Attorney's Title Guar. Fund, Inc. v. Town Bank

• Decision Date: 05 December 2012
• Docket Number: No. 2011AP2774.,2011AP2774.
• Citation: 827 N.W.2d 116,345 Wis.2d 705,2013 WI App 6
• Parties: ATTORNEY'S TITLE GUARANTY FUND, INC., Plaintiff, v. TOWN BANK, Defendant–Respondent, Heartland Wisconsin Corp., Defendant–Appellant.
• Court: Wisconsin Court of Appeals

345 Wis.2d 705

827 N.W.2d 116

2013 WI App 6

ATTORNEY'S TITLE GUARANTY FUND, INC., Plaintiff,

v.TOWN BANK, Defendant–Respondent,Heartland Wisconsin Corp., Defendant–Appellant.^†

No. 2011AP2774.

Court of Appeals of Wisconsin.

Submitted on Briefs June 29, 2012.

Opinion Filed Dec. 5, 2012.

On behalf of the defendant-appellant, the cause was submitted on the briefs of David H. Hutchinson of Hutchinson Law Office, New Berlin.

On behalf of the defendant-respondent, the cause was submitted on the brief of David I. Cisar and Peter F. Mullaney of von Briesen & Roper, S.C., Milwaukee.

Before NEUBAUER, P.J., REILLY and GUNDRUM, JJ.

GUNDRUM, J.

[345 Wis.2d 706]¶ 1 Heartland Wisconsin Corp. appeals from an order denying its motion for summary judgment and granting summary judgment to Town Bank. Heartland argues that the circuit court erred when it held that Town Bank has priority to funds held in escrow by Attorney's Title Guaranty Fund, Inc. Heartland contends that Town Bank does not have an enforceable creditor's lien because the supplemental commissioner's ¹ order at issue in this case and proof of service of that order were not filed with the clerk of court in accordance with Wis. Stat. § 816.035 (2009–10) ² and because such a lien does not attach to personal property acquired after a Wis. Stat. ch. 816 supplementary proceeding has been held. We conclude that Town Bank has an enforceable creditor's lien that includes a right to the debtor's property acquired subsequent to the supplementary proceeding. We affirm.

BACKGROUND

¶ 2 The material facts are not in dispute. On February 13, 2006, Town Bank obtained and docketed a judgment against Timothy J. Brophy, Jr., for $1,690,870.36. Two days later, Town Bank obtained a supplemental commissioner's order for Brophy to appear at a supplementary proceeding. Town Bank served that order on Brophy on February 17, 2006; however, the order and proof of service of the order were not filed with the clerk of court. The supplementary proceeding was held on March 9, 2006.

¶ 3 In July 2006, Brophy's attorney sued Brophy for unpaid legal fees. In response, Brophy filed counterclaimsand a third-party complaint against his attorney and the attorney's insurer for legal malpractice (legal malpractice case).

¶ 4 Around May or June 2007, Brophy approached Heartland for a loan to pay a settlement related to a class action lawsuit pending against him. In June and July 2007, Heartland provided Brophy two loans totaling $222,539. As security for the loans, Brophy assigned to Heartland his interest in any potential proceeds resulting from his legal malpractice case. Heartland states Brophy subsequently defaulted on both loans.

¶ 5 On August 17, 2007, Brophy filed for bankruptcy. In April 2008, Town Bank filed a claim in Brophy's bankruptcy action asserting its rights to the unpaid docketed judgment and its related creditor's lien against Brophy's personal property based on its February 2006 service of the supplemental commissioner's order for Brophy to appear at the supplementary proceeding. Heartland states it first became aware of Town Bank's interest in Brophy's property from Town Bank's bankruptcy claim.

¶ 6 Brophy's bankruptcy action was dismissed in January 2009. In September 2009, Brophy's legal malpractice case settled, and Heartland and Town Bank each claimed priority to the settlement funds Brophy received. Pursuant to an escrow agreement between Heartland, Town Bank, and Attorney's Title, Brophy's proceeds from the settlement were transferred to and held in escrow by Attorney's Title. Attorney's Title commenced this interpleader action, and Heartland and Town Bank cross-claimed against one another.

¶ 7 Heartland and Town Bank each moved for summary judgment. Town Bank claimed it had priority over the escrowed proceeds because it had an enforceablelien against Brophy's personal property and the lien attached to Brophy's proceeds from the legal malpractice case. As relevant here, Heartland asserted that Town Bank's lien was an unenforceable “secret lien,” and further, that any lien Town Bank may have did not attach to property Brophy acquired after the 2006 supplementary proceeding. The circuit court granted summary judgment to Town Bank and denied Heartland's motion. Heartland appeals.

