YCB International, Inc. v. UCF Trading Company Limited

Filing 359

MEMORANDUM Opinion and Order. YCB's motion (Dkt. No. 333) to overrule the objections of S&W to YCB's subpoena, YCB's motion (Dkt. No. 338) for assignment of claims against attorneys, and YCB's amended motion (Dkt. No. 343) regardi ng claims against attorneys are denied. UCF Tradings response to YCB's motion (Dkt. No. 354) for rule to show cause and other relief, and UCF Company's response to YCB's motion (Dkt. No. 357) to overrule the objections of non-party UCF Company to YCB's subpoena for documents, are both due on February 4, 2014. YCB's replies in support of their motions are due on February 11, 2014. The court will hold an evidentiary hearing in connection with YCB's motion for rule to show cause (Dkt. No. 354) on February 18, 2014 at 2:00pm. Signed by the Honorable James F. Holderman on 1/13/2014. Notice mailed by judge's staff(ntf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
YCB INTERNATIONAL, INC.,
Judgment Creditor,
v.
UCF TRADING CO., LTD.,
Judgment Debtor.

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No. 09 C 7221

MEMORANDUM OPINION AND ORDER
JAMES F. HOLDERMAN, District Judge:
On October 22, 2013, judgment creditor YCB International, Inc. (“YCB”) filed a motion to
overrule the objections of non-party Schopf & Weiss LLP (“S&W”) to YCB’s subpoena for
documents pursuant to Fed. R. Civ. P. 69(a)(2). (Dkt. No. 333.) On December 4, 2013, YCB filed
a second motion (Dkt. No. 338) asking this court to order judgment debtor UCF Trading
Company, Limited (“UCF Trading”) to execute an assignment of any claims UCF Trading has or
may have against S&W and its attorneys, Anand Mathew (“Mathew”) and Arthur Howe 1
(“Howe”), both of whom represented UCF Trading in the underlying case until this court granted
their motion to withdraw as counsel for UCF Trading on January 10, 2013 (Dkt. No. 296). On
December 12, 2013, YCB amended its motion for assignment of claims against S&W, Howe, and
Mathew to provide an additional basis for assignment. (Dkt. No. 343.) For the reasons explained
below, YCB’s motions are denied.

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In October 2013, Arthur Howe ended his affiliation with S&W. (Dkt. No. 337 at 2, n.1.)

