Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-02469/USCOURTS-ca7-15-02469-0/pdf.json

Parties Involved:
Mirza Alikhan
Appellee
Allstate Corporation
Appellee
Prime Builders & Development, Inc.
Appellant
Syed Rizvi
Appellant

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 15-2469

SYED RIZVI and PRIME BUILDERS & DEVELOPMENT, INC.,

Plaintiffs-Appellants,

v.

ALLSTATE CORPORATION, also known as 

ALLSTATE INDEMNITY COMPANY,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 13 C 6924 — Thomas M. Durkin, Judge.

____________________

ARGUED APRIL 14, 2016 — DECIDED AUGUST 12, 2016

____________________

Before POSNER, KANNE, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge. We hold in this appeal that a separate basis for federal subject matter jurisdiction is necessary 

when, in a federal supplemental proceeding, a judgment 

creditor seeks to maintain an action under 735 Ill. Comp. Stat. 

§ 5/2-1402(c)(6) against a third party on the ground that the 

third party is indebted to the judgment debtor. Such an action 

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2 No. 15-2469

is sufficiently independent of the underlying case as to require its own basis for subject matter jurisdiction. There was 

no separate basis for jurisdiction in this case, so we affirm the 

judgment of the district court dismissing the supplemental 

proceeding for lack of subject matter jurisdiction.

Plaintiffs Syed Rizvi and his company, Prime Builders & 

Development, Inc., performed repair work for Mirza Alikhan, 

whose house had been damaged in a fire. When the work was 

completed in 2009, Alikhan paid Rizvi only part of what he 

owed. Rizvi sued suit for breach of contract in federal district 

court, invoking the court’s diversity jurisdiction under 28 

U.S.C. § 1332. (Rizvi and Prime Builders are Illinois citizens. 

Alikhan is a citizen of Texas.) When Alikhan failed to appear 

to defend the suit, plaintiffs obtained a default judgment.

Plaintiffs then served a citation to discover assets on Allstate Corporation pursuant to an Illinois statute that governs 

supplementary proceedings to assist in collecting on a judgment. See 735 Ill. Comp. Stat. § 5/2-1402; see also Fed. R. Civ. 

P. 69(a) (adopting state law for procedures to execute judgments and obtain relevant discovery). The statute permits the 

creditor to prosecute supplementary proceedings “for the 

purposes of examining the judgment debtor or any other person to discover assets or income of the debtor not exempt 

from the enforcement of the judgment....” § 5/2-1402(a). The 

district court ordered Allstate to respond to the citation and 

determined it would take no further action in the case absent 

a motion from the parties.

Allstate responded that Alikhan had no accounts of any 

sort with Allstate. Allstate also said: (1) Alikhan had no claims 

pending with Allstate; (2) Alikhan’s most recent claim had 

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No. 15-2469 3

been opened and closed in 2008; and (3) Allstate did not owe 

any insurance payments to Alikhan.

Plaintiffs then asked the district court to order Allstate to 

remit “outstanding insurance proceeds of $110,926.58” and to 

impose sanctions against Allstate pursuant to Federal Rule of 

Civil Procedure 11(b)(4). Plaintiffs attacked Allstate’s response as “baseless” and offering “absolutely no evidence 

that Allstate is not holding [Alikhan’s] insurance proceeds.” 

According to plaintiffs, Allstate had participated in negotiating the repair contract. Their evidence was that Allstate Indemnity Company was listed as the insurance company on 

the contractor estimate. Plaintiffs also contended that Allstate 

had made a partial payment to Alikhan and Prime Builders in 

2008. Through this conduct, plaintiffs argued, Allstate had essentially admitted a valid insurance policy was in effect at the 

time of the fire but had refused without justification to pay 

the rest of the proceeds for the repairs on Alikhan’s property.

The district court held a status hearing and sensibly raised 

the question of subject matter jurisdiction. Diversity of citizenship had existed between the plaintiffs and Alikhan, but 

Allstate, like plaintiffs Rizvi and Prime Builders, is a citizen of 

Illinois. Following the hearing, the court denied the turnover 

motion. The court noted that plaintiffs had served Allstate 

with the citation to discover assets, and Allstate had responded that it had no assets belonging to Alikhan, completing the process described in 735 Ill. Comp. Stat. § 5/2-1402(a). 

The court then considered whether the remainder of the statute authorized a turnover order. 

Once a judgment debtor’s assets have been discovered under § 5/2-1402(a), the statute focuses primarily on actions a 

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creditor can take against the judgment debtor itself. Two provisions, though, can apply to parties other than the judgment 

debtor. One grants the court the power to compel “any person 

cited, other than the judgment debtor, to deliver up any assets 

so discovered ... when those assets are held under such circumstances that in an action by the judgment debtor he or she 

could recover them in specie or obtain a judgment for the proceeds or value thereof as for conversion or embezzlement.” 

§ 5/2-1402(c)(3). The district court rejected this provision as a 

basis for the turnover order because no assets belonging to 

Alikhan had been “so discovered” through the citation.

The other provision allows the court to authorize the judgment creditor “to maintain an action against any person or 

corporation that, it appears upon proof satisfactory to the 

court, is indebted to the judgment debtor, for the recovery of 

the debt....” § 5/2-1402(c)(6). This provision provides the 

plaintiffs with a mechanism to attempt to recover any insurance proceeds that Allstate allegedly owed Alikhan. It permits them to step into Alikhan’s shoes to assert any rights he 

might have under the insurance policy as a means to satisfy 

the default judgment. The district court, however, relied on 

our opinion in Travelers Property Casualty v. Good, 689 F.3d 714 

(7th Cir. 2012), to hold that plaintiffs’ effort to recover insurance proceeds directly from Allstate was so independent from 

the original contract action against Alikhan that it required an 

independent basis for subject matter jurisdiction. Without diversity of citizenship, there was no basis for jurisdiction. The 

district court dismissed plaintiffs’ claim against Allstate for 

lack of subject matter jurisdiction.

