforceable in the same manner as the judgment of a sister state which is entitled to full faith and credit." The Recognition Act mentions the court twice, clearly contemplating that a court will apply these tests*(ftnote 3). And most importantly, the Act states, in §12-623 that the court may "stay the proceedings" while an appeal from the foreign country's judgment is pending. What could be meant by "stay the proceedings" unless it means proceedings brought by the judgment-creditor? The transcripts of the Proceedings of the Committee of the Whole of the National Conference of Commissioners on Uniform State Laws*(ftnote 4) show clearly that what was intended was a codification of existing substantive law on the question of recognition of judgments from foreign countries, not a radical departure from it, as the district court's decision creates. One of the two drafters, Prof. Nadelmann, said "Professor Reese [the other drafter] and I believe that what is presented to you is actually an attempted codification of existing law." Commissioner Nadelmann, 1961 Proceedings, at 7.
The transcripts contain numerous references to the court and the judge, showing clearly that the Commissioners contemplated a court's being involved in the testing process. For example, during the discussion of the section that deals with judgments which are on appeal, Commissioner Reese said ". . . Section 5 gives the court discretion to stay proceedings pending the termination of an appeal. That is what an American court will normally do with a sister state judgment, namely, it will not refuse the proceedings, it will not dismiss the case, but it will stay them, and we were providing here, we thought for essentially the same proceeding. We think it has worked well in the sister state area. We saw no reason to believe it would not work well in the foreign country area. Our belief was that almost always in any event the court will stay the proceedings pending the appeal." Commissioner Reese, 1961 Proceedings, at 19.
In the 1962 Proceedings there is extensive discussion of the role of the court considering whether to recognize a foreign country's judgment, what it would or would not do, what should be left to its discretion, and so on. See, 1962 Proceedings, pp. 16 -35. Clearly the drafters envisioned an active role for the court.
The district court noted that the Recognition Act and the Enforcement Act must be read together, as complementary. Mem. Op. and Order (App. 2) at 5, citing S.A. Goro v. Conveyor Accessories, Inc., 286 Ill. App. 3d 867, 871, 677 N.E. 2d 30, 33 (2nd Dist. 1997)). As the district court put it, ". . . the Recognition Act simply incorporates the procedures for enforcing judgments of sister states." Mem. Op. and Order (App. 2) at 5. With this much the appellants fully agree. The Recognition Act says as much:
But the incorporation is limited to procedures for enforcement only. Recognition of the foreign country's judgment, which is both logically and temporally prior, is another matter. Sister state judgments derive their recognition from the Constitution; foreign country judgments derive their recognition, if at all, by meeting the tests of the Recognition Act. The only sensible conclusion that can be drawn from the Vrozos case (and the Illinois Civil Practice Law it relies upon), the text of the Recognition Act, and the Proceedings of the National Conference of Commissioners on Uniform State Laws, is that a judgment creditor must file a petition of some kind seeking recognition, and the petition must be considered and granted recognition by a court, before the judgment creditor can move on to the Enforcement Act and begin enforcement.
Goro does not hold otherwise. Indeed, this question was not before the Goro court. In Goro the judgment creditor, who was seeking recognition and enforcement of a judgment from France did in fact file a document entitled "Petition to Register a Foreign Judgment." (See, "Petition to Register a Foreign Judgment," filed in La Societe Anonyme Goro, etc. et al. v. Conveyor Accessories, Inc., etc., in the Circuit Court for Du Page County, Illinois, file-stamped Oct. 26, 1994 and filed by Lloyd's in the court below as an exhibit to its "Opposition to Motion to Strike" in Society of Lloyd's v. Ashenden et al., R (99-3195) (App. 6).
