No. 3-04-039

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2005

Plaintiffs Richard J. Schweickert and Joseph and Janet Hellandbrought a declaratory judgment action against defendant Ag Servicesof America, Inc., seeking a declaration that their statutorylandlord's liens for crops grown on their property had priorityover the perfected security interest claimed by Ag Services. Bothparties filed motions for summary judgment. The trial courtgranted Ag Services' motion, finding that plaintiffs had failed tofile a financing statement as required by the July 1, 2001,amendment to section 9-316 of the Code of Civil Procedure (Code)(735 ILCS 5/9-316 (West 2002)). We reverse and remand for furtherproceedings.

Schweickert and the Hellands own farmland in Grundy and LaSalle counties, respectively. Both landowners leased theirproperty to William Myre, Sr., for the 2002 crop year. Under theterms of the leases, the cash rent for Schweickert's property was$9,680, and the cash rent for John and Janet Hellands' property was$10,000. At the growing season's conclusion, Myre failed to paythe rent to both landlords. Both Schweickert and the Hellands gavestatutory written notice to Myre's elevator, Cargill Grain, Inc.,claiming rights to the crop proceeds based on their statutorylandlord's liens under section 9-316 of the Code.

Ag Services is a financial lending institution thatspecializes in agricultural loans. In 2000, Myre executed apromissory note payable to Ag Services in the principal amount of$1,200,000. The note was secured by property described in anagricultural security agreement and included an interest in allcrops growing or to be grown by Myre on property owned by theplaintiffs. Ag Services perfected its security interest by filinga financing statement with the Secretary of State. The promissorynote matured on January 15, 2001. Myre failed to pay the balanceand defaulted on the loan.

In both cases, Cargill issued checks to the plaintifflandlords for the grain grown on their property in 2002. Thechecks listed several payees, including the landlords, Ag Servicesand other interested parties. Ag Services refused to endorse thechecks. It claimed a priority over plaintiffs' liens based on itssecurity interest in the crop under section 9-322 of the UniformCommercial Code (UCC) (805 ILCS 9-322 (West 2002)).

In the spring of 2003, Schweickert and the Hellands filed suitseeking a declaratory judgment. Both sides filed motions forsummary judgment. The landlords claimed that their statutory lienshad priority over Ag Services' security interest under section 9-316 of the Code. Ag Services argued that its security interest hadpriority over the landlords' liens because the landlords failed toperfect their liens by filing the required financing statementsunder the UCC. The trial court granted summary judgment in favorof Ag Services.

Section 9-316 of the Code creates a landlord's lien on cropsand proceeds which secures the payment of rent and the faithfulperformance of other lease terms. Prior to July 1, 2001, thestatutory landlord's lien automatically had priority over all otherliens, even those preexisting the landlord's lien. In July 2001,however, the legislature amended section 9-316. The amendmentrequired a landlord to perfect his lien by filing a financingstatement with the Secretary of State in order to establishpriority over other agricultural liens or any security interestfiled pursuant to Article 9 of the UCC. 735 ILCS 5/9-316 (West2000) (amended July 1, 2001). A little over a year later, onAugust 21, 2002, the legislature again amended section 9-316, nolonger requiring a landlord to file a financing statement toperfect his statutory lien. The 2002 amendment restored theoriginal language of the statute as it was before the 2001amendment. 735 ILCS 5/9-316 (West 2002).

Plaintiffs argue that the current version of section 9-316applies retroactively. They contend that since the statute doesnot require landlords to file a financing statement, their liensare prior to Ag Services' security interest.

We review questions of statutory interpretation de novo. Weatherman v. Gary-Wheaton Bank of Fox Valley, N.A., 186 Ill. 2d472, 713 N.E.2d 543 (1999).

Illinois courts have developed a three-tiered test todetermine retroactivity. First, has the legislature clearlyindicated the temporal, or retroactive, reach of the amendedstatute. Commonwealth Edison v. Will County Collector, 196 Ill. 2d27, 749 N.E.2d 964 (2001) (citing Landgraf v. USI Film Products,511 U.S. 244, 128 L. Ed. 2d 229, 114 S. Ct. 1483 (1994)). If not,is the amendment procedural or substantive in nature. People v.Glisson, 202 Ill. 2d 499, 782 N.E.2d 251 (2002) (construing section4 of the Statute on Statutes (5 ILCS 70/4 (West 2002))). Onlythose amendments that are procedural in nature may be appliedretroactively. Glisson, 202 Ill. 2d 499, 782 N.E.2d 251. Andfinally, if the statute is procedural, does it have a "retroactiveimpact." Commonwealth Edison, 196 Ill. 2d 27, 749 N.E.2d 964. Absent retroactive impact, the amended statute will apply. Commonwealth Edison, 196 Ill. 2d at 38, 749 N.E.2d 964.

