Kauffman v. Wrenn , 2015 IL App (2d) 150285 ( 2016 )

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Kauffman v. Wrenn, 2015 IL App (2d) 150285
Appellate Court JAMES B. KAUFFMAN and NANCY KAUFFMAN,
Caption Plaintiffs-Appellees, v. LAWRENCE B. WRENN and SUSAN E.
WRENN, Defendants (Wells Fargo Bank, N.A., Third-Party
Respondent-Appellant).
District & No. Second District
Docket No. 2-15-0285
Filed December 10, 2015
Decision Under Appeal from the Circuit Court of Du Page County, No. 13-L-111; the
Review Hon. Patrick J. O’Shea, Judge, presiding.
Judgment Affirmed in part and reversed in part; monetary judgment vacated.
Counsel on Colby Anne Kingsbury, Trina K. Taylor, and Kate E. Middleton, all of
Appeal Faegre Baker Daniels LLP, of Chicago, for appellant.
Reese J. Peck, of Rathje & Woodward, LLC, of Wheaton, for
appellees.
Panel JUSTICE SPENCE delivered the judgment of the court, with opinion.
Presiding Justice Schostok and Justice Jorgensen concurred in the
judgment and opinion.
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
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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 (Northwestern Mutual).
¶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 Kaufmanns 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
The account was a “Basic Business Checking IOLTA” account in the name of “Lawrence B[.]
1
Wrenn AAL.”
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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. 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 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. 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
2
It is unclear why the Kauffmans requested, and the trial court awarded, $70,451.94 rather than the
$69,128.95 that was stipulated to have been withdrawn from the IOLTA account; the parties do not
address this discrepancy.
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judgment against him or her in the amount of the unpaid portion of the judgment and
costs allowable under this Section, or in the amount of the value of the property
transferred, whichever is lesser.” (Emphases added.) 735 ILCS 5/2-1402(f)(1) (West
2014).
The third-party citation sent to Wells Fargo contained language identical to the first two
sentences quoted above.
¶ 17 Wells Fargo argues that under the language the trial court had the authority to punish it
for not freezing the account only if the funds were Wrenn’s assets or he had some other
statutory entitlement to them. Wells Fargo cites Pelczynski v. Dolatowski, 308 Ill. App. 3d
753, 758 (1999), where this court stated that the judgment creditor has the burden to
demonstrate that the third party possesses assets of the judgment debtor. Wells Fargo
additionally cites Bank of Aspen v. Fox Cartage, Inc., 126 Ill. 2d 307, 314 (1989), where the
court stated that the third party is prohibited from transferring only what property the
judgment debtor owns. Wells Fargo argues that it properly froze and turned over the assets in
Wrenn’s personal accounts and the funds he later attempted to transfer into those accounts. It
argues, however, that it had no obligation to freeze an IOLTA account that did not
exclusively hold, and should not have held, any funds belonging to Wrenn. Wells Fargo cites
various Florida bar association rules in support of the proposition that IOLTA accounts
presumptively contain only client funds. In contrast, Wells Fargo argues that the trial court’s
order would require a bank to presume that a lawyer-judgment debtor has violated or might
violate the rules of professional conduct and to freeze the funds of innocent third parties until
the judgment is satisfied. Wells Fargo maintains that this contradiction puts it in an untenable
position.
¶ 18 Wells Fargo argues that, in addition to having no authority to order it to freeze the
IOLTA account, the trial court lacked authority to enter a judgment for the full amount
transferred from the account, because the evidence established that only some of the funds
belonged to Wrenn and that even those funds were exempt. Wells Fargo argues that the funds
in the IOLTA account fell into the three categories of (1) funds owned by third parties, (2)
funds where the Kauffmans did not prove ownership, and (3) funds that were exempt from
collection, and that Wells Fargo should not have been deemed responsible for any of them.
