Friday, March 29, 2013

LLC Charging Orders

Charging orders are one of the more confusing areas of judgment enforcement law.  Ordinarily, a judgment creditor would serve a citation to discover assets and then look to the citation statute for enforcement procedures.  Under Section 1402, when non-exempt assets are discovered, the court can compel the judgment debtor to deliver those assets either to the sheriff or a private selling agent for sale.  The proceeds of the sale are then applied to the judgment.  This is commonly called a turnover order.  

However, you can't obtain a turnover order on a judgment debtor's interest in an LLC.  In order to do that, you'll need a charging order.  Section 30-20(a) of the Illinois Limited Liability Act provides that "on application by a judgment creditor of a member of a limited liability company or of a member's transferee, a court having jurisdiction may charge the distributional interest of the judgment debtor to satisfy the judgment."

I just read a case that further clarifies the procedures behind a charging order.  The case is Bank of America v. Freed, 2012 IL App (1st) 110749.  Here is the relevant paragraph:  

Under the Illinois Limited Liability Company Act (Act), a charging order only gives the judgment creditor the right to receive distributions to which the member would otherwise be entitled, and if the charging order is foreclosed, the purchaser would have only the rights of a transferee of distributional interests. Under section 30-1(a) of the Act, a member of an LLC “is not a co-owner of, and has no transferable interest in, property of a limited liability company.” 805 ILCS 180/30-1(a) (West 2008). Further, section 30-5 of the Act provides that a transfer of a distributional interest in an LLC does not give the transferee any rights as a member but only the right to receive distributions by the LLC, while section 30-10 provides that transferee may become a member only if all other members consent (805 ILCS 180/30-10(a) (West 2008)). A “transferee who does not become a member is not entitled to participate in the management or conduct of the limited liability company’s business, require access to information concerning the company’s transactions, or inspect or copy any of the company’s records.” 805 ILCS 180/30-10(d) (West 2008). Therefore, an Illinois LLC has no interest that is affected when a charging order is entered on a judgment debtor’s distributional interest because the party in whose favor the charging order is entered is not an owner of the LLC and has no authority over the LLC’s affairs and can only receive distributions. Hence, the LLC has no interest to be protected and need not be made a party.

Thursday, March 21, 2013

“We are all vessels: human bags carrying sea water.”

How’s that for an argument for federal admiralty jurisdiction? 
Debtor bought a used pick-up truck for $28,000 at 23.9% interest and the note was assigned to AmeriCredit Financial Services, Inc.  He made one payment and then sent AmeriCredit the note stamped with the words “Accepted for value and returned for value for settlement and closure” and directed AmeriCredit to bill the balance to the U.S. Treasury. 

AmeriCredit repossessed the truck, sold it, and billed debtor for the deficiency of over $11,000.  Debtor then sued AmeriCredit in federal court for $34 million plus $2.2 Billion in punitive damages.  Here Judge Posner notes that “(N)eedless to say, he was proceeding pro se.”  Debtor, now plaintiff, claimed jurisdiction on both diversity and admiralty grounds.
Although plaintiff had “perfect diversity” among the parties he failed to satisfy the second prong of diversity jurisdiction which requires an amount in controversy of $75,000 because although he alleged over $2 billion in damages, Posner found it to be “a legal certainty that the plaintiff is entitled to recover nothing.”  

His claim of admiralty jurisdiction also failed.  Although the debtor didn’t explain this claim Judge Posner recognizes the debtor’s claims as arising from the Sovereign Citizens' movement and cites to one of its publications that explains that because “(W)e are all vessels; human bags carrying ‘sea water’” there is admiralty jurisdiction.  The Judge disagrees with this analysis, deciding instead that because there is no claim involving maritime activities there is no admiralty jurisdiction.

Baba-Dainja El Vs AmeriCredit Financial Services, Inc. United States Court of Appeals for the Seventh Circuit,  No. 12-3310

Thursday, March 14, 2013

Illinois Appellate Court Maximizes Recovery to Injury Victims

In Stanton v. Rea, 2012 IL App (5th) 110187, the Fifth District Appellate Court scored a huge victory for personal injury plaintiffs by maximizing the amount a personal injury victim is entitled to receive out of a settlement or judgment.  Under the Health Care Services Lien Act, 770 ILCS 23/1, medical providers asserting a lien on a personal injury claim are entitled to up to 40% of a verdict or settlement on behalf of a personal injury plaintiff.  If the liens total 40% or more of a settlement or judgment, the law limits attorney’s fees to 30%.  Prior interpretation of the law left a personal injury plaintiff with a maximum of 30% of their personal injury recovery.  In essence, the medical providers received the greatest benefit from the plaintiff’s recovery while also retaining the right to collect any remaining balance on their bill after reimbursement from the settlement or judgment.