FACTUAL BACKGROUND
On September 10, 2013, this court granted a final judgment (Dkt. No. 327) in favor of YCB
and against UCF Trading in the amount of $1,408,236.69. On October 1, 2013, YCB served UCF
Trading and a third party, UCF Company Limited, with citations to discover assets or income not
exempt from enforcement of a judgment. (Dkt. No. 332.) On November 5, 2013 this court ordered
UCF Trading to produce documents responsive to the citation by December 9, 2013. (Dkt. No.
336.) As of January 3, 2013, UCF Trading had produced only a limited set of documents to YCB.
(See Dkt. Nos. 345, 354.)
On September 16, 2013, before serving UCF Trading with a citation to discover assets,
YCB subpoenaed UCF Trading’s former attorneys, S&W, seeking: (i) information regarding UCF
Trading’s payments for legal services (Dkt. No. 333-1 ¶¶ 1-2); (ii) information regarding accounts
controlled for the benefit of or on behalf of UCF Trading and its affiliates (Id. ¶ 3); (iii)
information relating to any physical address, telephone number, email address, or other point of
contact ever used by UCF Trading and a number of its principals (Id. ¶¶ 4); (iv) all documents
relating to UCF Company Ltd. (Id. ¶ 5); (v) all documents relating UCF Trading’s assets, products,
and customers from 2009 to the present (Id. ¶ 5); and (vi) all documents relating to asset transfers,
planned asset transfers, or plans to conceal assets (Id. ¶ 6). Because S&W has raised objections to
the subpoena and has purportedly produced only a limited set of documents in response to the
subpoena, YCB has moved to compel their compliance pursuant to Fed. R. Civ. P. 69(a)(2). (Dkt.
No. 333.)
Notwithstanding S&W’s allegedly insufficient document production, YCB discovered that
UCF Trading paid over $437,000 to S&W for legal services rendered in connection with the
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underlying case prior to S&W’s withdrawal on January 10, 2013. (Dkt. No. 338 ¶ 4.) As a result
of this discovery, YCB filed a motion asking this court, pursuant to Fed. R. Civ. P. 69 and 735
ILCS 5/2-1402(c)(5), to assign to YCB a legal malpractice claim YCB contends UCF Trading has
against S&W, Howe, and Matthew. (Id. ¶¶ 6-8.) On December 12, 2013, YCB amended its
motion for assignment of claims to include 735 ILCS 5/2-1402(c)(6) as a basis for assigning to
YCB any claims UCF Trading has or may have against S&W, Howe, or Mathew. (Dkt. No. 343 ¶
4.)
LEGAL STANDARD
Federal Rule of Civil Procedure 69 requires federal courts to apply “the law of the forum
state” in choosing the procedures to enforce federal court judgments. Cacok v. Covington, 111
F.3d 52, 53 (7th Cir.1997). In Illinois, supplementary proceedings to enforce a judgment are
governed by section 5/2–1402 of the Illinois Code of Civil Procedure. 735 ILCS 5/2–1402 (2013).
Under section 5/2–1402, a judgment creditor who seeks to enforce a judgment may initiate
supplementary proceedings to discover assets of the judgment debtor, and may seek an order from
the court “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). If the court determines
that the judgment has not been satisfied, it may compel the judgment debtor to assign to the
judgment creditor “any chose in action” in aid of enforcement of a judgment. 735 ILCS 5/2–
1402(c)(5).
Rule 69(a)(2) also states that, “in aid of the judgment or execution, the judgment creditor ...
may obtain discovery from any person—including the judgment debtor—as provided in these
rules.” Fed.R.Civ.P. 69(a)(2). The “rules” mentioned in Rule 69(a)(2) are the federal rules
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governing pre-trial discovery. Rubin v. Islamic Republic of Iran, No. 03 C 9370, 2008 WL
192321, at *4 (N.D.Ill. Jan.18, 2008). Federal Rule of Civil Procedure 26(b) governs the scope of
pre-trial discovery and vests the court “with broad discretion in determining the scope of
discovery, which the court exercises mindful that the standard for discovery ... is ‘widely
recognized as one that is necessarily broad in its scope in order to allow the parties essentially
equal access to the operative facts.’” Scott v. Edinburg, 101 F.Supp.2d 1017, 1021 (N.D. Ill. 2000)
(quoting Craig v. Exxon Corp., No. 97 C 8936, 1998 WL 850812, at *1 (N.D. Ill. Dec. 2, 1998)).
ANALYSIS
I.

YCB’s Motion to Compel
Ordinarily, post-judgment discovery sought from third parties is limited to information

