Thursday, May 13, 2010

The Modern Use of Distress Warrants

I am always amused by old common law remedies and their modern manifestations in statute law. So many actions at common law made sense at the time of their inception but required updating when being applied to modern contexts. Studying legal history, one can’t help but notice that the common law often favored self-help (taking action without court approval or assistance) remedies. Conversely, modern law tends to disfavor self-help remedies. Yet, in some cases, preserving still relevant and useful ancient remedies means allowing some measure of self-help. One such remedy is the modern use of distress warrants.

Landlord’s rarely take advantage of the novel remedy in the law known as distress warrants. In fact, so many practitioners know very little or nothing about them. Distress warrants are rooted in the common law rights of landlords and codified in many states’ statutes. Essentially, this self-help remedy allows landlords to seize the personal property of tenants in order to secure the payment of delinquent rent. In the past, landlords could re-enter land or leased premises armed with weapons and seize the land and property of delinquent and indebted tenants. Today, those outdated measures have been replaced, but the self-help nature of the action remains intact. In Illinois, a landlord may issue a distress warrant pursuant to 735 ILCS 5/9-301 as long as the statute’s formalities are followed precisely. The Illinois Supreme Court in USA I Lehndorff Vermoegensverwaltung GmbH & Cie v. Cousins Club, Inc. has determined that such actions are constitutional. 64 Ill. 2d 11 (1976). The statute requires that the landlord serve the distress warrant, seize non-exempt property, and then inventory the property. Immediately or soon as is practicable, the landlord is to file the distress warrant and an inventory of the property with the circuit clerk. Schoenfeld v. Kulwinsky 197 Ill. App. 472. The case then continues like any other action in tenancy law with the warrant serving as the complaint. It is important to remember that this warrant is not to be signed by a judge prior to its issuance, nor is its execution supposed to be assisted by any branch of law enforcement. The case law makes clear that this is a purely private self-help remedy. In fact, the majority of the cases on record deal with the issue of non-private parties such as sheriffs involving themselves in the issuance of a distress warrant. One of the quickest ways to have a judge rule against a distress warrant is to get law enforcement involved in the process.

After execution of the warrant, the parties proceed in court to determine if the landlord is entitled to the unpaid rent. If the judge rules in favor of the landlord, the county sheriff then takes the property, sells it, and applies the proceeds to the satisfaction of the landlord’s judgment. There are a few other important formalities that must be followed but this is basically how distress warrants work.

Because so many things can wrong, lawyers are reluctant to pursue this remedy. For instance, a fight could start, the peace could be breached, property could be damaged, or exempt property could be taken. 735 ILCS 5/12-1001 gives a list of exempt property such as personal apparel, bibles, up to $1500 worth of tools of the trade, professional books, etc. Likewise, leased property or property with a superior security interest is not subject to seizure. If exempt property is taken, the landlord could be liable for an amount twice the value of the seized property. Conversely, if the tenant wants his property back, a bond for twice the value of the property must be posted while the judgment is pursued.

Lawyers are also reluctant to issue a distress warrant because this is such an aggressive remedy. Most landlord-tenant relationships do not deteriorate to such an extent. In my recent experience, I was working with an attorney who advised a client to pursue a distress warrant. The tenant owed the landlord a sum of unpaid rent worth six figures and refused to settle and vacate the premises even after the landlord offered to forgive an amount equal to six figures. The landlord also had another interested tenant who was waiting to use the facility. Since the tenant operated expensive equipment as part of his business and since the landlord was unlikely to receive much money even if a judgment was entered in his favor, a distress warrant was pursued.

I was part of this whole process and it was one of the most unusual experiences of my life. My supervising attorney told me “make your self an expert on distress warrants. They aren’t done often and the case law on them is not that extensive.” So, I read every case, statute, and article that I could about distress warrants. I wrote a memo for my supervising attorney detailing my knowledge of distress warrants and then we prepared the documents. Next, our client was told to assemble a crew and be ready to go in on a particular evening. So, on that particular night we pulled up to the leased premises about an hour before the tenant’s store closed. We met in another store’s parking lot and my supervisor briefed the crew on what they could and could not do.

Without revealing too much detail about our clients, I can say that this crew was quite the cast of characters. I had been fearful beforehand that violence might break out but when I met these workers, I knew that nobody was going to cause us a problem. The real challenge now was to make sure our crew didn’t get too excited or overly zealous. We certainly did not want any damaged or exempt property taken.

I might also add that I was not lacking in sympathy for the tenants. It brought us no joy to put these people out of business, but they had been very rude and left us with few options for negotiation. Our landlord was a very patient and forgiving individual but he had already taken many losses of his own during the recession. Furthermore, he had been very flexible and willing to forgive six figures worth of unpaid rent in exchange for vacating the premise. Unfortunately, the tenants just didn’t show any willingness to work out a solution.

So, just before the tenants store closed, our client went in, issued the warrant, announced that the property was being seized, and instructed his worker’s to begin seizing all the property and equipment subject to the warrant. I still cannot believe how quickly these guys moved. In just 30-45 minutes, they managed to clean the place out. During this time, I was examining the property to ensure that nothing fell under the exempt category. Indeed, almost everything that was seized was non-exempt and valuable for resale. As was expected, the owner called his lawyer who instructed him to call the police. The police arrived and my supervising attorney went out to meet them with a copy of the warrant and statute. The police were clearly baffled and had not seen this procedure done before. Nevertheless, after reading a copy of the statute, they realized we had the right to be there. They did, however, explain that if we continued to seize property after they were called to the scene, that our actions would then constitute a breach of the peace. Breaching the peace was another concern of ours and we had agreed beforehand that if law enforcement showed up, we would probably have to stop regardless of what the law said. Indeed, the right of a landlord to seize property must be exercised in a way that does not breach the peace. The law is very expansive about what constitutes a breach of peace. However, by that time, the workers had seized most of the non-exempt property. The police allowed us to keep the property we already seized and then asked us to leave the scene.

As of now, the matter is before the court. We will soon find out whether the property is to be sold. As for my thoughts on the matter, I would not recommend this procedure. In fact, I am surprised it is still allowed with the law’s tendency to frown on self-help. As much as I value self-help, too much can go wrong with a distress warrant. I suspect our warrant went smoother than most others due to an excellent crew and flawless execution. And, I must admit that I found this whole process kind of exciting. However, I would recommend sticking to safer remedies such as those offered in the forcible entry and detainer statute. Also, I did feel kind of sorry for the tenants even though they provoked the aggressive action. In reality, once the forcible entry and detainer action made its way through court, the tenants would have been removed from the premise and put out of business anyway. By issuing a distress warrant, our landlord at least might get a secured guarantee of some payment with the property. But, the whole situation had to be disconcerting and demoralizing for the tenants. And for that, I genuinely feel sorry. Still, I am happy that I got to be part of this action on this one occasion.

3 comments:

Michael W. Huseman said...

I almost handled a distress case a couple of months ago, but the parties settled their dispute before we seized any property. I am interested in what you guys are going to do with that property. Keep us posted on how this turns out.

Hinch Law said...

Fascinating story. I agree with Michael, please repost when the results are in.

Brian M. Krause said...

I will repost when it makes it way through the system. In the meantime, I am going to have to temporarily delete the post per my supervising attorney's instructions. Apparently, he found it on a google search of the issue. I will repost when this case is behind us in a few months.