This author has written a scholarly paper regarding the unintended consequences of the Supreme Court case of Daimler AG v. Bauman, particularly focusing its impact on the area of creditors’ rights in Illinois.  Due to the length of the paper, however, it cannot be published in this newsletter.  Below is a summary, without citations, of the unintended consequences of Daimler that are noted therein.  To read the entire paper, including the solutions proposed by the author, visit the website of SmithAmundsen.

In the creditors’ rights area of the law, a commonly heard refrain is “getting a judgment is one thing, but collecting on it is an entirely different matter.” One of the most utilized tools by creditors to collect on judgments in Illinois is the citation to discover assets (“CDA”).   This statutory vehicle gives judgment creditors the ability to, inter alia, summon the judgment debtor to court to be deposed, freeze the debtor’s bank accounts and seek a turnover of the funds contained therein, garnish wages, direct third parties holding property of the debtor to turn the property over to be sold, subpoena documents related to the debtor’s assets, etc.  

What is likely the most common use of a CDA is to attempt to freeze the judgment debtor’s bank account in order to obtain the funds held by the bank that belong to the judgment debtor.  Such a use of the CDA makes it the most efficient tool for collection since the creditor is legally owed the amount of the judgment by the debtor, and most people keep their money in a financial institution of one kind or another.  If the debtor has sufficient funds in the bank to pay the judgment in-full, the creditor, with some exceptions, should be able to collect the judgment by simply serving the bank with a CDA, obtain an answer on the amount of funds held by the bank for the debtor, and get an order from the court for the bank to turn the debtor’s funds sufficient to satisfy the judgment over to the creditor.

While this process appears on its face to be relatively straightforward, and it usually is, did Daimler AG v. Bauman, 571 U.S. 138 (2014) throw a wrench into the proverbial gears? 

Creditors’ rights activities directed toward third parties, like banks, are generally considered to be proceedings against the third party, not the judgment debtor.   What happens when a creditor serves a CDA on a financial institution that is neither incorporated nor headquartered in a state other than Illinois?

Courts since Daimler have held that banks in particular are not subject to general jurisdiction of the state if they are not incorporated or headquartered in that state.  Because citations and garnishments are considered to be actions against the third party, the court must be able to obtain jurisdiction over the bank in order to control its actions in any way.  Without jurisdiction over the bank, courts do not have the authority to order accounts frozen, the turning over of funds, etc.

For example, if a creditor obtains a judgment against a debtor in Illinois, in order to obtain a court-ordered turnover of the debtor’s funds in the bank, the Illinois court must have jurisdiction over the bank.   Prior to Daimler, creditors needed not be overly concerned over whether the Illinois court could claim general jurisdiction over the bank that was headquartered in a different state but had a branch location in Illinois because, under International Shoe, a bank operating in Illinois clearly had “substantial contacts” with the state in order to grant Illinois courts general jurisdiction over it.   Since Daimler, however, Illinois courts can only claim general jurisdiction over the bank if it is incorporated or headquartered in Illinois.   The creditor in our example could still use a CDA to gain access to the debtor’s bank accounts, but only if the bank is incorporated or headquartered in Illinois.

Unintended Consequence #1.  An unintended consequence of Daimler is that a judgment creditor can only access a judgment debtor’s bank accounts if the judgment exists in the state in which the particular financial institution is “essentially at home.”   A large financial institution such as Wells Fargo Bank appears to be a safe harbor for judgment debtors in Illinois to deposit funds since Wells Fargo Bank is incorporated in Delaware and has its headquarters in California.   Since the judgment exists in Illinois, where Wells Fargo Bank is not “essentially at home,” Illinois courts cannot obtain general jurisdiction over it.   In this example, the creditor could not issue a CDA to any financial institution that is not “essentially at home” in Illinois under the Daimler standard because Illinois courts have neither specific nor general jurisdiction over them.

Unintended Consequence #2.  Illinois has also codified the right of its citizens to privacy in their banking activities in the Illinois Banking Act (“Banking Act”).   While there are many exceptions in the Banking Act for disclosure of a customer’s banking information,  a bank that is subject to the Banking Act can only disclose “financial records … in response to a lawful subpoena, summons, warrant, citation to discover assets, or court order …”   A lawful CDA. 