In Stanton, the Fifth District determined that calculation of the 40% due to medical providers should only begin after reducing the recovery by the total attorney’s fees and costs.  The example below demonstrates exactly how important this is to an injured victim’s recovery:

            Prior interpretation of the Act:

              $100,000 settlement/judgment
            - $  30,000 attorney’s fees (30%)
            - $  10,000 costs
            - $  40,000 medical liens (40%)
            =$  20,000 net recovery to injury victim

            Interpretation of the Act after Stanton v. Rea:
              $100,000 settlement/judgment
            - $  30,000 attorney’s fees
            - $  10,000 costs
            =$  60,000 amount subject to Act computation
            *40% of $60,000=$24,000 (amount lienholder entitled to under the Act)

              $100,000 settlement/judgment
            - $  30,000 attorney’s fees
            - $  10,000 costs
            - $  24,000 lienholders share
            =$  36,000 net recovery to injury victim

Based upon the Appellate Court’s interpretation of the Act, the injury victim’s net recovery in the above example increased by $16,000, a substantial amount.  Medical providers, however, are still entitled to bill and collect the outstanding balance left after reimbursement of their lien. 

The Illinois Supreme Court denied certiorari in Stanton v. Rea, so this case is currently the law of Illinois.  

Wednesday, March 13, 2013

Mortgage Lenders Kill People - Part II

I wrote about a wrongful death case several years ago in which a widowed plaintiff alleged that her husband was killed by a mortgage lender's harassing telephone calls. HERE is a link to that story. I never heard how that case was resolved.

Today, I saw the following article about a guy who DIED IN COURT at a hearing in his lawsuit against Wells Fargo. He was suing them for screwing up his real estate tax escrow and causing him to default on his mortgage. These murderous mortgage lenders are out of control!!
According to the now-deceased plaintiff, a Wells Fargo typo ultimately resulted in foreclosure on his home. When Larry Delassus’ received a demand from Wells Fargo that he pay two years of late property taxes on his property in order to avoid foreclosure, he was understandably surprised. Delassus had paid his property taxes every year and did not owe a penny. In fact, Wells Fargo had paid property taxes on another neighboring property, but due to a two-digit typo, sent the bills to Delassus. Delassus, who spent a fair amount of time in and out of hospitals did not question the demand for back taxes or the increase in his mortgage (from $1,237.69 a month to $2,429.13 a month), but simply stopped paying his mortgage and moved into an assisted-living home in Carson, California. It was not until nearly two years later than his attorney discovered the typo and attempted to fight the foreclosure. The bank’s attorney acknowledged the error but refused to let Delassus resume paying his mortgage without catching up via a reinstatement payment first. Initially, Delassus was unable to find out how much he owed in reinstatement and would likely have been unable to pay it anyway on his fixed income. When he finally received an amount in January 2011, it was the sum of $337,250.40, owed in the next 24 hours or the foreclosure would move forward. The condo was sold in May 2011[1]. The story took a truly tragic turn, however, when Delassus died in court last December while pursuing a negligence and discrimination case against Wells Fargo. At the time of his foreclosure, Delassus was actually six months ahead on his property taxes[2]. Nevertheless, the judge had already indicated that she planned to rule for Wells Fargo, which led a bank spokeswoman to say that “there was no reason for Mr. Delassus to attend” after expressing sympathy over his death.

Tuesday, March 12, 2013

Can Physical Trauma Cause Fibromyalgia?

You have probably seen the ads recently on television discussing medications used to treat fibromyalgia.  Public awareness of the disease has increased over the last decade.  Initially regarded as a “garbage can” diagnosis, the medical community has begun to recognize it not only as a real disease, but one with often devastating consequences.  Additionally, much debate has now centered on whether fibromyalgia can be caused by the trauma sustained in a car accident.  What is fibromyalgia?  Can injuries sustained in a car accident cause or aggravate the condition?  Can the trauma involved in a car accident “flip the switch” for someone who is predisposed to developing fibromyalgia, but was asymptomatic prior to the car accident?

