Court Opinion

ID: 3002137
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:25:19.236241+00
Date Added: 2024-06-11T11:45:48.055472
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit
                          ____________

Nos. 06-1955 & 06-2357

L ABORERS’ P ENSION F UND, et al.,
                                                 Plaintiffs-Appellees,
                                  v.

P AVEMENT M AINTENANCE, INC., and
JOSEPH T. H AUGHEY,

                                    Defendants-Judgment Debtors,

MAT L EASING, INC.,
                                              Respondent-Appellant,

MB F INANCIAL B ANK,
                                   Adverse Claimant-Appellee.
                          ____________
            Appeals from the United States District Court
        for the Northern District of Illinois, Eastern Division.
                No. 02 C 5603—James B. Zagel, Judge.
                          ____________

    A RGUED D ECEMBER 4, 2007—D ECIDED A UGUST 29, 2008
                          ____________

  Before R IPPLE, M ANION, and W OOD , Circuit Judges.
  W OOD , Circuit Judge. MAT Leasing, Inc., challenges an
order entered by the district court during post-judgment
2                                    Nos. 06-1955 & 06-2357

collection proceedings. Those proceedings stemmed from
a money judgment against Pavement Maintenance, Inc.
(“PMI”), on PMI’s default, in favor of the three plaintiffs
in the litigation: Laborers’ Pension Fund, Laborers’
Welfare Fund, and James S. Jorgenson, the Funds’ Admin-
istrator. We refer to the plaintiffs as “the Funds”; collec-
tively, they make up the first set of appellees before us. The
other appellee, MB Financial Bank, entered the post-
judgment proceedings in the district court as an adverse
claimant. MB Financial has a perfected security interest
in PMI’s assets; its interest has priority over the Funds’
interest in those assets.
  But the appellees are not (at least now) pursuing PMI,
which is not even a party to this appeal. Instead, they
would like to collect from MAT Leasing, a third-party
respondent in the district court and the appellant here.
According to the Funds and MB Financial, MAT Leasing
was indebted to PMI at the time judgment was entered
against PMI. Following traditional principles of garnish-
ment, the creditors to whom PMI owes money are attempt-
ing to collect that debt from MAT Leasing.
  On March 8, 2006, the district court entered an order
finding that MAT Leasing did owe money to PMI and,
after incorporating a few offsets, it calculated the amount
of debt at $242,647.75. On April 20, 2006, the court ordered
MAT Leasing to turn over that amount to MB Financial, the
adverse claimant and priority creditor. MAT Leasing has
appealed judgments in favor of the Funds and of MB
Financial; we affirm.
Nos. 06-1955 & 06-2357                                     3

                              I
  On April 18, 2001, MB Financial extended credit to PMI
in the principal sum of $400,000. MB Financial filed the
documents required to secure its interest and then, on
August 1, 2001, properly perfected it by filing a UCC-1
financing statement. As we have noted, MB Financial’s
priority over the Funds’ interest in PMI’s assets is undis-
puted.
   In the meantime, from 2000 to 2003, MAT Leasing was
toiling away on a job it had obtained to perform repairs
on certain Chicago streets by replacing asphalt. MAT
Leasing removed the original asphalt and subcontracted to
PMI the replacement paving work. PMI replaced the
asphalt using its own equipment and crew of unionized
laborers. PMI did not own any trucks, however, and so it
purchased the trucking services required to pick up fresh
asphalt from a supplier and transport it to the job site from
a company called M.T. Transit. MAT Leasing and M.T.
Transit were owned in part by Michael S. Tadin, Sr., and
his son, Michael S. Tadin, Jr. At PMI’s job sites, Joseph
Haughey supervised PMI’s work. Haughey was a partner
in PMI and the primary contact person between PMI and
its contractors, MAT Leasing and M.T. Transit.
   While the repaving project was going on, PMI experi-
enced myriad financial difficulties. Its records were a
mess, its invoices were inaccurate, and it had trouble
making payments to M.T. Transit for its trucking services.
It failed to make timely payments on its loans from MB
Financial or to make timely contributions to the Funds,
which provided coverage to PMI’s employees. Despite
4                                   Nos. 06-1955 & 06-2357

