City of Milwaukee v. Choudry
| Decision Date | 27 December 2019 |
| Docket Number | Appeal No. 2018AP1693 |
| Parties | CITY OF MILWAUKEE, Plaintiff-Respondent, v. Mohammad A. CHOUDRY, PAK Rentals & Construction LLC, PAK Property 1 LLC, PAK Property 2 LLC and PAK Property 3 LLC, Defendants-Appellants, Seth Dizard, Receiver-Trustee-Intervenor-Respondent. |
| Court | Wisconsin Court of Appeals |
¶1 Mohammad A. Choudry, together with his companies PAK Rentals & Construction LLC; PAK Property 1 LLC; PAK Property 2 LLC; and PAK Property 3 LLC (collectively "Choudry"), appeal from an order of the trial court dismissing the action after real estate owned by Choudry was transferred into an irrevocable trust. The action was filed by the City of Milwaukee in October 2016 seeking to recover delinquent real estate taxes on numerous properties owned by Choudry. The City’s complaint also alleged that there were thousands of code violations that had been assessed against the properties, constituting a public nuisance. The complaint listed several other causes of action as well.
¶2 The trial court granted a temporary restraining order in November 2016 to manage Choudry’s properties and bar Choudry from acquiring more property. Also at that time, the court appointed a receiver to manage the properties, with whom Choudry cooperated in making repairs on the properties. However, after performing these duties for approximately one and one-half years, the receiver filed a motion to transfer the properties into a trust, with the receiver as the trustee, asserting that this would allow the receiver to continue managing the properties without the court’s involvement until such time that all of Choudry’s debts were repaid; at that point, the remaining assets in the trust would be returned to Choudry. The court granted the motion in July 2018, and the City then dismissed the action against Choudry.
¶3 On appeal, Choudry argues that there was never any final adjudication regarding the causes of action in the complaint, and without that final adjudication the trial court did not have the authority to impose a remedy. We agree. We therefore reverse the order of the trial court and remand this matter for further proceedings consistent with this decision.
¶4 The City alleged that since 2002, Choudry had acquired ninety-three properties located in the city. The properties were purchased under Choudry’s name individually and under the business entities listed above. Additionally, this list of properties included eleven properties for which the City alleged Choudry was the actual owner of equitable title, even though they were acquired at sheriff’s sales under the name Usman Akhtar. Furthermore, the City alleged that Choudry had purchased eleven other properties using fictitious entities. Moreover, the City asserted that Choudry failed to record with the Milwaukee County Register of Deeds many of the sheriff’s deeds for the properties it acquired, thereby providing no official record of ownership.
¶5 Specifically, the complaint listed six causes of action. In the first cause of action, the City sought a declaration of interest in real property with regard to the eleven properties that were acquired by Akhtar. The City alleged that Choudry had paid for the properties—not Akhtar—noting that Choudry had retrieved several of the unrecorded sheriff’s deeds for those properties from the Milwaukee County Clerk of Courts’ office, and that the return addresses listed on those deeds was Choudry’s address.
¶6 The second cause of action sought personal liability for delinquent taxes on thirty-eight of the properties that were subject to tax foreclosure1 and in personam judgment at the time of filing. The total tax delinquency for those properties, including interest and penalty, was over $400,000.
¶7 The third cause of action was for public nuisance. The City had issued almost 700 orders to correct nearly 3000 code violations on the properties. The fines assessed against Choudry for these violations totaled more than $240,000. The City cited Choudry’s "repeated and ongoing failure to correct violations," which caused the properties to deteriorate into public nuisances.
¶8 The fourth cause of action was that Choudry had violated the Wisconsin Organized Crime Control Act because his business practices relating to the ownership and management of these properties demonstrated a "pattern of racketeering activity[.]" Allegations under this cause of action include that Mohammad Choudry listed his wife as the registered agent with an office in Wisconsin for two of his limited liability companies, when she actually lived in Arizona; that Choudry acquired a property at a sheriff’s sale under an entity other than one of those entities noted above, without that entity’s authorization or consent; that Choudry acquired properties using fictitious entities; and that Choudry intentionally refused to record sheriff’s deeds with the Register of Deeds to conceal the ownership of properties for purposes of "defraud[ing] the City by misdirecting and undermining its tax collection and code enforcement efforts." As a result of these actions, the City alleged that it had suffered a direct loss of over $426,000 in uncollected taxes.
