Dowling v. Chicago Options Associates, Inc.

SECOND DIVISION
MARCH 28, 2006

No. 1-04-1110

BRIAN DOWLING, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County.
)
v. )
)
CHICAGO OPTIONS ASSOCIATES, )
INC., a Delaware Corporation, ) No. 96 CH 4430
)
Defendant )
)
)
(Michael E. Davis, ) The Honorable
) John K. Madden,
Defendant-Appellant). ) Judge Presiding.

PRESIDING JUSTICE GARCIA delivered the opinion of the court.

This appeal comes to us from supplementary proceedings

instituted by the plaintiff, Brian Dowling, to enforce underlying

judgments totaling $817,830.45, against the defendants, Chicago

Options Associates, Inc. (COA), and Michael E. Davis. As a

result of the supplementary proceedings, the circuit court

entered a series of turnover orders directed to Davis and to

third parties holding Davis's assets. On appeal, Davis argues

that the assets subject to the turnover orders were exempt or

were otherwise improperly given to Dowling.
1-04-1110

BACKGROUND

COA was engaged in the business of trading on the Chicago

Mercantile Exchange. Davis was a shareholder and employee of

COA, while Dowling was a trader employed by COA. In May 1995,

the parties entered into an agreement (the 1995 Agreement)

revising the compensation Dowling was to receive from COA in

contemplation of Dowling investing in and becoming a shareholder

of COA. However, the investment and shareholder discussions

broke down and a dispute arose concerning the compensation

Dowling was due under the 1995 Agreement. In May 1996, Dowling

filed suit against COA and Davis seeking a portion of COA's

profits, plus interest, from 1994 through the 1995 Agreement's

termination date. A bench trial was subsequently held and in May

and October 2002, the circuit court entered judgments totaling

$817,830.45 in favor of Dowling. We take judicial notice that

Davis and COA appealed from the underlying judgment, No. 1-03-

3350, but their appeal was dismissed on June 14, 2004.

In January 2003, Davis's ex-wife and minor children moved to

Florida and the children began attending school. In February

2003, Davis and his wife moved from Chicago, Illinois, to

Florida, purchased a home, and applied for Florida driver's

licenses. Davis and his wife also applied for a Florida real

estate homestead tax exemption.

In March 2003, Dowling instituted supplementary proceedings

against Davis and attempted to serve Davis at his residence in

2
1-04-1110

Chicago; however, because Davis had moved to Florida, service was

not completed. On August 27, 2003, Dowling issued a citation

notice to a third party, North Shore Community Bank and Trust

(North Shore Bank), because Dowling's attorney had learned that

Davis's residence in Chicago was actually owned by 4637 Manor,

LLC (Manor LLC), and in the fall of 2002, Davis had obtained a

$1.6 million loan from North Shore Bank using assets held by

Manor LLC to purchase his residence in Florida. On September 1,

2003, Dowling issued a citation notice to a third party,

Northwestern Mutual Life Insurance Company (Northwestern Mutual).

Later, on September 19, 2003, Dowling issued citation notices to

two other third parties: Schwab International (Charles Schwab),

and Strategic Capital Trust Company. These citations concerned

funds in a single account established with Strategic but held in

a Schwab brokerage account. On September 23, 2003, Dowling

issued a citation notice to Davis in care of attorney Landis.

On September 30, 2003, Dowling presented a motion for a

turnover order for the cash value of Davis's Northwestern Mutual

life insurance policy (the life insurance policy). The life

insurance policy had been established in 1992, had a net benefit

of $587,067, and, on September 17, 2003, had a net surrender

value of $95,059.58. The beneficiary of the life insurance
1
policy was listed as the "Davis Trust." The document

1
We acknowledge that in Northwestern Mutual's answer to

3
1-04-1110

establishing the Davis Trust stipulated that it was irrevocable

and directed the trustee to distribute the trust estate,

including any assets from Davis's life insurance policy, in equal

parts to Davis's children. Pursuant to the citation issued to

Davis in care of attorney Landis, attorney Landis appeared in

court on September 30, 2003, and procured the entry of a briefing

schedule on Dowling's motion for the entry of a turnover order

directed to Northwestern Mutual.