about the assets of the judgment debtor and must be balanced against the privacy interests of third
party. See Wright & Miller 2d § 3014; see also Blaw Knox v. AMR Indus., Inc., 130 F.R.D. 400,
403-04 (E.D. Wis. 1990) (denying third-party discovery regarding certain assets because “a
judgment creditor must make a threshold showing of necessity and relevance when attempting to
obtain discovery of a non-judgment debtor pursuant to Rule 69(a)”); Cassion Corp. v. County
West Bldg. Corp., 62 F.R.D. 331, 334 (E.D. Pa. 1974) (“the inquiry must be kept pertinent to the
goal of discovering concealed assets of the judgment debtor and not be allowed to become a means
of harassment of the debtor or third persons. … It has also been said that third persons can only be
examined about assets of the judgment debtor and cannot be required to disclose their own
assets.”) Moreover, “a court may limit discovery if it determines that the burden of the discovery
outweighs its benefit.” In re IKB Deutsche Industriebank AG, No. 09 C 7852, 2010 WL 1526070,
*5 (N.D. Ill Apr. 8, 2010) (Darrah, J.).
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To support its discovery requests, YCB relies on this court’s holding in F.T.C. v. Trudeau,
No. 03 C 3904, 2013 WL 842599 (N.D. Ill. Mar. 6, 2013) (Gettlemen, J.). In Trudeau, this court
found the defendant had repeatedly violated the court’s financial disclosure orders. Id. at *1. To
rebut the defendant’s purported allegations of poverty, the court permitted the FTC to subpoena
the defendant’s current attorneys and required his attorneys “to produce forthwith all records
showing payments and source of payments received for its legal services.” Id. at *4.
Here, S&W has already provided YCB with the retention agreement between S&W and
UCF Trading (Dkt. No. 337-3 ¶ 4), accounting records showing any funds S&W received from, or
paid to, UCF Trading (Dkt. 337-6), and a statement that S&W is not aware of ever having received
funds from, or provided funds to, any of the other “UCF Trading-Affiliated Persons” (Id.). The
foregoing information is all that was required by the Trudeau court, and is sufficient should YCB
need to rebut UCF Trading’s forthcoming allegation of poverty.
YCB has not provided any evidence to support discovery beyond UCF Trading’s payments
to S&W. Although YCB contends that S&W’s objections “provide intriguing inferences that
[S&W] may be hip-deep in schemes to defraud creditors,” (Dkt. No. 333 ¶ 11), these are the same
allegations that were recently dismissed by the Illinois state court (See Dkt. Nos. 337-7, 337-8).
The purpose of post-judgment discovery is to obtain information about the judgment debtor’s
assets; it is not to seek additional discovery to support claims against non-parties which have been
previously dismissed in state court.
II.

Motion to Assign Claims
Next, YCB asks this court to assign to YCB a potential legal malpractice claim which YCB
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contends UCF Trading has against S&W, Howe, and Mathew because the attorneys “charged over
$430,000 to pursue defenses and counterclaims that any competent attorney would know were
meritless.” (Dkt. No. 351 at 1, n.1.) Although UCF Trading has neither asserted nor commenced a
legal malpractice claim against S&W, Howe, and Mathew, and in fact released any claims it had as
part of a settlement relating to unpaid fees (Dkt. No. 347-1), YCB claims it is entitled to the
assignment under either 735 ILCS 5/2-1402(c)(5) or 735 ILCS 5/2-1402(c)(6), (Dkt. No. 343 ¶¶
3-4), which state:
When assets or income of the judgment debtor not exempt from the satisfaction of a
judgment, a deduction order or garnishment are discovered, the court may, by appropriate
order or judgment: . . .
(5) Compel any person cited to execute an assignment of any chose in action or a
conveyance of title to real or personal property or resign memberships in exchanges,
clubs, or other entities in the same manner and to the same extent as a court could do in
any proceeding by a judgment creditor to enforce payment of a judgment or in aid of the
enforcement of a judgment.
(6) Authorize the judgment creditor to maintain an action against any person or
corporation that, it appears upon proof satisfactory to the court, is indebted to the
judgment debtor, for the recovery of the debt, forbid the transfer or other disposition of
the debt until an action can be commenced and prosecuted to judgment, direct that the
papers or proof in the possession or control of the debtor and necessary in the prosecution
of the action be delivered to the creditor or impounded in court, and provide for the
disposition of any moneys in excess of the sum required to pay the judgment creditor's
judgment and costs allowed by the court.
735 ILCS 5/2-1402(c)(5)-(6) (2013). YCB also requests, pursuant to subsection (c)(6), that this
court hold an evidentiary hearing to determine whether YCB can present “proof satisfactory to the
court” that S&W, Howe, and Mathew are indebted to judgment debtor UCF Trading. (Dkt. No.
343 ¶ 5.)
Although section 5/2-1402 allows for the assignment of existing claims, it does not
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authorize a court to assign legal malpractice claims that have neither been asserted nor commenced
by the judgment debtor. In Gonzalez v. Profile Snading Equipment, Inc., 776 N.E.2d 667, 694
(Ill. App. Ct. 1st Dist. 2002), the Illinois Appellate Court affirmed the trial court’s refusal to
compel the assignment of an unfiled, unasserted claim for legal malpractice against the judgment
debtor’s attorneys. Id. The Illinois Appellate Court held that section 5/2-1402 permits the
assignment of a “chose in action,” which necessarily relates to “an issue that has been the subject
of litigation or, at the very least, is in the process of being litigated.” Id. A legal malpractice
claim that has neither been asserted nor commenced by the judgment debtor is a “potential chose
in action,” which the Illinois Appellate Court held is not assignable under section 5/2-1402(c)(1)
or section 5/2-1402(c)(6), because “if the legislature opted to include ‘potential chose’ in the list of
possible assets, it would have done so.” Id. at 694-95 (emphasis original). The same reasoning
applies to section 5/2-1402(c)(5), which authorizes the assignment of “chose[s] in action” but
makes no mention of “potential choses in action.” 735 ILCS 5/2-1402(c)(5). Accordingly, under
Gonzalez, this court may not assign to YCB a potential legal malpractice claim which UCF
Trading has or may have against S&W, Howe, and Mathew.
In its reply brief, YCB contends that it does not seek an “assignment” of claims, but merely
to maintain an action for legal malpractice as UCF Trading’s fiduciary, which YCB asserts is not
foreclosed by the Illinois Appellate Court’s decision in Gonzalez. (Dkt. No. 351 at 3.) YCB’s
purported role as fiduciary, raised for the first time in its reply, cannot save its motion for
assignment of claims. First, YCB’s contention that it does not seek an assignment of UCF
Trading’s potential malpractice claims is belied by the title of its initial motion for assignment,

