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November 19, 1985


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


On September 30, 1982, following a bench trial of plaintiffs' Truth in Lending Act ("TILA")*fn1 claim against the defendants, we found defendants jointly liable to the plaintiffs in the amount of $1,000.00 in damages and $500.00 in attorney's fees. Olevares v. Viking Dodge, Inc., No. 79 C 1599, Memorandum Op. at 11 (N.D.Ill. Sept. 30, 1982) (Grady, J.). On July 23, 1985, plaintiffs filed a citation to discover defendants' assets, claiming that defendants have not paid plaintiffs this judgment. See Ill.Rev.Stats. ch. 110, ¶ 2-1402, ch. 110A, ¶ 277 (judgment creditor commences enforcement proceeding by having citation of assets served).

The defendants have moved to quash the citation, arguing that plaintiffs have already been paid their judgment, because one of the two defendants, First Security Bank of Carey-Grove ("Bank") allegedly has reduced by $1500.00 a claim it has against the plaintiffs. The Bank's claim is apparently based on the installment contract plaintiffs entered into with the other defendant, Viking Dodge, Inc. ("Viking"), and which formed the subject matter of plaintiffs' TILA claim. Viking assigned all its rights under the contract to the Bank, and the Bank has never asserted this claim against the plaintiffs in court.

In response, plaintiffs argue that any action to enforce the installment contract was a compulsory counterclaim to plaintiffs' TILA claim under Fed.R.Civ.P. 13(a). Since the Bank did not assert that claim, they argue that the Bank's claim is barred, and cannot now be asserted as a defense in plaintiffs' enforcement proceeding. Even if the claim was permissive, not compulsory, plaintiffs argue that the claim cannot be asserted in this context. They distinguish defendants' cases and do not concede liability on the Bank's claim.


Enforcement of federal judgments is governed by Fed.R.Civ.P. 69(a), which provides that "the procedure on execution [of a judgment] . . . shall be in accordance with the practice and procedure of the state in which the district court is held, . . . except that any statute of the United States governs to the extent that it is applicable." See Textile Banking Co., Inc. v. Rentschler, 657 F.2d 844, 950 (7th Cir. 1981). Therefore, in determining whether defendants can offset the plaintiffs' judgment with the Bank's claim, we ask two questions: (1) does any federal statute preclude such a set-off; and (2) does Illinois law allow for such a set-off. See Dias v. Bank of Hawaii, 732 F.2d 1401, 1402 (9th Cir. 1984).

Federal Law

In Dias, the Ninth Circuit refused to permit a bank to offset a TILA judgment against it with a claim by the bank pending against the plaintiff in state court. The court based its decision both on state law and TILA. The court found that allowing lenders to satisfy adverse TILA judgments by reducing their claims in other courts would frustrate the essential purpose of the Act. TILA's civil liability provisions were designed to encourage consumers to bring actions against creditors and thereby promote compliance with the Act. If creditors were allowed to offset TILA judgments against pending collection claims, the court reasoned that debtors would be discouraged from bringing TILA claims. Id. at 1403.

The Seventh Circuit applied a similar reasoning when it held that a lender's collection claim is not a compulsory counterclaim to a debtor's TILA action. Valencia v. Anderson Brothers Ford, 617 F.2d 1278 (7th Cir. 1980), reversed on other grounds, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981).*fn2 In Valencia, the court noted that treating collection claims as compulsory counterclaims would undermine TILA's object, because TILA plaintiffs could be faced with counterclaims exceeding their potential recovery under the Act. Id. at 1292. See Maddox v. Kentucky Finance Co., Inc., 736 F.2d 380, 383 (6th Cir. 1984).

Therefore, there is at least some support for the position that TILA bars any lender set-off of a TILA judgment. Additionally, the Fifth Circuit has held that 15 U.S.C. § 1640 bars any set-off reducing the plaintiff's recovery of attorney's fees and costs. Wright v. Tower Loan of Mississippi, 679 F.2d 437, 446 (5th Cir. 1983); Plant v. Blazer Financial Services, Inc. of Georgia, 598 F.2d 1357, 1365 (5th Cir. 1979).*fn3

Illinois Law

Even if we did not find that TILA completely or partially bars a set-off here, defendants have failed to demonstrate that Illinois law would permit such a set-off.

As indicated, defendants have relied on various cases, only two of which could have involved Illinois law: Meadows v. Radio Industries, Inc., 222 F.2d 347 (7th Cir. 1955), and State Bank of St. Charles v. Burr, 372 Ill. 114, 22 N.E.2d 941 (1939). As Viking concedes, Burr is not relevant. Memorandum of Defendant, Viking Dodge, Inc. at 1.*fn4 In Meadows, a plaintiff employee sued his employer for wrongful termination of his employment contract, for an injunction against collection of plaintiff's notes, and for unpaid wages. The court held for the defendant, finding no breach, and stating that plaintiff could not collaterally attack the unimpeached judgment that defendants had already received elsewhere for the balance due on the notes. The court then added, "Inasmuch ...

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