City of Chicago v. Air Auto Leasing Co.

FIRST DIVISION
June 29, 1998

No. 1-96-3129

CITY OF CHICAGO, )
) Appeal from the
Plaintiff-Appellant, ) Circuit Court
) of Cook County.
v. )
)
AIR AUTO LEASING CO., et al., )
)
Defendants, )
)
v. )
) Honorable
DAVID ZARANSKY, ) IRWIN COHEN,
) Judge Presiding.
Respondent-Appellee. )

PRESIDING JUSTICE BUCKLEY delivered the opinion of the
court:
This appeal arises from attempts by plaintiff City of
Chicago (the City), to collect a judgment against defendants, Air
Auto Leasing Co., et al., for more than $460,000, entered on
findings that defendants had breached an automobile rental
concession license agreement with the City. In order to aid in
its collection of the judgment, the City filed and served
citations to discover assets upon respondent, David Zaransky,
personally and as a corporate officer of all the defendants.
Subsequent to receiving the citations, respondent transferred
more than $82,000 from defendants' checking accounts.
A hearing was ordered to settle the issue of whether
respondent Zaransky violated the City's citations as a matter of
law by making payment, not for his benefit but for defendants in
the operation of business and as a matter of necessity. After
the hearing, the trial court dismissed the City's petition. All
questions arise on the pleadings.
The following issues are raised on appeal: (1) whether the
circuit court erred in dismissing the City's petition for a
judgment remedy on the ground that respondent's transfer of
defendants' assets after respondent had been served with
citations prohibiting such transfers were justified on equitable
grounds because they were made in the ordinary course of
defendants' business; (2) whether the circuit court erred in
dismissing the City's petition on the ground that the City should
have executed on its judgment rather than relying upon the
prohibition on transfer of defendants' assets in the citations;
and (3) whether the circuit court erred in dismissing the City's
petition on the ground that respondent, as a corporate officer,
cannot be held personally liable for transfers of defendants'
property in violation of the prohibition on transfer of corporate
assets in the citations served personally on the officer.
On October 9, 1985, the City entered into an automobile
rental concession license agreement with O'Hare Rent-A-Car, Inc.
(O'Hare) under which the City granted O'Hare a license to operate
an automobile rental concession at O'Hare International Airport.
O'Hare defaulted on its obligation to pay certain fees to the
City, and on March 5, 1993, the City filed a complaint for breach
of contract against O'Hare.
The circuit court allowed the complaint to be amended to add
Air Auto Leasing Co., Airways Rent-A-Car Co., Embassy Auto
Leasing, Inc., Leased Car Sales, Inc., Main Auto Leasing Co., and
Ridgeview Motors, Inc. as party defendants. On April 26, 1995,
judgment was entered in favor of the City and against defendants
in the amount of $461,956.75.
Immediately after the judgment was entered, numerous
citations to discover assets were issued by the City. The
citations were all served on respondent, both personally and as
the responsible corporate officer of all defendants. Respondent
was served with these citations at his residence in the evening.
Each of the citations contained the following restraining
provision:
"You are prohibited from making or allowing
any transfer or other disposition of, or
interfering with, any property not exempt
from execution or garnishment belonging to
the judgment debtor or to which he may be
entitled or which may be acquired by or
become due to the judgment debtor and from
paying over or otherwise disposing of any
money not so exempt, which is due or become
due to judgment debtor, until further order
of court or termination of the proceedings.
You are not required to withhold the payment
of any money beyond double the amount of the
judgment.
Warning: Your failure to comply with the
citation proceeding may result in a judgment
being entered against you for the unsatisfied
amount of this judgment." 735 ILCS 5/2-
1402(d)(1) (West 1996).
On December 29, 1995, the City filed a petition for a rule
to show cause why David Zaransky should not be held in contempt
(the petition). The petition sought the imposition of a judgment
remedy against respondent under section 2-1402(f)(1) of the
Illinois Code of Civil Procedure (735 ILCS 5/2-1402(f)(1) (West
1996)). That section provides:
"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 therefrom,
*** belonging to the judgment debtor ***, 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.
The third party may not be obliged to
withhold the payment of any moneys beyond
double the amount of the balance due sought
to be enforced by the judgment creditor. The
court may punish any party who violates the
restraining provision of a citation as and
for a contempt, or if the party is a third
party may enter judgment against him or her
in the amount of the unpaid portion of the
judgment ***, or in the amount of the value
of the property transferred, whichever is
lesser." 735 ILCS 5/2-1402(f)(1) (West
1996).
