Horizon Bank, Nat'l Ass'n v. Marshalls Point Retreat LLC

Decision Date06 March 2018
Docket NumberNo. 2016AP832,2016AP832
Citation2018 WI 19,380 Wis.2d 60,908 N.W.2d 797
Parties HORIZON BANK, NATIONAL ASSOCIATION, Plaintiff-Appellant, v. MARSHALLS POINT RETREAT LLC and Marshall's Point Association, Inc., Defendants, Allen S. Musikantow, Defendant-Respondent-Petitioner.
CourtWisconsin Supreme Court

For the defendant-respondent-petitioner, there were briefs filed by James E. Goldschmidt, Donald K. Schott, and Quarles & Brady LLP, Madison and Milwaukee. There was an oral argument by Donald K. Schott.

For the plaintiff-appellant, there was a brief filed by Melinda A. Bialzik, Samuel C. Wisotzkey, and Kohner, Mann & Kailas, S.C., Milwaukee. There was an oral argument by Melinda A. Bialzik.

An amicus curiae brief was filed on behalf of Wisconsin Bankers Association by Kirsten E. Spira, John E. Knight, and Boardman & Clark LLP, Madison.

ANN WALSH BRADLEY, J.

¶1 The petitioner, Allen S. Musikantow (Musikantow), seeks review of an unpublished per curiam decision of the court of appeals directing that the circuit court apply a credit of $2,250,000 to a money judgment entered against Musikantow as guarantor of a loan.1 Musikantow contends that the court of appeals erred by limiting the credit to the amount of the winning bid at the sheriff's sale thereby precluding the circuit court from hearing evidence of the fair value of the property after the confirmation of sale.

¶2 Specifically, Musikantow contends that Wis. Stat. § 846.165 (2015-16)2 does not require a circuit court to make a determination of a guaranty credit at the time the foreclosure sale is confirmed. He further argues that circuit courts have the discretion to decouple guaranty-related rulings from underlying foreclosure sales.

¶3 We conclude that Wis. Stat. § 846.165 does not apply to credits toward a judgment on a guaranty. Rather, it applies to the relationship between only the mortgagee and mortgagor who signed the promissory note underlying the mortgage. It therefore cannot serve as authority for the proposition that, when confirming a foreclosure sale, a circuit court must determine the amount of a credit to be applied to a judgment on a guaranty.

¶4 Further, we conclude that when an action for foreclosure against a mortgagor and an action for a money judgment on a guaranty are brought in the same proceeding as in the instant case, the circuit court may, in its discretion, decide the amount of a credit to be applied to a judgment on a guaranty either at the time the sale is confirmed or at another time. The questions of fair value for purposes of Wis. Stat. § 846.165 and the amount of any credit toward the judgment on the guaranty are separate questions. Thus, the circuit court did not erroneously exercise its discretion when it decoupled the confirmation of sale from the determination of the guaranty credit.

¶5 Finally, we determine that the stipulation in this case does not establish that the amount of the winning bid at the sheriff's sale shall be the sole credit toward the money judgment against Musikantow.

¶6 Accordingly, we reverse the decision of the court of appeals and remand to the circuit court for further proceedings to determine the amount of the credit to be applied toward the judgment against Musikantow as guarantor.

I

¶7 Horizon Bank, National Association (Horizon Bank) loaned $5 million to Marshalls Point Retreat LLC (Marshalls Point), secured by a mortgage on property located in Sister Bay.3 Musikantow, a member of Marshalls Point, signed a continuing guaranty of payment for the loan.

¶8 Alleging that Marshalls Point had defaulted on the loan, Horizon Bank brought a foreclosure action. In the same action, Horizon Bank also brought a claim for a money judgment against Musikantow pursuant to the terms of the guaranty.

¶9 The parties stipulated to the entry of judgment on both of Horizon Bank's claims. The stipulation contained an order for judgment, which the circuit court signed. A judgment for foreclosure was entered against Marshalls Point and a money judgment was entered against Musikantow as guarantor for $4,045,555.55, the amount of principal and interest remaining on the loan.

¶10 In addition, the stipulation provided that the Sister Bay property may be sold at a sheriff's sale. It further stated that:

[t]he amount paid to [Horizon Bank] from the proceeds of said sale of the Premises, remaining after deduction by [Horizon Bank] of the amount of interest, fees, costs, expenses, disbursements and other charges paid or incurred by [Horizon Bank] not included in the monetary judgment against [Musikantow] (set forth below) shall be credited by [Horizon Bank] as payment on said monetary judgment.

