Admanco Inc. By Michael S. Polsky v. 700 Stanton Drive LLC

Decision Date13 July 2010
Docket NumberNo. 2007AP2791.,2007AP2791.
Citation786 N.W.2d 759,2010 WI 76
CourtWisconsin Supreme Court
PartiesADMANCO, INC. by Michael S. Polsky, Receiver, Plaintiff-Respondent,v.700 STANTON DRIVE, LLC, Defendant-Appellant-Petitioner,M & I Marshall & Ilsley Bank, EBSCO Industries, Inc. and Alliance Laundry Systems, Inc., Garnishees.



For the defendant-appellant-petitioner there were briefs by Valerie L. Bailey-Rihn, Jeffrey O. Davis, Matthew D. Fortney, and Quarles & Brady LLP, Madison, and oral argument by Valerie L. Bailey-Rihn.

For the plaintiff-respondent there was a brief by Kevin L. Keeler, Matthew S. Vignali, and Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee, and oral argument by Kevin L. Keeler.

An amicus curiae brief was filed by Erin O'Connor and the O'Connor Law Offices, Fox Point, on behalf of the NAIOP Wisconsin Chapter, Inc., Building Owners and Managers Association and Commercial Association of Realtors Wisconsin, Inc.


This review arises in the context of a Wis. Stat. ch. 128 insolvency proceeding, which proceeding applies to property of the debtor. Wis. Stat. § 128.08 (2007-08).1 The receiver, Michael S. Polsky (Polsky), was appointed to administer property of the debtor, Admanco, Inc. (Admanco). In that capacity, Polsky demanded return of proceeds from two standby letters of credit issued by M & I Marshall and Ilsley Bank (M & I Bank) that 700 Stanton Drive, LLC (Stanton) drew down, as well as the cash security deposit made by Admanco that Stanton retained. The circuit court awarded 2 the receiver judgment in the amount of $513,292.66 plus statutory costs and fees. The court of appeals affirmed the circuit court.3

¶ 2 Because we conclude that the proceeds of the standby letters of credit were not property of Admanco, they are not property of the debtor's estate subject to the receiver's administration under ch. 128. We also conclude that the “claim” of Wis. Stat. § 128.17(2) is a claim against property of the debtor's estate, not a claim against property of the issuer of the standby letters of credit. And finally, we conclude that the circuit court should have ordered summary judgment denying Polsky's breach of contract claim and granting Stanton's breach of contract claim. Accordingly, we reverse the decision of the court of appeals and remand to the circuit court to dismiss Polsky's suit against Stanton, as it relates to the proceeds of the standby letters of credit, and for further proceedings consistent with this decision.4


¶ 3 The relevant facts of the underlying transactions are straightforward and not in dispute. On March 31, 2004, Stanton and Admanco entered into a sale-leaseback arrangement, wherein Stanton paid Admanco $2.8 million for a building Admanco owned and entered into a 15-year leaseback of the building to Admanco.

¶ 4 The written lease required Admanco to provide Stanton a security deposit of $61,313.66 and to obtain for Stanton's benefit two letters of credit, each in the amount of $375,000. Admanco applied for one of the letters of credit, and Admanco's major shareholders, Edward Bumby and Cristopher Bumby (the Bumbys), applied for the other letter of credit. Both letters of credit, in the combined amount of $750,000, were issued by M & I Bank.

¶ 5 The letters of credit were “irrevocable standby letters of credit” that were payable upon presentation of documents listed on the face of the letters of credit. M & I Bank was fully secured by Admanco's property in the event there was a drawdown on the letters of credit.

¶ 6 Admanco encountered financial difficulties, and on December 30, 2004, Admanco assigned its assets to Polsky for the benefit of creditors pursuant to Wis. Stat. § 128.05. Also on December 30, 2004, Polsky was appointed as the receiver for Admanco's property pursuant to Wis. Stat. § 128.08.

¶ 7 Admanco failed to make its January 1, 2005 rent payment, and Stanton gave notice of default and the opportunity to cure according to the parties' lease. 5 On January 10, 2005, after Admanco failed to cure, Stanton gave notice that it was accelerating the full amount due under the lease without terminating the lease, citing section 22.2 of the lease. Stanton then drew down the full $750,000 from both letters of credit.6 Stanton also gave notice that it was retaining Admanco's $61,313.66 security deposit.

¶ 8 As part of the ch. 128 proceedings, and with M & I Bank's approval, Polsky applied for and was given permission from the court to sell Admanco's assets. From the sale of those assets to EBSCO Industries, Inc. (EBSCO Industries),7 M & I Bank was paid more than $3 million, which included full reimbursement for the $750,000 payment M & I Bank made to Stanton.

