Univ. of Wis. Oshkosh Found., Inc. v. Bd. of Regents of the Univ. of Wis. Sys. (In re Univ. of Wis. Oshkosh Found., Inc.)

• Decision Date: 12 April 2018
• Docket Number: Case No. 17–28077–svk,Adversary No. 17–02302
• Citation: 586 B.R. 458
• Parties: IN RE UNIVERSITY OF WISCONSIN OSHKOSH FOUNDATION, INC., Debtor. University of Wisconsin Oshkosh Foundation, Inc., Plaintiff, v. The Board of Regents of the University of Wisconsin System, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

586 B.R. 458

IN RE UNIVERSITY OF WISCONSIN OSHKOSH FOUNDATION, INC., Debtor.University of Wisconsin Oshkosh Foundation, Inc., Plaintiff,

v.The Board of Regents of the University of Wisconsin System, Defendant.

Case No. 17–28077–svk

Adversary No. 17–02302

United States Bankruptcy Court, E.D. Wisconsin.

Signed April 12, 2018

Claire Ann Resop, Steinhilber Swanson LLP, Madison, WI, Nicholas L. Hahn, Paul G. Swanson, Steinhilber Swanson LLP, Oshkosh, WI, for Plaintiff.

Board of Regents University of Wisconsin System, pro se.

Mark Bromley, Theresa M. Anzivino, Wisconsin Department of Justice, Madison, WI, for Defendant.

DECISION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT

Susan V. Kelley, Chief United States Bankruptcy Judge

This Chapter 11 bankruptcy case started when the State of Wisconsin refused to honor financial commitments made to the University of Wisconsin Oshkosh Foundation, Inc. by the former Chancellor and Vice Chancellor of the University. The Foundation filed this adversary proceeding against the State (acting through the Board of Regents of the University of Wisconsin System) to enforce the commitments as property of the bankruptcy estate. The State responded with a motion to dismiss, claiming that any obligations allegedly due from the State are void under the Wisconsin Constitution. The Court denied the motion to dismiss, finding an applicable exception in the constitution for "public debt." (Docket No. 18.) The State then filed a motion for summary judgment. After briefing, the Court heard oral argument on April 5, 2018. For the reasons stated at the hearing and set forth in this Decision, the Court denies the motion in full.

The following facts are undisputed. The University Chancellor and Vice Chancellor for Administrative Services signed three memoranda of understanding (the "MOU") reciting various benefits that the Foundation provided to the University. In consideration, the University agreed that it would cover any deficit incurred by the Foundation on certain construction projects and any deficit incurred in the payment of debt service and operational expenses on two biodigester facilities.¹ The Vice Chancellor also signed several letters agreeing to make debt service payments to banks in the event the Foundation was unable to do so. Deborah Durcan, the Vice President of Finance for the University of Wisconsin System, was present when the Chancellor and Vice Chancellor made their promises to the Foundation, and she did not object to the MOU or comfort letters. (Docket No. 13–1 at 10.)

The complaint contains claims for breach of contract, a declaratory judgment as to the enforceability of the MOU and alleged guaranties, misrepresentation, breach of the duty of good faith and fair dealing, unjust enrichment, and promissory estoppel. The Foundation's opposition to the motion clarifies that the causes of action in the proceeding are claims brought under § 542 of the Bankruptcy Code for turnover of property of the Foundation's bankruptcy estate. (Docket No. 29.) The motion asserts that the Foundation's breach of contract claim must fail because the alleged contracts violate the Wisconsin Constitution and are unenforceable. Because Wisconsin law prohibits the contracts, the Foundation could not succeed on a restitution claim or obtain another remedy. The State also argues that sovereign immunity bars all of the Foundation's claims.

Summary judgment is appropriate if the pleadings and affidavits on file show there is no genuine dispute as to any material fact and the moving party can establish it is entitled to judgment as a matter of law. See Fed. R. Bankr. P. 7056 ; Fed. R. Civ. P. 56 ; Omega Healthcare Inv'rs, Inc. v. Res–Care, Inc. , 475 F.3d 853, 857 (7th Cir. 2007). Material facts are "facts that might affect the outcome of the suit under the governing law."

Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In evaluating a motion for summary judgment, the Court views all facts and draws all inferences in the light most favorable to the non-moving party. Omega Healthcare , 475 F.3d at 857.