these problems and its awareness of them, MAT Leasing
continued to deal with PMI. Those dealings occurred
primarily in the form of “handshake agreements” between
MAT Leasing’s head of operations, Mike Tadin, Jr., and
Haughey, PMI’s 50% owner and head of operations.
When asked at an evidentiary hearing about these agree-
ments, Tadin could not recall the details, but he affirmed
that they were entirely verbal; no written documents
exist to memorialize them.
  On August 7, 2002, the Funds filed the complaint that
started the present case. They began by suing PMI in the
Northern District of Illinois for delinquent contributions
and an audit. An amended complaint followed on July 10,
2003, adding PMI owner Haughey as a defendant. Four
months later, on November 6, 2003, the district court
entered a default judgment against PMI and Haughey
and in favor of the Funds, in the amount of $59,975.47.
Thereafter, the Funds initiated post-judgment pro-
ceedings pursuant to F ED. R. C IV. P. 69(a), which instructs
district courts to follow the law of supplementary pro-
ceedings of the state in which they sit. The parties and
district court accordingly proceeded under the Illinois
statute governing supplementary proceedings, 735 ILCS
5/2-1402.
  The Funds sent citations to discover assets to several
companies, seeking to find out if any of those third parties
owed money to PMI—for if they did, Rule 69(a) and Illinois
law would entitle the Funds to recover the amounts owed.
With those citations still pending, MB Financial appeared
in the district court on March 23, 2004, to assert its own
Nos. 06-1955 & 06-2357                                    5

interest in PMI’s assets. It claimed, and the Funds did not
dispute, that it held a secured, perfected interest in PMI’s
assets with priority over that of the Funds. Two months
later, on May 25, 2004, the district court entered an Agreed
Order providing that (1) MB Financial’s secured interest
was perfected, valid, and enforceable, with first priority
over PMI’s assets; (2) the Funds’ rights were valid and
enforceable but subordinate to MB Financial’s; and (3) the
citations filed by the Funds, and any additional citations
that third parties might file, would remain in full force
and effect under Illinois Supreme Court Rule 277(f),
“Supplementary Proceedings,” and any recoveries ob-
tained from those citations would apply first to the debt
owed to MB Financial, and then to the debt due to the
Funds.
  Two weeks later, on June 2, 2004, attorneys for MB
Financial wrote a letter to MAT Leasing, seeking to collect
on accounts receivable that MB Financial believed were
owed from MAT Leasing to PMI. (A letter also went to
M.T. Transit, but because the matters relating to M.T.
Transit are not pertinent to this appeal, we do not discuss
them further.) The letter noted that “while [PMI’s] records
of invoices are complete, records of payments made to
[PMI] are not, and therefore we are unsure of the actual
balance outstanding.” The letter requested copies of MAT
Leasing’s payments on these “outstanding accounts
receivable,” but MAT Leasing did not oblige. The following
month, on July 7, 2004, the Funds issued a citation to
discover assets to MAT Leasing; MAT Leasing did not
respond to the citation nor did it comply, and so on
October 13, 2004, the Funds filed a motion for rule to show
6                                  Nos. 06-1955 & 06-2357

cause why the third-party citation respondent MAT
Leasing and its President, Michael Tadin, should not be
held in contempt for the failure to comply. The motion
also asked the court to order the citation respondents to
pay the attorneys’ fees and costs that the Funds incurred
in bringing the motion.
  The district court granted the Funds’ motion on
January 11, 2005, and set a rule to show cause hearing
for January 27, 2005. The hearing was conducted as a
status hearing, and as it concluded, another status hearing
was set for April 28, 2005. Counsel for MAT Leasing
entered his appearance on April 15, 2005. Four days later,
the Funds filed a motion for turnover of MAT Leasing’s
assets, along with a notice for presentment of that motion
at the hearing scheduled for April 28. When that hearing
convened, the district judge entered the Funds’ motion
for turnover of MAT Leasing’s assets. Several additional
postponements took place over the next few months, until
on July 7 the court set an evidentiary hearing for Septem-
ber 7, 2005.
   At the hearing, the parties focused on the question
whether MAT Leasing owed money to PMI and, if so, how
much. Two witnesses testified: Thomas Murray (President
and the other 50% owner of PMI) and Michael Tadin, Jr.
(head of operations for MAT Leasing). The district court
took the issue under advisement, and on March 8, 2006,
it granted the Funds’ motion for turnover of MAT Leas-
ing’s assets and found that the amount of the debt was
$242,647.75. MAT Leasing filed its notice of appeal from
that order on April 5, 2006; this appeal was docketed as
Nos. 06-1955 & 06-2357                                    7

No. 06-1955. Then on April 17, MB Financial moved in the
district court for an order requiring MAT Leasing to pay
the amount of money specified in the court’s March 8
order. The court granted that motion three days later, on
April 20. MAT Leasing filed a second notice of appeal
from that decision; it was docketed as No. 06-2357; and
we consolidated the two appeals for our review.

