Larson v. Michael S. Polsky, Esq., Receiver & the Bank of N.Y. Mellon Trust Co. (In re Atrium of Racine, Inc.)

Docket Numbers. 2019AP1728 & 2019AP2063
Decision Date16 March 2023
Citation406 Wis.2d 247,2023 WI 19,986 N.W.2d 780
Parties IN RE: The ATRIUM OF RACINE, INC., d/b/a The Atrium and Bay Pointe: Marilyn Casanova, member of Creditor Committee, Audrey J. Fox, member of Creditor Committee, Dr. Melvin Miritz, member of Creditor Committee, Linda Miritz, member of Creditor Committee, Edward and Louise Langleib Trust, member of Creditor Committee, Carleton Musson, member of Creditor Committee, Wilma Milovancevic, member of Creditor Committee, Helen Taylor, member of Creditor Committee, Louis P. Teichert Trust, member of Creditor Committee, Reverend Frederick Marks, member of Creditor Committee, Jewel Marks, member of Creditor Committee, Patricia Meier, member of Creditor Committee, Patricia Teernstra, member of Creditor Committee, Andrew Mikaelian, member of Creditor Committee, Marcella Mikaelian, member of Creditor Committee, Josephine Brooks, member of Creditor Committee, Evelyn Odell, member of Creditor Committee, Laurence Freer, member of Creditor Committee, Dorothy Kohl, member of Creditor Committee, Karen Boerger, member of Creditor Committee, Jacqueline Williamson, member of Creditor Committee, Judy Glowinski, member of Creditor Committee, Anne Tredwell, member of Creditor Committee, Marilyn Baham, member of Creditor Committee, Elsie Gotzman, member of Creditor Committee, Lucille Ciaramita, member of Creditor Committee, Joanne Ramaker, member of Creditor Committee, Johanna Sander, member of Creditor Committee, Thomas Eser, member of Creditor Committee, Henryetta Eser, member of Creditor Committee, Grace Nelson, member of Creditor Committee, Jane Odders, member of Creditor Committee, David Nelson, member of Creditor Committee, Ray Katt (deceased), member of Creditor Committee, Louise Katt, member of Creditor Committee, Ethel Hader, member of Creditor Committee, Warren Larsen, member of Creditor Committee, Ellen Larsen, member of Creditor Committee, Frances Scott, member of Creditor Committee, Susan Prouty, member of Creditor Committee, Robert Rainey, member of Creditor Committee, Patricia Rainey, member of Creditor Committee, Helen Eckheart, member of Creditor Committee, Wilma Wiser, member of Creditor Committee, Earl Christianson, member of Creditor Committee and Marian Bloch, member of Creditor Committee, Appellants, Var Krikorian, Ruth Minton, Richard Minton, Walter Steidl, Irene Miller, Marian Kornwolf, Marjorie Speckhard, Delores Torphy, Geraldine Baumblatt, Joan Peterson, John Rowland, Julianne Rowland, Lorraine Pavelcik, Marilyn Iselin, Metta Reiker, Prudence White, Elaine Oetlinger, Esther Wulff, Helen Veenstra, Rev. Dr. Ross Henry Larson, Fred and Nancy Flofer, Winifried Wiser, Nazaly Bagdasian, Robert Callaway, Estate of Elaine Zlevor, Marshall Cushman, Bernard Braun, Patricia Braun, Bob Ottum, Holly Ottum, Joyce Ottum, Jeanne Haas, Gloria Murphy, Ralph Anderson, Doris Beuttler, Genevieve Hostak, Marlene Weichmann, Mary Mueller, Wood Family Trust and Mary Holtz, Claimants-Appellants, v. Michael S. Polsky, Esq., Receiver and The Bank of New York Mellon Trust Company, N.A., Respondents-Petitioners. In re: The Atrium of Racine, Inc., d/b/a The Atrium and Bay Pointe: Marilyn Casanova, member of Creditor Committee, Audrey J. Fox, member of Creditor Committee, Dr. Melvin Miritz, member of Creditor Committee, Linda Miritz, member of Creditor Committee, Edward and Louise Langleib Trust, member of Creditor Committee, Carleton Musson, member of Creditor Committee, Wilma Milovancevic, member of Creditor Committee, Helen Taylor, member of Creditor Committee, Louis P. Teichert Trust, member of Creditor Committee, Reverend Frederick Marks, member of Creditor Committee, Jewel Marks, member of Creditor Committee, Patricia Meier, member of Creditor Committee, Patricia Teernstra, member of Creditor Committee, Andrew Mikaelian, member of Creditor Committee, Marcella Mikaelian, member of Creditor Committee, Josephine Brooks, member of Creditor Committee, Evelyn Odell, member of Creditor Committee, Laurence Freer, member of Creditor Committee, Dorothy Kohl, member of Creditor Committee, Karen Boerger, member of Creditor Committee, Jacqueline Williamson, member of Creditor Committee, Judy Glowinski, member of Creditor Committee, Anne Tredwell, member of Creditor Committee, Marilyn Baham, member of Creditor Committee, Elsie Gotzman, member of Creditor Committee, Lucille Ciaramita, member of Creditor Committee, Joanne Ramaker, member of Creditor Committee, Johanna Sander, member of Creditor Committee, Thomas Eser, member of Creditor Committee, Henryetta Eser, member of Creditor Committee, Grace Nelson, member of Creditor Committee, Jane Odders, member of Creditor Committee, David Nelson, member of Creditor Committee, Ray Katt (deceased), member of Creditor Committee, Louise Katt, member of Creditor Committee, Ethel Hader, member of Creditor Committee, Warren Larsen, member of Creditor Committee, Ellen Larsen, member of Creditor Committee, Frances Scott, member of Creditor Committee, Susan Prouty, member of Creditor Committee, Robert Rainey, member of Creditor Committee, Patricia Rainey, member of Creditor Committee, Helen Eckheart, member of Creditor Committee, Wilma Wiser, member of Creditor Committee, Earl Christianson, member of Creditor Committee, Marian Bloch, member of Creditor Committee, Jan Teichert, member of Creditor Committee, Dorothy Nelson, member of Creditor Committee, Metta Reiker, member of Creditor Committee, Prudence White, member of Creditor Committee, Elaine Oetlinger, member of Creditor Committee, Esther Wulff, member of Creditor Committee, Helen Veenstra, member of Creditor Committee, Mark H. Larson, Successor Trustee of the Ross H. Larson and Willetta J. Larson Revocable Trust of 2015, member of Creditor Committee, Fred Hofer, member of Creditor Committee, Nancy Hofer, member of Creditor Committee, Winifried Wiser, member of Creditor Committee, Nazaly Bagdasian, member of Creditor Committee, Robert Callaway, member of Creditor Committee, Estate of Elaine Zlevor, member of Creditor Committee, Marshall Cushman, member of Creditor Committee, Var Krikorian, member of Creditor Committee, Ruth Minton, member of Creditor Committee, Richard Minton, member of Creditor Committee, Walter Steidl, member of Creditor Committee, Irene Miller, member of Creditor Committee, Marian Kornwolf, member of Creditor Committee, Marjorie Speckhard, member of Creditor Committee, Delores Torphy, member of Creditor Committee, Geraldine Baumblatt, member of Creditor Committee, Joan Peterson, member of Creditor Committee, John Rowland, member of Creditor Committee, Julianne Rowland, member of Creditor Committee, Lorraine Pavelcik, member of Creditor Committee, Marilyn Iselin, member of Creditor Committee, Bernard Braun, member of Creditor Committee, Patricia Braun, member of Creditor Committee, Bob Ottum, member of Creditor Committee, Holly Ottum, member of Creditor Committee, Joyce Ottum, member of Creditor Committee, Jeanne Haas, member of Creditor Committee, Gloria Murphy, member of Creditor Committee, Ralph Anderson, member of Creditor Committee, Doris Beuttler, member of Creditor Committee, Genevieve Hostak, member of Creditor Committee, Marlene Weichmann, member of Creditor Committee, Mary Mueller, member of Creditor Committee, Wood Family Trust, member of Creditor Committee and Mary Holtz, member of Creditor Committee, Appellants, v. Michael S. Polsky, Esq., Receiver and The Bank of New York Mellon Trust Company, N.A., Respondents-Petitioners.
CourtWisconsin Supreme Court