Dowling's citation, an affidavit represents that the "direct

beneficiary" of Davis's life insurance policy is the "trustee of

the Davis Trust." However, Davis's affidavit asserts that the

beneficiary of the life insurance policy is the "Davis Trust,"

and we accept Davis's representation as the accurate one.

4
1-04-1110

Around October 7, 2003, Davis learned that Dowling had

issued a citation to Northwestern Mutual. Davis also spoke with

attorney Landis, but Davis contends that attorney Landis did not

tell him that a motion for turnover of the cash value of the life

insurance policy had been filed with the court or that a briefing

schedule had been set. As a result of learning about Dowling's

citation to Northwestern Mutual, Davis contacted attorneys at DLA

Piper Rudnick Gray and Cary (US), L.L.P. (Piper Rudnick), to

determine the status of Dowling's supplementary proceedings.

On October 8, 2003, North Shore Bank delivered a copy of

Davis's real estate sales contract from his home in Florida to

Dowling. The contract disclosed Davis's current address, and on

October 31, 2003, Dowling issued a citation to Davis at his

address in Florida.

On October 21, 2003, Dowling presented a revised motion for

turnover order directed to Northwestern Mutual. The circuit

court granted Dowling's motion instanter and entered a turnover
order directing Northwestern Mutual to turn over the cash value

of Davis's life insurance policy.

On November 3, 2003, on Dowling's unopposed motion, the

circuit court entered an order imposing a lien on Davis's

membership interest in Manor LLC. The circuit court also ordered

Davis to "cause the delivery of any and all certificates and/or

evidence of Davis's membership interest in the [Manor] LLC to

[Dowling]." Also on November 3, 2003, because Davis did not

5
1-04-1110

appear in response to the citation served upon attorney Landis,

the circuit court, on Dowling's motion, entered an order of

contempt against Davis, as well as a bench warrant for his

arrest.

On November 12, 2003, pursuant to a citation to discover

assets issued to Charles Schwab, and on Dowling's unopposed

motion, the circuit court entered a turnover order directing

Charles Schwab to deliver the full cash surrender value of

Davis's individual retirement account (IRA) to Dowling. On

November 14, 2003, Dowling presented the circuit court with a
2
motion for a turnover order directed to Scudder Investments
requesting that the circuit court order Scudder Investments to

turnover the net value of Davis's 401(k) retirement plan

(410(k)).

On November 19, 2003, Dowling filed a motion in the circuit

court for turnover orders directed to Davis's membership interest

2
Although the turnover order must have been entered in

accordance with a citation issued to Scudder, we are unable to

locate the citation in the record. However, Davis does not raise

the absence of this citation as an issue.

6
1-04-1110

in Buckhorn Ranch, LLC (Buckhorn Ranch), and his stock in Boomis,

Inc. (Boomis). Dowling asked the circuit court to order Davis to

turnover his membership interests and stock directly to Dowling.

Also on November 19, 2003, Davis submitted to the circuit

court's jurisdiction and filed a motion to vacate the turnover

order directed to Northwestern Mutual, claiming that the cash

value of the life insurance policy was exempt. Piper Rudnick

also filed a motion to vacate the turnover order directed to

Charles Schwab, asserting that the account was exempt under

Florida law and, alternatively, under Illinois law. Davis also

requested that the circuit court vacate its contempt order and

quash the arrest warrant issued for him. In support of his

motions, Davis attached an affidavit which stated that he had

moved to Florida in early 2003 because his ex-wife and children

moved there. Davis's affidavit also stated that once in Florida

he and his current wife purchased a home, applied for a homestead

exemption, procured driver's licenses, and applied for voting

cards. Davis's affidavit stated that he did not learn that

Dowling was attempting to obtain the cash value of his

Northwestern Mutual life insurance policy until October 7, 2003.