The 2002 amendment is silent about its retroactiveapplication. Thus, we must determine whether the changes tosection 9-316 of the Code are procedural or substantive in nature. It is often difficult to distinguish between statutes that areprocedural and those that are substantive. Procedural law has beendefined as "the mode of proceeding by which a legal right isenforced, as distinguished from the law which gives or defines theright." Ogdon v. Gianakos, 415 Ill. 591, 114 N.E.2d 686 (1953). Generally, a procedural change in the law prescribes a method ofenforcing rights or involves pleadings, evidence and practice. Ores v. Kennedy, 218 Ill. App. 3d 866, 578 N.E.2d 1139 (1991); seealso Rivard v. Chicago Fire Fighters Union, 122 Ill. 2d 303, 522N.E.2d 1195 (1988). Examples of amendments that have beencharacterized as procedural and applied retroactively includeamendments to the long-arm statute and service of process changes. Ores v. Kennedy, 218 Ill. App. 3d 866, 578 N.E.2d 1139 (1991);Ogdon, 415 Ill. 591, 114 N.E.2d 686; see also Orlicki v. McCarthy,4 Ill. 2d 342, 122 N.E.2d 513 (1954) (change to statute oflimitations applied retroactively, amendment merely affected theremedy and not the right).

In Ores, the plaintiff sought retroactive application of a1989 amendment to the long-arm statute. The appellate court statedthat the statutory change merely established a new mode ofobtaining jurisdiction over the defendant in order to secureexisting rights, which were unaffected by the amendment. The courtnoted that the statute indicated a procedure by which legal rightsmay be enforced and should be distinguished from an amendment whichcreates a new right. The court concluded that the amendment wasprocedural in nature and applied it retroactively to theplaintiff's claim. Ores, 218 Ill. App. 3d 866, 578 N.E.2d 1139.

In Ogden, defendant was served with process in conformity withthe laws of Illinois in force at the time of service. At thattime, the law permitted substituted service on the Secretary ofState for a former resident who no longer lived in Illinois. However, when the cause of action arose, the statute did not allowsubstitute service. The Court concluded that the statute inquestion was merely a step in obtaining jurisdiction of the personafter the right or cause of action existed. Thus, it was part ofthe law of procedure, not substance and applied retroactively. Ogden, 415 Ill. 591, 114 N.E.2d 686.

In contrast, a substantive change in law establishes, creates,or defines rights. Ogdon, 415 Ill. 591, 114 N.E.2d 686. Anexample of an amendment which was characterized as substantive andapplied prospectively involved a statutory amendment that allowedan income tax credit for subchapter S corporation shareholders thatpreviously did not exist. Caveney, 207 Ill. 2d 82, 797 N.E.2d 596. In this case, the 2002 amendment to section 9-316 is not partof the law which creates or defines the right. Ag Services has aperfected security interest in the crops pursuant to section 9-322of the UCC. Plaintiffs have landlord liens for the faithfulperformance of their cash rent lease created by the generalprovisions of section 9-316 of the Code. The 2002 amendment tosection 9-316 did not alter those rights. The amendment merelyaltered the method by which a landlord could enforce that right. To have a superior priority, a landlord no longer needs to file afinancing statement with the Secretary of State. The amendmentchanged the landlord's status as to the priority of his lien, butit did not change the lien. See Nelson v. Miller, 11 Ill. 2d 378,143 N.E.2d 673 (1957) (procedural amendment to long-arm statutemerely established a new mode of obtaining jurisdiction overdefendant to secure existing rights which were unaffected byamendment). Thus, we find that the 2002 amendment to section 9-316is a procedural, not a substantive, change.

A finding that the statutory change is procedural in nature,however, does not end our inquiry. Even if a statutory amendmentis procedural, it may not be applied retroactively if the statutewould have a retroactive impact. An amended statute has aretroactive impact or effect if it (1) impairs rights that a partypossessed when it acted, (2) increases a party's liability for pastconduct, or (3) imposes new duties with respect to transactionsalready completed. Commonwealth Edison, 196 Ill. 2d 27, 749 N.E.2d964; see also Caveney, 207 Ill. 2d 82, 797 N.E.2d 596 (Freeman, J.,specially concurring, joined by McMorrow and Kilbride, JJ.). Astatute does not operate retrospectively merely because it upsetsexpectations based on prior law. Instead, we must consider whetherthe amendment attaches new legal consequences to events completedbefore the statute was changed. Commonwealth Edison, 196 Ill. 2d27, 749 N.E.2d 964.

In this case, there is no indication that any party reasonablyrelied on the part of the statute which was omitted from the 2002amendment, or that the retroactive application of the statute willimpair any vested right. Specifically, the amendment does notimpair rights that Ag Services possessed when it acted, because,when the debtor defaulted, it did not act. The amendment does notincrease Ag Services' liability for any past conduct. Theamendment does not impose a new duty on transactions alreadycompleted because Ag Service did not even initiate collectionproceedings prior to the 2002 amendment. Consequently, Ag Serviceshad no vested rights, and the application of the amendment does nothave a retroactive impact.

The amendment to section 9-316 is procedural and can beapplied retroactively. Schweickert and the Hellands were notrequired to file a financing statement under the UCC to perfecttheir liens. Their statutory liens have priority over Ag Services'security interest. Thus, summary judgment in favor of Ag Servicesshould be reversed.

The judgment of the circuit court of Grundy County is reversed, and the cause is remanded for further proceedingsconsistent with this opinion.

Reversed and remanded.

SLATER, PJ., and MCDADE, J., concurring.