DISCUSSION

¶ 8 We review de novo the circuit court's grant of summary judgment, applying the same methodology as the circuit court. Adams Outdoor Adver., L.P. v. County of Dane, 2012 WI App 28, ¶ 6, 340 Wis.2d 175, 811 N.W.2d 421. Summary judgment is proper when the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Wis. Stat. § 802.08(2). The facts in this case are undisputed.

¶ 9 Heartland raises two issues on appeal. First, whether the failure to file a supplemental commissioner's order and proof of service of the order with the clerk of court, as prescribed by Wis. Stat. § 816.035(1), renders a creditor's lien unenforceable. Second, whether a creditor's lien attaches to personal property acquired by a judgment debtor after a Wis. Stat. ch. 816 supplementary proceeding has been conducted. These issues require us to review the procedures involved in perfecting a creditor's lien and to interpret and apply statutes to undisputed facts. These are questions of law we review de novo. Mann v. Bankruptcy Estate of Badger Lines, Inc. ( Badger Lines ), 224 Wis.2d 646, 653, 590 N.W.2d 270 (1999); Adams Outdoor, 340 Wis.2d 175, ¶ 7, 811 N.W.2d 421.

I. TOWN BANK PERFECTED ITS LIEN

¶ 10 Heartland contends Town Bank's lien against Brophy is an invalid and unenforceable “secret lien” because Town Bank failed to ensure the supplemental commissioner's order directing Brophy to attend the supplementary proceeding and proof of service of the order were filed with the clerk of court as required by Wis. Stat. ch. 816. Town Bank responds that ch. 816 requires the supplemental commissioner, not Town Bank, to file the order and proof of service with the clerk. Town Bank further argues that, based on our supreme court's decision in Badger Lines, its lien against Brophy was perfected, and became enforceable and superior to Heartland's “then unperfected security interest” related to the funds it loaned Brophy, when Town Bank served Brophy with the order to appear at the supplementary proceeding. Town Bank is correct.

¶ 11 A judgment creditor may seek an order from a supplemental commissioner requiring a debtor to appear at a supplementary proceeding to identify property that can be used towards satisfaction of a judgment. SeeWis. Stat. § 816.03(1). If a creditor obtains such an order, Wis. Stat. § 816.035(1) provides that after service of the order on the debtor with the return on the order made to the commissioner, “ [t]he supplemental commissioner shall file the order and the return with the clerk of the court in which the judgment involved is entered.” (Emphasis added.) While Heartlandcontends Town Bank had a duty to ensure the order and return at issue in this case were filed with the clerk of court, this statute clearly placed that responsibility only upon the supplemental commissioner, not Town Bank.

¶ 12 Further, in Badger Lines, our supreme court addressed the question of “whether a creditor who initiates supplementary proceedings under [Wis. Stat. ch.] 816 must do more than serve a debtor with notice to appear in order to obtain a superior lien that cannot be overcome by another creditor on a simple contract.” Badger Lines, 224 Wis.2d at 649, 653, 590 N.W.2d 270. The court answered that question in the negative, holding that “a creditor's lien is valid and superior against other creditors at the time the creditor serves the debtor with a summons to appear at the supplementary proceeding underWis. Stat.§ 816.03(1)(b).” Badger Lines, 224 Wis.2d at 649, 590 N.W.2d 270 (emphasis added).

¶ 13 Heartland attempts to distinguish Badger Lines from this case by pointing out that the relevant documents in Badger Lines were in fact filed with the circuit court, whereas here they were not. The distinction is to no avail for two reasons. First, as already noted, Wis. Stat. § 816.035(1) places the duty upon the supplemental commissioner, not the creditor, to file the order and return with the clerk of court. Second, while Heartland cites language from Badger Lines reconfirming Wisconsin's general aversion to “secret liens” as being supportive of its position on appeal, the holding of Badger Lines is unmistakable—“Wisconsin law does not require a creditor to take additional steps to perfect [its] lien beyond service on the debtor.” Id., 224 Wis.2d at 661, 590 N.W.2d 270. The court made no statement limiting this holding only to situations where the order and return are in fact filed with the clerk of court.

[345 Wis.2d 712]¶ 14 Once Town Bank served Brophy in February 2006 with the order to appear at the supplementary proceeding, it had done all it was legally required to do to perfect its lien. See id. at 649, 661, 590 N.W.2d 270. At that point, Town Bank's lien was valid...