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

Citation: 2014 WI 63

Docket Number: 2011AP002774

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2014-07-15T00:00:00Z

Document:
2014 WI 63 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2011AP2774   
COMPLETE TITLE: 
Attorney's Title Guaranty Fund, Inc., 
          Plaintiff, 
     v. 
Town Bank, 
          Defendant-Respondent, 
Heartland Wisconsin Corp., 
          Defendant-Appellant-Petitioner.   
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at 345 Wis. 2d 705, 827 N.W.2d 116 
(Ct. App. 2013 – Published) 
PDC No: 2013 WI App 6     
 
 
OPINION FILED: 
July 15, 2014   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
February 25, 2014   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Waukesha  
 
JUDGE: 
J. Mac Davis   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
ABRAHAMSON, C.J., BRADLEY, J., dissent. (Opinion 
filed.) 
BRADLEY, J., ABRAHAMSON, C.J., dissent. (Opinion 
filed.)   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the defendant-appellant-petitioner, there were briefs 
by David H. Hutchinson and Hutchinson Law Office, New Berlin, 
and oral argument by David H. Hutchinson.   
 
 
For the defendant-respondent, there was a brief by David I. 
Cisar, Peter F. Mullaney, and von Briesen & Roper, S.C., 
Milwaukee, and oral argument by David I. Cisar. 
  
 
 
2014 WI 63
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2011AP2774 
(L.C. No. 
2011CV440) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Attorney's Title Guaranty Fund, Inc., 
 
          Plaintiff, 
 
     v. 
 
Town Bank, 
 
          Defendant-Respondent, 
 
Heartland Wisconsin Corp., 
 
          Defendant-Appellant-Petitioner. 
FILED 
 
JUL 15, 2014 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
 
¶1 
PATIENCE DRAKE ROGGENSACK, J.   We review a decision 
of the court of appeals1 affirming an order of the circuit court2 
granting summary judgment to defendant Town Bank.  This case is 
a priority battle between defendants Heartland Wisconsin Corp. 
and Town Bank for proceeds of a debtor's legal malpractice claim 
                                                 
1 Attorney's Title Guar. Fund, Inc. v. Town Bank, 2013 WI 
App 6, 345 Wis. 2d 705, 827 N.W.2d 116. 
2 The Honorable J. Mac Davis of Waukesha County presided. 
No. 
2011AP2774   
 
2 
 
that plaintiff Attorney's Title Guaranty Fund, Inc. held in 
escrow pending resolution of their dispute.   
¶2 
Town Bank claims that it is entitled to the proceeds 
because 
proceeds 
from 
legal 
malpractice 
claims 
are 
not 
assignable; therefore, Heartland, who claims its interest by 
assignment of proceeds, has no protectable interest.  Town Bank 
also claims that if proceeds are assignable, it perfected a 
common law creditor's lien on all of the debtor's personal 
property, no matter when acquired, by serving the debtor with an 
order to appear at supplemental proceedings.   
¶3 
Heartland 
disputes 
Town 
Bank's 
claims. 
 
First, 
Heartland contends that the debtor validly assigned the proceeds 
of his legal malpractice claim, which gave Heartland a security 
interest in those proceeds that is superior to Town Bank's 
interest as an unsecured judgment creditor.  Second, Heartland 
argues that a common law judgment creditor's lien does not 
attach to property the debtor acquires after a supplemental 
examination.   
¶4 
We conclude that (1) the debtor lawfully assigned the 
potential 
proceeds 
from 
his 
legal 
malpractice 
claim 
as 
collateral for a contemporaneously incurred debt to Heartland; 
and (2) Heartland is entitled to the proceeds because it 
perfected a security interest in them before Town Bank obtained 
a superior interest by levy.  See Associated Bank N.A. v. 
Collier, 2014 WI 62, ¶3, __ Wis. 2d __, __ N.W.2d __ (a judgment 
creditor with a docketed money judgment obtains a superior 
interest in a debtor's non-exempt personal property when it 
No. 
2011AP2774   
 