The final basis on which the district court held that Lloyd's could commence enforcement immediately upon filing was that "with respect to foreign-country judgments, the courts accord a 'strong presumption' that the judgment is enforceable "and it is the defendant's duty to rebut the presumption,'" citing Pinnacle Arabians, Inc. v. Schmidt, 654 N.E.2d 262, 265 (Ill. App. Ct. 1995.) In point of fact Pinnacle Arabians does not say that. The dispute in Pinnacle Arabians concerned whether the foreign court had jurisdiction over the defendant, and here is the full sentence from which the district court extracted two phrases:
The "strong presumption" that the defendant has a "duty to rebut" then is not enforceability of the judgment, but that the rendering court had jurisdiction, a point which is not in issue in this case.
The Citations at issue in this appeal are all identical except as to name and address of judgment-debtor and amount of judgment. One of them, that directed to the first-named appellant, is included in the Appendix at tab 5, as a sample.
Rule 69(a) of the Federal Rules of Civil Procedure provides that "[t]he procedure . . . in proceedings supplementary to on and in aid of a judgment . . . shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought, except that any statute of the United States governs to the extent that it is applicable."
The Lloyd's Citations fail to conform to the requirements of Illinois law in three specific ways: (1) they were not issued by the clerk of the court (2) they do not contain the language required to be included in citations and (3) no proof of service has ever been filed by Lloyd's showing that the citations were served in accordance with Illinois law. As to these three objections to the Citations, the district court ignored the first, excused Lloyd's for the second, and held that appellants had waived their right to raise the third.
1. No issuance by Clerk of Court
Illinois law states that Citation proceedings are "supplementary proceedings" which are commenced "by the service of a citation issued by the clerk." 735 ILCS 5/2-1402(a). Without issuance by the clerk of the court these "Citations" contained no power to initiate proceedings, no power to compel appearance, no power to impose the sanction of contempt for failure to answer. They are a nullity. Lloyd's failed to have its citations issued by the clerk, as the citations themselves show. It inexplicably skipped that step and simply filed with the clerk of the court a document entitled Citation to Discover Assets as to each defendant. Although the district court mentioned the requirement of issuance by the clerk in passing, Mem. Op. and Order (App. 2) at 3, it equally inexplicably failed to mention or address this objection to the Citations.
2. Defective Language
The law of Illinois is quite specific as to what language must be included in a Citation to Discover Assets. This language is required by the legislature of Illinois for the protection of persons who are served with Citations to Discover Assets. It is not for Lloyd's, or for the court ruling under Illinois law, to say that any of the statutory requirements may be omitted. Lloyd's acknowledges that they failed to include the required language regarding exemptions, as required by 735 ILCS 5/2-1402(b). Ironically, although omitting all the required wording relating to the debtors' rights and exemptions, Lloyd's did not omit language (1) commanding the debtors to appear, (2) enjoining debtors from transferring assets and (3) threatening debtors with arrest and contempt if they failed to appear.
Lloyd's also failed include a required certificate of the attorney setting forth the name of the court and the number of the case, as required by the same section of the Illinois law. These would have been the name of the English court, and the English court's docket number. Instead, the certificate gives the name of the district court and the number of this case, creating the false impression that the court in this case had entered judgment against the debtors, when in fact this case had only been filed the day before.
This district court excused these omissions on the ground that the requirements of §2-1402 are to be "liberally construed," citing Kennedy v. Four Boys Labor Service, Inc., 279 Ill. App. 3d, 361, 367, 664 N.E.2d 1088, 1091 (2d Dist. 1996). But Kennedy was not about the language or form of the Citations at all. The "liberal construction" the court in Kennedy was talking about was allowing creditors to treat proceeds from the sale of the debtor's assets as assets of the debtor. Kennedy has nothing to say about this issue at all and gives no warrant to a judgment creditor to vary the statutory requirements for Citations to Discover Assets.
3. No Proof of Service
Illinois law provides that citations "shall be served and returned in the manner provided by rule for service, otherwise than by publication, of a notice of additional relief upon a party in default." Ill. Sup. Ct. R. 277 (b). The rule to which this rule refers is 105, and provides in section (b) that service of a notice of additional relief (other than by publication) upon a party in default shall be either (1) by any method provided by law for service of summons . . . or (2) by prepaid certified or registered mail addressed to the party, return receipt requested, showing to whom delivered and the date and address of delivery, and marked "restricted delivery" when directed to a natural person. Under either method proof of service must be filed.
