that permits a judgment debtor to set off a creditor's judgment
with an unadjudicated claim he has against the judgment creditor.
In support of their motion, defendants cite Corpus Juris
Secundum, a Sixth Circuit case, a California case, an Illinois
case, and a Seventh Circuit case. Memorandum of defendant, Viking
Dodge, Inc.; Bank's Memorandum in Support of Motion to Quash
Citation to Discover Assets.
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).
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
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 as the judgment [on the notes] exceeds the amount he
claims due him for unpaid wages, he had no right to recover
therefor. Consequently, there was no basis for relief." Meadows,
222 F.2d at 349.
We fail to see how this comment supports defendants' position
that Illinois allows a judgment debtor to offset a judgment in an
enforcement proceeding with an unadjudicated claim against the
debtor. Meadows did not involve an enforcement proceeding, and
the court did not allow the employee to prosecute his independent
claim against the bank. As plaintiffs point out, Meadows could be
read as supporting plaintiffs' position, since the court did not
permit the employee to collaterally attack the bank's judgment.
Thus, defendants have cited no case law that supports their
position. To the contrary, it appears that in Illinois, a
judgment debtor cannot offset with an unadjudicated claim. In
Dias, the court stated that most state courts do not permit such
set-offs, because "[a]llowing the satisfaction of a judgment
against a mere claim would undermine the judgment creditor's
right to have the judgment satisfied." Dias, 732 F.2d at 1043,
citing Piranesi Imports, Inc. v. Furniture Textiles and
Wallcoverings, 31 A.D.2d 742, 296 N.Y.S.2d 922 (1969).
We note that Illinois enforcement proceeding statutes were
derived in part from New York practice statutes. See
Ill.Rev.Stat. ch. 110, ¶ 2-1402, Joint Committee Comments ,
contained in Smith-Hurd Ill.Anno. at 862. Therefore, in the
absence of Illinois case law, if we are to look at any other
state's practice, it would be logical to examine New York's, and
Piranesi supports a conclusion of no set-off.
Illinois also has a statute which specifically permits set-off
of judgments between the same parties. Ill.Rev.Stat. ch. 110, ¶¶
12-176-178. The statute says nothing about claims not reduced to
judgment, and, therefore, implies that no such set-off is
allowed. Moreover, even when a claim is reduced to judgment,
Illinois does not permit attorney's fees to be subject to
set-off. Ill.Rev.Stat. ch. 110, ¶ 12-178(5).
Given the federal cases disapproving of set-off in TILA cases,
the absence of Illinois law allowing such set-offs, and the
existence of an Illinois statute allowing set-offs
only for judgments, we cannot, sitting as a federal court
interpreting state law, find permission for set-off of
unadjudicated claims in Illinois' enforcement procedure.
Moreover, and perhaps most importantly, it would also be
inequitable to permit such a set-off here. While the Bank's claim
was not compulsory, it could have raised its claim as a set-off
to plaintiffs' TILA claim in the course of our adjudication. See
Goldstein Oil Co. v. J.M. Sweeney Oil Co., No. 84 C 8571,
Memorandum Op. at 3 (N.D.Ill. June 14, 1985) (Grady, J.)
(permissive counterclaim need not have independent jurisdictional
basis if asserted only as defensive set-off). The Bank could also
have asserted its claim in state court. Instead, the Bank chose
to take neither opportunity to have its claim adjudicated. Now,
it (and Viking) is asking us to permit a set-off without any
judicial finding that plaintiffs actually owe the Bank any money
under the installment contract. Plaintiffs have not conceded
liability, and we have no idea whether plaintiffs could
successfully raise state defenses to the Bank's claim. See
Valencia, 617 F.2d at 1291 (debt counterclaim "can raise full
range of state law contract issues"). It is true that we have
already ruled on several state law issues, when we denied
plaintiffs' rescission claim in Count III of their TILA claim.
See Olevares, Memorandum Op. at 10. It does not follow, however,
that plaintiffs have exhausted all their defenses, and an
enforcement proceeding is not the forum to make such a
Defendants' motion to quash is denied. A hearing is set for
December 3, 1985, at 9:45 a.m. pursuant to plaintiffs' citation
to discover defendants' assets.