                             II
  MAT Leasing offers three reasons for reversing the
district court’s rulings. First, MAT Leasing argues that the
district court “lost” its subject-matter jurisdiction over
these post-judgment collection proceedings on June 13,
2005, because the Funds and MB Financial failed to
comply with the requirements of Illinois Supreme Court
Rule 277(f), which provides for “automatic termination” of
collection proceedings after six months unless the trial
court grants an extension. Second, assuming the district
court was not divested of its subject-matter jurisdiction,
MAT Leasing contends that the court erred in concluding
that MAT Leasing owed any money to PMI. Lastly, MAT
Leasing claims that even if it owed money to PMI, the
district court clearly erred in its calculation of the
amount. We address each argument in turn.

                            A
  We first consider MAT Leasing’s argument that the
district court lost its subject-matter jurisdiction in these
post-judgment proceedings by operation of Illinois Su-
preme Court Rule 277(f), which provides:
8                                     Nos. 06-1955 & 06-2357

    (f) When Proceeding Terminated. A proceeding under
    this rule continues until terminated by motion of the
    judgment creditor, order of the court, or satisfaction
    of the judgment, but terminates automatically 6 months
    from the date of (1) the respondent’s first personal
    appearance pursuant to the citation or (2) the respon-
    dent’s first personal appearance pursuant to subse-
    quent process issued to enforce the citation, whichever
    is sooner. The court may, however, grant extensions
    beyond the 6 months, as justice may require. Orders for
    the payment of money continue in effect notwithstand-
    ing the termination of the proceedings until the judg-
    ment is satisfied or the court orders otherwise.
(Emphasis added.) MAT Leasing contends that this
“automatic termination” provision is jurisdictional, and
that the district court therefore lost its authority to hear the
case when it allowed more than six months to elapse
between Tadin’s first appearance (on behalf of MAT
Leasing) on December 13, 2004, and its ruling on March 8,
2006. Rule 277, in MAT Leasing’s view, requires us to
find that the district court’s jurisdiction “expired” on
June 13, 2005, six months after Tadin initially appeared.
The Funds and MB Financial respond that Rule 277 is
nothing more than a procedural mechanism by which post-
judgment collection proceedings can terminate if they
take too long and result in prejudice to or harassment of
the judgment debtor. See TM Ryan Co. v. 5350 S. Shore, LLC,
836 N.E.2d 803, 810 (Ill. App. Ct. 2005).
  MAT Leasing has no support for its strict jurisdictional
theory. It has not shown us a single instance in which a
Nos. 06-1955 & 06-2357                                       9

state rule of procedure has been permitted to divest a
federal court of subject-matter jurisdiction, and there is
certainly nothing in F ED. R. C IV. P. 69(a) that would
support such an outcome. See F ED. R. C IV. P. 82 (rules
“do not extend or limit the jurisdiction of the district
courts”); 28 U.S.C. § 2072. The district court’s subject-
matter jurisdiction was based on the federal-question
statute, 28 U.S.C. § 1331; the federal questions before the
court arose under the Employee Retirement Income
Security Act (“ERISA”), in particular the provisions that
entitled the Funds to their contributions. See 29 U.S.C.
§§ 1132(e)(1), 1145, and 185(a). The district court had
ancillary jurisdiction over the post-judgment proceedings,
and F ED. R. C IV. P. 69(a) directed it to state law for the
mechanics of the collection process. State rules of proce-
dure cannot negate subject-matter jurisdiction arising
from a federal statute and federal question.
  Although we could stop there, we add that MAT Leas-
ing’s assertion that Rule 277(f) somehow caused the
district court to lose its subject-matter jurisdiction ignores
the well established principle that “jurisdiction is deter-
mined by the facts that exist when the suit is filed.”
Olympia Express, Inc. v. Linee Aeree Italiane, S.P.A., 509 F.3d
347, 349 (7th Cir. 2007) (citing Dole Food Co. v. Patrickson,
538 U.S. 468, 478 (2004)). As Olympia Express explained,
“jurisdiction usually refers to a court’s authority to enter-
tain a case, rather than to procedural incidents.” Id. at 350.
If jurisdiction exists at the outset of a suit, subsequent
procedural events will not divest the court of that original
jurisdiction. See, e.g., Kanouse v. Martin, 56 U.S. 198, 208
(1854); Smith v. Widman Trucking & Excavating, Inc., 627
F.2d 792, 798-99 (7th Cir. 1980).
10                                    Nos. 06-1955 & 06-2357

