Appeal from Order Entered in Post-Judgment Proceedings Denying Motion for Judgment Against Third-Party Citation Respondent Dismissed for Lack of Jurisdiction

April 09, 2016 8:08 AM | Anonymous member (Administrator)

In National Life Real Estate Holdings, LLC v. International Bank of Chicago, 2016 IL App (1st) 151446, the First District Appellate Court confronted an issue rarely tackled by Illinois appellate courts: When does an order entered in supplementary proceedings become “final” for purposes of Illinois Supreme Court Rule 304(b)(4) (eff. Feb. 26, 2010)? In National Life, after a $3,424,228.97 judgment had been entered against the defendant Ronald S. Scarlato (Scarlato) and two limited liability corporations, plaintiff National Life Real Estate Holdings, LLC (National Life) initiated supplementary proceedings and filed a third-party citation to discover assets against International Bank of Chicago (IBC). National Life, 2016 IL App (1st) 151446, ¶¶ 1, 3.


The citation stated that IBC was prohibited from “making or allowing any transfer or other disposition of, or interfering with, any property *** belonging to the judgment debtor.” Id. ¶ 3. Several months after IBC was served with the citation, IBC, Scarlato and others entered into a construction loan agreement and promissory note wherein IBC agreed to loan Scarlato and other entities $3.5 million. Id. ¶ 4. The loan proceeds were disbursed to various third parties, but none were distributed to Scarlato. Id.


Thereafter, National Life filed a motion for entry of judgment under section 2-1402 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1402 (West 2012)), claiming that IBC violated the prohibitive wording of the citation and the lien created thereby by transferring $3.5 million in assets that belonged to Scarlato. National Life, 2016 IL App (1st) 151446, ¶ 5. IBC opposed the motion on the grounds that the loan proceeds were not Scarlato’s “property,” and therefore, it did not violate the citation. Id.

Following an evidentiary hearing, the trial court denied National Life’s motion for entry of judgment against IBC, finding that the loan proceeds were neither Scarlato’s individually nor delivered to Scarlato. Id.¶¶ 5-6. The trial court’s written memorandum decision stated, “[T]he parties do have remedies remaining.” Id. ¶ 6. The order did not contain a finding pursuant to Illinois Supreme Court Rule 304(a) (eff. Feb. 26, 2010). National Life, 2016 IL App (1st) 151446, ¶ 11. National Life subsequently filed a notice of appeal. Id.¶ 7.


Addressing IBC’s jurisdictional challenge, the Appellate Court first examined the language of Rule 304(b)(4), which provides that “[a] final judgment or order entered in a proceeding under section 2-1402 of the Code” is appealable without the finding required for appeals under Rule 304(a). (Emphasis added). Id. ¶¶ 9-10. “An order in a section 2-1402 proceeding is said to be final when the citation petitioner [here, National Life] is in a position to collect against the debtor or a third[-]party, or the citation petitioner has been ultimately foreclosed from doing so.” Id. ¶ 10 (citing D’Agostino v. Lynch, 382 Ill. App. 3d 639, 642 (2008)). Thus, the Appellate Court had to determine “whether the court’s order denying entry of judgment against IBC put National Life in a position to collect against IBC, or whether National Life was ultimately foreclosed from doing so.” Id. ¶ 11.


After noting the sparsity of Illinois case law on the finality of orders entered in supplementary proceedings, the Appellate Court found In re Marriage of McElwee, 230 Ill. App. 3d 714 (1992) most analogous. National Life, 2016 IL App (1st) 151446, ¶¶ 12-13. McElwee involved an appeal from an order allowing the divorce respondent’s non-wage garnishment to go forward in order to collect a foreign judgment. Id. ¶ 13. Dismissing the appeal for lack of jurisdiction, the McElwee court reasoned: “What is essential for purposes of Rule 304(b)(4) is that there be finality with respect to the supplemental garnishment proceeding. * * * [The order] did not operate to terminate any part of the garnishment. Rather, its effect was simply to allow that garnishment to go forward.” Id. ¶ 13 (quoting In re Marriage of McElwee, 230 Ill. App. 3d at 719).


Likewise, the trial court’s order in National Life denying National Life’s motion for entry of judgment against IBC “simply allowed the supplementary proceeding to go forward and placed the parties at the beginning of the third-party citation proceedings, not the end.” Id. ¶ 14. The order did not “ultimately foreclose” National Life from proceeding against IBC or prohibit National Life from pursuing other post-judgment remedies pursuant to its third-party citation to discover assets against IBC, which was still pending. Id. ¶¶ 14-15. The court’s order did not dismiss National Life’s citation against IBC. Id. ¶16. Rather, the order simply denied the relief sought in National Life’s motion, i.e., the entry of judgment against IBC for violation of section 2-1402 of the Code. Id. ¶ 15.


Because National Life was not ultimately foreclosed from collecting against IBC, the trial court’s April 15, 2015 order denying National Life’s motion for entry of judgment was not final for purposes of Rule 304(b)(4). Id. ¶ 16. Accordingly, the Court dismissed National Life’s appeal for lack of jurisdiction. Id. ¶¶ 18-19.

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