Davis's affidavit also asserted that although attorney Landis

was his attorney during the proceeding which resulted in the

underlying judgment, he never authorized attorney Landis to

appear on his behalf during the supplementary proceedings.

7
1-04-1110

On November 20, 2003, the circuit court set a combined

briefing schedule on the parties' motions. Subsequently, on

December 9, 2003, Davis filed a declaration of exemptions listing

the assets he believed were exempt from judgment, that is, the

cash value of the life insurance policy, the IRA, the 401(k),

personal property up to $1,000, and Davis's home in Florida. On

December 22, 2003, Davis requested that the circuit court also

consider a motion to modify the turnover order entered on

November 3, 2003, directed to his membership interest in Manor

LLC, in order to eliminate that portion of the circuit court's

order which required him to deliver his ownership interest in

Manor LLC directly to Dowling.

On April 13, 2004, the circuit court denied Davis's motion

to vacate the turnover orders directed to Northwestern Mutual and

Charles Schwab, denied Davis's motion to modify the turnover

order directed to his interest in Manor LLC, granted Dowling's

motion for a turnover order directed to Scudder Investments, and

granted Dowling's motions for the turnover directed to Davis's

membership interest in Buckhorn Ranch and his stock in Boomis.

Davis now appeals. We note that although Davis had the

option of staying the collection proceedings by filing an appeal

bond, he did not, and as a result, Dowling has collected the

subject assets and several of the assets have been liquidated in

partial satisfaction of the underlying judgment.

ANALYSIS

8
1-04-1110

I. Jurisdiction

Davis's brief first contends that the circuit court's

turnover orders directed to third parties Northwestern Mutual,

Charles Schwab, and Scudder Investments were void, because the

citation issued to attorney Landis did not constitute personal

service upon him, and thus, the circuit court did not have

jurisdiction over him. At oral argument, however, Davis's

attorney conceded that because Dowling, as the judgment creditor,

issued citations to third parties in an effort to collect on the

underlying judgment, there was no jurisdictional issue regarding

the third-party citations.

Section 2-1402 of the Code of Civil Procedure provides a

mechanism by which a judgment creditor may initiate supplementary

proceedings, against a judgment debtor or a third party, to

discover the assets of a judgment debtor and apply those assets

to satisfy an underlying judgment. 735 ILCS 5/2-1402 (West

2002); Bloink v. Olson, 265 Ill. App. 3d 711, 714, 638 N.E.2d 406
(1994). These proceedings may be initiated only after the

circuit court enters an underlying judgment. Specifically,

section 2-1402 allows

"[a] judgment creditor *** to prosecute

supplementary proceedings for the purposes of

examining the judgment debtor or any other

person to discover assets or income of the

debtor not exempt from the enforcement of the

9
 1-04-1110

judgment." 735 ILCS 5/2-1402 (West 2002).

The provisions of section 2-1402 are to be liberally construed,

and the statute gives the court broad powers to compel the

application of discovered assets or income in order to satisfy a

judgment. Bentley v. Glenn Shipley Enterprises, Inc., 248 Ill.

App. 3d 647, 651, 619 N.E.2d 816 (1993). Relatedly, Supreme

Court Rule 277 provides:

"(a) When Proceeding May be Commenced

and Against Whom; Subsequent Proceeding

Against Same Party. A supplementary

proceeding authorized by section 2-1402 ***

may be commenced at any time with respect to

a judgment which is subject to enforcement.

The proceeding may be against the judgment

debtor or any third party the judgment
creditor believes has property of or is

indebted to the judgment debtor. ***

(b) How Commenced. The supplementary

proceeding shall be commenced by the service

of a citation on the party against whom it is

brought." (Emphasis added.) 134 Ill. 2d R.

277.

