The opinion of the court was delivered by: James F. Holderman, Chief Judge
MEMORANDUM OPINION AND ORDER
In this supplemental proceeding, One CW, LLC ("One CW") seeks to enforce a judgment against Cartridge World Midwest, LLC (Midwest) entered on December 2, 2008. One CW hopes to satisfy a portion of the debt by recovering money held in Midwest's bank account at Signature Bank and by collecting Midwest's future revenue streams. The proceeding has been complicated by Signature Bank's claim to a priority interest in both the bank account and Midwest's future revenue, and by Midwest's claim to certain statutory protections.
For the reasons discussed below, the court holds that One CW is entitled to collect the money in Midwest's bank account at Signature Bank and a portion of Midwest's future revenue streams.
Cartridge World North America, LLC ("CW North America") is a franchisor of "Cartridge World" stores, which refill and remanufacture empty printer cartridges. Respondent Midwest is a Minnesota limited liability company that paid CW North America for the rights to sell Cartridge World franchises in the states of Illinois, Wisconsin, Minnesota, Iowa, North Dakota, and South Dakota. Pursuant to its agreement with CW North America, Midwest sold a Cartridge World franchise to petitioner One CW, which was to be located at 2356 E. Lincoln Highway in New Lenox, Illinois.
A dispute arose between One CW and Midwest regarding the New Lenox franchise, which was resolved by arbitration in One CW's favor and against Midwest for $359,279.00 in damages. On October 22, 2008, One CW filed a petition with this court to confirm that written arbitration award for the $359,279.00 in damages. On December 2, 2008, this court found Midwest to be in default and entered judgment in favor of One CW in the full amount One CW sought.
On December 9, 2008, Midwest pledged all of its assets to third party Signature Bank as a guarantee on two pre-existing personal loans made to Steven M. Vollmer ("Vollmer"), President of Midwest, in the amount of $500,000.00 and $150,000.00 respectively. Also on December 9, 2008, Signature Bank filed a UCC-1 Financing Statement with the Minnesota Secretary of State's Office perfecting its security interest in Midwest's assets.
On March 25, 2009, One CW issued citations to discover assets to Midwest, CW North America, and Signature Bank. Noting its troubles gaining compliance with its citations and collecting on the December 2, 2008 judgment, One CW filed a "Motion for Turnover of Assets & for Continuation of Citations Pending Satisfaction of Judgment" with the court on May 1, 2009. (Dkt. No. 18.) Signature Bank and Midwest both opposed this motion, in part on the ground that Signature Bank has a priority interest in Midwest's assets.
The assets in question include approximately $81,573.28 held in Midwest's bank account at Signature Bank (account number 10011021) and a stream of royalty payments that Midwest receives from CW North America on a monthly basis for 83 Cartridge World franchises located within its territory. On May 28, 2009, the court ordered the parties to brief the question of priority, which the parties have now completed. Pending resolution of this matter, CW North America has agreed to withhold 15% of Midwest's monthly royalty payments until further order of the court. (Dkt. No. 32.)
As the court has previously noted, "all supplementary proceedings in this case are governed by Illinois procedures, unless an applicable federal statute directs otherwise." (5/13/2009 Order, Dkt. No. 25 (citing Fed. R. Civ. P. 69(a) and Star Ins. Co. v. Risk Marketing Group, Inc., 561 F.3d 656, 661-62 (7th Cir. 2009)).) Pursuant to Illinois law, a judgment lien is created in a judgment debtor's nonexempt assets upon proper service of a citation. 735 ILCS 5/2-1402(m). Citations may be served upon either the judgment debtor itself or a third party that is in possession or control of personal property belonging to the judgment debtor. 735 ILCS 5/2-1402(m)(2). Both One CW and Signature Bank agree that service of the citation on Signature Bank was effected on March 27, 2009, thus creating a judgment lien on any of Midwest's assets held by Signature Bank on that date.
However, Illinois law also provides that "[t]he lien established under this Section does not affect the rights of citation respondents in property prior to the service of the citation upon them." 735 ILCS 5/2-1402(m). It is undisputed that Signature Bank perfected its security interest in Midwest's assets on December 9, 2008, the date it filed a UCC-1 Financing Statement with the Minnesota Secretary of State's Office. Accordingly, Signature Bank argues that, pursuant to 735 ILCS 5/2-1402(m), its rights to Midwest's assets cannot be affected by the judgment lien that was established on March 27, 2009.
Without disputing that Signature Bank has a priority interest in Midwest's assets, One CW argues that Signature Bank's own actions in this matter bar it from asserting that interest against One CW's judgment lien. Citing S.E.I.U. Local No. 4 Pension Fund v. Pinnacle Health Care of Berwyn LLC, 560 F. Supp. 2d 647 (N.D. Ill. 2008) (Zagel, J.), One CW argues that Signature Bank is barred from asserting a priority interest in Midwest's assets because Signature Bank failed to exercise its rights to those assets under Signature Bank's security agreement with Midwest.
In S.E.I.U., Judge Zagel looked to the plain language of the security agreement in determining that "[t]he Security Agreement makes clear that [the third-party lender] only takes on the rights of a secured creditor under the UCC after a default occurs." Id. at 650 (emphasis added). Judge Zagel concluded that "because [the third-party lender] did not declare [the borrower / judgment debtor's] loan in default or follow procedures required by the Security Agreement to enforce its U.C.C. and contractual rights, ...