More specifically, Wells Fargo argues that the parties stipulated that they had no basis to
dispute that deposits totaling $37,923 were from law firm clients, and Wells Fargo argues
that there was no evidence that the initial $4,975.95 in the account belonged to Wrenn, either.
Wells Fargo argues that the Kauffmans also could not satisfy the judgment with disability
funds that Wrenn deposited into the IOLTA account, because disability funds are exempt
from collection under section 12-1001(g) of the Code (735 ILCS 5/12-1001(g) (West 2014)).
Wells Fargo argues that the trial court erroneously concluded that there was no evidence that
the Northwestern Mutual checks constituted disability payments, because the parties in fact
stipulated that they were disability payments.
¶ 19 The Kauffmans cite Fox Cartage, Inc., 126 Ill. 2d at 314, for the proposition that the
section 2-1402 restraining provision serves to provide a means to forestall the judgment
debtor or third party from frustrating the supplemental proceedings before the judgment
creditor has had a chance to reach the assets in the judgment debtor’s or third party’s
possession. They argue that Wells Fargo should not have made any determination as to what
was exempt under the citation, as its only obligation was to freeze accounts that Wrenn held
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or on which he was a signatory. The Kauffmans note that the citation required Wells Fargo to
freeze accounts and prohibit the transfer or disposition of funds belonging to Wrenn or
“which may thereafter be acquired by or become due to him.” They argue that, by allowing
any transfers to be made from Wrenn’s accounts before the trial court made a determination
regarding what funds belonged to Wrenn and as to any exemption Wrenn raised, Wells Fargo
failed to reasonably comply with the citation and order. The Kauffmans argue that Wells
Fargo’s own actions contradict its position that it did not need to turn over any funds in the
IOLTA account, because it did turn over $1,200 of such funds. According to the Kauffmans,
whether the money in the IOLTA account could be used to satisfy the judgment against
Wrenn was a matter to be addressed in a separate proceeding by the trial court, but by
allowing Wrenn to withdraw the entirety of the IOLTA account, Wells Fargo prevented the
trial court from making such a determination.
¶ 20 The Kauffmans cite Vendo Co. v. Stoner, 108 Ill. App. 3d 51, 57-58 (1982), and
Kirchheimer Brothers Co. v. Jewelry Mine, Ltd., 100 Ill. App. 3d 360, 362 (1981), for the
proposition that Wells Fargo’s subjective belief that the funds in the IOLTA account were
exempt was irrelevant to whether Wells Fargo violated the citation and order. They argue
that, even if Wrenn’s disability payments were exempt from an attachment to satisfy a
judgment, they lost that exempt status when Wrenn deposited them into the IOLTA account,
as they became funds for the benefit of Wrenn’s clients rather than his family. They also
argue that the funds’ exempt character is not at issue in a motion for contempt for failure to
comply with a court order. See In re Marriage of Logston, 103 Ill. 2d 266, 285 (1984) (that
funds are statutorily exempt is not a defense to contempt; whether execution on a contempt
order could be had on exempt property was a separate issue).
¶ 21 Wells Fargo responds that Illinois law does not, and should not, require a third-party
citation recipient to preemptively freeze an IOLTA account based solely on the fact that the
lawyer signatory is a judgment debtor. Wells Fargo argues that where an IOLTA account has
been handled appropriately a judgment creditor would not be entitled to any funds in the
account, because they are held in trust for third parties. Wells Fargo argues that, to the
contrary, the Kauffmans would have third-party citation recipients presume that all IOLTA
accounts with judgment debtor signatories will be misused and should be presumptively
frozen. Wells Fargo maintains that the cases cited by the Kauffmans are distinguishable
because they do not involve trust accounts. Wells Fargo also argues that the fact that it later
turned over $1,200 from the IOLTA account to the Kauffmans does not make its position
inconsistent, as it seized the money only after Wrenn had transferred it into one of his frozen
personal accounts.