In this case, Dowling, in conformity with statute and the

supreme court rules, served third parties - Northwestern Mutual,

Charles Schwab, and Scudder Investments - with citations to

10
1-04-1110

discover Davis's assets. Because Dowling complied with the rules

regarding service on third parties in supplementary proceedings,

there is no jurisdictional issue concerning these third parties,

regardless of whether service on attorney Landis constituted

service on Davis. As such, we will not comment on whether Davis

was properly served through attorney Landis because the orders

entered against Davis personally, the finding of contempt and

warrant for his arrest, were vacated by the circuit court.

II. Assets Subject to Turnover

At oral argument, the parties also clarified the issues

presented in their briefs. The only issue pertinent for our

review, however, is whether the turnover orders directed to

Davis's Northwestern Mutual life insurance policy, his IRA, his

401(k), and his various stock certificates were properly entered.

1. Waiver

However, before determining whether the circuit court's

turnover orders were proper, we must address Dowling's arguments

that Davis waived any exemptions he may have been able to claim

by failing to appear at, or to claim exemptions at, the September

30, 2003, citation hearing. Davis asserts that he did not waive

any exemptions applicable to the contested assets and that "[t]he

circumstances surrounding the timing of [his] assertion of these

exemptions do not support a finding that [he] waived his

exemption rights."

11
1-04-1110

As previously stated, section 2-1402 sets forth the

procedure to be followed in supplementary proceedings. 735 ILCS

5/2-1402 (West 2002); In re Marriage of Murphy, 338 Ill. App. 3d

1095, 1097, 792 N.E.2d 12 (2003). Pursuant to section 2-1402(l),

a judgment debtor may appear at a citation hearing to seek a

declaration that certain assets are exempt or may request, before

the return date specified on the citation, a hearing to declare

certain income and assets exempt. 735 ILCS 5/2-1402(l) (West

2002). Section 2-1402 does not, on its own, confer any

substantive rights or exemptions on the judgment debtor as those

must be affirmatively asserted by the judgment debtor. See

Murphy, 338 Ill. App. 3d at 1097. We also note that section 2-

1402(b) does not specifically set a time limit for claiming

exemptions, and citations are required to remind judgment debtors

that "income or assets that may be applied toward the judgment is

limited by federal and Illinois law," and that "THE JUDGMENT

DEBTOR HAS THE RIGHT AT THE CITATION HEARING TO DECLARE EXEMPT

CERTAIN INCOME OR ASSETS OR BOTH." (Capitalization in original.)

735 ILCS 5/2-1402(b) (West 2002).

In Guess?, Inc. v. Chang, 912 F. Supp. 372, 379 (N.D. Ill.
1995), the judgment debtor appealed a magistrate judge's finding

that a motion to claim exemptions from a citation to turnover

assets was untimely. The Guess? court concluded that although

section 2-1402 "does not lay out a specific time limit for

claiming exemptions," the judgment debtor had waived his right to

12
1-04-1110

claim a specific statutory exemption to the citation. Guess?,

912 F. Supp. at 379. The Guess? court based its decision on the

facts that (1) the judgment debtor had personally received a

citation notice in March 1995, (2) was advised personally by the

magistrate judge of the significance of the postjudgment

proceedings in April 1995, and (3) despite the judgment debtor's

knowledge, no exemption was claimed until August 1995, six months

after receiving the citation notice and five months after being

warned of its importance.

In this case, on October 7, 2003, Davis learned that Dowling

had issued a citation to Northwestern Mutual in an attempt to

obtain the cash value of Davis's life insurance policy. Davis

then instructed his attorneys at Piper Rudnick to determine the

status of Dowling's supplementary proceedings. In November 2003,

Piper Rudnick filed a motion seeking to vacate the turnover

orders directed to Northwestern Mutual and Charles Schwab,

claiming, inter alia, that the assets were exempt. Subsequently,

on December 9, 2003, Davis filed a declaration of exemptions.

We find Guess? distinguishable from the facts of this case.

We first note that the circuit court never determined that

waiver applied. Also, we note that when Davis learned that

citations had been issued to third parties, he acted quickly to

hire attorneys to determine the status of the supplementary

proceedings. A month after Piper Rudnick began its inquiry,

Davis began claiming that some of the assets sought were exempt.