   Further undermining MAT Leasing’s position that
Rule 277(f) sets a jurisdictional, rather than procedural,
requirement is the way in which it has been applied by
Illinois and federal courts. Courts have adopted a flexible
approach to the rule. See Levine v. Pascal, 236 N.E.2d 425,
431 (Ill. App. Ct. 1968). Since the rule does not affect the
federal court’s jurisdiction, its benefits could be forfeited
or waived. Here, MAT Leasing has at least forfeited any
complaint based on failure to comply with the rule,
because it failed to present this argument to the district
court. We might even find that MAT Leasing implicitly
waived the point entirely by continuing its active partic-
ipation in the district court proceedings long after the
asserted “expiration date” of June 13, 2005.
  Even if we were inclined to overlook MAT Leasing’s
forfeiture, it would still lose, because Illinois courts do not
apply Rule 277 in the rigid way MAT Leasing has advo-
cated. Illinois courts are unwilling to terminate proceed-
ings under this provision where the “extension[s] com-
plained of” were entered at the parties’ agreement or at
the request of the party currently challenging the court’s
authority, or where the extensions did not lead to harass-
ment of the complaining party. See, e.g., Nat’l Bank of
Albany Park v. Newberg, 289 N.E.2d 197, 201 (Ill. App. Ct.
1972). It is significant that the expiration date that MAT
Leasing advocates occurred after MAT Leasing had itself
caused, requested, or agreed to multiple continuances
and delays in the proceedings. It is odd, at best, that
MAT Leasing is trying to benefit from more than six
months’ delay in the resolution of this case, when much of
that delay resulted from its own requests for or acquies-
Nos. 06-1955 & 06-2357                                   11

cence in more time. There is no evidence that MAT Leasing
has suffered any prejudice, harassment, or injustice as a
result of the delays. The company was afforded ample
opportunity to be heard and never challenged the length
of time involved until after filing this appeal. Following
either the Illinois cases or common sense, there is no call
to apply Rule 277(f) in the circumstances of this case.
  Both state and federal courts construe Rule 277 liberally.
We have not found examples of cases where a reviewing
court found that a lower court’s ruling was invalid as a
result of Rule 277(f)’s operation. The text of the rule
supports this interpretation. It says that despite the six-
month limit, “[t]he court may . . . grant extensions beyond
the 6 months, as justice may require.” Nothing in the rule
requires a party to seek or request an extension from
the court in order to avoid termination. Rather, the rule
allows the court to “grant extensions . . . as justice may
require.” MAT Leasing is simply incorrect to say that the
“plain language” of Rule 277(f) requires the plaintiffs to
seek an extension, and its attempt to graft such a require-
ment onto the rule is without merit.
  Even under MAT Leasing’s theory of the rule, it appears
that the district court did enough to grant the kind of
extension that the rule contemplates. In the Agreed Order
entered on May 25, 2004, the court stated:
    The citations filed herein by Laborers, and any addi-
    tional third party citations issued by Laborers shall
    remain in full force and effect pursuant to Supreme
    Court Rule 277(f), and any recoveries obtained there-
    from shall be applied first to the indebtedness due
    to MB and then to the indebtedness due Laborers.
12                                  Nos. 06-1955 & 06-2357

This order expressly referred to Rule 277(f), noting that
the citations issued in this proceeding would continue to
have full effect under that provision. This statement,
combined with the court’s written orders entering each
continuance of the proceedings, probably satisfy the
rule’s condition that a judge may extend the proceedings
beyond six months. We can detect no basis for finding, as
MAT Leasing urges, that the district court had no authority
to enter these orders. The district court had subject-matter
jurisdiction under 28 U.S.C. § 1331, and it did not lose
that power through anything associated with Illinois
Supreme Court Rule 277(f). We therefore move on to
MAT Leasing’s arguments on the merits.

                             B
   MAT Leasing’s two remaining challenges both deal
solely with the validity of the district court’s factual
findings, which we will reverse only for clear error. See
McMahon Food Corp. v. Burger Dairy Co., 103 F.3d 1307 (7th
Cir. 1996). MAT Leasing first challenges the finding that
it owed any money at all to PMI; should we reject that
argument, its last resort is a challenge to the district
court’s calculation of the amount owed. We conclude
that neither finding was clearly erroneous.
  To support its position that it owed no money to PMI,
MAT Leasing asserts implausibly that there is “no evi-
dence” of any indebtedness from MAT Leasing to PMI; it
also contends that the district court’s orders are invalid
because the existence of the debt is “substantially dis-
puted.” Contrary to the claim that there is no evidence
Nos. 06-1955 & 06-2357                                   13