3 
 
levies specifically identified property).  In reaching this 
conclusion, we note that Heartland lent money to the debtor.  In 
consideration for the loan, Heartland took a security interest 
in the potential proceeds of the debtor's malpractice claim.  
This allowed Heartland to access the debtor's property in a way 
that Town Bank could not.  Heartland filed a financing statement 
for its security interest in the proceeds of the malpractice 
claim before the proceeds came into existence.  Therefore, the 
moment the debtor acquired proceeds from his claim, Heartland's 
interest became superior to that of other creditors, including 
Town Bank, who had not levied the proceeds.     
I.  BACKGROUND 
¶5 
Defendants in the present case are creditors of 
Timothy Brophy, a Milwaukee real estate investor and landlord.  
Brophy has been involved in multiple lawsuits, including a class 
action brought by tenants of certain rental properties, a 
bankruptcy proceeding, and a malpractice claim against his 
former 
attorney, 
all 
three 
of 
which 
provide 
factual 
underpinnings of the present case.  The narrow issue in this 
case, however, is one of priority between a judgment creditor 
and a Wis. Stat. ch. 409 secured creditor.   
¶6 
Town Bank became a judgment creditor of Brophy in an 
action that included mortgage foreclosures of certain Milwaukee 
properties.  On February 13, 2006, Town Bank obtained and 
docketed a judgment for $1,690,870.  It pursued collection by 
several means.  First, it foreclosed on real estate and applied 
the proceeds from the sale of those properties to the judgment, 
No. 
2011AP2774   
 
4 
 
leaving a $224,774.40 deficiency.  Next, on February 15, 2006, 
it obtained an order requiring Brophy to appear at supplemental 
proceedings.  It served Brophy with that order two days later.  
Brophy appeared and revealed his assets, which at that time did 
not include a filed malpractice claim, the proceeds of which 
underlie this suit.  Town Bank's supplemental receiver was 
dismissed September 11, 2006.  
¶7 
In June and July 2007, Brophy obtained two loans 
totaling $222,539 from Heartland.  Brophy used the money 
Heartland provided to settle a class action lawsuit pending 
against him.  As security for these loans, Brophy assigned 
Heartland 
his 
interest 
in 
potential 
proceeds 
from 
his 
malpractice claim against his former attorney, Harvey Goldstein.  
Brophy defaulted on the loans Heartland made and, on August 17, 
2007, he filed for bankruptcy.  
¶8 
Town Bank learned of Brophy's malpractice claim and 
Heartland's interest in the proceeds during Brophy's bankruptcy 
proceedings.  On April 4, 2008, Town Bank filed a proof of claim 
in the bankruptcy asserting that it had a "Judgment Lien on all 
Real Estate; Receiver's Lien on all Real and Personal Property 
of Debtor."  
¶9 
On January 23, 2009, Brophy's bankruptcy was dismissed 
without a confirmed plan.  Heartland filed a financing statement 
for its security interest in the proceeds that same day.    
¶10 On August 3, 2009, Town Bank moved the circuit court 
to appoint a supplementary receiver and to grant that receiver 
No. 
2011AP2774   
 
5 
 
authority to proceed on Brophy's malpractice claim.  The circuit 
court did not rule on Town Bank's motion.   
¶11 On September 9, 2009, Brophy settled his malpractice 
lawsuit.  Pursuant to an agreement among the parties to this 
suit, Attorney's Title placed the proceeds from the settlement 
in escrow.  On February 3, 2011, Attorney's Title filed suit to 
determine whether Town Bank or Heartland has a superior interest 
in the proceeds of Brophy's malpractice claim.  
¶12 Town Bank moved for summary judgment, which the 
circuit court granted.  Heartland appealed, and the court of 
appeals affirmed.  We accepted Heartland's petition for review, 
and asked for additional briefing on two issues:  (1) whether 
the potential proceeds from a legal malpractice claim can be 
lawfully assigned as security for a contemporaneously incurred 
debt; and (2) whether such proceeds were future property at the 
time of the 2006 supplemental examination Town Bank conducted.  
We now reverse the decision of the court of appeals.   
II.  DISCUSSION 
A.  Standard of Review 
¶13 Town Bank asks us to confirm what it asserts is a 
judgment creditor's blanket lien on all of Brophy's personal 
property, no matter when acquired.  Heartland asserts it is a 
secured creditor with respect to the proceeds of the legal 
malpractice claim and therefore, its interest is superior.  
"Whether a lien exists and the effect of an alleged lien against 
third parties are questions of law that we review independently 
of the court of appeals."  Associated Bank, __ Wis. 2d __, ¶21.   
No. 
2011AP2774   
 