In its petition, the City alleged that respondent had been served
with the citations barring the transfer of defendants' property
by no later than April 28, 1995, in his personal capacity and in
his capacity as officer of all defendants.
The City further alleged that respondent was the only
authorized signatory on defendants' primary checking and payroll
checking accounts. Despite the citations, respondent caused
$55,445.58 to be transferred from the primary account and
$27,367.49 from the payroll account, totalling $82,813.07, by
writing over 120 checks in a seven-week period. Respondent had
personally guaranteed a substantial amount of defendants' debt to
banks and finance companies, and the City alleged that respondent
made the transfers "for the purpose of maintaining the judgment
debtors' day to day operation *** [which] in turn would increase
the likelihood that the judgment debtors would be in a position
to continue business, refinance the loans guaranteed by David
Zaransky, and thereby diminish David Zaransky's ultimate
liability for those loans."
On March 7, 1996, a hearing was held on question of whether
respondent violated the citations "as a matter of law, when,
notwithstanding the issuance of those citations he made payments,
not for his benefit but for the judgment debtors in the operation
of business and as a matter of necessity." The City claimed that
pursuant to section 2-1402(f)(1) (735 ILCS 5/2-1402(f)(1) (West
1996)), it was entitled to a judgment remedy against respondent
in the amount that he had transferred from defendants' checking
accounts in violation of the restraining provision of the
citations.
At the hearing, the circuit court first established that
respondent had been served with citations both in his personal
capacity and in his capacity as an officer of defendants. The
court also found that respondent had waived any challenge to the
adequacy of the service of the citations.
The City informed the court that many of the asset transfers
respondent made after receipt of the citations were to trade
creditors and represented payments of ordinary business expenses,
such as for phone and pager service, utilities, car parts and
gas. None of these payments was made to creditors that had
obtained judgments prior to the City's judgment and, thus, held a
superior right to the City to the money in defendants' checking
accounts. Additional payments were made to governments,
respondent's son, banks, and various unknown parties from the
payroll account.
Respondent explained that he had not obtained prior court
approval before transferring defendants' assets because he had
assumed that the City had tacitly consented to defendants'
continued operation. Respondent claimed that because the
transfers were made to pay corporate bills, the City's only
remedy against him, according to section 2-1402(f)(1), was
criminal contempt.
The court dismissed the petition against respondent since
all of his activities "were corporate related and in his capacity
as corporate officer of the judgment debtor." The court found
that "[t]he City had the opportunity to enforce the judgment
before David Zaransky's activities occurred, but failed to do so
by execution of judgment." The court also found that since no
"willful and contumacious conduct by David Zaransky was alleged"
by the City, he cannot be subject to a finding of criminal
contempt, "which is the sole remedy available to the City against
David Zaransky for the conduct allegedly taken by him as set
forth in the City's Petition."
On April 8, 1996, the City filed a motion for
reconsideration. During the hearing on the motion, the court
concluded that a citation does not bar the recipient of that
citation from continuing to make certain expenditures of the
judgment debtor's funds. The court denied the motion for
reconsideration. The City appeals.
We first examine whether the circuit court erred in
dismissing the City's petition on the ground that respondent's
transfers were justified because they were made in the ordinary
course of defendants' business. The circuit court determined
that respondent's transfers were for proper corporate purposes,
and so respondent was shielded from liability by the exceptions
to section 2-1402(f)(1). 735 ILCS 5/2-1402(f)(1) (West 1996).
Citations, such as those in the instant case, give judgment
creditors an opportunity to examine the judgment debtor and third
parties "to discover assets or income of the debtor not exempt
from the enforcement of the judgment." 735 ILCS 5/2-1402(a)
(West 1996). Section 2-1402 is to be construed liberally, not
only providing for the discovery of a debtor's assets and income,
but also vesting the courts with "broad powers to compel the
application of discovered assets or income to satisfy a
judgment." Kennedy v. Four Boys Labor Services, Inc., 279 Ill.
