Society of Lloyds v. Estate of McMurray, 2001 WL 471939 (N.D. Ill. 2001)

Society of Lloyds v. Estate of McMurray

2001 WL 471939 (N.D.Ill. 2001)

United States District Court, N.D. Illinois, Eastern Division.

THE SOCIETY OF LLOYDS, Plaintiff,

The Estate of John MCMURRAY, et al., Defendants.

THE SOCIETY OF LLOYD'S, Judgment Creditor,

The Estate of John William MCMURRAY, Deceased, Judgment Debtor, and Harris

Bankcorp, Inc., as Executor of the John William McMurray Estate and Trustee of

John William McMurray's Trust, dated September 18, 1996, Judgment Debtor.

No. 99 C 6111.

March 26, 2001.

MEMORANDUM AND ORDER

MANNING, J.

*1 In this case, plaintiff the Society of Lloyds seeks discovery in an effort to locate assets with which to satisfy a £551,644.97 English judgment in its favor and against the defendants, the estate of John McMurray and Harris Bankcorp (the executor of the McMurray estate and the trustee of the John McMurray trust). Harris filed a motion to quash Lloyd's citation to discover assets, and the court referred the matter to Magistrate Judge Rosemond, who granted the motion as to estate assets and denied it as to trust assets. Harris filed timely objections to the denial of the motion as to trust assets. For the following reasons, the objections are overruled.

Jurisdiction

The court's inquiry begins with its subject matter jurisdiction. Because the jurisdictional allegations in the original citation did not contain any specifics regarding the citizenship of Harris or Mr. McMurray, the court orderd Lloyds to file an amended citation. See 28 U.S.C. § 1653. According to Lloyds, it is "a Society and Corporation incorporated under the laws of the United Kingdom with its principal place of business in London, England." Citation at ¶ 2. On the other side, the deceased judgment debtor, Mr. McMurray, was a citizen of Illinois, and Harris is an executor of Mr. McMurray's will as well as the trustee of his trust, and is a Delaware corporation with its principal place of business in Illinois. Citation at ¶¶ 3-4. As the amount in controversy exceeds $75,000, these allegations are sufficient to establish that diversity jurisdiction under 28 U.S.C. § 1332 is proper. The court will thus turn to the merits of Lloyds' objections.

Standard of Review

Magistrate Judge Rosemond's order resolved a discovery motion. Accordingly, this court's review is governed by Rule 72(a) of the Federal Rules of Civil Procedure, which provides that this court may only set aside the magistrate judge's order if it is "clearly erroneous or contrary to law." Fed.R.Civ.P. 72(a); see also 28 U.S.C. § 636(b)(1). In other words, the magistrate judge's ruling must stand unless this court is left with a definite and firm conviction that a mistake was made. Weeks v. Samsung Heavy Indus. Co., Ltd., 126 F.3d 926, 943 (7th Cir.1997). Lloyds asserts that de novo review is appropriate. While the court believes that the more liberal standard applicable to a discovery motion applies, it will not belabor the point as Lloyds prevails under either standard.

Discussion

Familiarity with Magistrate Judge Rosemond's order is assumed. As the relevant facts are undisputed and set forth in detail in that order, the court will not repeat them here. Illinois' rules regarding post-judgment supplementary proceedings govern the post-judgment discovery issue before the court. See Fed.R.Civ.P. 69(a). In their objections, Mr. McMurray's estate and Harris, the executor of Mr. McMurray's estate and director of his trust, contend that Magistrate Judge Rosemond erred when he found that the two year statute of limitations in the Illinois Probate Act, 755 ILCS § 5/18-12, applies only to claims against an estate and hence denied their motion to quash the citation to discover trust assets. The gravamen of their argument is that § 18-12 is not limited to claims against estates and thus reaches claims against other entities (such as Mr. McMurray's trust).

*2 On the other hand, Lloyds asserts that it may obtain discovery regarding trust assets because Illinois' general seven year statute of limitations applies to disputes regarding this type of asset. See La Societe Anonyme Goro v. Conveyor Accessories, Inc., 286 Ill.App.3d 867, 869-870, 677 N.E.2d 30, 31-32 (2d Dist.1997) (foreign judgments are subject to a seven year statute of limitations under the Foreign Judgments Act).

Section 18-12 provides that:

(a) Every claim against the estate of a decedent, except expenses of administration and surviving spouse's or child's award, is barred as to all of the decedent's estate if:

(1) Notice is given to the claimant as provided in Section 18-3 and the claimant does not file a claim with the representative or the court on or before the date stated in the notice; or

(2) Notice of disallowance is given to the claimant as provided in Section 18-11 and the claimant does not file a claim with the court on or before the date stated in the notice; or

(3) The claimant or the claimant's address is not known to or reasonably ascertainable by the representative and the claimant does not file a claim with the representative or the court on or before the date stated in the published notice as provided in Section 18-3.