6 
 
B.  Introduction  
¶14 The conclusion we reached in Associated Bank, __ 
Wis. 2d __, also released today, underlies part of our decision 
in the present case.  In Associated Bank, we parsed the 
competing interests of two judgment creditors.  Id., ¶¶51-54.  
We concluded that supplemental proceedings are a discovery tool 
in aid of execution, and clarified that a judgment creditor with 
a docketed money judgment obtains an interest superior to other 
judgment creditors by levying specifically identified, non-
exempt personal property of the debtor.  Id., ¶38.  We rejected 
the notion of a blanket lien on all of a judgment debtor's 
personal property in favor of the first judgment creditor to 
serve the debtor with notice to appear at a supplemental 
examination.  Id., ¶¶28, 38.   
¶15 Statutory collection procedures drove our conclusion.  
If a judgment creditor could encumber all of a debtor's personal 
property by serving the debtor with an order to appear at 
supplemental proceedings, statutory collection procedures would 
be eviscerated.  Id., ¶45.  Put another way, the notion of a 
blanket lien arising due to service of an order to appear at a 
discovery proceeding is inconsistent with the incremental 
statutory scheme of judgment debt collection.   
¶16 We further explained that a blanket lien would 
frustrate the policies statutory collection procedures serve.  
For instance, requiring a debtor to levy specific items of a 
debtor's personal property ensures that a creditor does not 
encumber, at the expense of other creditors and the debtor, more 
No. 
2011AP2774   
 
7 
 
property than is necessary to satisfy its judgment.  Id., ¶¶47-
48.  By binding property at the time of levy, statutory 
collection procedures also provide clear notice to third parties 
that the debtor no longer has rights in the levied property.  
Id., ¶49.  Finally, the collection statutes reward diligence by 
allowing competing judgment creditors to simultaneously seek out 
assets to levy.  Id., ¶50.  
¶17 We do not repeat our full discussion from Associated 
Bank.  Instead, we apply its holding to the facts of this case.  
First, 
however, 
we 
 
conclude 
that 
proceeds 
from 
legal 
malpractice 
claims 
are 
assignable 
as 
collateral 
for 
contemporaneously 
incurred 
debt. 
 
We 
then 
conclude 
that 
Heartland, a secured creditor, perfected its security interest 
in the proceeds of Brophy's malpractice claim before Town Bank 
obtained a superior interest in those proceeds by levy.  In our 
discussion that follows, we further explain why Heartland was 
able to access the proceeds in a way that Town Bank was not.  
And finally, we discuss legislative choices about judgment 
collection and secured transactions that drive our conclusions.  
C.  Assignment of Potential Proceeds 
1.  Parties' positions 
¶18 Town Bank maintains that it is contrary to law to 
assign potential proceeds from legal malpractice claims.  Town 
Bank grounds this contention in what it asserts is a prohibition 
against assigning the underlying legal malpractice claim.  Town 
Bank argues that Wisconsin permits assignment of only those 
claims that survive the death of the claim's owner and legal 
No. 
2011AP2774   
 
8 
 
malpractice claims are not within that group.  It also asserts 
that such assignment should be prohibited because it would grant 
the right to control the lawsuit to a stranger to the attorney-
client relationship, which is contrary to public policy.  Town 
Bank contends that 18 states prohibit assignments of legal 
malpractice claims.  Town Bank further contends that there is no 
real distinction between a malpractice claim and its proceeds. 
¶19 Not surprisingly, Heartland sees the assignment issue 
quite differently.  It asserts that it lawfully took an 
assignment of the potential proceeds of Brophy's malpractice 
claim, which Wis. Stat. ch. 409 specifically permits.  It 
thereby became a secured creditor in regard to a right to 
payment out of the proceeds, with an interest superior to Town 
Bank's interest as an unsecured judgment creditor.  Heartland 
also contends that proceeds differ from the claim from which 
they arise, both in regard to how proceeds are treated in Wis. 
Stat. ch. 409 and in regard to public policy concerns relating 
to assignments.  Heartland contends that proceeds are payment 
intangibles under Wis. Stat. § 409.102(1)(p) and Wis. Stat. 
§ 409.109(1)(c) and that malpractice claims are commercial torts 
under § 409.102(1)(d).  Therefore, Heartland asserts that Town 
Bank's argument misses the mark because it is based on the 
contention that a malpractice claim is not assignable; while by 
contrast, Heartland took an assignment only in the potential 
proceeds as a contractual right to payment, if and when proceeds 
came into existence.   
No. 
2011AP2774   
 