The State argues that it is entitled to summary judgment on the Foundation's breach of contract claim because the agreements allegedly created in the MOU are void under the public debt provisions of Article VIII of the Wisconsin Constitution. The State claims that to qualify as public debt, an obligation must conform to the requirements of Chapter 18 of the Wisconsin Statutes and meet that chapter's definition of "public debt." However, § 18.14 provides a sweeping savings clause validating debt not contracted in compliance with the relevant procedures:

Notwithstanding any defects, irregularities, lack of power or failure to comply with any statute or any act of the commission, all public debt contracted or attempted to be contracted after December 7, 1969 is declared to be valid and entitled to the pledge made by s. 18.12; all instruments given after December 7, 1969 to evidence such debt are declared to be binding, legal, valid, enforceable and incontestable in accordance with their terms; and all proceedings taken and certifications and determinations made after December 7, 1969 to authorize, issue, sell, execute, deliver or enter into such debt or such instruments are validated, ratified, approved and confirmed.

Wis. Stat. § 18.14.

To qualify for the broad protection of § 18.14, the debt must meet the definition of "public debt." According to Wis. Stat. § 18.01(4), "public debt" "means every voluntary, unconditional undertaking by the state, other than an operating note, to repay a sum certain: (a) Out of the state treasury, except a loan or advance by any state agency or fund to any other state agency or fund ...." The agreements in the MOU were unconditional. Nothing was required to trigger the University's obligation to cover a deficit incurred by the Foundation on the building projects. The MOU also were for a sum certain, as the parties were aware of the ceiling on the University's payment obligation based on the bonds issued. Like the amount owed on an ordinary promissory note, the amount of the debt on a specific date would need to be computed, but the Foundation could readily make the computation. Wisconsin law supports the conclusion that the MOU represent debt with the requisite certainty. In Koshick v. State , 2005 WI App 232, ¶ 12, 287 Wis. 2d 608, 616, 706 N.W.2d 174, 178, the court determined a concert promoter's claims did not qualify as a debt:

Koshick's breach of contract claim is plainly not an action on a debt. He is not seeking an amount due for goods or services that he has sold or delivered to the State; he is not, as was the plaintiff in [ Trempealeau County v. State , 260 Wis. 602, 51 N.W.2d 499 (1952) ], seeking money that the State has received that he asserts he is entitled to. The lost profits and the incurred expenses he seeks to recover are not liquidated; they cannot be readily determined from the terms of the alleged contract or from fixed data or mathematical computation.

Since the State's obligations under the MOU can readily be determined from fixed data or a mathematical calculation, the obligations fit within the definition of public debt. Therefore the protections of § 18.14 validate the obligations, even though the parties did not comply with the provisions of Chapter 18, such as the requirement that the State Building Commission adopt an authorizing resolution.

The State urges the Court to interpret § 18.14 as a transitional provision between 1969, when the Wisconsin Constitution was amended to permit the State to incur public debt, and 1973, when statutory revisions replaced the Wisconsin Bond Board with the State Building Commission. According to the State, the purpose of § 18.14 is to ensure that any debt incurred under the old procedures would remain valid, and any other reading would render the requirements of Chapter 18 optional and would be absurd. The State notes that the Wisconsin Supreme Court "has repeatedly held that a statute should not be construed so as to work an absurd result even when the language seems clear and unambiguous." Worachek v. Stephenson Town Sch. Dist. , 270 Wis. 116, 124, 70 N.W.2d 657, 661 (1955).

But on its face, § 18.14 does not work an absurd result as a permanent savings provision. Chapter 18 provides procedures that the State must follow in contracting public debt. Section 18.14 provides assurance to the other party to an agreement that public debt will be valid even if the State fails to comply with Chapter 18's procedures. With millions of dollars of bonds and other obligations at stake, the State's obligees and partners in the issuance of public debt would reasonably insist on comprehensive protection from potential clerical and other errors.

And the State's inference about the transitional purpose of the statute rests on pure speculation about what the legislature intended. The plain language of § 18.14 is susceptible to only one interpretation: the provision is permanent. The State cites no legislative history supporting its position, and the Court's review of the legislative drafting files turned up no evidence suggesting the provision was intended to sunset when the pre–1973 obligations were paid in full. See State ex rel. Kalal v. Circuit Court for Dane Cty. , 2004 WI 58, ¶ 51, 271 Wis. 2d 633, 666–67, 681 N.W.2d 110, 126 (under Wisconsin precedent, "legislative history is sometimes consulted to confirm or verify a plain-meaning interpretation.").

Moreover, another chapter of the Wisconsin Statutes references § 18.14. Section 946.13 prohibits public officers and employees from taking a private interest in a public contract. Although contracts entered into in violation of the section are void, the statute makes an exception for "contracts creating a public debt, as defined in s. 18.01 (4), if the requirements of s. 18.14 (1) have been met." Wis. Stat. § 946.13(6). The legislature has amended...