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COMMUNITY THRIFT CLUB v. DEARBORN ACCEPTANCE CORP.

February 20, 1980

COMMUNITY THRIFT CLUB, INC., AN ILLINOIS NOT-FOR-PROFIT CORPORATION, AND JUVENAL TORRES, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
DEARBORN ACCEPTANCE CORPORATION, AN ILLINOIS CORPORATION; MORGAN FINLEY, CLERK OF THE CIRCUIT COURT OF COOK COUNTY, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY; AND RICHARD J. ELROD, SHERIFF OF COOK COUNTY, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY, DEFENDANTS.



The opinion of the court was delivered by: Marshall, District Judge.

MEMORANDUM DECISION

In this suit brought pursuant to 42 U.S.C. § 1983, plaintiffs challenge the constitutionality of Ill.Rev.Stat., ch. 62, § 82, which deals with garnishment of wages following a judgment by confession. Plaintiffs compose a class of all wage earners whose wages are subject to garnishment in satisfaction of judgments entered pursuant to cognovit clauses. Plaintiffs seek declaratory relief pursuant to 28 U.S.C. § 2201 and 2202 and invoke our jurisdiction pursuant to 28 U.S.C. § 1343(3) and (4). Plaintiffs contend that the notice provided to a debtor whose wages are garnished pursuant to § 82 is insufficient under the due process and equal protection clauses of the Fourteenth Amendment. Cross motions for summary judgment are now pending.

The statute at issue here provides the means for a creditor to obtain garnishment on a judgment by confession:

  A judgment by confession without service of
  process on the defendant shall not be the basis
  for seeking a deduction order, unless such
  judgment is confirmed after service of process by
  a trial de novo, as if such confession of
  judgment had not been obtained, except that if it
  appears by the return of the officer on the first
  summons that the employee is not found, alias
  summonses subsequently issued may be served upon
  the employee by leaving a copy thereof with the
  employee's employer, or leaving a copy thereof at
  the usual place of business of the employer with
  his or its superintendent, manager, cashier,
  general agent or clerk, pursuant to an affidavit
  filed by the creditor with the clerk of the court
  stating the identity of the employee's employer,
  and that the employee is actively employed at the
  time such alias is sought. . . .

Thus a creditor holding a judgment obtained by virtue of a cognovit clause, which waives all right to notice and hearing, is permitted to garnish the judgment debtor's wages only if the creditor confirms the judgment. Confirmation requires a trial de novo after service of process. If the debtor is not found in the first attempt at service, alias summons left with the debtor's employer may be substituted for personal service. The statute does not require the employer to notify the debtor-employee of the summons, nor does it require that a copy of the complaint underlying the confessed judgment be served with the summons. Plaintiffs challenge the constitutionality of the alias summons portion of the statute.*fn1

The facts surrounding the garnishment of one class member's wages illustrate the evils plaintiffs see in the statute. Plaintiff Juvenal Torres purchased a combination television-radio set from P-M Carpeting Company. The sales contract, which included a confession of judgment provision, called for payments totalling $162.54. P-M Carpeting subsequently sold the contract to Dearborn Acceptance Corporation. According to Torres, he was not informed of this transaction and continued to make his payments to P-M Carpeting Company. He alleges that he had paid the account in full by April 23, 1977. On March 1, 1977, however, Dearborn Acceptance Corporation filed suit against Torres for non-payment of the sum due under the sales contract. Judgment was confessed against him on March 4, 1977. Subsequent to this confession of judgment, and in accordance with Ill.Rev.Stat., ch. 62, § 82, the creditor, Dearborn Acceptance Corporation, made one attempt to personally serve Torres with notice of the pending trial de novo. When this summons was returned "not found," Dearborn proceeded with service of an alias summons on Revere Aluminum Building Products Corporation, Torres' employer. Revere did not give Torres notice of the confession of judgment entered against him or of the confirmation proceeding. When Torres failed to appear for the confirmation hearing on May 9, 1977, the confessed judgment was confirmed ex parte. Torres was not aware of any of the proceedings regarding the contract held by Dearborn until his wages were garnished.

Plaintiffs contend that the alias summons statute violates both the due process and equal protection clauses of the Fourteenth Amendment. Plaintiffs' due process argument is predicated on the rights of parties to notice and hearing before they may be deprived of property. According to plaintiffs, their right to notice is not affected by the confession of judgment clause in the sales contracts. Even if a defendant is not entitled to postjudgment notice prior to garnishment, plaintiffs contend that the process by which a cognovit debtor's wages are garnished in Illinois is a prejudgment garnishment. Section 71 of Ill.Rev.Stat., ch. 62, the garnishment chapter, excludes from the definition of a judgment creditor any recipient of a confessed judgment which has not been confirmed as required by § 82. Therefore, plaintiffs argue that cognovit debtors are not judgment debtors and are thus entitled to notice prior to garnishment. See Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969).