9 
 
2.  General principles 
¶20 In order to validly assign property rights, those 
rights must be alienable, i.e., transferrable from their owner.  
Becker v. Chester, 115 Wis. 90, 110, 91 N.W. 87 (1902).  
Alienability may be controlled by statute or common law public 
policy concerns.  See id. at 112; Schneider v. Schneider, 132 
Wis. 2d 171, 176-77, 389 N.W.2d 835 (Ct. App. 1986).   
¶21 In the context of legal malpractice claims, some 
jurisdictions have refused to allow strangers to the attorney-
client relationship to litigate legal malpractice claims, 
thereby restricting those claims "to only the parties involved."  
Goodley v. Wank & Wank, Inc., 133 Cal. Rptr. 83, 86 (Cal. Ct. 
App. 1976); George L. Blum, J.D., Assignability of Claim for 
Legal Malpractice, 64 A.L.R. 6th 473 (updated 2013).3  As with 
assigning a legal malpractice claim, levying such a claim by 
obtaining a turnover order for the right to litigate the claim 
to a receiver would result in a stranger to the attorney-client 
relationship litigating the claim.  While we need not decide 
here if Wisconsin law prohibits assigning claims for legal 
                                                 
3 For arguments in favor of the assignability of legal 
malpractice claims, see New Hampshire Insurance Co. v. McCann, 
707 N.E.2d 332, 335-38 (Mass. 1999).  These include a concern 
that prohibiting the assignment of such claims will be perceived 
as a self-serving effort by the legal profession to insulate its 
own from litigation.  Michael Sean Quinn, On the Assignment of 
Legal Malpractice Claims, 37 S. Tex. L. Rev. 1203, 1206 (1996). 
No. 
2011AP2774   
 
10 
 
malpractice, we note potential concerns that some courts have 
expressed.4 
3.  Wisconsin policies 
¶22 Town Bank has cited no Wisconsin appellate case or 
statute that prohibits assignment of potential proceeds of legal 
malpractice claims.  The cases cited by Town Bank speak to when 
claims survive the death of the claimant.  Those cases have no 
bearing on Wis. Stat. ch. 409 or the assignment issue before us 
because Heartland does not assert an interest in the malpractice 
claim. 
¶23 In addition, there is a real difference between the 
claim from which proceeds arise and the proceeds themselves.  
For example, a malpractice claim involves many choices about 
whether and how to proceed, while proceeds are a payment 
intangible, which is simply the right to be paid.5  In this case, 
                                                 
4 See Anthony J. Sebok, The Inauthentic Claim, 64 Vand. L. 
Rev. 61, 85 n.106 (2011) (listing the states that do not permit 
assigning legal malpractice claims); see also Michael Reese, The 
Use of Legal Malpractice Claims as Security Under the UCC 
Revised Article 9, 20 Rev. Litig. 529, 532-33 (2001) (explaining 
that Article 9 permits the use of commercial tort claims, 
including legal malpractice claims, as collateral and that any 
restriction on their use is governed by law other than Article 
9).   
5 The proceeds of a tort claim are a category of collateral 
known as a "payment intangible."  Official Comment 15 to U.C.C. 
9-109(d)(12) ("[O]nce a claim arising in tort has been settled 
and reduced to a contractual obligation to pay, the right to 
payment becomes a payment intangible and ceases to be a claim 
arising in tort.").  A party may file to perfect its interest in 
a payment intangible.  Official Comment 4 to U.C.C. 9-309(2) 
(Wis. Stat. § 409.309(2)) ("Any person who regularly takes 
assignments of any debtor's accounts or payment intangibles 
should file"). 
No. 
2011AP2774   
 
11 
 
it is Brophy's right to be paid in settlement of his legal 
malpractice suit.  See, e.g., Wis. Stat. § 409.102(1)(p); Wis. 
Stat. § 409.109(1)(c).   
¶24 Furthermore, the Wisconsin Legislature adopted the 
revisions to Article 9 that "clearly contemplate[] that a 
security 
interest 
in 
the 
proceeds 
of 
a 
tort 
claim 
is 
conceptually distinct from one in the tort claim itself."  
Michael Reese, The Use of Legal Malpractice Claims as Security 
Under the UCC Revised Article 9, 20 Rev. Litig. 529, 532 (2001).  
We conclude that the legislature set public policy for Wisconsin 
by those revisions such that public policy does not prohibit the 
assignment of potential proceeds in a malpractice claim as a 
payment intangible.  Were we to conclude otherwise, we would be 
contravening the clear meaning of provisions of Wis. Stat. ch. 
409 and could be seen as favoring lawyers against whom legal 
malpractice claims are filed.  Having concluded that Brophy's 
assignment to Heartland is valid, we turn to its effect on third 
parties.  
D.  Priority 
¶25 The first creditor to obtain an interest in the 
proceeds of Brophy's malpractice claim that is superior to other 
creditors prevails here.  The actions that a judgment creditor 
and a secured creditor must take in order to obtain an interest 
superior to other creditors, however, are not the same.   
¶26 A judgment creditor with a docketed money judgment 
obtains a superior interest in specifically identified personal 
property of a judgment debtor by levying that property.  
No. 
2011AP2774   
 