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“Motion for Order to Judgment Debtor to Assign Claims Against Attorneys . . .” (Dkt. No. 338 at
1), and the relief YCB continues to seek through its amended motion: “YCB asks this [c]ourt to
order UCF Trading to execute an assignment of all its claims against [S&W], and the attorneys
who were responsible for the case, [Mathew and Howe], in a form substantially similar to Exhibit
A hereto . . .” (Dkt. No. 343 at ¶ 8). YCB attached as Exhibit A to its amended motion a proposed
order assigning any and all claims UCF Trading has or may have against S&W, Howe, and
Mathew. (Dkt. No. 343-1.) Second, YCB has provided no legal authority which would provide a
basis for YCB, by acting as fiduciary rather than assignee, to circumvent Illinois law prohibiting
the assignment of unfiled, unasserted legal malpractice claims. Consequently, the court declines
to assign to YCB any potential claims for legal malpractice that UCF Trading has or may have
against S&W, Howe, or Mathew.
CONCLUSION
For the reasons set forth above, YCB’s motion (Dkt. No. 333) to overrule the objections of
S&W to YCB’s subpoena, YCB’s motion (Dkt. No. 338) for assignment of claims against
attorneys, and YCB’s amended motion (Dkt. No. 343) regarding claims against attorneys are
denied. UCF Trading’s response to YCB’s motion (Dkt. No. 354) for rule to show cause and other
relief, and UCF Company’s response to YCB’s motion (Dkt. No. 357) to overrule the objections of
non-party UCF Company to YCB’s subpoena for documents, are both due on February 4, 2014.
YCB’s replies in support of their motions are due on February 11, 2014. The court will hold an
evidentiary hearing in connection with YCB’s motion for rule to show cause (Dkt. No. 354) on
February 18, 2014 at 2:00pm.

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ENTER:

_______________________________
JAMES F. HOLDERMAN
District Judge, United States District Court
Date: January 13, 2014

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