13
1-04-1110

Piper Rudnick's inquiry culminated with the filing of a

declaration of exemptions. Thus, we do not think that Davis's

actions were as egregious as the debtor's lack of action in

Guess?. As such, we find that Davis did not waive his right to

claim the disputed assets as exempt.

We now address the crux of this appeal, whether several of

the assets the circuit court ordered for turnover - a life

insurance policy, an IRA account, and the assets in a 401(k)

plan - were exempt from such an order.

2. Northwestern Mutual Life Insurance Policy

In November 1992, Davis purchased a whole-life insurance

policy from Northwestern Mutual with the beneficiary of the life

insurance policy listed on the policy as the "Davis Trust."

Davis contends that the cash value of his life insurance policy

is exempt from creditors because a separate trust document

ordered the trustee of the Davis Trust to distribute the assets

of the Davis Trust to the beneficiaries of the Davis Trust, that

is, Davis's minor children. Davis cites section 12-1001 of the

Code of Civil Procedure, which outlines what personal property is

exempt from judgment, as support. 735 ILCS 5/12-1001 (West

2002). Conversely, Dowling argues that in Illinois there is no

automatic exemption for life insurance proceeds for which the

sole beneficiary is a trust. Dowling emphasizes too that,

although the trustee of the Davis Trust would have control over

future proceeds from the life insurance policy, Davis maintained

14
1-04-1110

control of the life insurance policy until his death.

Whether section 12-1001 exempts Davis's life insurance

policy is a question of statutory interpretation which we review

de novo. Itasca Bank & Trust Co. v. Thorleif Larsen & Son, Inc.,

352 Ill. App. 3d 262, 265, 815 N.E.2d 1259 (2004). As such, we

begin our analysis by reviewing the relevant statutory authority.

Section 12-1001 states:

"The following personal property, owned

by the debtor, is exempt from judgment,

attachment, or distress for rent:

***

(f) All proceeds payable because of

the death of the insured and the aggregate

net cash value of any or all life insurance

and endowment policies and annuity contracts

payable to a wife or husband of the insured,

or to a child, parent, or other person

dependent upon the insured, whether the power

to change the beneficiary is reserved to the

insured or not and whether the insured or the

insured's estate is a contingent beneficiary

or not[.]" 735 ILCS 5/12-1001(f) (West

2002).

The cardinal rule of statutory interpretation is to

ascertain and give effect to the intent of the legislature. In

15
1-04-1110

re Estate of Dierkes, 191 Ill. 2d 326, 331, 730 N.E.2d 1101

(2000). In determining legislative intent, a court should first

consider statutory language. Dierkes, 191 Ill. 2d at 331. The

plain language of section 12-1001 makes clear that the aggregate

net cash value of a life insurance policy will be exempt "whether

the power to change the beneficiary is reserved to the insured or

not," so long as the policy proceeds are payable to the insured's

spouse or dependents. 735 ILCS 5/12-1001(f) (West 2002). The

decisive issue, then, is not the power of the insured to change

the beneficiary but, instead, the nature of the relationship

between the beneficiary and the insured. In applying section 12-

1001 to the present case, we reject Dowling's argument that

Davis's power to change the beneficiary of his life insurance

policy is the determinative factor in characterizing the asset.

Instead, we must look at whom Davis designated as the beneficiary

of his life insurance policy to determine whether the asset is

exempt under the statute.

In this case, Davis designated the "Davis Trust" as the

beneficiary of his life insurance policy. Therefore, to

determine whether Davis's life insurance policy is exempt from

judgment, we must decide whether Davis's designation of the

"Davis Trust" as the beneficiary of the life insurance policy

enabled the life insurance policy to qualify as an exempt asset

pursuant to section 12-1001. Davis argues that there is no

legislative history that indicates that the legislature intended

16
1-04-1110

to exclude from exemption insurance policies in which a trust is

the beneficiary for the irrevocable benefit of minor children of

the insured. However, Davis fails to provide authority for his

proposition; nor are we persuaded by his argument.