12 
 
Associated Bank, __ Wis. 2d __, ¶38.  A judgment creditor does 
not have a blanket lien on all of the debtor's personal 
property.  A judgment creditor can levy in at least three ways:  
(1) by executing against specifically identified personal 
property with the assistance of a sheriff; (2) by serving the 
garnishee defendant in a garnishment action to seize specific 
property in the hands of the garnishee defendant; or (3) by 
obtaining an order to apply specifically identified personal 
property to the satisfaction of the judgment, which a creditor 
may do with the assistance of a supplemental receiver.  Id., 
¶¶23-25; Wis. Stat. § 815.05(6); Wis. Stat. § 812.01; Wis. Stat. 
§ 816.08.  Therefore, Town Bank is entitled to the malpractice 
proceeds only if it obtained a superior interest by levy before 
another creditor obtained a superior interest in those same 
proceeds.  
¶27 Heartland is also a creditor of Brophy, to which he 
granted a security interest in potential proceeds of his 
malpractice claim in order to obtain a loan.  Because Brophy 
voluntarily gave a security interest to Heartland so that 
Heartland would lend him money, Wis. Stat. ch. 409, which adopts 
Article 9 of the Uniform Commercial Code (UCC), governs the 
steps Heartland needed to take in order to obtain an interest 
superior to other creditors.  Wis. Stat. § 409.101; Wis. Stat. 
§ 409.109(1)(a); Nat'l Operating, L.P. v. Mut. Life Ins. Co. of 
N.Y., 2001 WI 87, ¶31, 244 Wis. 2d 839, 630 N.W.2d 116 
("Wisconsin has adopted each section of the U.C.C. relevant to 
this case.  This includes all of Article 9, which is embodied in 
No. 
2011AP2774   
 
13 
 
Chapter 409 of the Wisconsin Statutes.  Chapter 409 does not 
vary in any material respect from the uniform law.").  Under ch. 
409, a party obtains an interest superior to other creditors by 
achieving statutory perfection.  Wis. Stat. § 409.308; Daniel v. 
Bank of Hayward, 144 Wis. 2d 931, 936, 425 N.W.2d 416 (1988) 
("As a general rule, the holder of a perfected security interest 
has an interest in . . . secured property which is superior to 
the interests of the debtor, unsecured creditors of the debtor 
and subsequent purchasers of the secured property.").   
¶28 The requirements for statutory perfection can vary 
depending on the type of collateral, but the general rule is 
that "a financing statement must be filed to perfect all 
security interests."  Wis. Stat. § 409.310(1); Smith & Spidahl 
Enters., Inc. v. Lee, 206 Wis. 2d 663, 669, 557 N.W.2d 865 (Ct. 
App. 1996) (explaining that generally, the filing of a financing 
statement 
is 
required 
to 
perfect 
a 
security 
interest).  
Additionally, perfection requires attachment of the security 
interest.  Attachment, in turn, generally depends on three 
things:  (1) the debtor must sign a security agreement 
identifying the collateral;6 (2) the creditor must give the 
debtor value in exchange for the collateral; and (3) the debtor 
                                                 
6 In some situations, the creditor may use alternative 
methods of perfection such as possession or control of the 
collateral.  Wis. Stat. § 409.203(2)(c)2., et seq.; Nat'l Pawn 
Brokers Unlimited v. Osterman, Inc., 176 Wis. 2d 418, 434, 500 
N.W.2d 407 (Ct. App. 1993) (explaining that Wisconsin law 
authorizes perfection by the secured party's possession of the 
collateral).   
No. 
2011AP2774   
 
