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Chicago Police Sergeants' Association v. Pallohusky

Court of Appeals of Illinois, First District, First Division

September 11, 2017

CHICAGO POLICE SERGEANTS' ASSOCIATION, POLICEMEN'S BENEVOLENT & PROTECTIVE ASSOCIATION, UNIT 156A, Plaintiff-Appellee,
v.
JOHN PALLOHUSKY, Defendant-Appellant (Policemen's Annuity and Benefit Fund, Third-Party Respondent).

         Appeal from the Circuit Court of Cook County. No. 15 L 7546 Honorable Alexander P. White, Judge Presiding.

          JUSTICE MIKVA delivered the judgment of the court, with opinion. Justice Connors and Justice Harris concurred in the judgment and opinion.

          OPINION

          MIKVA, JUSTICE

         ¶ 1 Defendant John Pallohusky appeals from a turnover order entered in supplementary collection proceedings. The circuit court concluded that monthly payments Mr. Pallohusky receives as a "widow's annuity" under his deceased wife's pension plan are not statutorily exempt from collection and must be paid to his judgment creditor. For the reasons that follow, we disagree and reverse the judgment of the circuit court.

         ¶ 2 BACKGROUND

         ¶ 3 The Policemen's Annuity and Benefit Fund (Fund) was created and is maintained under Article 5 of the Illinois Pension Code (Pension Code) "for the benefit of *** policemen, their widows and children." 40 ILCS 5/5-101 (West 2014). Article 5 establishes a "[w]idow's [a]nnuity" for the surviving spouses of police officers who retire or die while in service. 40 ILCS 5/5-134 (West 2014). To fund the annuity, officers are required to contribute a percentage of their salary each pay period, to which the city adds a percentage contribution, plus interest. 40 ILCS 5/5-170, 5-175.1 (West 2014).

         ¶ 4 John Pallohusky and his late wife, Mary O'Toole, were both Chicago police officers. From 1991 until her death in 2010, Ms. O'Toole made regular pension contributions. As Ms. O'Toole's surviving spouse, Mr. Pallohusky receives a widow's annuity of $1829.10 per month, which, reduced by federal income taxes and the cost of his monthly health insurance premium, results in monthly payments to him of $782.13. By statute, this benefit is non-transferrable. 40 ILCS 5/5-218 (West 2014). It can only be paid monthly, can never be withdrawn in a lump sum, and expires on Mr. Pallohusky's death. 40 ILCS 5/5-121 (West 2014).

         ¶ 5 On July 30, 2013, the Chicago Police Sergeants' Association, Policemen's Benevolent & Protective Association, Unit 156A (Association), obtained a judgment in its favor against Mr. Pallohusky in the amount of $690, 215.17.[1] Seeking to collect on the judgment, the Association served a third-party citation to discover assets or income belonging to Mr. Pallohusky on the Fund in late 2015. In response, the Fund's lawyer disclosed both the monthly widow's annuity payments received by Mr. Pallohusky and an additional $153, 762.90 of Mr. Pallohusky's own pension contributions that were held by the Fund. The Fund asserted that both categories of funds were exempt from collection pursuant to section 5-218 of the Pension Code (40 ILCS 5/5-218 (West 2014)). The Association then filed a motion for turnover, arguing that, under section 12-1006 of the Code of Civil Procedure (735 ILCS 5/12-1006 (West 2014)), the benefits Mr. Pallohusky received from the Fund as Ms. O'Toole's surviving spouse were not exempt from collection because they were not "retirement funds paid under a retirement plan." In support of its motion, the Association urged the court to apply the reasoning in Clark v. Rameker, 573 U.S.__, 134 S.Ct. 2242 (2014), and In re Marriage of Branit, 2015 IL App (1st) 141297, cases holding that the characteristics of inherited individual retirement accounts (IRAs) make them nonexempt assets. In its motion, the Association did not seek turnover of Mr. Pallohusky's individual pension contributions.

         ¶ 6 On February 17, 2016, the circuit court granted the Association's motion. Agreeing that Clark and Branit applied, the court concluded that "Mr. Pallohusky's benefit payments from his deceased wife's pension d[id] not fall within the purview of § 12-1006 and [we]re therefore not exempt from collection" because, as with an inherited IRA, "certain significant attributes" of the benefits changed upon the original holder's death. Although Mr. Pallohusky could not withdraw the funds in a lump sum like the holder of an inherited IRA, the court noted that he also could not contribute additional funds to the account and was required to withdraw money from the account "no matter how many years away from retirement he m[ight] be." The court explained that, in its view:

"The pension payments at issue here changed from being part of a retirement plan to a discretionary fund upon the death of [Ms.] O'Toole. [Mr.] Pallohusky is not precluded from using these funds to supplement his current lifestyle, and they therefore do not constitute 'retirement funds' for the purpose of the Illinois exemption statute."

         ¶ 7 On October 5, 2016, the circuit court denied Mr. Pallohusky's motion to vacate or reconsider that ruling. This appeal followed.

         ¶ 8 ANALYSIS

         ¶ 9 A. Appellate Jurisdiction

         ¶ 10 We first address the parties' dispute over this court's jurisdiction. Mr. Pallohusky contends that the circuit court's orders of February 17, 2016, and October 5, 2016, are final and appealable "because there are no further proceedings in the Circuit Court that could result in [their] vacatur or reversal." However, the Association insists that the orders are not final-and that this appeal must be dismissed-because the third-party citation to discover assets served on the Fund remains pending. According to the Association, the circuit court's turnover order will only become final when the citation "is concluded"-i.e., is formally dismissed by order of court. On February 1, 2017, we denied the Association's motion to dismiss the appeal on this basis. While we agree with the Association that we are free to reexamine the issue of our jurisdiction (see National Life Real Estate Holdings, LLC v. International Bank of Chicago, 2016 IL App (1st) 151446, ΒΆΒΆ 9-10 (noting that this ...


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