406 Ill. App. 3d 701
Ill. App. Ct.2010Background
- First Bank obtained a December 2008 judgment against Unique Marble and Hahn and sought collection.
- Gallo intervened as assignee for Unique Marble’s creditors seeking fees and expenses.
- First Bank had a perfected security interest in collateral since 2004; Gallo’s assignment occurred in 2008.
- Gallo argued under common law for fees; First Bank argued UCC priority controls and that assignee is a lien creditor.
- Trial court granted summary judgment for First Bank; on appeal the court reversed and remanded for determination of Gallo’s reasonable compensation.
- Gallo is entitled to compensation, with remand to determine amount, potentially on quantum meruit, considering benefits First Bank received from his liquidation efforts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an assignee for the benefit of creditors may be paid fees before perfected secured creditors. | Gallo: assignee has common-law right to fees; UCC does not grant priority to bank over fees. | First Bank: UCC priority applies; assignee is a lien creditor but not a competing security holder. | Gallo entitled to receive reasonable compensation; not precluded by UCC priority. |
| Whether the assignment makes Gallo a lien creditor with security-interest-like rights. | Gallo: assignment is a lien creditor from assignment date; not a security interest holder. | First Bank: assignee is not a security-interest holder; UCC treats as lien creditor only for priority, not for security. | UCC does not transform assignee into a competing secured creditor; Gallo’s compensation governed by statutory/common-law priority. |
| What should govern the calculation of Gallo’s fees and expenses on remand. | Gallo: quantum meruit from benefits conferred; First Bank benefited from liquidation efforts. | First Bank: must follow UCC priority and avoid unjust enrichment of assignee. | Remand to determine reasonable compensation, potentially using quantum meruit framework. |
| Does the UCC define lien creditors to include assignees for the benefit of creditors in a way that affects priority for fees? | Gallo: assignee’s status as lien creditor does not negate common-law fee rights. | First Bank: assignee’s lien-creditor designation interacts with priority rules. | UCC does not foreclose assignee’s right to reasonable compensation; priority law permits this under remand. |
Key Cases Cited
- Illinois Bell Telephone Co. v. Wolf Furniture House, Inc., 157 Ill.App.3d 190 (1987) (assignment for the benefit of creditors; fiduciary duties; out-of-court remedy)
- Marquette National Bank v. B.J. Dodge Fiat, Inc., 131 Ill.App.3d 356 (1985) (priority among creditors; general account funds not fully tracing proceeds)
- Randolph & Randolph v. Scruggs, 190 U.S. 533 (1903) (counsel for assignee entitled to preferred status in estate claims)
- In re Peerless Manufacturing Co., 523 F.2d 110 (7th Cir. 1975) (assignee/attorney compensation akin to bankruptcy trustee fees)
- In re Marks, 267 F.2d 108 (7th Cir.1959) (bankruptcy court authority to allow fees to assignee for benefit of creditors)