¶9 The fifth cause of action was that Choudry’s actions surrounding its property acquisitions were fraudulent pursuant to the Uniform Fraudulent Transfer Act, due to Choudry’s intent to "hinder, delay or defraud" the City from collection of its claims. See WIS. STAT. § 242.04(1)(a) (2017-18).2 The City noted that Choudry had spent over $420,000 to acquire the properties while simultaneously accruing over $1.3 million in debt.
¶10 Finally, the sixth cause of action was to pierce the corporate veil, on the ground that taking title to the properties in the limited liability companies listed above was for the purpose of evading legal duties and avoiding personal liability with regard to the properties. The City alleged that the companies do not have an identity separate from Mohammad Choudry, noting that there are no separate business checking accounts or separate accounting records for those entities, and further, that Mohammad Choudry has listed himself individually as the plaintiff in eviction actions involving the properties.
¶11 Based on these allegations, the City sought damages in an amount of almost $1.3 million, an order requiring Choudry to record all unrecorded deeds, and an injunction barring Choudry from acquiring any further interests in real property until all claims and judgments of the City were paid and satisfied. Moreover, the City requested that a receiver be appointed to manage the properties.
¶12 A temporary injunction was granted on November 3, 2016. Additionally, Seth E. Dizard was appointed the receiver for the properties. As the receiver, Dizard was given the authority to manage the properties: to collect all rents and pay expenses relating to the properties, including paying property taxes that were due and owing, as well as to perform all necessary maintenance and repairs to bring the properties into code compliance.
¶13 Over the next several months, Dizard filed reports with the trial court regarding his actions as the receiver, and the court held several hearings and status conferences to discuss the progress being made by Dizard. At one such hearing in February 2017, the court reminded the parties that the "overall goal ... is to make sure that these properties ... are brought up to code, that they're a safe and healthy environment for the tenants that are going to reside in them," and that they are "made habitable." The court stated that another goal was to "address the taxes that are owed on these properties, because that’s certainly important to the City and to the residents of the community." The court commended Choudry for his cooperation with the receiver and the progress made to that point, noting that Choudry had come to recognize the "seriousness" of the matter. The court also observed that "the reality of this is that this is going to be a very long process to reach ultimately what needs to be done here."
¶14 In April 2017, Choudry was given the opportunity to remediate the code violations on one of the properties. This was to be accomplished within a thirty-day time frame. However, at a hearing in July 2017, the trial court pointed out that Choudry had not used licensed contractors to perform the required repairs, and had not pulled permits for the work. At a subsequent hearing in August 2017, the remediation had just been completed—taking much longer than the thirty-day time frame that had been initially anticipated—which, according to the court, was due at least in part to "the way [Choudry] approached" performing the work.
¶15 Also at that August 2017 hearing, the City noted that there were upcoming substantial expenses for several properties—replacing roofs and furnaces before winter—that would require the sale of several of the properties in order to obtain the money necessary to cover these expenses. Choudry stated that it preferred that the properties be mortgaged to cover the expenses instead of sold, but did not object to the receiver’s motion. The trial court authorized the sale of the properties at a September 2017 hearing. At a status conference in December 2017,3 Dizard reported that he was marketing the properties that he had been authorized to sell, and that the remaining properties being retained were "stable"—there were no outstanding violations with the City, and they were being managed "without significant issue."
¶16 In May 2018, Dizard filed a motion to authorize him as the receiver to transfer the properties into a trust. Dizard estimated that it would take "several more months to fully stabilize the [p]roperties, and fully abate the nuisance caused by [Choudry]," and further, that it would be "several years before the debts and liabilities caused by the nuisance, including the costs of this litigation,...
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