¶ 22 The parties do not appear to dispute, and we agree, that upon receiving the citation Wells
Fargo was not required to look at the transactions within the IOLTA account to make a
subjective determination as to whether the funds were exempt. Rather, the initial question
before us is whether the third-party citation required Wells Fargo to freeze the IOLTA
account, just as it froze Wrenn’s personal accounts.
¶ 23 The citation here was issued in the context of a section 2-1402 supplementary
proceeding. Such proceedings are meant to provide a mechanism for a judgment creditor to
discover assets of a judgment debtor in order to satisfy an unpaid judgment. Pyshos v.
Heart-Land Development Co., 258 Ill. App. 3d 618, 622-23 (1994). We construe section
2-1402 liberally to provide discovery of a debtor’s assets and income and to vest the trial
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court with broad power to apply discovered property to satisfy a judgment. City of Chicago v.
Air Auto Leasing Co., 297 Ill. App. 3d 873, 878 (1998).
¶ 24 Illinois Supreme Court Rule 277 (eff. Jan. 4, 2013) sets forth the procedure for
conducting supplementary proceedings. 735 ILCS 5/2-1402(a) (West 2014) (“The procedure
for conducting supplementary proceedings shall be prescribed by rules.”); Shipley v. Hoke,
2014 IL App (4th) 130810, ¶ 80. Rule 277 states, in relevant part, that the supplementary
proceeding “may be against the judgment debtor or any third party the judgment creditor
believes has property of or is indebted to the judgment debtor.” Ill. S. Ct. R. 277 (eff. Jan. 4,
2013). The rule allows the trial court to punish a party who fails to obey a citation, subpoena,
or court order under the rule for contempt. Id.
¶ 25 During the course of supplementary proceedings, a judgment creditor may serve a
citation to discover assets on a third party, requiring it to freeze assets. 735 ILCS 5/2-1402(f)
(West 2014). After the citation is served, the judgment becomes a lien on the judgment
debtor’s assets. 735 ILCS 5/2-1402(m) (West 2014). At the same time, the prohibition in a
third-party citation is not an injunction but rather serves to warn the third party of possible
sanctions it could incur if it transfers the judgment debtor’s assets. Fox Carthage, Inc., 126
Ill. 2d at 314-15.
¶ 26 The only relevant inquiries in a supplementary proceeding are (1) whether the judgment
debtor possesses assets that should be applied to satisfy the judgment, and (2) whether a third
party is holding assets of the judgment debtor that should be applied to satisfy the judgment.
Schak v. Blom, 334 Ill. App. 3d 129, 133 (2002). The judgment creditor has the burden of
showing that the citation respondent has assets of the judgment debtor. Pelczynski, 308 Ill.
App. 3d at 758. There are two exceptions to the section 2-1402(f)(1) restraining provision,
those being property exempt from the enforcement of a judgment thereon and property that is
more than double the balance sought by the judgment creditor. 735 ILCS 5/2-1402(f)(1)
(West 2014); Air Auto Leasing Co., 297 Ill. App. 3d at 878.
¶ 27 The disputed account here was an IOLTA account in the name “Lawrence B[.] Wrenn
AAL.” In examining the nature of an IOLTA account, we look to the Illinois Rules of
Professional Conduct, which were modeled after the American Bar Association (ABA)
Model Rules of Professional Conduct. See Schwartz v. Cortelloni, 177 Ill. 2d 166, 179
(1997). The Florida Rules of Professional Conduct are similarly modified versions of the
ABA Model Rules. Hagopian v. Justice Administrative Comm’n, 18 So. 3d 625, 643 n.11
(Fla. Dist. Ct. App. 2009). Illinois Rule of Professional Conduct 1.15(a) requires an attorney
to hold clients’ property separate from the lawyer’s own property. Ill. R. Prof. Conduct
(2010) R. 1.15(a) (eff. Sept. 1, 2011). “It is ‘absolutely impermissible’ for an attorney to
commingle his or her funds with those of a client.” In re Edmonds, 2014 IL 117696, ¶ 87
(citing In re Clayter, 78 Ill. 2d 276, 278-79 (1980)). An IOLTA account should hold all client
or third party funds that “are nominal in amount or are expected to be held for a short period
of time, including advances for costs and expenses, and funds belonging in part to a client or
third person and in part presently or potentially to the lawyer or law firm.” Ill. R. Prof.