14 
 
must have rights in the collateral.  Wis. Stat. § 409.203(2); 
Nat'l Exch. Bank of Fond du Lac v. Mann, 81 Wis. 2d 352, 358, 
260 N.W.2d 716 (1978) ("The requirements that the debtor sign a 
security agreement describing the collateral, that the creditor 
give value and that the debtor have rights in the collateral 
must all exist to give rise to an enforceable security 
agreement.").   
¶29 Accordingly, a debtor and secured creditor can take 
some 
actions 
necessary 
for 
perfection 
at 
any 
time, 
but 
perfection does not actually occur until all the criteria are 
met.  For instance, a debtor can execute a security agreement 
and the creditor can disperse a loan and file a financing 
statement, but perfection will not occur until the debtor has 
rights in the collateral.  Stated otherwise: 
Assuming that the parties previously made an agreement 
covering [an item of] after-acquired property, that 
the secured party has either made an advance or 
obligated himself to do so, and that a proper filing 
has been made, the security interest attaches to the 
after-acquired property and is perfected the instant 
the debtor acquires "rights" to that property. 
Peter F. Coogan, Article 9 of the Uniform Commercial Code:  
Priorities Among Secured Creditors and the "Floating Lien", 72 
Harv. L. Rev. 838, 851 (1959); Savig v. Americana State Bank of 
Danube, 50 B.R. 1003, 1008 (D. Minn. 1985) (noting that "a 
secured creditor's interest in after-acquired property is not 
perfected until the debtor receives that property").  
¶30 
This is precisely the type of arrangement into which 
Brophy and Heartland entered.  Brophy assigned Heartland the 
No. 
2011AP2774   
 
15 
 
potential proceeds of his malpractice claim as collateral before 
the proceeds came into existence.  Heartland gave notice of its 
security interest by filing a financing statement several months 
later, but still before Brophy actually settled the malpractice 
claim.  At that point, Heartland had set the stage, so to speak, 
so that the moment Brophy received rights in the proceeds, 
Heartland's interest became perfected.   
¶31 By contrast, as of September 9, 2009, Town Bank had 
not taken sufficient action to provide it with an interest in 
the proceeds superior to other creditors.  The only action Town 
Bank took was to move for the appointment of a supplementary 
receiver and to grant that receiver the authority to proceed on 
Brophy's malpractice claim.  The court never ruled on Town 
Bank's motions.  Stated otherwise, because Town Bank did not 
levy before Heartland achieved statutory perfection, we conclude 
that Heartland has the superior interest in the proceeds.  See 
Associated Bank, __ Wis. 2d __, ¶38.   
¶32 Having 
applied 
the 
statutes 
regarding 
judgment 
collection and secured transactions, we note that Heartland was 
able to access some of Brophy's property in a way that Town Bank 
could not.  For example, when Town Bank examined Brophy on 
March 9, 2006, he did not identify a legal malpractice claim.  
Attorney Goldstein, the defendant in Brophy's malpractice claim, 
represented Brophy at the time of the supplemental proceeding, 
which suggests that Brophy was not aware of a potential 
malpractice claim at that time.   
No. 
2011AP2774   
 
16 
 
¶33 Additionally, 
when 
Town 
Bank 
learned 
about 
the 
malpractice claim, it could not levy due to the automatic stay 
of the bankruptcy court, which prevents creditors from taking 
actions to improve their positions during a bankruptcy.  See 11 
U.S.C. § 362.  As a lender, Heartland avoided these problems by 
taking an assignment of the potential proceeds of Brophy's claim 
before they came into existence.  This gave Heartland the upper 
hand in at least two respects.  
¶34 First, it gave Heartland an edge with respect to 
timing.  Rather than having to levy on specific property, which 
requires the property to be in existence, Heartland was able to 
encumber property Brophy did not yet have.  Wis. Stat. 
§ 409.204(1); see In re Pubs, Inc. of Champaign, 618 F.2d 432, 
436 (7th Cir. 1980).  It did so by filing a financing statement 
after lending money so that the moment Brophy obtained the 
proceeds, Heartland's security interest became perfected.  See 
Pubs, 618 F.2d at 437.  
¶35 Second, Heartland's ability to take an interest in the 
proceeds allowed it to avoid problems that might accompany the 
litigation of a legal malpractice claim by someone other than a 
client.  See Official Comment 15 to U.C.C. 9-109(d)(12).  As 
explained above, the proceeds of a lawsuit are "treated just 
like any other form of contractual obligation."  1C Julian B. 
McDonnell, Secured Transactions Under the Uniform Commercial 
No. 
2011AP2774   
 
17 
 
Code, § 19A.02[2][b] (2009).7  Therefore, Heartland did not have 
to worry that accepting Brophy's assignment might run afoul of 
state law. 
¶36 Applying 
the 
respective 
standards 
for 
judgment 
creditors and secured creditors to obtain an interest superior 
to other creditors, we conclude that Heartland is entitled to 
the 
proceeds. 
 