In section 12-1001(f), the legislature outlined that in

order for a life insurance policy to be exempt from judgment

under section 12-1001, the proceeds of the policy must be payable

(1) to a person, (2) that is the insured's "wife" or "husband" or

is otherwise "dependent" on the insured. 735 ILCS 5/12-1001(f)

(West 2002). Specifically, the legislature stated that, in order

for a debtor's life insurance policy to qualify as exempt, all

proceeds of the debtor's life insurance policy shall be payable

to "a wife or husband of the insured, or to a child, parent, or

other person dependent on the insured." 735 ILCS 5/12-1001(f)

(West 2002). The legislature did not include nonperson entities,

such as trusts, in its list of beneficiaries that would enable a

debtor's life insurance policy to be given exempt status.

Although the rules of statutory construction require that

exemption statutes be liberally construed in favor of the debtor

to effectuate the statutory purpose of providing the debtor with

enough income to subsist and obtain a fresh start (In re Grace,
273 B.R. 570, 572 n.3 (Bankr. S.D. Ill. 2002)), when determining

whether an asset qualifies for an exemption under section 12-

1001, bankruptcy courts have demanded that a debtor demonstrate

17
1-04-1110

that the asset meets the statute's requirements. For example,

when determining whether a "child, parent, or other person" is in

fact "dependent" upon a debtor, the bankruptcy courts have

demanded that the debtor demonstrate the beneficiary of his life

insurance policy is, in fact, "dependent" upon him. See In re

Grace, 273 B.R. 570 (20-year-old son enrolled as a full-time

college student was dependent upon his mother, the debtor

insured, so as to entitle his mother to an exemption pursuant to

section 12-1001); In re Sommer, 228 B.R. 674 (Bankr. C.D. Ill.
1998) (debtor, a 38-year-old quadriplegic, had two insurance

policies naming his parents as beneficiaries, assets not exempt

under section 12-1001 because parents were not financially

dependent on son); In re Ellis, 274 B.R. 782 (Bankr. S.D. Ill.

2002) (exemption not applicable because beneficiary of life

insurance policy, the debtor's cousin, was not dependent on the

insured debtor).

In this case, the language of section 12-1001(f) is clear

and unambiguous, and we must apply it without resort to further

aids of statutory construction. Andrews v. Kowa Printing Corp.,
217 Ill. 2d 101, 106, 838 N.E.2d 894 (2005). The facts of this

case indicate that Davis purchased a life insurance policy from

Northwestern Mutual and designated the beneficiary as the "Davis

Trust." Looking at the four corners of Davis's life insurance

policy, it is clear that the beneficiary listed, the "Davis

Trust," is not "a wife or husband of the insured, or a child,

18
1-04-1110

parent, or other person dependent on the insured." Therefore, in

accordance with the statute, Davis's life insurance policy cannot

be characterized as an exempt asset pursuant to section 12-

1001(f). 735 ILCS 5/12-1001(f) (West 2002). We therefore affirm

the circuit court's turnover order related to Davis's life

insurance policy.

3. IRA/ 401(k) Accounts

Davis established an IRA through Charles Schwab in 1998 and

a 401(k) plan through Scudder Investments in 1991. Davis argues

that the balances of his IRA and 401(k) accounts fall within the

protection of Section 12-1006 of the Code of Civil Procedure (735

ILCS 5/12-1006 (West 2002)) and qualify as exempt assets.

Dowling acknowledges that section 12-1006 generally exempts

retirement assets from the claims of creditors, but asserts that

"this general exemption does not protect assets that were

fraudulently conveyed or transferred into an otherwise exempt

retirement plan."