Conduct (2010) R. 1.15(f) (eff. Sept. 1, 2011); cf. West’s F.S.A. Bar Rule 5-1.1 (funds held
in client trust account can include advances for fees). Greater sums or funds that are expected
to be held for a longer period of time are to be deposited into a separate interest-bearing
client trust account, with the client designated as the income beneficiary. Ill. R. Prof.
Conduct (2010) R. 1.15(f) (eff. Sept. 1, 2011). The Lawyers Trust Fund of Illinois distributes
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interest generated by Illinois IOLTA accounts to legal aid agencies. Wieland v. Lawyers Trust
Fund, 359 Ill. App. 3d 1147, 1149-50 (2005). All 50 states have IOLTA programs. Id. at
1150.
¶ 28 In examining section 2-1402, we are cognizant of the rules of statutory interpretation. In
construing a statute, our primary objective is to ascertain and give effect to the legislature’s
intent, which is best indicated by the statute’s plain language. McVey v. M.L.K. Enterprises,
L.L.C., 2015 IL 118143, ¶ 11. We give undefined terms their ordinary and popularly
understood meanings. Skaperdas v. Country Casualty Insurance Co., 2015 IL 117021, ¶ 15. If
the statutory language is clear, we must apply it as written, without resorting to extrinsic aids
of statutory construction. State Bank of Cherry v. CGB Enterprises, Inc., 2013 IL 113836,
¶ 56.
¶ 29 Wells Fargo takes the position that under section 2-1402 the citation pertains to only
nonexempt property. However, Wells Fargo does not cite, nor have we found, any statutory
exemption for IOLTA accounts. See, e.g., 735 ILCS 5/12-901, 12-1001, 12-1006 (West
2014) (listing various exemptions). Moreover, as stated, while an IOLTA account is designed
to hold client funds, it may also contain funds belonging in part to the lawyer or law firm. Ill.
R. Prof. Conduct (2010) R. 1.15(f) (eff. Sept. 1, 2011). It may further hold retainers from
which attorney fees may be deducted. See Hillary A. Webber, Equal Justice Under the Law:
Why IOLTA Programs Do Not Violate the First Amendment, 53 Am. U. L. Rev. 491, 494
(2003).
¶ 30 We conclude that the portion of funds that the attorney may later designate as his or her
property falls within the plain language of section 2-1402(f)(1) prohibiting the transfer 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” (735 ILCS 5/2-1402(f)(1) (West
2014)), at least in circumstances such as those in this case, where the IOLTA account was in
the judgment debtor’s own name. Accordingly, we agree with the trial court’s ruling that
Wells Fargo violated the citation to discover assets by failing to freeze the IOLTA account.
¶ 31 The next issue is whether the trial court erred by awarding the Kaufmanns judgment in
the amount of funds transferred by Wrenn. Section 2-1402(f)(1) states that the court may
punish a third party who violates the restraining provision of a citation by entering “judgment
against him or her in the amount of the unpaid portion of the judgment and costs allowable
under this Section, or in the amount of the value of the property transferred, whichever is
lesser.” Id. In this case, the trial court did not require Wells Fargo to pay the entire amount of
the judgment Wrenn owed. Rather, it entered judgment in the “amount of the value of the
property transferred.” Id.
¶ 32 The parties stipulated that the IOLTA account contained $4,975.95 when the citation was
issued, and they also stipulated that there was no basis to dispute that subsequent deposits
totaling $37,923 came from law firm clients. As Wells Fargo points out, in Fox Carthage,
Inc. our supreme court quoted the following language with approval: “ ‘the “third party” is
forbidden to transfer only what property he [the judgment debtor] owns, and cannot be
punished without proof that any property thereafter transferred was the debtor’s in fact.’ ”
Fox Carthage, Inc., 126 Ill. 2d at 315 (quoting Capital Co. v. Fox, 85 F.2d 97, 101 (2d Cir.