"Return" is a defined term in the Illinois Rules. Ill. Sup. Ct. R. 102(d). It means the person making the service must file proof of it with the court. And while failure to make the return does not invalidate an otherwise valid service, id., citation proceedings cannot commence without it. Ill. Sup. Ct. R. 277 (d).
At the time appellants filed their motion to strike the Citations Lloyd's had not filed any return of service. That is why the motion was a motion "to strike" and not a motion "to quash." There was nothing to quash. Moreover, Lloyd's never did file any return of service of these Citations at any time thereafter. See generally, Record.
Instead, Lloyd's asserted for the first time in its "Motion to Declare Citations Previously Served Valid and Effective" that counsel for the appellants had appeared and therefore waived any objections to service. Lloyd's Memorandum at (R. (00-1371) Doc. 73) at 2, n. 1. To the contrary, counsel appeared for defendants in the Recognition Action, which was the only action validly pending before the court at the time, and not in the Supplementary Proceedings which Lloyd's purported to initiate with its invalid Citations. Attached to appellants' Reply Memorandum (R. (00-1371) Doc. 80) as Exhibit B is a letter from Lloyd's counsel dated May 3, 1999 advising that four defendants had not yet been served, and requesting that defendants' counsel accept service for them. Exhibit C is a the reply, in which counsel for the defendants advises that he has no authority to accept service of any citations. It is precisely because the citations had neither been validly issued or validly served, but only filed, that the motion of the defendants directed to them was a motion to "strike" and not to "quash."
Although the issue of service was raised for the first time by Lloyd's in its December 8, 1999 motion and memorandum, and replied to by the appellants' December 27, 1999 memorandum, the district court held that "the judgment debtors have waived any objections as to lack of proper service because they were not raised in their opening brief. Arguments raised for the first time in a reply brief, without the benefit of response from the opposing party, may not be relied upon by the Court in rendering its decision." [citations omitted] Mem. Op. and Order (App. 2) at 7.
This completely misdescribes the situation. The opening brief, this Court will note, was filed on May 3, 1999, eight months earlier, at a time when no proofs of service had been filed by Lloyd's and no claim to have effected service had been made by Lloyd's. Service wasn't mentioned because there was nothing about service to mention. It was Lloyd's, eight months later, who claimed for the first time to have effectively served the Citations, though it did not at that time, and never has, filed any proof of service. In made its claim only in a memorandum.
The importance of the question of service is that the lien of the Citation attaches, according to the Illinois statute, only "when a citation is served in accordance with subsection (a) of this Section." 735 ILCS 5/2-1402(m). Without a proof of service by Lloyd's, a court is unable to determine (1) whether there was service at all, and (2) if so, when. In the absence of such a determination, a court could not say if a lien attached, or when.
The district court did not rule on Lloyd's argument that it had effectively served the Citations when the appellants' counsel filed an appearance in the Recognition action. But an argument similar to that was made and rejected in Manley Motor Sales Co. v. Kennedy, 95 Ill. App. 3d 199, 419 N.E.2d 947 (2nd Dist. 1981). In that case a post-judgment citation was served on the attorney who had represented the defendant at trial. Although there was no service on the judgment debtor, the judgment creditor argued that "an exception exists to the requirement of personal service, permitting service on attorneys who represented the party in the original action when they are shown to have continued to represent him after the judgment has been entered." Id. at 202, 419 N.E.2d at 949. The court concluded that the strict requirements for service of a citation might be relaxed provided "substantive due process" was adhered to, but would not do so where "no real effort was made to comply with the rules. . . ." Id. at 203, 419 N.E.2d at 950. Lloyd's likewise made no real effort to comply with the rules. Without such an effort, it should be held to the standard, as the court in Manley put it, that "due process generally requires following the rules." Id. (emphasis supplied.)
Case no. 00-1702
This court reviews a dismissal based upon a forum selection clause de novo. Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993).
