Knowledge Center

Monday, February 24, 2014

Eliminating Court Discretion to Deny Attachments

The Illinois Appellate Court recently clarified the requirements a creditor needs to meet in order to seek an attachment of a debtor's assets and, in the process, eliminating the trial court's discretion in granting such attachments, where certain requirements exist. In US Bank Nat'l Assoc. v. Rose, 2014 Il App 3d 130356, the defendant, Rose, signed a note that included a negative covenant not to sell, transfer, assign, pledge or encumber any of his assets without prior consent of the bank (the Antiassignment Covenant). Rose then formed a limited liability company and gifted his interest in that company, a mobile home park and interests in two other companies to a Cook Islands trust where his company was the sole member. The trust explicitly excluded any trust funds from being used to satisfy claims of creditors. After the assignment, Rose signed a modification of the loan that also contained the Antiassignment Covenant. After Rose defaulted on the loan, the bank sued and sought an attachment because of the fraudulent transfer of property first to the limited liability company and then to the trust in an effort to hide assets and the fraudulent contracting of the underlying debt.

The Court noted that to qualify for an attachment, a plaintiff must establish by a preponderance of the evidence at least one of the causes listed in the attachment statute and a probability of success on the merits.  In Rose, the statutory cause was based on the debt being fraudulently contracted. The Court concluded that if the factual findings establish both cause and a probability of success, the Court has no discretion to deny an attachment. The Court held that Rose fraudulently contracted for loan at issue "when he misrepresented his compliance with the Antiassignment Covenant." The Court further held that there was a probability of success that the bank would succeed on its claim that Rose transferred his interests with actual intent to hinder, delay and defraud that bank. Consequently, the bank was allowed to attach assets present in the County where the lawsuit was brought.

To discuss specific recommendations regarding this legal update, please contact Rick Rein or Richard Wolf.

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