1936)); see also Mendez v. Republic Bank, 725 F.3d 651, 653 (7th Cir. 2013) (“If the third
party releases the property without a court order giving permission to do so, the third party
may be liable to the judgment creditor for any property of the debtor that was released, up to
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the value of the underlying judgment.” (Emphasis added.)). However, here the trial court
held Wells Fargo responsible for the $4,975.95 and $37,923 without any proof that the
money belonged to Wrenn rather than his clients. That is, while Wells Fargo should have
frozen the IOLTA account because it could have contained money later becoming due to
Wrenn, the citation did not operate as an injunction but rather served as a warning of possible
future sanctions (Fox Carthage, Inc., 126 Ill. 2d at 314-15), and the sanctions could be
imposed only after evidence showing that the transferred property actually belonged to
Wrenn (id. at 314), which the Kaufmanns did not provide. Accordingly, the trial court erred
by including the $4,975.95 and $37,923 in the judgment against Wells Fargo.
¶ 33 Regarding the disability funds, the parties stipulated that Wrenn deposited a total of
$26,856.94 in checks from Northwestern Mutual pursuant to his disability claim. The trial
court apparently overlooked this stipulation in stating that “[t]here [was] no evidence one
way or other that they were disability payments other than what [Wells Fargo] claims they
were.” It is clear that this money belonged to Wrenn personally, at least when it was issued to
him.
¶ 34 Wells Fargo argues that it is not responsible for this portion of the funds, either, because
disability funds are exempt from collection. Section 2-1402(f)(1) allows a third party to be
held responsible for the “amount of the value of the property transferred.” (Emphasis added.)
735 ILCS 5/2-1402(f)(1) (West 2014). Viewed in context of the entirety of section
2-1402(f)(1), “property” as used in that phrase necessarily refers to “property not exempt
from the enforcement of a judgment therefrom.” (Emphasis added.) Id. Therefore, Wells
Fargo could not be required to pay for transferred property that was exempt from the
enforcement of a judgment. See also Air Auto Leasing Co., 297 Ill. App. 3d at 878
(exceptions to the section 2-1402(f)(1) restraining provision include property exempt from
the enforcement of a judgment); In re Fridge, 239 B.R. 182, 188 (Bankr. N.D. Ill. 1999)
(citation and its restraining provision bar only transfer of a debtor’s nonexempt property, so
there is no violation of the citation if the debtor uses or spends exempt property).
¶ 35 Although the Kauffmans rely on Logston, 103 Ill. 2d at 285, for the proposition that
personal property exemptions do not protect a party from a contempt order, here the trial
court specifically declined to find Wells Fargo in contempt. Moreover, Logston recognized
that whether a party could collect on exempt property was a separate issue (id.), and here we
are examining Wells Fargo’s potential liability for transferring exempt property, which is a
subject Logston did not address. Logston also dealt with contempt for failure to make support
payments, and support payments are an exception to at least some otherwise exempt benefits.
See In re Marriage of Murphy, 338 Ill. App. 3d 1095, 1098 (2003).
¶ 36 We further recognize that section 2-1402(f)(l) (735 ILCS 5/2-1402(f)(l) (West 2014))
provides for a hearing at which the judgment debtor may seek a declaration that certain
property is exempt. At least one case has relied on this section to state that the judgment
debtor must affirmatively assert an exemption, or risk forfeiting it. In re Marriage of Takata,
383 Ill. App. 3d 782, 788 (2008). We need not parse out the exact consequences of a
judgment debtor’s failure to assert an exemption, because that is not the precise issue before
us here. We do note that another section, section 2-1402(j), provides:
“This Section does not grant the power to any court to order installment or other
payments from, or compel the sale, delivery, surrender, assignment or conveyance of
any property exempt by statute from the enforcement of a judgment thereon, a
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deduction order, garnishment, attachment, sequestration, process or other levy or
seizure.” (Emphasis added.) 735 ILCS 5/2-1402(j) (West 2014).