I recently litigated and settled a case at mediation where a car accident caused the onset of fibromyalgia in a middle-aged female.  She initially complained of an injury to her neck as a result of the car accident, but began to develop symptoms of fibromyalgia within a few months after the car accident.  Not surprisingly, the insurance company hired experts who claimed the woman was faking or exaggerating her symptoms for some financial or emotional benefit.  That is a typical defense in a case where the alleged injury is a chronic pain syndrome such as fibromyalgia or complex regional pain syndrome (CRPS).  Fortunately, after many depositions and a vigorous battle, the case settled at mediation for $595,000.  This was the largest settlement for a fibromyalgia case ever reported outside of Cook County.         

What is Fibromyalgia?

Fibromyalgia is a musculoskeletal disorder characterized by widespread musculoskeletal pain.  While there are many symptoms that have been affiliated with the disease, the classical symptoms aside from pain include: severe and chronic fatigue, sleep deprivation, memory loss, depression, and restless leg syndrome.  Although a disease which predominantly affects women, men can and do acquire the disorder.   

People with fibromyalgia are often described as having increased sensitivity to pain.  For a person who reports pain that is 3 out of 10 on a 10 scale, the person with fibromyalgia may experience pain that rates at an 8 or higher.  Indeed, persons who suffer from fibromyalgia have increased sensitivity to all sensory inputs.  What one may perceive as a strong odor can overwhelm someone with fibromyalgia. 

There is no easily administered diagnostic test which can confirm or rule out a diagnosis of fibromyalgia.  As a result, people with fibromyalgia often encounter persons unsympathetic to their plight because they do not understand what causes their pain.  Thus, the disease damages not only the body, but also the psyche. 

Can a Car Accident cause Fibromyalgia?

Now that the diagnosis of fibromyalgia has gained acceptance in the medical community, the new controversial question has to do with what causes the disorder.  Specifically, one of the leading questions currently surrounding the disorder is whether a car accident can cause a person to develop fibromyalgia?  While many doctors and reputable organizations (i.e. Mayo Clinic) agree that it can, insurance companies and defense firms have spent significant money and resources trying to prove the opposite conclusion.  

Of significance for fibromyalgia patients was one study conducted in 2002 which revealed a significant association between fibromyalgia and physical trauma (i.e. car accident) sustained in the 6 months before the onset of fibromyalgia symptoms.  Another study found that a person who sustained a neck injury in an accident was 13 times more likely to develop fibromyalgia than a person who sustained a lower extremity injury.  Remember the case that was discussed in the beginning of this article?  The woman’s initial injury was to her neck.

What often gets confusing is when the discussion turns to whether a car accident caused fibromyalgia versus whether a car accident made the disease symptomatic.  Fortunately for people in Illinois, the distinction does not matter.  As long as the car accident is a cause in the development of fibromyalgia, an injured person is entitled to damages for relating to the condition which resulted from the car accident.  This is significant because people affected by fibromyalgia often undergo many years of treatment and are often confronted with substantial medical bills.

If you were involved in a car accident and developed the onset of a chronic pain syndrome such as fibromyalgia, you may be overlooking an obvious cause of your symptoms.  Contact a personal injury attorney for a free consultation to determine if you have any legal right to be compensated for your injuries.  Not only is it important to obtain treatment from doctors who specialize in fibromyalgia and other pain syndromes such as complex regional pain syndrome, but also to hire a lawyer who specializes in this unique area of the law.   

How do you feel about fibromyalgia gaining general acceptance as a legitimate condition in the medical community?  Have you or anyone you know been diagnosed with fibromyalgia?  How do people react to your diagnosis?  Your questions and comments are welcome.  

Monday, March 11, 2013

The Illinois Attorney General is Hiring

I just came across the Job Opportunities section of Lisa Madigan's website.  It was last updated on March 6, 2013 and they are listing 13 separate Assistant Attorney General positions, four in Chicago, six in Springfield, and one each in Champaign, Belleville, and Carbondale.

Here is a link to the website:

Friday, March 8, 2013

FBI Searches NIU Police Department

The FBI served a search warrant on the NIU police department this week.  The actual subject of the investigation has not been publicly revealed, but I have read speculation that the search may related to last fall's indictments of several NIU employees who were conspiring to sell University-owned scrap metal off the books.  Or not.  It also may be related to the police chief who was fired last month.  Or the NIU police officer who was indicted for rape last month.  Or the NIU Vice President took a leave of absence today.  Or something else entirely.