(b) Unless sooner barred under subsection (a) of this Section, all claims which could have been barred under this Section are, in any event, barred 2 years after decedent's death, whether or not letters of office are issued upon the estate of the decedent....

According to Mr. McMurray's estate and Harris, nonprobate assets contained in a decedent's trust are claims "which could have been barred" under § 18-12(b). When Mr. McMurray's estate and Harris were before Magistrate Judge Rosemond, they did not cite to any authority in support of this reading of the statute. They have elected not to provide this court with any authority as well, instead contending that the point is so obvious that no court has needed to address it until now.

Magistrate Judge Rosemond, however, found that the plain language of § 18-12 limited it to claims against a decedent's estate. Specifically, he noted that § 18-12(b) expressly refers back to § 18-12(a) (which covers claims "against the estate of a decedent"), so that the words "all claims which could have been barred under this Section are, in any event, barred 2 years after decedent's death" by definition could only apply to claims directed at Mr. McMurray's estate.

Mr. McMurray's estate and Harris' wholly unsupported assertion that Lloyds' claim is against Mr. McMurray individually, as opposed to against the trust, does not provide the court with any reason to reject Magistrate Judge Rosemond's reading of § 18-12's plain language. The essence of this argument appears to be that, if the assets at issue are Mr. McMurray's, the two year period applies, and if the assets are not Mr. McMurray's, they cannot be used to pay his debts and thus are shielded from discovery. But this is not what § 18-12 says. That section simply provides that a two year limitations period applied to claims "against the estate of a decedent." And it is undisputed that the trust is not "the estate of a decedent." Thus, Lloyds is entitled to the requested discovery even though it sought this discovery more than two years after Mr. McMurray's death.

Conclusion

*3 For the foregoing reasons, the objections filed by Mr. McMurray and Harris [37-1] are overruled. The clerk is directed to enter a Rule 58 judgment and to terminate this action.

ORDER.

ROSEMOND, Magistrate J.

Before the Court is Defendants' Motion To Quash Citation To Discover Assets. The motion is granted in part and denied in part.

BACKGROUND.

Plaintiff, the Society of Lloyd's ("Lloyd's") filed a Citation to Discover Assets seeking to locate the source of assets or monetary funds with which to satisfy its foreign judgment against Defendants Estate of John William McMurray ("McMurray Estate"), and Harris Bankcorp, Inc. ("Harris"), the Executor of the McMurray Estate and Trustee of John William McMurray's Trust.

The Society of Lloyd's provides the facilities for and is the regulator of an English insurance market which is one of the largest in the world. The Society of Lloyd's v. Ashenden, et al., 1999 WL 284795 (N.D. Ill. April 23, 1999). Lloyd's does not act as an insurer. Aff. of Jonathan William Everard Nichols at ¶ 4. The underwriting members of Lloyd's act as the insurers. Id. These underwriting members are known as "Names". Id.

Mr. McMurray began a business relationship with Lloyd's by becoming a Name in 1986. Id. at ¶ 5. To become a Name, Mr. McMurray entered into agreements with Lloyd's. Id.

During the late 1980s and early 1990s, problems with Lloyd's insurance business caused Lloyd's to incur significant underwriting losses. Id. at 7. In an attempt to maintain its viability, Lloyd's implemented a "Reconstruction & Renewal Plan" ("RRP"). Id. For more detailed information regarding the history and circumstances surrounding the creation of the "Reconstruction and Renewal Plan", see The Society of Lloyd's v. Ashenden, 1999 WL 284775 (N.D. Ill. April 23, 1999) (Judge Leinenweber).

Under the RRP, Lloyd's Names were required to pay for a plan which would provide reinsurance for underwritten risks. Id. at 8. Mr. McMurray's share of the monies to be paid was £ 100,000. Id . Mr. McMurray refused to pay. Id. Lloyd's filed suit against Mr. McMurray, as well as, and other Names who refused to pay. Id. at 12-14.

Between September 18, 1996 and August 28, 1997, Mr. McMurray created a revocable inter vivos trust and transferred assets into that trust. Mr. McMurray died on August 28, 1997. The McMurray petition for probate was filed on March 5, 1998.

On March 11, 1998, a judgment was entered for Lloyd's and against Mr. McMurray, individually, by the High Court of Justice, Queen's Bench Division, Commercial Court for £551,644.97. The Society of Lloyd's Opposition Brief, Ex. A.

On March 20, 1998, Harris sent a claims notice to Lloyd's and its reinsurer Equitas. This notice notified Lloyd's and Equitas that Mr. McMurray had died; that Harris had information that Lloyd's and Equitas might be creditors of Mr. McMurray; and that pursuant to Illinois law, Lloyd's and Equitas had a limited period during which they could file claims. Harris also published notice for creditors of Mr. McMurray in The Chicago Daily Law Bulletin.