As section 2-1402(j) does not allow statutorily-exempt property to be used to satisfy a
judgment, it supports our interpretation of section 2-1402(f)(1) as not holding a third party
liable for allowing the transfer of property that was statutorily exempt from the enforcement
of a judgment. See also In re Weitzman, 381 B.R. 874, 881 (Bankr. N.D. Ill. 2008) (citation’s
prohibition “merely serves to warn the third-party citee of possible sanctions he may incur if
he transfers the judgment debtor’s non-exempt assets prior to the citation court ruling on
whether those assets should be applied to the judgment” (emphasis added)).
¶ 37 Section 12-1001(g) states that the “debtor’s right to receive” a disability benefit is exempt
from judgment. 735 ILCS 5/12-1001(g) (West 2014). The Kaufmanns argue that, once
Wrenn deposited the disability checks into the IOLTA account, they lost their exempt status
because they became for the benefit of Wrenn’s clients, rather than himself and his family. If
this were true, Wells Fargo would not be responsible for repaying the money, as it no longer
belonged to the judgment debtor. See supra ¶ 32. However, exempt funds that are reasonably
traceable will retain their exempt status even if they are commingled with nonexempt funds
in the same bank account. See In re Estate of Merritt, 272 Ill. App. 3d 1017, 1021 (1995).
¶ 38 In any event, we note that the appellate court has interpreted section 12-1001(g) as
exempting a debtor’s right to receive certain benefits, as opposed to property traceable to
those benefits. For example, in Fayette County Hospital v. Reavis, 169 Ill. App. 3d 246, 248
(1988), the debtors purchased a certificate of deposit (CD) with Social Security benefits. The
court noted that, although section 12-1001(g) exempted a debtor’s right to receive Social
Security benefits, the creditor was “not attempting to attach social security benefits as they
are received” but rather trying to obtain funds of a CD that were traceable exclusively to the
Social Security benefits. Id. at 249. The court contrasted section 12-1001(g) with section
12-1001(h), which exempted a “ ‘debtor’s right to receive, or property that is traceable to’ ”
certain awards and payments. (Emphasis added.) Id. at 250 (quoting Ill. Rev. Stat. 1985, ch.
110, ¶ 12-1001(h)). The court stated that an expression of certain exceptions in a statute was
construed as an exclusion of all others, and it concluded that in section 12-1001(g) the
legislature did not intend to exempt property traceable to Social Security benefits. Id.
However, the court ultimately concluded that the benefits were exempt under the federal
Social Security Act (42 U.S.C.A. § 407(a) (West 1983)). Fayette County Hospital, 169 Ill.
App. 3d at 251.
¶ 39 The appellate court subsequently relied on Fayette County Hospital in In re Marriage of
Pope-Clifton, 355 Ill. App. 3d 478, 479 (2005). There, the court was presented with the issue
of whether a bank account containing only funds received as Veterans’ Administration
disability benefits was exempt from collection to pay a judgment for child support,
maintenance, and related costs. The court relied on Fayette County Hospital in reasoning that
under section 12-1001(g) only a debtor’s right to receive veterans’ benefits was exempt, and
not funds traceable to those benefits. Id. at 481-82.
¶ 40 In contrast, this court took a different approach in Auto Owners Insurance v. Berkshire,
225 Ill. App. 3d 695 (1992), albeit for a different statute, section 12-1006 of the Code (Ill.
Rev. Stat. 1989, ch. 110, ¶ 12-1006). That statute exempts a “debtor’s interest in or right,
whether vested or not, to the assets held in or to receive” payments under a retirement plan.
