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Doctors Oxygen Service, Inc. v. Cannon Management Group, LLC

Court of Appeals of Illinois, Second District

December 18, 2017

DOCTORS OXYGEN SERVICE, INC., d/b/a Medgas Solutions, Plaintiff-Appellee,
v.
CANNON MANAGEMENT GROUP, LLC, Defendant Friedler Construction Company, Intervenor-Appellant.

         Appeal from the Circuit Court of Du Page County, No. 16-MR-201; the Hon. Bonnie M. Wheaton, Judge, presiding.

          Edward L. Filer and Garry L. Wills, of Roetzel & Andress LLP, of Chicago, for appellant.

          Kevin M. Lyons and Laura E. Alms, of Lyons Law Group, LLC, of Downers Grove, for appellee.

          Panel McLAREN JUSTICE delivered the judgment of the court, with opinion. Justices Schostok and Burke concurred in the judgment and opinion.

          OPINION

          McLAREN JUSTICE.

         ¶ 1 This appeal comes to us from supplementary proceedings instituted by plaintiff, Doctors Oxygen Service, Inc., doing business as Medgas Solutions (Doctors), to enforce an underlying judgment totaling $105, 551.71 against defendant, Cannon Management Group, LLC (Cannon). Doctors filed a citation to discover assets and a motion for turnover. Intervenor, Friedler Construction Company (Friedler), alleged superior rights to the same funds and moved for turnover. The trial court granted Doctors' motion for turnover and denied Friedler's motion. On appeal, Friedler argues that (1) the funds at issue were not subject to Doctors' judgment lien because the funds were not an "asset" of Cannon, (2) even if the funds were an "asset" of Cannon, the funds should have been awarded to Friedler under the doctrine of equitable subrogation, and (3) the trial court erred by determining that Friedler had a legitimate remedy, which was to make a claim against the surety. We affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 A. Doctors' Citation to Discover Assets Against Cannon

         ¶ 4 On December 1, 2015, Doctors obtained a default judgment against Cannon in the United States District Court for the Northern District of Illinois in the amount of $105, 551.71. On February 16, 2016, Doctors registered the default judgment with the trial court and filed a citation to discover assets against Cannon. On March 2, 2016, Thomas Cannon, a purported disabled veteran and the owner of Cannon, was served with the citation. Thomas Cannon failed to appear, and the trial court issued a rule to show cause. After Thomas Cannon was served by special service, he appeared on August 4, 2016. On August 17, 2016, Doctors moved for a temporary restraining order (TRO), alleging that Thomas Cannon had fraudulently transferred Cannon funds to accounts held by Vet Tec Mechanical (Vet Tec), Cannon's successor entity. On August 18, 2016, the trial court granted Doctors' motion, freezing any and all funds held by Fifth Third Bank and any account held by Cannon, Thomas Cannon, or Vet Tec.

         ¶ 5 On August 29, 2016, at Thomas Cannon's direction, the United States Department of Veterans' Affairs (VA) wire-transferred $79, 599.19 to the Vet Tec account at Fifth Third Bank. On August 31, 2016, the trial court entered an order requiring Fifth Third Bank to disburse all funds into an "interest on lawyer trust account" (IOLTA) held by Doctors' counsel, and the trial court ordered that those funds not be distributed.

         ¶ 6 B. Friedler Moves to Intervene

         ¶ 7 On September 8, 2016, Friedler filed an "Emergency Petition to Intervene and To Amend and Modify the Temporary Restraining Order." Friedler alleged and argued the following. Cannon had been hired by the VA to work on a construction project in North Chicago (the VA project). The VA required Cannon to obtain a performance-and-payment bond. Zurich American Insurance Company (Zurich) and its subsidiaries, including Fidelity and Deposit Company (Fidelity) (collectively, the surety) provided the bond. In October 2009, the surety and Friedler entered into a contract wherein Friedler agreed to indemnify the surety from any and all claims asserted on any construction projects in which the surety provided bonds in favor of Cannon (indemnity agreement).

         ¶ 8 Friedler also alleged that in July 2015 Cannon abandoned and defaulted on the VA project. The VA declared Cannon in default and made a claim to the surety on the bond. In accordance with the indemnity agreement, Friedler completed the construction work on the VA project. Cannon agreed and acknowledged that the remaining $121, 286.52 due and owing on the VA project was owed to Friedler because Friedler and its subcontractors fully performed the remaining work on the VA project. Friedler had informed the VA that it was performing the remainder of the work on the project, but the VA refused to pay Friedler directly. The $79, 599.19 that the VA transferred into Cannon's account on August 29, 2016, was part of the money that Cannon owed to Friedler. Because the aforementioned funds never belonged to Cannon, such funds were not an "asset" of Cannon, could not be used to pay Doctors, and should not be subject to the TRO. Friedler moved to intervene and to amend and modify the TRO to provide that all monies paid to Cannon for work performed by Friedler be distributed to Friedler.

         ¶ 9 Friedler attached to its pleading the indemnity agreement, which indicated that Thomas Cannon, the "President" of Cannon, was the named "Contractor" and that Thomas Cannon and Friedler were the "Indemnitors." Friedler also attached to its pleading a July 9, 2015, letter from Thomas Hardy, a VA contracting officer, addressed to Paul Greco, a representative of the surety, stating:

"[T]he Government considers [Cannon] to be in default of the contract. After issuance of a show cause notice on Tuesday, July 7, 2015, [Cannon] sent the Contracting Officer the following e-mail:
*** 'Jason
I'm pulling off the site……deal with it in ...

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