Anyway, in case anyone is interested, here is a copy of the federal search warrant that I obtained from the Justice Cafe twitter account (@facsmiley).

Friday, March 1, 2013

Bankruptcy Litigation Tip: Cost-Shifting and Offers of Judgment

This article first appeared in the December 2012 edition of the Kane County Bar Briefs.

Most clients generally wish to avoid litigation.  Bankruptcy clients, particularly, wish to have their cases resolved quickly, efficiently, and without surprises.  When litigation does arise in the bankruptcy context, debtors’ lawyers best serve their clients by creatively working to resolve the case in a cost-effective manner.  To reach that end, the bankruptcy practitioner may want to consider the cost-shifting provisions of Federal Rule of Civil Procedure 68.

Rule 68, made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7068, is intended to encourage settlement and avoid litigation.[i]  Rule 68 allows a party defending a claim to submit an offer of judgment to the other party.  If the offer is accepted, judgment is entered according to the terms offered.  If the offer is rejected, and if the plaintiff ultimately obtains a judgment less favorable than the terms of the offered judgment, the plaintiff must pay all costs incurred by the defendant following the offer. 

I.                   Does Rule 68 Apply?

Bankruptcy litigation comes in two varieties: adversary proceedings and contested matters.  Adversary proceedings (or "adversaries") are separate lawsuits brought in bankruptcy court.  Adversaries are commenced by filing a complaint.[ii]  They can then proceed through traditional motion practice, the full gamut of discovery, and, if not settled, a trial.  There are ten specific categories of cases that must be brought as adversary proceedings,[iii] including proceedings to recover money or property from a debtor,[iv] to determine the validity or priority of a lien,[v] or to object to discharge.[vi]

Contested matters, on the other hand, must be brought by motion.[vii]  Contested matters are similar to adversaries in that discovery can be lengthy and expensive.  For instance, interrogatories, production requests, physical and mental examinations of persons, requests to admit, and depositions are all available to parties in contested matters, just as they are in adversaries.[viii]  Money judgments can also be entered following a contested matter.[ix]  

As you can see, costs can quickly skyrocket during discovery in both types of proceedings.  Due to the similarities between the two, litigants need to figure out exactly which rules govern their specific case.  Rule 68 is only available in adversary proceedings by way of Rule 7068.  In contested matters, Rule 9014(c) specifies which of the rules in the 7000 series apply.  Rule 7068 is not listed in that section.  That does not mean that the defendant cannot offer a judgment as part of a settlement package, but the cost-shifting provisions of Rule 68 will not apply if that offer gets rejected.

However, Rule 9014(c) does state that “unless the court orders otherwise, the following rules shall apply…”  So, if the defendant feels that his offer is a reasonable one, I guess that it is possible to move the court for leave to propound a Rule 68 offer of judgment in a contested matter in order to place some risk on the plaintiff for rejecting the offer.

II.        Procedures and Application
            Rule 68 is pretty straightforward.[x] An offer of judgment can only be made by the defendant.[xi]  The offer must be in writing.[xii]  The offer must be for a specified dollar amount or specified property.[xiii]  In addition to the principal settlement amount, the offer must include an offer to pay costs accrued by the plaintiff prior to receipt of the offer of judgment.[xiv]  However, the offer’s silence on costs does not invalidate the offer and will result in a recovery of costs already incurred by the plaintiff in addition to the amount offered by defendant.[xv]

            The plaintiff has 14 days after receipt to accept the offer of judgment.[xvi]  If the offer is accepted, either party may then file the offer and notice of acceptance with the clerk.[xvii]  The clerk must then enter judgment.[xviii]  A prudent practitioner would probably place a call to the Judge’s clerk to inform him or her that the case is settled and to inquire if any other procedures should be followed.