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735 ILCS 5/12-1006 (West 2014).3 During a section 2-1402 supplementary proceeding, the
debtor asserted this exemption for $696.32 in retirement benefits in his checking account.
Berkshire, 225 Ill. App. 3d at 696-97. The trial court had ruled that, because the debtor had
deposited the money into a personal account, they were no longer exempt. Id. We disagreed,
stating:
“Where the purpose of an exemption is to protect income necessary for the support of
a debtor and his family, it makes no sense to allow the funds to be exempt so long as
the debtor cannot use them. [Citations.] Thus, section 12-1006 allows the debtor to
receive benefits and to use them as well. Any other interpretation frustrates the
legislative policy and renders the statute meaningless.” Id. at 698.
We noted that personal property exemption statutes are liberally construed to protect debtors.
Id. at 699. We stated that, as long as the debtor continued to hold and use the funds for the
support of the debtor and his family, the funds traceable to exempt payments were exempt.
Id. at 698-99. In contrast, if the debtor transformed the exempt payments into an investment,
the statute’s purpose of allowing the funds for support was not being met, and the funds
should lose their exempt character. Id. at 699.
¶ 41 In arriving at our conclusion, we recognized that Fayette County Hospital reached an
arguably different result. Id. We stated that since that decision the legislature had moved the
exemptions for pensions into a separate statutory section and expanded the language, so it
should be construed apart from section 12-1001. We further stated that we could not read
statutes so as to render them meaningless and that:
“Not to permit the tracing of the ready funds would frustrate the purposes of the
exemption and pension statutes, which are to provide support for the debtor and his
family and to prevent them from becoming public charges. [Citations.] Although the
other exemption statutes provide for the tracing of some benefits and not others, the
principle of expressio unius est exclusio alterius, applied in [Fayette County Hospital],
has no place in interpreting the exemption statutes when to apply it would frustrate
the purpose of the statutes.” Id. at 699-700.
We ultimately remanded the case for the determination of whether the funds were from a
lump-sum distribution, in which case they would have lost their exempt status because they
were not rolled over into another qualified plan, or whether they were pension distributions
intended for support, in which case they would be exempt. Id. at 701.
¶ 42 While Berkshire pertains to section 12-1006, the language in that exemption statute,
referring to “interest in or right *** to the assets held in or to receive *** payments” from
retirement plans (735 ILCS 5/12-1006 (West 2014)), does not significantly differ from a
“debtor’s right to receive” (735 ILCS 5/12-1001(g) (West 2014)) disability payments, where
the funds in question are in a bank account. This is especially true in light of the liberal
construction afforded to personal-property exemption statutes to protect debtors. Berkshire,
225 Ill. App. 3d at 699. In Berkshire, we expressed our belief that to not allow the tracing of
funds would frustrate the purpose of all exemption statutes, which were designed to allow a
debtor to support himself and his family, and that a contrary interpretation relying on the
explicit allowance of tracing for some benefits but not others was unreasonable because it
would frustrate the statutes’ purpose. Id. at 699-700. Accordingly, we adhere to our analysis
3
The relevant text of the statute remains unchanged from the version discussed in Berkshire.
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in Berkshire that the exemption statutes allow for the tracing of funds where the funds are
being used for the debtor’s support, rather than as an investment.
¶ 43 We further note that Berkshire and the instant case can be distinguished from Fayette
County Hospital, as there the court stated that the creditor was “not attempting to attach
social security benefits as they are received,” but rather attempting to obtain the proceeds of a
CD. Fayette County Hospital, 169 Ill. App. 3d at 249. Here, in contrast, the disability checks
were being deposited into a checking account, and Wrenn continuously removed the
proceeds. Cf. In re Schoonover, 331 F.3d 575, 577 (7th Cir. 2003) (section 12-1001(g)
“ensures that recipients enjoy the minimum monthly income provided by the benefits laws; it
does not entitle recipients to shield hoards of cash”). Moreover, Berkshire and this case can
be distinguished from Pope-Clifton, 355 Ill. App. 3d 478, because that case involved a
support judgment, and, as stated, support payments are an exception to at least some
otherwise exempt benefits. See Murphy, 338 Ill. App. 3d at 1098. Indeed, in response to the
debtor’s argument that allowing the court to seize his bank account would deprive him of his
means of subsistence, the Pope-Clifton court noted that veterans’ benefits were designed to
support both veterans and their families. Pope-Clifton, 355 Ill. App. 3d at 482. In other
words, there are different policy considerations at work when the judgment is to collect
support due to those for whom the debtor is financially responsible, as opposed to other
creditors.