¶ 9 Polsky brought suit against Stanton on behalf of the debtor's estate, claiming the estate had the right to recoup $811,313.66. This amount included the $750,000 drawdown on the letters of credit and Stanton's retention of the $61,313.66 cash security deposit.8

¶ 10 Polsky also sued the Bumbys, seeking $375,000 to reimburse the debtor's estate for the second letter of credit of which the Bumbys were the applicants. The Bumbys reached an agreement with Polsky by paying $267,374.17, and Polsky dismissed them from further collection actions. Polsky continued to proceed against Stanton for the balance on the Bumbys' letter of credit, as well as the full amount of the letter of credit for which Admanco applied.

¶ 11 Both parties moved for summary judgment. The circuit court granted judgment in favor of the debtor's estate and determined that $513,292.66 was due from Stanton. The circuit court's decision turned in large part on Wis. Stat. § 128.17(2), which it concluded limited the amount of rent that Stanton could assess as damages under the Admanco-Stanton lease. The circuit court did not analyze whether the proceeds of the letters of credit were property of the debtor's estate, but simply assumed they were.

¶ 12 Stanton appealed, arguing that the proceeds from the letters of credit were not property of the debtor's estate; that Wis. Stat. § 128.17(2) does not apply to the drawdown of the letters of credit; and that Stanton is a Wis. Stat. § 128.25(1)(e) secured creditor, in regard to the proceeds from the letters of credit. The court of appeals affirmed the circuit court, concluding that § 128.17(2) limited Stanton's claim to one month's rent and that Stanton was not a secured creditor under § 128.25(1)(e). Admanco, Inc. v. 700 Stanton Drive, LLC, 2009 WI App 57, ¶¶ 1, 22, 318 Wis.2d 232, 768 N.W.2d 32. The court of appeals did not analyze Stanton's rights under the Stanton-Admanco lease to determine whether Stanton had a contractual right to draw down the entire $750,000 from the letters of credit.

¶ 13 Stanton petitioned for review, which we granted. We now reverse.

A. Standard of Review

¶ 14 This case presents upon cross-motions for summary judgment, wherein the circuit court granted Admanco's motion and denied that of Stanton, which the court of appeals affirmed albeit on a somewhat different basis. We review decisions on summary judgment independently, applying the same standards of review as did the circuit court and the court of appeals. DeHart v. Wis. Mut. Ins. Co., 2007 WI 91, ¶ 7, 302 Wis.2d 564, 734 N.W.2d 394.

¶ 15 In the course of reviewing these summary judgment motions, we are required to interpret and apply Wisconsin statutes. The interpretation and application of statutes are questions of law that we decide independently of the decisions previously made by other courts, but benefitting from their discussions and analyses. Richards v. Badger Mut. Ins. Co., 2008 WI 52, ¶ 14, 309 Wis.2d 541, 749 N.W.2d 581. The summary judgment motions also require us to interpret a written contract, the Admanco-Stanton lease. Interpretation of an unambiguous written contract presents a question of law for our independent review, as well. See Prent Corp. v. Martek Holdings, Inc., 2000 WI App 194, ¶ 10, 238 Wis.2d 777, 618 N.W.2d 201.

B. Letter of Credit Principles

¶ 16 Because this review arises from the drawdown of standby letters of credit, it is important to understand the nature of standby letters of credit and their use in commercial settings; the relative rights and obligations of the participants to standby letters of credit; and how the participants may relate to each other at various times.

¶ 17 Letters of credit have been used in commercial transactions for a very long time. John F. Dolan The Law of Letters of Credit ¶ 1.01, 1-2 (rev. ed. 1999). Initially, letters of credit were used to protect a seller in the sale of goods by assuring that the seller received the purchase price. Id. at ¶ 1.01, 1-2 n. 1. That use has expanded dramatically such that merchants and bankers commonly use letters of credit in areas that were formerly “the domain of secondary guaranties.” Id.

¶ 18 There are two general types of letters of credit: those “that serve the sale of commodities and those that guarantee the performance of an obligation[. We call] the former a ‘commercial’ [letter of] credit and the latter a ‘standby’ [letter of] credit.” Id.

¶ 19 Transactions involving letters of credit are governed by Article 5 of the Uniform Commercial Code (U.C.C.), and in Wisconsin by ch. 405 of the statutes which is part of Wisconsin's enactment of the U.C.C. Since the adoption of U.C.C. Article 5, governing letters of credit, there has been a significant expansion in the use of letters of credit in various commercial transactions “where they serve to reduce risk of nonperformance under a contract that calls for performance. Generally, [letters of] credit[ ] in the nonsale setting have come to be known as standby [letters of] credit [ ] because they “standby” and perform only in the event that the person primarily liable to perform does not. Id. at ¶ 1.04, 1-20, 21. A standby letter of credit is...

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