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Our Lady of Bellefonte Hospital, A Kentucky Corporation v. Ashland Gi Services

March 9, 2012


The opinion of the court was delivered by: Judge Robert W. Gettleman


Plaintiff/judgment-creditor Our Lady of Bellefonte Hospital served defendant/judgment-debtor Ashland GI Services, LLC with a citation to discover assets, as well as interrogatories and requests for production of documents under Fed. R. Civ. P. 33, 34. Plaintiff also served non-party NextMed II, LLC with a "citation to discover assets to a third party." Both defendant and NextMed II have moved to quash the citations for lack of personal jurisdiction. Plaintiff has countered by moving to compel defendant to answer its discovery interrogatories and requests to produce. For the reasons discussed below, defendant's motion to quash is denied, plaintiff's motion to compel is granted, and NextMed II's motion to quash is granted.


Plaintiff is a hospital located in Kentucky. Defendant is a supplier of medical parts headquartered in Tucson, Arizona and formed under the laws of Nevada. In late 2010, defendant commenced arbitration against plaintiff to collect amounts it alleged were owed to it under a gastrointestinal services contact between the parties and to recover damages for plaintiff's breach of an exclusivity provision in the agreement. Plaintiff filed a counterclaim and arbitration was conducted in Chicago under the auspices of the American Arbitration Association.

In June 2011, two of defendant's officers personally appeared at the Arbitration hearing in Chicago and testified in support of defendant's claims against plaintiff, and in response to plaintiff's counterclaim. After a year of arbitration, the arbitrator made a finding in favor of both parties on various claims, with the amount of damages awarded to plaintiff exceeding the damages awarded to defendant by $348,273.85.

On October 5, 2011, plaintiff filed an application to this court to confirm the arbitration award. Defendant did not object to the application, and this court confirmed the award and entered judgment by agreement. In November 2011, defendant asserted that it did not possess sufficient assets to satisfy the judgment against it. On November 17, 2011, plaintiff served defendant's registered agent in Carson City, Nevada, with a citation to discover assets purporting to require defendant to produce a representative before this court. Plaintiff also served a citation on NextMed II, an LLC formed under the laws of Arizona and located in Tucson. NextMed II is the sole managing member, sole Class A member and sole Class B member of defendant.

Both defendant and NextMed II moved to quash plaintiff's citations on November 23, 2011. On November 28, 2011, the court ordered briefing on defendant's and NextMed II's jurisdiction and venue objections. Four days later, plaintiff issued Rule 33 interrogatories and Rule 34 requests for production to defendant. Defendant has failed to respond to either.


I. Defendant Ashland's Motion to Quash

Defendant has moved to quash plaintiff's citation to discover assets, arguing that the court lacks personal jurisdiction over it. According to defendant, because the instant proceedings are ancillary asset discovery and collection proceedings governed by Fed. R. Civ. P. 69, the court must have an independent basis for personal jurisdiction. Because it is undisputed that defendant has had no contact with Illinois other than the arbitration, defendant argues that it is not subject to the personal jurisdiction of the court.

Defendant is only partially correct. Rule 69(a)(1) provides that a money judgment is enforced by a writ of execution. "The procedure or execution -- and in proceedings supplementary to and in aid of judgment or execution -- must accord with the procedure of the state where the court is located . . ." The rule also provides that a "judgment creditor . . . may obtain discovery from any person -- including the judgment debtor -- as provided in these rules or by the procedure of the state where the court is located." Fed. R. Civ. P. 69(a)(2).

Illinois citation procedures are governed by 735 ILCS 5/2-1402(a), which allows judgment creditors to discover assets of the judgment debtor and to compel "the application of non-exempt assets or income discovered toward the payment of the amount due under the judgment." Woolard v. Woolard, 2009 WL 3150435 (N.D. Ill. 2009). Illinois Supreme Court Rule 277(d) provides that "[i]f the party to be cited neither resides nor is employed nor transacts his business in person in this State, the proceeding may be commenced in any county in the State, upon the filing of a transcript of judgment in the court in the county in which the proceeding is to be commended."

Despite the language of the rule, the Seventh Circuit and Illinois courts have held that they must possess an independent basis for personal jurisdiction over an individual to whom the court issues a citation. See Woolard, 2009 WL 3150435 at *3 (collecting cases). "Courts cannot use Rule 277, which sets forth the court's subject-matter jurisdiction, to bootstrap personal jurisdiction." Id. (emphasis in original). Instead, the court must determine personal jurisdiction by reviewing the Illinois Long-Arm Statute and due process. Id. (citing Textile Banking Co. v. Rentschler, 657 F.2d 844, 852 (7th Cir. 1981)).

Defendant argues that because it has no connection to Illinois, it has not purposely availed itself of the purpose of conducting activity here and is not subject to the personal jurisdiction of the court under International Shoe Co. v. Washington, 326 U.S. 310, ...

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