¶ 44 We additionally recognize that many federal bankruptcy courts have held that section
12-1001(g) exempts the right to receive the listed benefits but not their actual receipt, at least
insofar as they were received before the filing of the bankruptcy petition. See, e.g., In re
Austin, No. 14-70299, 2014 WL 3695370, at *3 (Bankr. C.D. Ill. July 24, 2014) (money in
bank account from public benefits not exempt under section 12-1001(g)); In re Russell, No.
13-80468, 2013 WL 4591985, at *2 (Bankr. C.D. Ill. Aug. 28, 2013) (right to receive funds
does not protect funds already received); In re Frueh, 518 B.R. 881, 884 (Bankr. N.D. Ill.
2014) (section 12-1001(g) applies only to the rights to receive future payments and not funds
received prepetition or to the proceeds thereof); In re McQuaid, 492 B.R. 514, 517-18
(Bankr. N.D. Ill. 2013) (trust funds traceable to a disability payment made prior to
bankruptcy petition were not exempt). However, in this case the disability funds in question
were deposited postcitation. Even otherwise, the bankruptcy courts were relying on their
interpretation of Fayette County Hospital and Pope-Clifton and, in any event, lower federal
court decisions are not binding on this court. Wilson v. County of Cook, 2012 IL 112026,
¶ 30. Moreover, the court in In re Austin recognized that if one purpose of providing public
assistance benefits “is to help low-income families meet their basic needs, it makes little
sense not to protect the benefit once it is in the hands of a debtor and actually available to
them to meet that purpose.” In re Austin, 2014 WL 3695370, at *3.
¶ 45 Again, our position is not that section 12-1001(g) exempts all property traceable to the
benefit listed but, rather, that funds that are being used for the debtor’s support as the funds
are received, as opposed to being accumulated for investment purposes, are exempt under the
statute. Here, the funds from the disability checks fall into this category, as they were
deposited into a checking account and continuously removed. Accordingly, they are exempt
under section 12-1001(g), and the trial court erred in ordering Wells Fargo to repay this
portion of the funds as well.
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¶ 46 III. CONCLUSION
¶ 47 In sum, we agree with the trial court that Wells Fargo should have frozen Wrenn’s
IOLTA account, because it potentially included funds to which Wrenn “may be entitled or
which may thereafter be acquired by or become due to him” (735 ILCS 5/2-1402(f)(1) (West
2014)), and we affirm this portion of the trial court’s ruling. However, Wells Fargo could
ultimately be held responsible only for the transfer of funds belonging to the judgment debtor
(see Fox Carthage, Inc., 126 Ill. 2d at 314) that were not otherwise exempt (see 735 ILCS
5/2-1402(f)(1) (West 2014); supra ¶¶ 34-36). There was no proof that the original $4,975.95
in the account or the $37,923 from client checks belonged to Wrenn. Moreover, the
$26,856.94 stipulated to be from disability checks was exempt under section 12-1001(g) and
Berkshire, 225 Ill. App. 3d at 699-700. Accordingly, we reverse the portion of the trial
court’s ruling holding Wells Fargo responsible for the funds transferred from the IOLTA
account after the citation’s issuance, and we vacate the monetary judgment against Wells
Fargo.
¶ 48 Affirmed in part and reversed in part; monetary judgment vacated.
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