Opinion ID: 179830
Heading Depth: 2
Heading Rank: 3

Heading: Scope of a District Court's Authority in Supplemental Proceedings

Text: Federal Rule of Civil Procedure 69(a) provides that [t]he procedure on execution [of a money judgment]and in proceedings supplementary to and in aid of judgment or executionmust accord with the procedure of the state where the court is located. Fed.R.Civ.P. 69(a)(1). In Illinois, 735 ILCS 5/2-1402 and Illinois Supreme Court Rule 277 govern supplemental proceedings. Supplementary proceedings are post-judgment processes that support the judgment creditor in asset discovery and final satisfaction of judgment. Star Ins. Co. v. Risk Mktg. Group, Inc., 561 F.3d 656, 662-63 (7th Cir.2009). The applicable statute provides: [a] judgment creditor . . . is entitled 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, a deduction order or garnishment, and of compelling the application of non-exempt assets or income discovered toward the payment of the amount due under the judgment. 735 ILCS 5/2-1402(a). The service of a citation to discover assets initiates supplemental proceedings. Id.; see also Cacok v. Covington, 111 F.3d 52, 53 (7th Cir. 1997). On appeal, the Rogan Children assert that the district court acted outside its authority in adjudicating the substantive property rights of third parties under equitable theories such as alter ego. They claim that an analysis of the scope of the proceedings is complicated by the fact that even though Dexia was proceeding under an alter ego theory throughout the case, the district court ultimately analyzed the issue under an ownership theory pursuant to our opinion in Star Insurance. In that case, we held that the allegations that must be made to pierce the corporate veil do not fall within the scope of supplemental proceedings wherein the only relevant inquiries are: (1) whether the judgment debtor is in possession of assets that should be applied to satisfy the judgment; or (2) whether a third party is holding assets of the judgment debtor that should be applied to satisfy the judgment. Star Ins. Co., 561 F.3d at 660-61 (citing Pyshos v. Heart-Land Dev. Co., 258 Ill.App.3d 618, 196 Ill.Dec. 889, 630 N.E.2d 1054, 1057 (1994)). The Rogan Children assert that regardless of the theory used by the district court, it did not have the authority to adjudicate their personal property rights. Although the Rogan Children contend that the district court altered the legal theory upon which it relied and thereby disadvantaged them, they do not clearly show what this means to their appeal. Additionally, we do not agree with their characterization of how this case was framed or presented. The district court's final order granting turnover of assets was issued on July 7, 2009. Earlier, in a March 12, 2009, order denying summary judgment on the Rogan Children's claim that Dexia could not pursue sham trust, constructive trust, or alter ego theories without filing a separate claim, the district court wrote: This argument misstates what Dexia is attempting to accomplish in the supplemental proceedings. Dexia has already prevailed on its claims against Peter Rogan. Dexia now seeks to satisfy its judgment against Rogan by collecting assets in the possession of the Rogan domestic trusts that Dexia contends are actually Peter Rogan's assets based on the equitable theories listed above. Dexia does not need to assert a new claim to engage in such proceedings to enforce its judgment against Peter Rogan. Though the situation might be different were Dexia seeking to hold the Rogan domestic trusts directly liable to Dexia (in other words, irrespective of whether the trusts' assets are actually Peter Rogan's), Dexia is not now attempting to do so. Dexia Crédit Local v. Rogan, 624 F.Supp.2d 970, 982 (N.D.Ill.2009). In response to the Rogan Children's argument that Dexia could not use alter ego or veil piercing claims in a supplementary proceeding, the court explained that Illinois allows a judgment creditor to reach assets of a debtor that are in the hands of third parties, which was what Dexia was seeking. Id. at 982-83 ([T]he Rogan children place undue emphasis on the labels Dexia has used to describe its equitable theories. In these supplementary proceedings, Dexia does not attempt to impose liability directly on Rogan domestic trusts. Rather, Dexia asserts that those trusts hold Peter Rogan's assets. Dexia may use equitable theories, including an alter ego theory or similar theories, to attempt to prove that assertion.). [4] In a much earlier order granting injunctive relief, the court similarly reasoned: Illinois Supreme Court Rule 277(a), which governs citation proceedings, likewise permits a proceeding to be against the judgment debtor or any third party the judgment creditor believes has property of or is indebted to the judgment debtor. That is the primary basis upon which Dexia has proceeded in this matterits contention that third parties hold property that actually is Peter Rogan's, even though it is held under some other guise. Dexia Crédit Local v. Rogan, 2008 WL 4543013, at  (N.D.Ill. Oct. 9, 2008). Consequently, the Rogan Children are the only parties who have attempted to construe Dexia's claim as one that is akin to piercing the corporate veil. The Rogan Children have shown us nothing that convinces us that the district court granted relief outside the proper scope of supplemental proceedings. A district court may inquire as to whether third parties hold assets of the judgment debtor, and once it is discovered that a third party holds such assets, the court may order the third party to deliver up those assets to satisfy the judgment. Pyshos, 196 Ill.Dec. 889, 630 N.E.2d at 1057; see also Dowling v. Chi. Options Assocs., Inc., 365 Ill.App.3d 341, 301 Ill. Dec. 731, 847 N.E.2d 741, 746 (2006) (The provisions of section 2-1402 are to be liberally construed, and the statute gives the court broad powers to compel the application of discovered assets or income in order to satisfy a judgment.); Kennedy v. Four Boys Labor Serv., Inc., 279 Ill. App.3d 361, 216 Ill.Dec. 160, 664 N.E.2d 1088, 1091 (1996) (stating that the Illinois statute gives courts broad powers to compel the application of discovered assets or income to satisfy a judgment); Elmhurst Auto Parts, Inc. v. Fencl-Tufo Chevrolet, Inc., 235 Ill.App.3d 88, 175 Ill.Dec. 771, 600 N.E.2d 1229, 1233 (1992) (noting that the supplemental proceedings statute is not a mere discovery statute, but permits the court to determine the rights of third parties). As long as the action seeks the judgment debtor's assets and does not concern personal liability, it falls within the scope of a supplemental proceeding. Kennedy, 216 Ill.Dec. 160, 664 N.E.2d at 1092-93 (explaining that a claim brought pursuant to the Fraudulent Transfer Act was properly brought in supplementary proceedings because it did not concern personal liability, but attempted to avoid the transfer of assets, sought recovery of the actual assets transferred, and ordered that the property be returned). Here, the district court determined that the Children's Trusts contained assets of the judgment debtor, Peter Rogan. Accordingly, it held that Dexia was entitled to turnover of the assets of the Children's Trust, terminated the interests of the Rogan Children in the Trusts (with the exception of $30,000), and ordered the trustee to turn over trust assets to Dexia. Following turnover, the Trusts would continue to exist and hold any property that did not belong to Peter Rogan. In taking this action, the district court did not exceed the broad power and authority that is granted to courts in supplemental proceedings to apply assets to satisfy a judgment. In their reply brief, the Rogan Children assert for the first time that the imposition of a constructive trust requires proof of elements that extend beyond the scope of supplemental proceedings. [5] The Rogan Children have not independently and sufficiently developed their theory challenging the district court's authority to impose a constructive trust. See JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 781 (7th Cir.1999) (warning that a litigant must do more than assert a novel theory that it wants us to buy); see also Long v. Teachers' Ret. Sys. of Ill., 585 F.3d 344, 349 (7th Cir.2009) (underdeveloped arguments are considered waived). Moreover, as we have often noted, arguments raised for the first time in a reply brief are waived. See Hess v. Reg-Ellen Mach. Tool Corp., 423 F.3d 653, 665 (7th Cir.2005).