For the respondents-petitioners, there were briefs filed by Katherine Stadler, Carla O. Andres, Michael S. Polsky, and Godfrey & Kahn, S.C., Madison, and Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee. There was an oral argument by Katherine Stadler and Joseph M. Peltz.

For the plaintiffs-appellants, there was a brief filed by John A. Becker and Becker & French, Racine. There was an oral argument by John A. Becker and Thomas M. Devine.

An amicus curiae brief was filed by James E. Bartzen and Boardman & Clark LLP, Madison, for the Wisconsin Bankers Association.

REBECCA GRASSL BRADLEY, J., delivered the majority opinion for a unanimous Court.

REBECCA GRASSL BRADLEY, J.

¶1 After the Atrium, a senior-living facility, defaulted on debt service payments to a group of bondholders, the facility filed a petition for receivership.1 The court-appointed receiver sold the Atrium's assets, generating more than $4 million in proceeds. According to the receiver, the Atrium owed the bondholders more than $6 million, secured by a valid mortgage lien on the Atrium's estate. Many of the Atrium's residents claimed they were entitled to the proceeds of the sale because, under their residency agreements, they were owed reimbursement of the entrance fees they paid to the Atrium. The circuit court concluded the bondholders’ mortgage lien was superior to the residents’ entrance fee claims.2 The court of appeals reversed, applying M & I First National Bank v. Episcopal Homes Management, Inc., 195 Wis. 2d 485, 536 N.W.2d 175 (Ct. App. 1995) to deem the residents’ claims superior to the bondholders’ lien.3

¶2 Before this court, the residents concede the bondholders possess a valid, perfected mortgage lien on the Atrium's estate, but the residents argue (1) the bondholders contracted away the superiority of their mortgage lien, and (2) Episcopal Homes grants entrance fee claims superiority. We disagree and hold: (1) Under Wis. Stat. § 128.17 (2021–22), the bondholders’ mortgage lien is superior to the residents’ contract claims;4 (2) the bondholders did not contract away the superiority of their lien; and (3) Episcopal Homes does not apply to the proceeds from the sale of real property with a properly perfected mortgage lien. We therefore reverse the decision of the court of appeals.

I. BACKGROUND
A. Bay Pointe Project and Financing Documents

¶3 The Atrium of Racine, Inc. was a nonprofit...

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