Collins does not dispute that the holdings in Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993) and Ashenden v. Lloyd's of London, 1996 WL 717464 (N. D. Ill. 1996) required that the plaintiffs in those cases (including Collins, who was a plaintiff in Ashenden) to litigate their federal law fraud claims (Bonny) and state law fraud claims (Ashenden) against Lloyd's in English courts under English law. The point here is simply this: The dispute over the PTD funds has been litigated in English courts under English law, and Lloyd's has won it. That is the import of the House of Lords decision in Society of Lloyd's v. Robinson  1 WLR 756, 1 All ER (Comm) 545 (House of Lords, March 24, 1999) (Supp. App., Tab 9). As a result of that decision, approximately £170,000.00 of funds belonging to Patrick Collins has been awarded to Lloyd's*(ftnote 5).
Unless, of course, Lloyd's can "manufacture" a fresh dispute with Collins by pretending the decision in Robinson never occurred, and simply ignoring in this court the fact that a transfer of £170,000.00 has been made from Collins to Lloyd's. In this way, Lloyd's could create an infinite regression of "disputes" and "disputes about disputes" extending forever its ability to harass Collins in United States courts. Neither Bonny nor Ashenden interpret the General Undertaking in so absurd a manner, and this court should not do so either.
In connection with this proceeding for recognition of its judgment, Lloyd's has filed a Citation to Discover Assets against Collins, pursuant to 735 ILCS 5/2-1402. This statute requires among other things that "[a]ny citation served upon a judgment debtor or any other person shall include a certification by the attorney for the judgment creditor or the judgment creditor setting forth the amount of the judgment, . . . [and] the balance due thereon. . . ." The requirement that these items be separately stated shows a clear legislative understanding that these two amounts are not necessarily the same, and must be separately stated, in fairness to all parties. This statute imposes on Lloyd's a separate affirmative obligation to credit Collins for the funds Lloyd's has arranged to recover from him, by whatever means.
This would be an integral part of any action to enforce any judgment, and by filing such an action here, Lloyd's must be deemed to have accepted that Collins was entitled to claim, and receive credit for, any setoff that existed. To hold otherwise would be to take Bonny to the point of absurdity, for then only one side of the balance sheet, the debit side, would be presented to the court.
For the foregoing reasons, this court should reverse the district court's denial of the appellants' motion to strike the Citations to Discover Assets and the district court's dismissal of Collins's Counterclaim.
1. It must be(i) final, (ii) conclusive and (iii) enforceable where rendered. Section 12-619
2. There are three mandatory grounds for non-recognition, which can be summarized as (i) lack of due process, (ii) lack of personal jusrisdiction and (iii) lack of subject matter jurisdiction. There are six discretionary grounds, which can be summarized as (i) lack of notice in sufficient time, (ii) judgment obtained by fraud, (iii) repugnancy to public policy, (iv) conflict with another judgment, (v) conflict with a dispute resolution agreement, and (vi) seriously inconveneient forum. See Section 12-621.
3. See, e.g., Section 12-622(b) ("the courts of this State may recognize other bases of jurisdiction."); and Section 12-623 ("If the defendant satisfies the court. . .")
4. There are two proceedings, the first on August 5, 1961, where the draft act was discussed and recommendations taken, and the second on July 31, 1962, where the redrafted act was approved and submitted to the States. The transcripts of the two proceedings are contained in the Supplemental Index of Unpublished Authorities at tabs 7 and 8. For brevity they will be hereafter referred to as the "1961 Proceedings" and the "1962 Proceedings."
5. Collins has no idea why the funds have not yet been placed in Lloyd's hands, and objects to Lloyd's attempt to plead a new fact by way of a footnote in its Memorandum asserting that "Lloyd's has not received the sums declared its property in Robinson. The solicitor for Collins still holds the funds." (Lloyd's Mem. at 2, n. 1) In any event, Lloyds admits in this footnote that the funds have been declared its property, which for purposes of Collins's claim for a set-off, is all that is relevant.