Brophy 
settled 
the 
malpractice 
suit 
on 
September 9, 2009, wherein the proceeds of the malpractice claim 
came into existence.  By that time, Brophy had executed a 
security agreement identifying the proceeds as collateral, and 
Heartland had loaned Brophy money and filed a financing 
statement.  All the requirements for perfection were met on that 
date.  See Wis. Stat. § 409.308; Wis. Stat. § 409.203(2); Pubs, 
618 F.2d at 436 (explaining that "[t]he requirement that the 
debtor have rights in the collateral is, inter alia, intended to 
postpone attachment until the property proposed to be subject to 
the security interest comes into existence or until the debtor 
acquires rights in it").   
¶37 Having explained Heartland's position relative to Town 
Bank, we further review the legislative choices that established 
this structure. 
                                                 
7 See also Weston v. Dowty, 414 N.W.2d 165, 167 (Mich. Ct. 
App. 1987) ("[s]ince plaintiffs agreed to assign only a portion 
of their recovery, if any, from the malpractice suit, . . . we 
conclude that no assignment of a legal malpractice action 
occurred"); First Nat'l Bank of Clovis v. Diane, Inc., 698 P.2d 
5, 14 (N.M. Ct. App. 1985) (recognizing the ability of a client 
to "assign[] only the proceeds and not the right of [a legal 
malpractice] action").  
No. 
2011AP2774   
 
18 
 
E.  Statutory Policies 
¶38 Wisconsin Stat. ch. 409 is a uniform law that adopts 
Article 9 of the UCC.  Wis. Stat. § 409.101; Nat'l Operating, 
244 Wis. 2d 839, ¶31.  By adopting each section of the UCC 
relative to secured transactions, the Wisconsin Legislature 
sought to "simplify, clarify, and modernize the law governing 
commercial transactions."  Wis. Stat. § 401.103(1)(a).  One way 
Article 9 modernizes the law of secured transactions is by 
"maximizing the financing available to [enterprises] and at the 
risk of . . . unsecured creditors."  1 Julian B. McDonnell, 
Secured Transactions Under the Uniform Commercial Code:  Article 
9 and the Security Controversy, § 1.03, at 1-14 (2009).  As the 
facts of this case aptly demonstrate, secured creditors may be 
able to access a debtor's property in ways that an unsecured 
judgment creditor cannot.  
¶39 The "fundamental policy choice [of] Article 9" that 
favors secured creditors is not the product of antagonism or 
unfairness toward unsecured creditors.  Id.  Rather, Article 9 
aims to benefit unsecured creditors by enabling debtors to pay 
them.  One scholar succinctly explained the theory as follows: 
[T]he 
availability 
of 
secured 
credit 
provides 
liquidity, 
which 
reduces 
the 
chance 
of 
debtor 
bankruptcy and thereby increases the expected value of 
unsecured 
claims. . . . 
[I]mperfections 
in 
the 
bankruptcy process tend to make creditors reluctant to 
lend, even on a secured basis, to debtors that are 
likely to go bankrupt, and also make debtors that are 
likely to go bankrupt reluctant to incur secured debt.  
New money secured credit therefore is usually extended 
only where it helps an otherwise viable debtor avoid 
No. 
2011AP2774   
 
19 
 
bankruptcy, and not to support debtors that should be 
allowed to fail. 
Steven L. Schwarcz, The Easy Case for the Priority of Secured 
Claims in Bankruptcy, 47 Duke L.J. 425, 431-32 (1997).  Put 
simply, the law favors the secured creditor because "the secured 
creditor often provides the funds to enable the unsecureds to be 
paid."  1 McDonnell, supra, at 1-14. 
¶40 While the soundness of this theory has been the 
subject of academic debate, it is beyond dispute that secured 
creditors currently enjoy a specially protected status under the 
law.  Prod. Credit Ass'n of Madison v. Nowatzski, 90 Wis. 2d 
344, 350-51, 280 N.W.2d 118 (1979).  The ability of a party to 
take a security interest in after-acquired property and achieve 
perfection the moment the debtor acquires rights in the 
property, while a judgment creditor must levy personal property 
in order to bind it, is a prime example of this special status.  
A secured party's potential to avoid public policy prohibitions 
that could attach to the assignment of the legal malpractice 
claim, itself, is another.  
¶41 In the case before us, Town Bank says that it has an 
interest superior to other creditors in all of a debtor's 
personal property because it served the debtor with notice to 
appear at a supplemental proceeding many years ago.  This 
includes, according to Town Bank, property that a debtor 
acquired after the 2006 supplemental proceeding.   
¶42 Accepting Town Bank's argument would take away the 
specially protected status of secured creditors.  See id.  For 
No. 
2011AP2774   
 
