Even after a final money judgment is awarded, judgment debtors are not always willing or able to satisfy it. Sometimes supplementary proceedings are required to obtain satisfaction of the judgment. These supplementary proceedings can take the form of disputes with third-parties that may owe money to the judgment debtor (insurance companies, for example) and can look and feel a lot like entirely separate litigation. These sorts of disputes are specifically contemplated by Section 2-1402(c)(6) of the Illinois Code of Civil Procedure which allows Illinois courts to “authorize the judgment creditor to maintain an action against any person or corporation that, it appears upon proof satisfactory to the court, is indebted to the judgment debtor, for the recovery of the debt [or other forms of relief].” 735 ILCS 5/2-1402(c)(6).
The rules regarding supplemental proceedings set forth in the Illinois Code of Civil Procedure also apply when execution of a judgment is sought in a federal court sitting in Illinois. Fed. R. Civ. P. 69(a). This raises the question of whether actions between a judgment creditor and a third-party under Section 2-1402(c)(6) require an independent basis for subject matter jurisdiction. The Seventh Circuit recently addressed the question and held that they do.
In Rizvi v. Allstate Corp., 833 F.3d 724 (7th Cir. 2016), the plaintiff obtained a default judgment in a breach of contract action in the Northern District of Illinois. Subject matter jurisdiction was founded upon diversity. The plaintiff then served a citation to discover assets on Allstate Corporation, which the plaintiff believed owed money to the defendant under an insurance policy. Allstate, like the plaintiff, was a citizen of Illinois. Allstate responded that it did not owe any money to the defendant. Plaintiff, claiming that Allstate’s response was false, asked the court to order Allstate to turn over insurance proceeds that plaintiff claimed Allstate owed to the defendant.
The district court held that it lacked subject matter jurisdiction over plaintiff’s request. The appellate court affirmed. It held that “the critical jurisdictional point is that resolving [the dispute over the insurance proceeds] takes the case out of the sphere of § 5/2-1402(c)(3), which applies when the third party is holding the debtor’s assets (in a bank account, for example), and into the realm of § 5/2-1402(c)(6), which applies when the third party may be indebted to the debtor and allows the judgment creditor to maintain a separate action on that basis.” Id. (emphasis in original). In other words, because Allstate, rather than acknowledging a debt to the defendant, took the position that no money was owed to the defendant, “any further proceedings. . . will require litigation that relies on different facts and law than the underlying breach of contract claim.” Id. at 727. Although Section 2-1402(c)(6) permits that dispute to litigated as a supplementary proceeding in federal court, “[it] is a separate dispute that requires its own basis for federal jurisdiction.” Id.