Asking whether a bank can disclose private banking information in response to a lawfully issued CDA is the wrong question if the court does not have jurisdiction over the bank in the first place.  Every jurisdictional challenge by defendants begins with a lawfully filed complaint and a lawfully issued summons, but just because these documents were lawfully filed, issued, and served does not mean that courts have proper and lawful jurisdiction over the defendant named therein.  A CDA is a court order directing the recipient to engage in some activity, and the only way that a court can do that is if the court has jurisdiction over it, as discussed earlier.  The court order directing the corporation to do something is void and therefore not lawful if the court does not have the jurisdiction to issue the order in the first place.

Under Illinois law, it is a violation of the Banking Act to “knowingly and willfully” furnish financial records outside of the parameters of the Banking Act.   In addition, it is also a violation to “knowingly and willfully” induce or attempt to induce any officer or employee of a bank to disclose financial records in violation of the Banking Act.   Simply put, it appears that it would be a crime  for a judgment creditor’s attorney to issue a CDA to a financial institution and obtain a judgment debtor’s private banking information if the financial institution is not subject to the court’s general jurisdiction making any response by the financial institution a response to an unlawful CDA.

Unintended consequence #3.  In addition to its being illegal to attempt to induce a financial institution to disclose a debtor’s private banking information in violation of the Banking Act, it could also subject the judgment creditor and its attorneys to civil liability for invasion of privacy. 

In order for a plaintiff to state a cause of action for the public disclosure of private facts, which is a branch of the tort of invasion of privacy, a plaintiff’s complaint must state that 1) the defendant gave publicity 2) to the plaintiff’s private, not public, life; 3) the matter publicized was highly offensive to a reasonable person; and 4) the matter published was not of legitimate public concern.

Giving publicity.  When a financial institution responds to a CDA, it completes written interrogatories that state, among other things, the types of accounts that the judgment debtor has, the amount of money in each account, and whether the judgment debtor has a safety deposit box.   Those interrogatories are then sent to the judgment creditor’s attorney and also filed with the court.  With such court filings being a matter of public record once they are filed with the court, it is clear that such answers are given publicity.

Private, not public, life.  As is made quite clear by the Banking Act, a person’s financial records or financial information is private and can only be disclosed to third parties under rather limited circumstances.   It is a crime not only to disclose such private information if the disclosure does not fall into one of the Banking Act’s exceptions  but also to attempt to induce an officer of a financial institution to make such disclosures.   Banking information is private, not public.

Highly offensive.  Banking information is private, and the Banking Act codifies it as such.  If it were not highly offensive to publish someone’s private banking information for public consumption, why would the legislature create protection for this information, going so far as to make it a crime to do so?  Whether information is “highly offensive” is a question of fact for a jury to determine.   The test to determine if something is “highly offensive” is whether “the plaintiff, as a reasonable man, would be justified in the eyes of the community in feeling seriously offended and aggrieved by the publicity.”   In Lovgren, the Illinois Supreme Court held that the plaintiff’s allegation that the defendant had placed notices in the newspaper stating that the plaintiff was going to sell his farm at a public auction when he had no intention of doing so, which publication made it practically impossible to obtain refinancing of his mortgage loan, was sufficient to plead facts that a jury could find “highly offensive.”   The fact that it is a business offense  to disclose a person’s private banking information surely means that disclosure of such information meets the test of being “highly offensive.”

Public concern.  A person’s banking information is hardly of public concern.   Even public figures or politicians are not required to disclose any of their private banking information to the public.  Prior to and after being elected, President Trump flouted norms of the presidency by famously refusing to release his federal income tax returns for the public to view and scrutinize.  If the income tax returns of a person running for the highest office in the land are private and not of public concern, how can it be argued that the average judgment debtor’s banking information is any different?

Beyond just the prospect of civil liability for this alleged tortious conduct, judgment creditors and their counsel could possibly be named as defendants in class action litigation. A class of plaintiffs consisting of every judgment debtor that had her private banking information improperly and illegally released into the public sphere could wreak havoc on the bottom line of each and every financial institution that finds itself defending against such a cause of action.

Unintended consequence #4.  The analysis above regarding a judgment creditor or her attorney being subject to defending against a suit sounding in tort for invasion of privacy also applies to employees of financial institutions themselves.  Just as it is unlawful to induce a financial institution to disclose private banking information,  it is also unlawful for an officer or employee of a financial institution to make the same disclosures after being so induced.   If disclosure of such private banking information could make a judgment creditor liable under the tort of invasion of privacy, it is likely that the financial institution making the unlawful disclosure would be equally liable under the law.