Appeal from the Circuit Court of Cook County. 98 L 03303 Honorable Thomas Quinn, Judge Presiding.
The opinion of the court was delivered by: Justice Wolfson
The question in this case is whether an Illinois State Lottery winner can pledge as collateral for a loan her right to receive payments of her winnings. In this case of first impression, we hold she cannot. We agree with the trial court that her pledge of lottery payments was an invalid assignment pursuant to Section 13 of the Lottery Law.
On August 10, 1996, Abla Hamideh (Hamideh) entered into a loan agreement with Elantra Consulting Co. (Elantra). According to the promissory note, Hamideh received $102,800 in exchange for a promise to pay Elantra four installments of $44,850 ($179,400), with the first installment coming due on November 13, 1997. The note also provided that, on default, the entire principal and interest would be due.
Hamideh was a 1988 Illinois State Lottery winner entitled to receive annual payments of $44,850 each November until the year 2007. As collateral for the loan, Hamideh pledged her right to receive six lottery payments from the Illinois State Lottery. In accord with the loan agreement, Hamideh also sent a letter to the Illinois Department of the Lottery (the Department), directing it to deposit her future lottery installment payments, beginning in November 1997, into a BankFirst bank account in Knoxville, Tennessee, to which Elantra and its assigns had "sole right and power to withdraw funds..." On August 13, 1996, Elantra recorded with the Illinois Secretary of State its U.C.C. financing statement showing the security agreement for the loan.
In September 1996, Elantra assigned its interest in the note and security agreement with Hamideh to Midland States Life Insurance Co. (Midland). Hamideh signed a power of attorney appointing Midland her attorney in connection with the BankFirst bank account, where her lottery winnings were to be sent.
In November 1997, Hamideh defaulted on the loan by failing to pay the first installment. Midland brought suit against Hamideh in the state of Colorado, County of Denver, to recover the entire amount of the note and interest. On March 5, 1998, a default judgment was entered by the Denver court against Hamideh in the amount of $187,019.24, plus 23.4% interest.
On March 19, 1998, Midland registered the Colorado default judgment in Illinois. On April 9, 1998, Midland filed a citation to discover assets with the Department and then, on June 22, 1998, filed a complaint against Hamideh in the circuit court of Cook County seeking turnover of Hamideh's annual lottery payments pursuant to the security agreement on the loan.
On July 22, 1998, the Department, as citation respondent, filed a response to the motion for turnover of Hamideh's lottery funds. The Department asked the court to deny the motion and dismiss the citation. The Department argued the security agreement was a voluntary assignment prohibited by §13 of the Lottery Law (20 ILCS 1605/13 (West 1996)), and, therefore, invalid. Because the security agreement was invalid, the Department said, the default judgment did not date back to the original security interest. Consequently, the Department believed Midland's March 1998 default judgment lien did not take priority over two judgment liens, in the amounts of $177,506.23 and $234,330.30, which were placed on the lottery proceeds by orders of the circuit court of Cook County in two cases, Hammad v. Hamideh, No. 96 L 13454, and Hammad v. Hamideh, 96 CH 394, issued on December 18, 1996, and January 7, 1998, respectively.
Initially, the trial court ruled that pledging lottery winnings as security for a loan was not an illegal assignment under Illinois law. The court changed its position after rehearing, and on November 10, 1998, issued an order denying Midland's motion for turnover and dismissing the citation to discover assets against the Department. Midland appeals.
Section 13 of the Illinois Lottery Law (20 ILCS 1605/13 (West 1996)), states:
"No prize, nor any portion of a prize, nor any right of any person to a prize awarded shall be assignable. *** Notwithstanding any other provision of this Section, any person pursuant to an appropriate judicial order may be paid the prize to which a winner is entitled, and all or part of any prize otherwise payable by State warrant under this Section shall be withheld upon certification to the State Comptroller from the Illinois Department of Public Aid as provided in Section 10-17.5 of The Illinois Public Aid Code. The Director shall be discharged of all further liability upon payment of a prize pursuant to this Section." (Emphasis added.)
The question for this court to resolve is whether pledging lottery payments as collateral for a loan is an invalid assignment pursuant to §13 of the Lottery Law.
Midland contends Hamideh's pledge of certain future lottery installment payments as collateral for a loan did not constitute an assignment because Hamideh retained the power to repay the loan and Midland did not have an immediate and absolute right to Hamideh's lottery proceeds.
The Department, of course, does not agree. Failing to interpret the security agreement as an assignment, says the Department, would be an impermissible circumvention of the law and would render §13 of the Lottery Law meaningless. The Department contends interpreting the security interest as ...