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No. 15-2469 5

Plaintiffs appealed but inexplicably failed to address the 

district court’s ruling on subject matter jurisdiction or the effect of Travelers, the foundation of the dismissal. Instead, they 

devoted their brief to a new argument, that Allstate’s response 

to the original citation to discover assets does not qualify as 

an “affidavit” under Illinois Supreme Court Rule 191(a). Even 

if the plaintiffs were correct, the point would still be irrelevant. Allstate was ordered to respond to the citation, and it 

did. It was not ordered to respond with an affidavit that complied with Rule 191(a), nor does the statute require one. Allstate answered in a document prepared by an Allstate agent 

and declared under penalty of perjury pursuant to 28 U.S.C. 

§ 1746 that it was not holding any assets belonging to Alikhan. 

Given this evidence, the district court was correct that there 

was no basis for a turnover order under § 5/2-1402(c)(3). See 

Lange v. Misch, 598 N.E.2d 412, 415 (Ill. App. 1992) (statute 

does not authorize “the entry of a judgment at a supplementary proceeding against a third party who does not possess 

assets of the judgment debtor”).

Plaintiffs’ real argument seems to be that Allstate is lying—that, contrary to its declaration in the record, Allstate is

holding Alikhan’s assets in the form of unpaid insurance proceeds. Well, perhaps. We take no position on that question. 

For the district court and for us, the critical jurisdictional point 

is that resolving that dispute takes the case out of the sphere 

of § 5/2-1402(c)(3), which applies when the third party is holding the debtor’s assets (in a bank account, for example), and 

into the realm of § 5/2-1402(c)(6), which applies when the 

third party may be indebted to the debtor and allows the judgment creditor to maintain a separate action on that basis.

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As we explained in Travelers, such a dispute under § 5/2-

1402(c)(6) presents a separate action that requires its own basis for federal jurisdiction. Travelers involved an underlying 

state court class action alleging violations of the Fair and Accurate Credit Transactions Act of 2003, 15 U.S.C. § 1681c(g). 

The case had been settled by the original parties. As part of 

the settlement, the original defendant assigned the plaintiffs 

its claims against and rights to payment under an insurance 

policy issued by Travelers. 689 F.3d at 716. Class representative Good filed a citation to discover assets against Travelers 

in the state court pursuant to § 5/2-1402. Travelers then filed 

an action in federal district court seeking a declaratory judgment that its policies did not cover the class members’ statutory claims. 689 F.3d at 717.

We held that the district court lacked subject matter jurisdiction over Travelers’s declaratory judgment suit because the 

claims of the individual defendants could not be aggregated 

to satisfy the amount-in-controversy requirement of 28 U.S.C. 

§ 1332. Id. at 723. In coming to this conclusion, we held that 

there was no evidence that the original defendant had assigned its insurance proceeds to the class in order to defeat 

federal jurisdiction—primarily because we concluded that 

Travelers could have removed the citation proceeding to federal court as its own separate action. Id.

We explained that the removal statute, 28 U.S.C. § 1441, 

permits removal of independent suits, though not ancillary or 

supplementary proceedings. 689 F.3d at 724, citing Federal 

Sav. & Loan Ins. Corp. v. Quinn, 419 F.2d 1014, 1018 (7th Cir. 

1969), and Barrow v. Hunton, 99 U.S. 80, 83 (1878). There is no 

bright-line formula for separating supplemental and independent proceedings for removal purposes, but we said that 

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No. 15-2469 7

a proceeding is independent, and thus potentially removable, 

where it presents “genuine disputes with new parties and 

raise[s] new issues of fact and law.” Travelers, 689 F.3d at 725 

(citations omitted). We found that “the citation proceeding 

against Travelers was separate from the underlying suit” and 

“could have been removed if the requirements of diversity jurisdiction were satisfied.” Id. “[A]s the dispute over insurance 

coverage crystallized in the state court, the citation proceeding became an ‘action ... for the recovery of the debt.’” Id., 

quoting § 5/2-1402(c)(6). The district court correctly recognized here that this case, like Travelers, involves a citation proceeding that has become separate from the underlying suit 

and needs its own basis for jurisdiction.

In oral argument, plaintiffs argued that Travelers is irrelevant because the insurance company in Travelers contested 

coverage and Allstate has not done so here. As evidence, 

plaintiffs point out that Allstate does not deny that it made a 

partial payment on the repairs. The critical point in Travelers

was not the specifics of the insurer’s defense. What mattered 

was that the decision to contest coverage established a new 

dispute governed by law distinct from the underlying consumer class action and based on different facts. See Travelers, 

689 F.3d at 724–26. Likewise, in this case Allstate has taken the 

position that it does not owe Alikhan any money and is not 

holding any proceeds from his claim. It has produced a statement under penalty of perjury to that effect. Any further proceedings—for example, to contest coverage, to dispute 

whether additional payment is owed, or to litigate exclusions 

or policy limits—will require litigation that relies on different 

facts and law than the underlying breach of contract claim 

against Alikhan. Under Travelers, this is a separate dispute 

that requires its own basis for federal jurisdiction. There is 

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none, so the district court correctly dismissed plaintiffs’ § 5/2-

1402(c)(6) claim for lack of subject matter jurisdiction. Plaintiffs may seek relief from Allstate in an Illinois state court, but 

not in a federal court.

The judgment of the district court is AFFIRMED.

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