Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02 C 5603-James B. Zagel, Judge.
The opinion of the court was delivered by: Wood, Circuit Judge.
Before RIPPLE, MANION, and WOOD, Circuit Judges.
MAT Leasing, Inc., challenges an order entered by the district court during post-judgment collection proceedings. Those proceedings stemmed from a money judgment against Pavement Maintenance, Inc. ("PMI"), on PMI's default, in favor of the three plaintiffs in the litigation: Laborers' Pension Fund, Laborers' Welfare Fund, and James S. Jorgenson, the Funds' Administrator. We refer to the plaintiffs as "the Funds"; collectively, they make up the first set of appellees before us. The other appellee, MB Financial Bank, entered the post-judgment proceedings in the district court as an adverse claimant. MB Financial has a perfected security interest in PMI's assets; its interest has priority over the Funds' interest in those assets.
But the appellees are not (at least now) pursuing PMI, which is not even a party to this appeal. Instead, they would like to collect from MAT Leasing, a third-party respondent in the district court and the appellant here. According to the Funds and MB Financial, MAT Leasing was indebted to PMI at the time judgment was entered against PMI. Following traditional principles of garnishment, the creditors to whom PMI owes money are attempting to collect that debt from MAT Leasing.
On March 8, 2006, the district court entered an order finding that MAT Leasing did owe money to PMI and, after incorporating a few offsets, it calculated the amount of debt at $242,647.75. On April 20, 2006, the court ordered MAT Leasing to turn over that amount to MB Financial, the adverse claimant and priority creditor. MAT Leasing has appealed judgments in favor of the Funds and of MB Financial; we affirm.
On April 18, 2001, MB Financial extended credit to PMI in the principal sum of $400,000. MB Financial filed the documents required to secure its interest and then, on August 1, 2001, properly perfected it by filing a UCC-1 financing statement. As we have noted, MB Financial's priority over the Funds' interest in PMI's assets is undisputed.
In the meantime, from 2000 to 2003, MAT Leasing was toiling away on a job it had obtained to perform repairs on certain Chicago streets by replacing asphalt. MAT Leasing removed the original asphalt and subcontracted to PMI the replacement paving work. PMI replaced the asphalt using its own equipment and crew of unionized laborers. PMI did not own any trucks, however, and so it purchased the trucking services required to pick up fresh asphalt from a supplier and transport it to the job site from a company called M.T. Transit. MAT Leasing and M.T. Transit were owned in part by Michael S. Tadin, Sr., and his son, Michael S. Tadin, Jr. At PMI's job sites, Joseph Haughey supervised PMI's work. Haughey was a partner in PMI and the primary contact person between PMI and its contractors, MAT Leasing and M.T. Transit.
While the repaving project was going on, PMI experienced myriad financial difficulties. Its records were a mess, its invoices were inaccurate, and it had trouble making payments to M.T. Transit for its trucking services. It failed to make timely payments on its loans from MB Financial or to make timely contributions to the Funds, which provided coverage to PMI's employees. Despite these problems and its awareness of them, MAT Leasing continued to deal with PMI. Those dealings occurred primarily in the form of "handshake agreements" between MAT Leasing's head of operations, Mike Tadin, Jr., and Haughey, PMI's 50% owner and head of operations. When asked at an evidentiary hearing about these agreements, Tadin could not recall the details, but he affirmed that they were entirely verbal; no written documents exist to memorialize them.
On August 7, 2002, the Funds filed the complaint that started the present case. They began by suing PMI in the Northern District of Illinois for delinquent contributions and an audit. An amended complaint followed on July 10, 2003, adding PMI owner Haughey as a defendant. Four months later, on November 6, 2003, the district court entered a default judgment against PMI and Haughey and in favor of the Funds, in the amount of $59,975.47. Thereafter, the Funds initiated post-judgment proceedings pursuant to FED. R. CIV. P. 69(a), which instructs district courts to follow the law of supplementary proceedings of the state in which they sit. The parties and district court accordingly proceeded under the Illinois statute governing supplementary proceedings, 735 ILCS 5/2-1402.
The Funds sent citations to discover assets to several companies, seeking to find out if any of those third parties owed money to PMI-for if they did, Rule 69(a) and Illinois law would entitle the Funds to recover the amounts owed. With those citations still pending, MB Financial appeared in the district court on March 23, 2004, to assert its own interest in PMI's assets. It claimed, and the Funds did not dispute, that it held a secured, perfected interest in PMI's assets with priority over that of the Funds. Two months later, on May 25, 2004, the district court entered an Agreed Order providing that (1) MB Financial's secured interest was perfected, valid, and enforceable, with first priority over PMI's assets; (2) the Funds' rights were valid and enforceable but subordinate to MB Financial's; and (3) the citations filed by the Funds, and any additional citations that third parties might file, would remain in full force and effect under Illinois Supreme Court Rule 277(f), "Supplementary Proceedings," and any recoveries obtained from those citations would apply first to the debt owed to MB Financial, and then to the debt due to the Funds.
Two weeks later, on June 2, 2004, attorneys for MB Financial wrote a letter to MAT Leasing, seeking to collect on accounts receivable that MB Financial believed were owed from MAT Leasing to PMI. (A letter also went to M.T. Transit, but because the matters relating to M.T. Transit are not pertinent to this appeal, we do not discuss them further.) The letter noted that "while [PMI's] records of invoices are complete, records of payments made to [PMI] are not, and therefore we are unsure of the actual balance outstanding." The letter requested copies of MAT Leasing's payments on these "outstanding accounts receivable," but MAT Leasing did not oblige. The following month, on July 7, 2004, the Funds issued a citation to discover assets to MAT Leasing; MAT Leasing did not respond to the citation nor did it comply, and so on October 13, 2004, the Funds filed a motion for rule to show cause why the third-party citation respondent MAT Leasing and its President, Michael Tadin, should not be held in contempt for the failure to comply. The motion also asked the court to order the citation respondents to pay the attorneys' fees and costs that the Funds incurred in bringing the motion.
The district court granted the Funds' motion on January 11, 2005, and set a rule to show cause hearing for January 27, 2005. The hearing was conducted as a status hearing, and as it concluded, another status hearing was set for April 28, 2005. Counsel for MAT Leasing entered his appearance on April 15, 2005. Four days later, the Funds filed a motion for turnover of MAT Leasing's assets, along with a notice for presentment of that motion at the hearing scheduled for April 28. When that hearing convened, the district judge entered the Funds' motion for turnover of MAT Leasing's ...