The cost-shifting provisions of the Rule come into play when an offer of judgment is not accepted.  If the judgment that the plaintiff eventually obtains is not more favorable than the unaccepted offer, the plaintiff must pay the costs incurred by the defendant after the offer was made.[xix]  In cases involving money damages only, it is usually not too difficult to determine whether a party has received a judgment “more favorable” than the unaccepted offer.  However, money damages need not be the only measure of whether a plaintiff has obtained a more favorable judgment under Rule 68.  For instance, the value of an injunction granted can be compared to the value of a prior monetary offer. [xx]

Costs allowable under Rule 68 are limited to costs allowed under Federal Rule of Civil Procedure 54 (“Judgment; Costs”) and 28 U.S.C. 1920 (“Taxation of Costs”).[xxi]  Those costs have been found to include filing and appearance fees,[xxii] service of process,[xxiii] court reporter fees,[xxiv] deposition transcripts necessarily obtained for use in the case,[xxv] witness and expert witness per diems,[xxvi] photocopies,[xxvii] compensation of interpreters,[xxviii] copying and collating exhibits and graphics for trial,[xxix] and even the costs of hiring computer technicians to assist in the e-discovery process when responding to discovery requests propounded by plaintiff.[xxx]

In certain circumstances, attorneys’ fees are considered costs under Rule 68.  Where a specific statute includes attorneys’ fees in its definition of costs, those fees are recoverable under Rule 68.  The United States Supreme Court has held that attorneys’ fees are recoverable as costs under The Civil Rights Attorney’s Fees Awards Act of 1976[xxxi] and the Eleventh Circuit has held that fees are recoverable as costs under The Copyright Act.[xxxii]  I am not aware of fees being awarded under Rule 68 in the bankruptcy context, but the possibility is something to keep in mind because the inclusion of fees in costs can really skew the settlement analysis.

[i] In re Alvarez, 261 B.R. 742, 744 (Bankr. M.D. Fla. 2000).
[ii] Fed. R. Bankr. P. 7003
[iii] Fed. R. Bankr. P. 7001
[iv] Fed R. Bankr. P. 7001(1)
[v] Fed. R. Bankr. P. 7001(2)
[vi] Fed. R. Bankr. P. 7001(4)
[vii] Fed. R. Bankr. P. 9014
[viii] Fed. R. Bankr. P. 9014(c)
[ix] Id.
[x] Rule 68.  Offer of Judgment.
(a) Making an Offer; Judgment on an Accepted Offer.  At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.  If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service.  The clerk must then enter judgment.
(b) Unaccepted Offer.  An unaccepted offer is considered withdrawn, but it does not preclude a later offer.  Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.
(c) Offer After Liability is Determined.  When one party’s liability to another has been determined but the extent of the liability remains to be determined by further proceedings, the party held liable may make an offer of judgment.  It must be served within a reasonable time—but at least 14 days—before the date set for a hearing to determine the extent of liability.
(d) Paying costs After an Unaccepted Offer.  If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.
[xi] Fed. R. Civ. Pro. 68(a)
[xii] Driver Music Co., Inc. v. Commercial Union Ins. Companies, 94 F.3d 1428, 1432 (10th Cir. 1996).
[xiii] Marryshow v. Flynn, 986 F.2d 689, 691 (4th Cir. 1993).
[xiv] Fed. R. Civ. Pro. 68(a)
[xv] See McCain v. Detroit II Auto Finance Center, 378 F.3d 561 (6th Cir. 2004).
[xvi] See Perkins v. U.S. West Communications, 138 F. 3d 336 (8th Cir. 1998).
[xvii] Fed. R. Civ. Pro. 68(a)
[xviii] Id.
[xix] Fed. R. Civ. Pro. 68(d)
[xx] Andretti v. Borla Performance Industries, Inc., 426 F.3d 824, 837 (6th Cir. 2005).
[xxi] See Thomas v. Caudill, 150 F.R.D. 147 (N.D. Ind. 1993).
[xxii] 28 U.S.C. 1920(1)
[xxiii] In re O’Callaghan, 304 B.R. 887, 891 (Bankr. M.D. Fla. 2003).
[xxiv] Id.
[xxv] 28 U.S.C. 1920(2)
[xxvi] 28 U.S.C. 1920(3)
[xxvii] 28 U.S.C. 1920(4)
[xxviii] 28 U.S.C. 1920(6)
[xxix] Haroco, Inc. v. Am. Nat’l Bank & Trust Co., 38 F.3d 1429, 1441 (7th. Cir. 1994)
[xxx] Glenn Tibble et al. v. Edison International et al., 2011 U.S. Dist. LEXIS 94995 (C.D. Cal 2011).
[xxxi] Marek v. Chesny, 473 U.S. 1, 9 (1985).
[xxxii] Jordan v. Time, Inc., 111 F.3d 102, 105 (11th Cir. 1997).