¶11 At the sheriff's sale, Horizon Bank bought the Sister Bay property for a credit bid of $2,250,000. The sole bid was from Horizon Bank.

¶12 Horizon Bank moved the circuit court to confirm the sale pursuant to Wis. Stat. § 846.165, arguing that the amount of its bid at the sheriff's sale constituted "fair value" of the Sister Bay property.4 In support of its determination of fair value, Horizon Bank submitted two expert witness affidavits.

¶13 Additionally, Horizon Bank indicated in its motion to confirm the sale that it would not seek a deficiency judgment against Marshalls Point.5 Finally, it requested that the circuit court apply the amount of the winning bid at the sheriff's sale as a credit toward the judgment against Musikantow, thereby reducing the amount of the money judgment by that amount.

¶14 In response to the motion to confirm the sale, Marshalls Point and Musikantow "recognize[d] that the court must find that the amount bid at sale represents fair value, even though the mortgagee did not seek a deficiency judgment against the mortgagor." They also conceded that "[f]air value is not the same as fair market value."

¶15 Thus, Marshalls Point and Musikantow did not object to the confirmation of sale at the price of Horizon Bank's winning bid at the sheriff's sale on the condition that certain language be added to the order confirming the sale. They sought language to protect Musikantow from being bound to the amount of the winning bid as the amount of the credit:

Notwithstanding anything in this order, the confirmation of the sale of the collateral to Horizon Bank, following a deficiency against the borrower, shall have no collateral estoppel or res judicata effect should Horizon Bank seek to recover against the guarantor, Allen S. Musikantow, on all or any part of the judgment against Allen S. Musikantow as guarantor of this obligation.

¶16 Marshalls Point and Musikantow further indicated that, if the requested language was not inserted into the order, they would object "not to the confirmation of the sale itself, but to the amount to be credited upon the judgment against [Musikantow]." They asserted that the Sister Bay property had a fair market value far in excess of the $2,250,000 winning bid, arguing that the actual value of the property exceeded $10 million.

¶17 The circuit court held a hearing on the motion to confirm the sale. Marshalls Point and Musikantow reiterated their desire for additional language in the order as reflected above. See supra, ¶15. Their counsel stated, "We don't oppose confirmation of sale in and of itself at that price. What we oppose is a finding of the value which would be binding on the guarantor."

¶18 Additionally, counsel for Marshalls Point and Musikantow indicated that a witness was present in the courtroom who would testify that the Sister Bay property had a market value exceeding $10 million. The circuit court adjourned and rescheduled the hearing and the witness never testified.

¶19 At the next scheduled hearing, counsel for Marshalls Point and Musikantow asserted that there was "a great deal of testimony" that could be presented about the property's market value. However, counsel did not offer this testimony based on the belief "that it's really not necessary that we make an evidentiary finding with respect to the value to be placed upon the residence[.]"

¶20 Rather, counsel observed that the guaranty Musikantow signed contained a governing law provision. This provision stated that the guaranty "will be governed by federal law applicable to lender and to the extent not preempted by federal law, the laws of the State of Indiana without regard to its conflicts of law provisions." Counsel expressed his view that "it's clearly not a Wisconsin case in terms of the substantive law. It is, however, in Wisconsin for procedural issues dealing with the foreclosure."

¶21 Additionally, counsel indicated that Horizon Bank had already filed a federal lawsuit in Florida, where Musikantow resided, for the purpose of "authenticating" the judgment against him. He argued that "what we're doing is we're going above and beyond what's required in Wisconsin procedural law to decide an issue that's ... more likely to be litigated in the State of Florida as to the value to be credited for that property."

¶22 In response, Horizon Bank explained that "[t]he federal action is a domestication of the money judgment that this [c]ourt has already entered on the guarant[y] in these proceedings." Horizon Bank further asserted, "The judgment has been entered. He was personally served. He was under the jurisdiction of the [c]ourt. The [c]ourt entered a money judgment. Those issues are done." Thus, it requested that the circuit court confirm the sheriff's sale and apply the $2,250,000 proceeds from the sheriff's sale as "the only number that can be credited to the judgment."

¶23 The circuit court granted Horizon Bank's motion to confirm the sale. It further found "that a bid price of 2.25 million dollars represents fair and reasonable value for the property." However, the circuit court declined to rule on the credit to be applied toward the judgment against Musikantow as guarantor.

¶24 In declining to rule on the amount of the credit, the circuit court expressed its belief that because of the governing law provision,...

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