Whether Davis's IRA and 401(k) qualify as exempt assets is a

question of statutory construction, which we review de novo.
Itasca Bank, 352 Ill. App. 3d at 265. In pertinent part, section

12-1006 provides:

"(a) A debtor's interest in or right, whether

vested or not, to the assets held in or to receive

pensions, annuities, benefits, distributions, refunds

of contributions, or other payments under a retirement

19
1-04-1110

plan is exempt from judgment, attachment, execution,

distress for rent, and seizure for the satisfaction of

debts if the plan (I) is intended in good faith to

qualify as a retirement plan ***.

(b) 'Retirement plan' includes the following:

(1) a stock bonus, pension, profit sharing,

annuity, or similar plan or arrangement, including

a retirement plan for self-employed individuals or

a simplified employee pension plan;

***

(3) an individual retirement annuity or

individual retirement account[.]" 735 ILCS 5/12-

1006(a), (b)(1), (b)(3) (West 2002).

Section 12-1006 has also been analyzed in such a way as to

protect a debtor's interest in proceeds traceable to pension plan

payments and a debtor's right to receive benefits, distributions,

refunds of distributions, or other payments under a retirement

plan. See Auto Owners Insurance v. Berkshire, 225 Ill. App. 3d
695, 588 N.E.2d 1230 (1992); In re Marriage of Thomas, 339 Ill.

App. 3d 214, 227, 789 N.E.2d 821 (2003).

In Auto Owners, the plaintiff argued that the defendant had

lost the exemption applicable to his retirement funds because the

defendant deposited the funds into a personal checking account.

The circuit court agreed, finding that because the defendant

deposited the retirement funds into a personal checking account

20
1-04-1110

and they were being used for his individual use, the funds were

no longer exempt. The defendant appealed, presenting as the

issue whether the asset subject to the turnover order, that is,

funds deposited into a personal checking account and traceable to

the proceeds of a retirement benefit, were exempt. Auto Owners,

225 Ill. App. 3d at 696-97.

The Auto Owners court explained that section 12-1006

protects a debtor's interest in "the assets" and a debtor's right

"to receive" benefits, distributions, refunds of distributions,

or other payments under a retirement plan, but lamented that in

this case, the circuit court had failed to explain the pay out of

the defendant's pension plan. Auto Owners, 225 Ill. App. 3d at
698. The Auto Owners court also explained that even if the

retirement funds were originally exempt, their exempt status

could be lost depending on the character of the payment. Auto

Owners, 225 Ill. App. 3d at 698-99. The Auto Owners court

clarified that if the funds represented a payment of the

defendant's total accrued benefits as a lump-sum distribution,

then the funds could be held for future use and investment,

rather than for support. Auto Owners, 225 Ill. App. 3d at 701.
On the other hand, because the purpose of section 12-1006 is to

protect income necessary for the support of the debtor and his

family, if the payment was a periodic pension benefit intended

for current support, the funds were exempt and remained so

because the defendant deposited them into an account retaining

21
1-04-1110

the quality of the funds. Auto Owners, 225 Ill. App. 3d at 701.

Because the record was unclear, the Auto Owners court remanded

to the circuit court to make a finding regarding the defendant's

pension plan payout. Auto Owners, 225 Ill. App. 3d at 701.

In this case, once Davis believed his IRA and 401(k)

accounts were exempt, he had an obligation to inform the court

and ask for a citation hearing in which to claim any applicable

exemptions. 735 ILCS 5/2-1402 (West 2002). Davis, through his

attorneys at Piper Rudnick, did just that. However, the circuit

court never held a citation hearing to consider whether these

assets should be classified as exempt, and never made evidentiary

findings regarding the assets' exempt natures. Instead, the

circuit court ordered Davis to turn over the funds in his IRA and

401(k) plans to Dowling.

We find Davis's assertion that his IRA and 401(k) plans

qualify as exempt assets to have raised a substantial question.