App. 3d 361, 367, 664 N.E.2d 1088, 1091 (1996). When the
citation is served, it creates a judgment lien "upon all personal
property belonging to the judgment debtor in the possession or
control" of the judgment debtor or third party. 735 ILCS 5/2-
1402(m)(1) (West 1996).
The Illinois legislature has carved out two exceptions to
the section 2-1402(f)(1) restraining provision. The first
exception pertains to transfers of property "exempt from the
enforcement of a judgment therefrom." 735 ILCS 5/2-1402(f)(1)
(West 1996). The second exception applies to property of the
judgment debtor in the hands of third parties that is in excess
of an amount that is "double *** the balance due sought to be
enforced by the judgment creditor." 735 ILCS 5/2-1402(f)(1)
(West 1996).
In this case, citations were served on respondent both in an
individual capacity and as the responsible corporate officer for
the judgment debtors. By having the citations served, the City
obtained a judgment lien on defendants' property, including the
money in defendants' checking accounts. The citations put
respondent on clear notice that he was "prohibited from making or
allowing any transfer or other disposition of, or interfering
with, any property not exempt from execution or garnishment
belonging to the judgment debtor." The citations do not make any
allowance for payment to trade creditors, respondent's son or any
other third parties for any purpose. None of respondent's
transfers fall within either exception to section 2-1402(f)(1).
There is no statutory exception for transfers made "in the
ordinary course of business," as the circuit court found. Since
the legislature chose to include two express exceptions to
section 2-1402(f)(1), we refuse to find an additional exception
where the legislature did not create one. See Welch v. Johnson,
147 Ill. 2d 40, 52, 588 N.E.2d 1119, 1124 (1992) ("It is a
fundamental principle of statutory construction that the express
mention of one thing in a statute excludes all other things not
mentioned."). Regardless, an exception made for transfers in the
ordinary course of business would be contrary to the purpose of
the citation process since service of a citation to discover
assets is clearly designed to ascertain and freeze the judgment
debtor's non-exempt assets, up to an amount double the balance
due on the judgment. See 735 ILCS 5/2-1402(f)(1) (West 1996).
We also disagree with the circuit court that the City should
have executed on its judgment rather than relying upon the
prohibitive provision in the citations. One of the purposes of
the citation is to discover the whereabouts and extent of the
judgment debtor's assets to aid in the creditor's collection of
the judgment. The City should not be punished for choosing to
rely on the unequivocal language in the citations barring
respondent and defendants from transferring any of defendants'
property subject to the judgment. Moreover, the City was
diligent in establishing a judgment lien on defendants' property
in that citations were issued immediately upon receipt of the
judgment in its favor.
Finally, we disagree with the circuit court that respondent
acted properly in his capacity as a corporate officer and, thus,
is not liable for his transfers of defendants' property. It is
well-settled that corporate officers are obligated to obey
judicial orders directed at their corporations. See Wilson v.
United States, 221 U.S. 361, 376, 55 L. Ed. 2d 771, 31 S. Ct. 538, 543 (1911) ("A command to the corporation is in effect a
command to those who are officially responsible for the conduct
of its affairs."). Moreover, the Seventh Circuit has held that
corporate officers are not entitled to the qualified privilege
where their actions violate Illinois law. Stafford v. Puro, 63 F.3d 1436, 1442 (7th Cir. 1995).
In this case, the citations served on respondent, both in
his capacity as defendants' corporate officer and in an
individual capacity, expressly prohibited him from transferring
or allowing the transfer of defendants' assets. The fact, as the
circuit court found, that respondent's transfers were all made
for proper corporate purposes is irrelevant since respondent did
precisely what section 2-1402 barred him from doing. There is no
statutory exception for transfers made for proper corporate-
related expenses.
The circuit court's ruling undermines the effectiveness of
the citations and ignores the purpose of section 2-1402(f)(1),
which is to account for and preserve the assets of the judgment
debtor. By violating the prohibitive provision in the citations
without court approval, appellee acted illegally. Thus, he
cannot invoke the protection afforded to corporate officers by
the qualified privilege. The circuit court erred by refusing to
hold respondent liable for the amount he transferred out of
defendants' checking accounts after the City had established its
judgment lien on defendants' property.
For the foregoing reasons, we reverse the judgment of the
circuit court of Cook County and remand for a hearing on the
City's petition.
Reversed and remanded.
O'BRIEN and GALLAGHER, JJ., concur.