First Bank v. UNIQUE MARBLE AND GRANITE CORPORATION, Ill: Appellate Court, 2nd Dist. 2010 - Google Scholar

First Bank v. UNIQUE MARBLE AND GRANITE CORPORATION, Ill: Appellate Court, 2nd Dist. 2010 - Google Scholar

This case is significant because it holds that an assignee for the benefit of creditors can recover fees even where another creditor has a valid security interest in all of the assets.

Unique Marble was a fabricator of marble and granite countertops. It fell upon hard times and, on November 18, 2008, it entered into an assignment for the benefit of creditors. James Gallo was the assignee and he took title to all of the assets of Unique Marble.

Three days later Gallo personally delivered a copy of the assignment to First Bank.

On December 23, 2008, First Bank obtained a judgment against Unique Marble in the amount of $451,568.08.

First Bank then brought collection proceedings against Unique Marble and its corporate officer.

On May 22, 2009, Gallo petitioned to intervene in the First Bank v. Unique Marble lawsuit. He sought $35,000 in fees and expenses.

First Bank argued that Gallo could not collect fees and expenses because of its prior security interest (which it had perfected on October 22, 2004).

The trial court granted First Bank summary judgment against Gallo. Gallo appealed and the Illinois Appellate Court for the Second District reversed.

The court reasoned that an assignment for the benefit of creditors is a "unique trust arrangement in which the assignee (or trustee) holds hte property for the benefit of a special group of beneficiaries, the creditors." Illinois Bell Telephone Co. v. Wolf Furniture House, Inc. 157 Ill. App. 3d 190, 194-95 (1987). The assignee owes a fiduciary duty to the creditors. Some debtors prefer to use an assignment for benefit of creditors (as opposed to bankruptcy) because the assignment process is much cheaper.

First Bank argued that it had priority over Gallo because First Bank had perfected its security interest before Gallo perfected his security interest.

The Court held that Gallo had a common law right to fees and expenses. As the Court noted "if assignees were required to forgo payment in favor of perfected security interests, no assignee would take on the risk of liquidating assets, and assignments for the benefit of creditors would cease to be available as an efficient method of maximizing the liquidation value of troubled companies."

Finally, the court held that Gallo could be compensated on the basis of quantum meruit principles. In so holding the Court ruled that Gallo had conferred a benefit on the Bank as well as all creditors.