Unlike the issue presented regarding Davis's life insurance

policy, here, the statute supports, rather than undercuts,

Davis's assertion of an exemption. As such, we find that the

circuit court erred by failing to conduct a citation hearing to

consider Davis's claimed exemptions. Therefore, as in Auto
Owners, we remand this issue to the circuit court for a citation

hearing at which time Davis can assert that his IRA and 401(k)

accounts are exempt, and Dowling can have the opportunity to

present any claims to the contrary.

22
1-04-1110

4. Stock Interests

In Davis's final argument, he concedes that his interests in

Manor LLC, Buckhorn Ranch, and Boomis were subject to Dowling's

collection efforts; however, Davis asserts that he should not

have had to make a direct conveyance of his ownership interests

in those entities to Dowling. Davis asserts that the assets

should have been collected by the sheriff and sold at public

sale. 735 ILCS 5/2-1402(e) (West 2002).

A similar factual scenario was discussed in In re Marriage
of Pick, 167 Ill. App. 3d 294, 521 N.E.2d 121 (1988). In Pick, a

husband and wife were in the process of divorcing, and the

circuit court entered an order restraining either party from

removing property from the marital home. Nonetheless, a

substantial amount of assets disappeared from the marital home

and, as a result, the court appointed a neutral third-party

attorney to act as a sequestrator. Thereafter, on several

occasions the court ordered the sequestrator to remove certain

items from storage and arrange for their sale. Pick, 167 Ill.
App. 3d at 297-98.

On appeal, the Pick court determined that the circuit court

did not have the authority to seize and force the sale of

personal property by a neutral third party. The Pick court

looked to the applicable statutory language:

"'All property ordered to be

delivered up [by the judgment debtor]

23
1-04-1110

shall *** be delivered to the sheriff to

be collected by the sheriff or sold at

public sale and the proceeds thereof

applied towards the payment of costs and

the satisfaction of the judgment.'"

Pick, 167 Ill. App. 3d at 302, quoting

Ill. Rev. Stat. 1985, ch. 110, par. 2-

1402(c) (now see 735 ILCS 5/2-1402(e)

(West 2002)).

The Pick court noted that the sale of personal property by a
private party was not provided for in section 2-1402; rather,

section 2-1402(e) "mandates that property to be sold to satisfy a

judgment shall be delivered to the sheriff for public sale."

Pick, 167 Ill. App. 3d at 302. The Pick court then concluded

that the circuit court's order authorizing a neutral third party

to arrange for the sale of property was in error because the

sheriff was the only party authorized by statute to enforce

judgments through the sale of personal property. Pick, 167 Ill.
App. 3d at 302.

We find the facts of this case similar to those of Pick, and

note that the language in section 2-1402(e) controls the outcome

of this issue. Here, the circuit court ordered Davis to turn

over his ownership interests in Manor LLC, Buckhorn Ranch, and

Boomis directly to Dowling. The circuit court's order was

entered in error because section 2-1402(e) mandates that a

24
1-04-1110

judgment debtor turn over personal property subject to collection

to the sheriff for public sale. As stated earlier, Davis does

not dispute that his ownership interest in Buckhorn Ranch,

Boomis, and Manor LLC were capable of being collected by Dowling;

instead, Davis argues that the judgment order was not entered in

conformity with the statute. It is unclear from the record and

from answers given at oral argument whether Dowling has sold

Davis's interests in Manor LLC, Buckhorn Ranch, and Boomis. If

these assets have been sold, Davis should be given credit for the

fair market value of the assets against the underlying judgment.

However, if the assets have not been sold, then the circuit

court should enter a revised order directing Dowling to turn the

assets over to the sheriff, who will conduct a public sale of the

assets.

CONCLUSION

For the foregoing reasons, we affirm the circuit court's

turnover order relating to Davis's life insurance policy.

Regarding Davis's IRA and 401(k) accounts, due to the absence of

evidentiary findings by the circuit court regarding the assets,

we remand for a citation hearing on the issue of whether these

funds are exempt. Finally, regarding Davis's stock interests, we

remand with instructions as outlined in this opinion.

Affirmed in part and remanded with instructions.

WOLFSON and HALL, JJ., concur.

25