of any debt, the record reveals considerable evidence of
the debt, including PMI’s computer records and the
testimony of PMI President Thomas Murray. Murray
testified that according to PMI’s records, MAT Leasing
owed PMI a total of $236,007.40 for services rendered,
which remained unpaid at the time of the September 2005
hearing. Murray also testified to the status of specific
invoices, including Invoice 743, which reflected an addi-
tional $57,710 owed to PMI. The existence of the debt was
established at the hearing by Murray’s testimony and by
invoices kept in the ordinary course of business and
generated from PMI’s computer records.
  It is notable that MAT Leasing does not argue that PMI
failed to render services to MAT Leasing for which money
was owed. Instead, it contends that it had an arrange-
ment with PMI that offset its obligations to pay PMI.
Specifically, MAT Leasing argues that it applied receiv-
ables that it owed PMI to PMI’s balance with M.T. Transit,
the trucking company. MAT Leasing’s claim is that its use
of funds owed to PMI to pay off PMI’s other debts effec-
tively cancelled out the amount that MAT Leasing other-
wise would have owed. But MAT Leasing’s only evidence
of any such arrangement with PMI is Tadin’s testimony at
the hearing regarding his series of “handshake agree-
ments” with Haughey. As we noted earlier, Tadin con-
ceded that those agreements were verbal only, that no
written documents exist to explain or support them, and
that even he could not recall the details of them. The
district court weighed the evidence before it and con-
cluded that there was “no credible evidence that PMI
agreed to any reduction of the value [of its] invoices,” nor
14                                 Nos. 06-1955 & 06-2357

was there any evidence to support MAT Leasing’s claim
that it was entitled to offset its indebtedness to PMI by
transferring monies to M.T. Transit. It was well within
the district court’s discretion to accord minimal weight
to Tadin’s testimony, particularly where MAT Leasing had
ample opportunity to call Joseph Haughey—the person
purportedly on the other end of these handshake deals—to
testify about the alleged adjustments in payment that
underlie MAT Leasing’s claim, but it declined to do so.
  We add that to the extent MAT Leasing argues, on the
basis of language in 735 ILCS 5/2-1402 (the Illinois
statute that governs post-judgment proceedings) that we
should invalidate the district court’s orders because the
debt’s existence was “substantially disputed,” the appel-
lees correctly point out that the parts of the statute that
apply to third-party respondents like MAT Leasing (as
opposed to judgment debtors such as PMI) do not even
mention the notion of a “substantial dispute.” Compare 735
ILCS 5/2-1402(c)(1), pertaining to the judgment debtor
and implicating the idea of an obligation that “is not
substantially disputed,” with § 1402(c)(3) and (c)(4),
pertaining to parties other than the judgment debtor and
containing no such language, instead authorizing courts
to “[c]ompel any person cited, other than the judgment
debtor, to deliver up any assets so discovered” during a
post-judgment collection proceeding ((c)(3)), and to
“[e]nter any order upon or judgment against the person
cited that could be entered in any garnishment proceed-
ing” ((c)(4)).
  All of this leads to the conclusion that the argument
that MAT Leasing raises based on a “substantial dispute”
Nos. 06-1955 & 06-2357                                     15

over the amount owed is irrelevant. As the appellees
point out, the very purpose of the evidentiary hearing
was to resolve the question whether MAT Leasing owed
money to PMI and, if so, how much. MAT Leasing did not
oppose the hearing, and the district court conducted the
proceeding just as it should have: it accepted and weighed
the evidence offered by both parties, made credibility
judgments where necessary, and made factual findings
based on the evidence and the record before it. We cannot
conclude that the district court clearly erred in finding
that MAT Leasing owed a debt to PMI.
   In its final attempt to undermine the district court’s
decision, MAT Leasing argues that even if it did owe
money to PMI, the district court committed clear error in
its calculation of the amount, which it placed at
$242,647.75. The district court’s calculation accounted
for some of the credits and offsets that MAT Leasing
advocated, but MAT Leasing contends on appeal that
there are six categories of additional credits that the dis-
trict court should have applied to further reduce the
amount of the debt. We have reviewed the parties’ briefs,
the record, and the district court’s thorough explanation
of how and why it calculated the amount that MAT Leas-
ing’s owed, and we are satisfied that the court did not
clearly err in reaching its findings. Indeed, it appears to us
that the “credits” MAT Leasing now urges us to apply are
either utterly irrelevant to the debt owed from MAT
Leasing to PMI (e.g., checks Tadin paid to Haughey for PMI
but that Haughey took for his personal use; and the
turnover order for assets of another company, Pacific
Construction), or there is, as the district court found,
16                                  Nos. 06-1955 & 06-2357

insufficient evidence in the record to support them (e.g.,
the offsets for oral agreements that Tadin says he made
with Haughey).
                          * * *
 The judgment of the district court is A FFIRMED.

                          8-29-08