*4 Lloyd's never filed any probate claims in the Circuit Court of Cook County. Defendants assert there was no knowledge of the English court judgment until Lloyd's filed its Foreign Money Judgment by Judgment Creditor with the United States District Court for the Northern District of Illinois on September 15, 1999, approximately 18 months after its March 11, 1998 judgment in the British High Court of Justice.

STANDARD.

There are no federal civil rules detailing the procedures to be followed for the enforcement and satisfaction of a judgment. Instead, the federal rules look to and adopt the post-judgment supplementary procedures of the state in which the federal court sits. Since the proceedings initiated by Lloyd's are supplementary to and in aid of a judgment, the federal rules look to and adopt the practice and procedure of the state of Illinois. Fed. R. Civ. P. 69; see also, e.g. Cacok v. Covington, 111 F.3d 52, 53 (7th Cir.1997). Additionally, the rules permit the use of state post-judgment discovery tools, such as the issuance of Citations to Discover Assets. Fed. R. Civ. P. 69.

ANALYSIS.

The parties' arguments, both in favor of and against quashing the Citation to Discover Assets, turn on the merits of Lloyd's claims against Defendants. If Lloyd's has no viable claim under Illinois law, we must quash the Citation to Discover Assets, because any discovery pursuant to a non-viable claim would be irrelevant.

1. The English court judgment is valid under the Illinois Foreign Money-

Judgments Recognition Act.

The Illinois Foreign Money-Judgments Recognition Act governs the validity of a foreign judgment. 735 ILCS 5/12-620, 5/12-621. We agree with Lloyd's that the English court judgment is valid under the Illinois act. To be valid in Illinois, a foreign judgment must be final, conclusive and enforceable where rendered. Id.; 735 ILCS 5/12-619.

A judgment is not conclusive if (1) it was rendered under a system without impartial tribunals or under procedures incompatible with due process; (2) the foreign court did not have personal jurisdiction over the defendant; or (3) the foreign court did not have subject matter jurisdiction. 735 ILCS 5/12-621. The United States District Court for the Northern District of Illinois has previously recognized in very similar cases, that where English court judgments were obtained by Lloyd's against Names who resided in Illinois, under the "Reconstruction and Renewal" settlement plan, which the majority of Names accepted and ratified, the "pay now, sue later" provisions of the plan, along with the plan's rebuttable "conclusive evidence" presumptions against debtor Names, were compatible with American standards of due process. See, generally Society of Lloyd's v. Ashenden, 1999 WL 284775 (N.D.Ill.1999).

Additionally, in the contract (known as the "General Undertaking" ) between Lloyd's and Mr. McMurray, the parties agreed to exclusive jurisdiction in the English courts. (The General Undertaking is attached to The Society Of Lloyd's Brief In Opposition To Quash Citation To Discover Assets). We find no reason to doubt that valid personal and subject matter jurisdiction existed when the English Court issued its judgment.

*5 The English court judgment grants Lloyd's a specific sum of money. Society Of Lloyd's Opposition Brief, Ex. A. The judgment is final and enforceable in England. Nichols Aff. at ¶ 16. Consequently, the judgment fulfills the Illinois requirements since it is conclusive, final, and enforceable.

Additionally, none of the conditions that would prevent a judgment from being recognized are present. A judgment would not be recognized if any of the following conditions were present: (1) there was not sufficient notice; (2) a judgment was obtained by fraud; (3) the underlying cause of action was repugnant to Illinois public policy; (4) the judgment conflicts with another final judgment; (5) the proceeding in the foreign court was contrary to an agreement between the parties; or (6) if jurisdiction was based on personal service alone and the forum was seriously inconvenient. Id. None of these factors are present here.

2. The Citation to Discover Assets must be quashed as to the assets of the

McMurray estate, because the English court judgment is not enforceable against the McMurray estate.

Lloyd's claims against the McMurray Estate are barred as untimely by the Illinois Probate Act. The Illinois Probate Act of 1975, as currently codified, provides a statutory bar on claims against the estate of a decedent. 755 ILCS 5/18-12. Claims against the estate are barred if they are not filed within six months from the date of first publication of notice or within three months from the date of mailing or delivery of notice to a creditor. 755 ILCS 5/18- 3. Any claim that may not be barred due to mailed or published notice will be barred two years after the decedent's death. 755 ILCS 5/18-12.

The purpose of Section 18-12 is to facilitate the early settlement of estates. In Re Estate Of Beider, 645 N.E.2d 553, 554 (Ill.App.Ct.1994) (citations omitted). The filing of a claim within the period specified within Section 18-12 is mandatory. Id. (citations omitted). Failure to file a claim within the statutory period is a bar to the claim and no exception to the filing period may be created by judicial decision. Id. at 554-55 (citations omitted).