Plaintiffs contend that for two reasons the notice provided by § 82 is not reasonably calculated to apprise debtors of the claims against them and thus is insufficient under the due process clause. First, because the statute allows service on an employer, who is not required to notify the debtor-employee, and allegedly usually does not so inform the employee, the statute does not insure that notice will reach the debtor. Second, even if the debtor receives the summons, the notice is inadequate because, unlike the rules applicable in other civil cases,*fn2 § 82 authorizes service on the employer of the summons without a copy of the complaint attached. Plaintiffs illustrate the importance of this omission by noting that plaintiff Torres, even if he had received the summons, would have been unable to understand the claim against him without a copy of the complaint indicating the basis of the underlying debt.

As for the alleged equal protection violation, plaintiffs argue that § 82 allows service on a cognovit debtor's employer, but that under Illinois law all other debtors are entitled to personal service. Accordingly, plaintiffs allege that § 82 discriminates against cognovit debtors with no rational basis for doing so. Although plaintiffs' equal protection contention appears to have substance, we need not and do not reach it because we find plaintiffs' due process contention compelling, and we grant plaintiffs the relief they seek on that theory.

Defendants respond to plaintiffs' due process arguments by arguing that a cognovit debtor is not entitled to notice prior to the confirmation proceeding. Although the state has provided in § 82 a mechanism for allowing debtors to challenge the basis of a cognovit judgment in a trial de novo, the defendants argue that the state is not constitutionally required to do so and is therefore not required to provide notice. Contending that the validity of confessed judgments was established by D.H. Overmyer Co., Inc. of Ohio v. Frick Co., 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972), defendants argue that plaintiffs are entitled only to the safeguards provided for other judgment debtors whose wages or assets are garnished. Defendants assert that such safeguards are provided by the statute here. As for plaintiffs' equal protection argument, defendants argue that plaintiffs, as cognovit debtors whose wages are garnished, receive at least a modicum of notice and may appear at the confirmation hearing, safeguards not available to other cognovit debtors whose wages are not garnished. Therefore plaintiffs are not deprived of benefits awarded to other members of a similarly situated class.

The central issue in this case is the form of notice, if any, required before wages may be garnished in satisfaction of a confessed judgment. Both plaintiffs and defendants have sought a simple route by which to answer this question. Plaintiffs contend that a judgment obtained through a cognovit clause is not a judgment for purposes of the garnishment statute until confirmed. Therefore the Illinois statute permits prejudgment garnishment, which must be preceded by notice and hearing as required by Sniadach v. Family Finance Corp., supra. This complete reliance on Sniadach is misplaced. Plaintiffs' wages are not garnished until the confessed judgment is confirmed, either after a trial de novo or ex parte if the debtor fails to appear. Thus no wages are garnished before the cognovit judgment is a valid judgment for purposes of the garnishment statute. Unless the validity of cognovit judgments in this situation may be questioned, no prejudgment garnishment takes place.

Defendants, however, also oversimplify the issues by assuming the validity of cognovit judgments in all contexts. According to defendants, the constitutional validity of cognovit clauses remains unshaken by Overmyer, supra, and therefore plaintiffs are entitled only to those rights afforded to postjudgment debtors. Defendants ignore the possibility that the validity of cognovit judgments may depend on the circumstances of the case and the statutory scheme implemented to satisfy the judgment.

The constitutional challenge here is a narrow one. Plaintiffs contest only the use, without adequate notice, of the wage garnishment statute to satisfy judgments obtained through cognovit clauses. The plaintiffs therefore are not mounting a broad constitutional attack on all confession of judgment clauses. But the validity of such judgments is crucial to a resolution of the case. If the cognovit judgment and the concomitant waiver of the constitutional right to all notice and hearing are valid, regardless of how the judgment is satisfied, then the state is not required by the Constitution to provide cognovit debtors with a confirmation hearing. The state would not then violate plaintiffs' constitutional rights by failing to notify plaintiffs of the confirmation proceedings, just as it would not violate their rights by failing to notify them of the judgment by confession. Therefore, we must first determine the validity of a debtor's waiver, through a cognovit clause, of the constitutional right to notice and hearing. We must then consider the related question of whether the state must afford the cognovit debtor with an opportunity to challenge the validity of the waiver. Only then can we reach plaintiffs' claim by determining whether the invocation of the wage garnishment statute to satisfy confessed judgments affects the validity of the waiver of notice and hearing.*fn3

The Fourteenth Amendment protects against the deprivation of property without due process. Due process requires a hearing. Instrumental to such a hearing is notice reasonably calculated to apprise the interested party of the action. Mullane v. Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950). The right to notice, however, may be waived. National Equipment Rental Limited v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964). A party executing a cognovit clause contractually waives the right to notice and hearing.*fn4 In D.H. Overmyer Co., Inc. of Ohio v. Frick Co., supra, the Supreme Court rejected a claim that judgments entered on the basis of cognovit clauses are per se unconstitutional. The Court applied the standard for determining the validity of waiver in criminal cases, the "intentional relinquishment of a known right or privilege," Johnson v. Zerbst, 304 U.S. 458, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938),*fn5 but determined that the standard was satisfied. The Court based this conclusion on the fact that both parties to the contract were corporations which had equal bargaining power and which had bargained over the inclusion of the cognovit. The Court cautioned, however, that "other legal consequences may ensue" if the contract is an adhesion contract in which the parties are of unequal ...


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