## Facts

- Joseph Stevens & Company, Inc. (identified in some sources by the caption “Joseph Stephens & Company, Inc.”) maintained a deposit account at Citibank, N.A. in New York (the New York account).
- In February 2007, Citibank issued a standby letter of credit in favor of JSC’s New York office landlord in the amount of $460,000.
- To secure Citibank’s letter-of-credit exposure, JSC executed a Letter of Credit Assignment and Security Agreement dated February 8, 2007, granting Citibank a security interest in JSC’s deposits; the agreement contained a New York choice-of-law provision.
- A related Schedule A dated February 20, 2007 identified the specific Citibank deposit account serving as collateral.
- David Cikanek had a failed business relationship with JSC and obtained an arbitration award against JSC.
- On July 21, 2008, the federal district court entered a final money judgment for $238,519 in Cikanek’s favor.
- JSC did not satisfy the judgment and ceased operating.
- In post-judgment supplemental proceedings under Federal Rule of Civil Procedure 69 and 735 ILCS 5/2-1402, Citibank responded to a citation and disclosed that the New York account held $82,688.19.
- Cikanek petitioned for a turnover order directing Citibank to pay the full account balance toward the judgment.
- Citibank objected, asserting that it held an attached and perfected security interest in the New York account under UCC Article 9, perfected by control as the depository bank, and that its interest had priority over Cikanek’s later judgment lien.

## Issues

1. In a federal Rule 69 supplemental proceeding in Illinois, what law governs the enforcement procedure and what law governs perfection and priority in a New York deposit account?
2. Did Citibank’s security interest in the New York account attach and become perfected by control before Cikanek’s judgment lien arose?
3. May the court order turnover of the deposit-account funds under 735 ILCS 5/2-1402 when a third party claims a superior, perfected security interest in the account?

## Decision

- The court applied Illinois post-judgment citation procedure (via Rule 69) to evaluate the turnover request, while applying New York UCC Article 9 rules to determine the parties’ property interests and priority in the New York account.
- The court found Citibank’s security interest attached no later than February 20, 2007, when the collateral account was specifically identified and the transaction documents were completed.
- Because Citibank was the bank maintaining the deposit account, it had “control” of the account under New York’s UCC, so its security interest was perfected by control upon attachment.
- Cikanek’s judgment lien arose after the July 21, 2008 judgment and therefore was junior to Citibank’s earlier attached and perfected security interest.
- The court denied Cikanek’s petition for a turnover order because the debtor’s interest in the account was subject to Citibank’s superior secured claim.

## Legal Principles

- Federal Rule of Civil Procedure 69(a) requires a federal court to use the forum state’s procedures to execute a money judgment, but those procedures do not change substantive rights in property.
- Illinois citation proceedings under 735 ILCS 5/2-1402 allow a court to order discovered assets applied to a judgment, but only to the extent the judgment debtor has an interest in the property; a turnover order cannot cut off a third party’s higher-priority interest.
- Under New York’s version of UCC Article 9, a security interest in a deposit account as original collateral is perfected only by “control.”
- A depository bank has control of a deposit account it maintains, which permits perfection of its security interest without filing.
- Priority follows Article 9’s priority rules; an earlier attached and perfected security interest in a deposit account has priority over a later judgment lien asserted against the same account.

## Conclusion

The court refused to order Citibank to turn over JSC’s New York deposit-account funds to Cikanek because Citibank, as the depository bank, had an attached and perfected Article 9 security interest by control dating back to February 2007, which took priority over Cikanek’s judgment lien arising after the July 2008 judgment.


Joseph Stephens & Company, Inc. v. Cikanek, 588 F. Supp. 2D 870 (2008)