On March 20, 1998, Harris mailed a claims notice to Lloyd's. Harris also published notice in The Chicago Daily Law Bulletin. It appears that Lloyd's did not file any sort of claim against the McMurray Estate until it filed its Foreign Money Judgment by Judgment Creditor in this Court on September 15, 1999.

Under 755 ILCS 5/18-3, the claims against the estate would clearly be barred because they were brought more than three months subsequent to the mailed notice to Lloyd's. The claims would also be barred under 755 ILCS 5/18-12, because they were brought more than two years after the death of Mr. McMurray. Under Illinois law, Lloyd's claims against the McMurray Estate are clearly barred. Since Lloyd's may not bring a claim against the McMurray Estate, a Citation to Discover Assets of the estate is irrelevant.

3. The English court judgment may be enforceable against the Trust, so the

Citation to Discover Assets should not be quashed with respect to trust

property.

*6 It is undisputed that the Trust and its assets were not part of Mr. McMurray's probate estate. We agree with Lloyd's assertion that under Illinois law there is a general seven year statute of limitations to enforce foreign country judgments. La Societe Anonyme Goro v. Conveyor Access., Inc., 677 N.E.2d 30, 32 (Ill.App.Ct.1997). We disagree with Defendants' assertion that the two year limit for claims against a decedent's estate contained in § 18-12 of the Illinois Probate Act of 1975 bars a claim against the nonprobate assets contained in a decedent's trust. Section 18-12 is codified as follows:

(a) Every claim against the estate of a decedent, except expenses of administration and surviving spouse's or child's award, is barred as to all of the decedent's estate if:

(1) Notice is given to the claimant as provided in Section 18-3 and the claimant does not file a claim with the representative or the court on or before the date stated in the notice; or

(2) Notice of disallowance is given to the claimant as provided in Section 18-11 and the claimant does not file a claim with the court on or before the date stated in the notice; or

* * *

Defendants assert that the claim brought by Lloyd's should be barred by § 18- 12(b) because it constitutes a claim "which could have been barred under this Section". Defendants cite no case law in support of their assertion. Our reading of the statute does not support such an assertion. The language "all claims which could have been barred under this Section ..." clearly refers back to subsection (a) and, therefore, only encompasses claims against an estate. We agree with Lloyd's assertion that § 18-12 is only applicable to claims against an estate both due to the language in § 18-12(a) and also, by inference, due to the fact that § 18-12 is contained within the Illinois Probate Act.

Lloyd's asserts that it should be able to collect from the trust under Illinois law because (1) the trust is a third party holding property of a judgment debtor and (2) Mr. McMurray had the right to recover assets from the trust because it was a revocable inter vivos trust. Lloyd's cites Illinois Supreme Court Rule 277(a) which allows a supplementary proceeding against a "judgment debtor or any third party the judgment creditor believes has property of or is indebted to the judgment debtor." Lloyd's also cites 735 ILCS 5/2- 1402 which provides that when non-exempted assets of a judgment debtor are discovered the Court may compel any person to deliver those assets so that they may be applied in satisfaction of the judgment. Section 5/2-1402 is to be liberally construed. Kennedy v. Four Boys Labor Serv., Inc., 664 N.E.2d 1175, 1180 (Ill.App.Ct.1986) (citations omitted).

*7 Defendants assert that Lloyd's does not have a right to collect from the trust because the trust does not constitute a "third party which has property of the judgment debtor".

We hold that the trust is a third party which may have property of the judgment debtor. Consequently, Lloyd's may have a viable cause of action to enforce its judgment against trust property. Since Lloyd's may have a viable cause of action to enforce the judgment against trust property, discovery of trust assets is clearly relevant.

Accordingly, it is adjudged, decreed and ordered as follows:

1. Defendants' Motion To Quash Citation To Discover Assets is granted with respect to estate assets and denied with respect to trust assets.

2. No ruling is made with respect to The Society of Lloyd's Cross-Motion For Summary Judgment. The motion is not included within the referral order and is therefore returned to the calendar of the District Judge.

3. Pursuant to Rule 72(b) of the Federal Rules of Civil Procedure, the parties must file their objections to the Order with The Honorable Blanche M. Manning within 10 days after being served with a copy of the Order. Failure to file objections within the specified time period waives the right to appeal the Magistrate Judge's Order. [FN1]

FN1. Video Views, Inc. v. Studio 21, Ltd., 797 F.2d 538 (7th Cir.1986). See also, The Provident Bank v. Manor Steel Corp., 882 F.2d 258, 261 (7th Cir.1989) (when a matter has been referred to a Magistrate Judge, acting as a special master or § 636(b)(2) jurist, a party waives his right to appeal if he has not preserved the issues for appeal by first presenting them to the District Judge as objections to the Magistrate Judge's Report).

So Ordered.