20 
 
example, if a judgment creditor could bind all of a debtor's 
personal property with a blanket lien simply by serving a notice 
to appear at a supplemental proceeding instead of levying 
specifically identified property, it too could encumber property 
before a debtor has rights in it.  However, unlike a secured 
creditor, an unsecured judgment creditor provides no value to 
the debtor in exchange for such a benefit.  It is this value to 
society as a whole——financing to a debtor——that justifies the 
secured creditor's protected status.   
¶43 We conclude that if a judgment creditor were to have a 
blanket lien on all the personal property of a judgment debtor 
that precludes other creditors from pursuing collection, that is 
a policy choice better left to the legislature than to the 
courts.  Compare Cal. Civ. Proc. Code § 708.110(d) (providing 
for a lien on non-exempt personal property for one year from 
service of notice to appear at supplemental proceedings); 735 
ILCS 5/2-1402(m) (judgment "becomes a lien" on non-exempt 
personal property when citation from the clerk is served). 
¶44 Finally, we note that Town Bank's concept of the scope 
of a judgment creditor's lien would diminish the lending Wis. 
Stat. ch. 409 seeks to encourage.  This is so because if a 
judgment creditor could obtain a superior blanket lien on all of 
a debtor's personal property, the debtor would not have 
unencumbered non-exempt personal property to offer as security 
for a loan, which may be necessary to continue the debtor's 
business and pay its debts.  In other words, a potential lender 
could not acquire a superior security interest in any non-exempt 
No. 
2011AP2774   
 
21 
 
personal property of a debtor who has an unsatisfied judgment 
against him or her and who has been served with notice to appear 
at supplemental proceedings.  This would discourage lending to 
judgment debtors.  It would thereby conflict with one of the 
policies underlying Wis. Stat. ch. 409:  to provide financing to 
distressed debtors through a system of secured transactions.8   
¶45 For these reasons, we decline to graft a blanket 
common law lien onto statutory judgment collection procedures.  
See generally Smith & Spidahl, 206 Wis. 2d at 673 ("Fashioning 
equitable solutions to mitigate the hardship of [statutory] 
requirements on particular creditors undermines [the system's] 
purpose. . . . [R]elaxing [statutory] requirements does not 
. . . justify the uncertainty and inconsistency that would 
result from such an approach.").  Instead, we affirm our 
commitment to statutory procedures for judgment collection, 
under which a judgment creditor with a docketed judgment binds 
personal property by levying specifically identified property, 
and 
Wis. 
Stat. 
ch. 
409 
grants 
secured 
parties 
special 
protections in order to encourage lending that benefits society 
as a whole.  Accordingly, Heartland has the superior interest in 
                                                 
8 We recognize that there are circumstances under Wis. Stat. 
ch. 409 in which a judgment creditor prevails over a ch. 409 
secured creditor——a judgment creditor has priority over a ch. 
409 secured party when it executes on property before the ch. 
409 creditor perfects its interest in the security relative to 
that property.  See, e.g., Wis. Stat. § 409.322(1)(a); Wis. 
Stat. § 815.19.   
No. 
2011AP2774   
 
22 
 
the proceeds of Brophy's legal malpractice claim and therefore, 
we reverse the decision of the court of appeals. 
III.  CONCLUSION 
¶46 We conclude that (1) the debtor lawfully assigned the 
potential 
proceeds 
from 
his 
legal 
malpractice 
claim 
as 
collateral for a contemporaneously incurred debt to Heartland; 
and (2) Heartland is entitled to the proceeds because it 
perfected a security interest in them before Town Bank obtained 
a superior interest by levy.  See Associated Bank, __ Wis. 2d 
__, ¶3 (a judgment creditor with a docketed money judgment 
obtains a superior interest in a debtor's non-exempt personal 
property when it levies specifically identified property).  In 
reaching this conclusion, we note that Heartland lent money to 
the debtor.  In consideration for the loan, Heartland took a 
security interest in the potential proceeds of the debtor's 
malpractice claim.  This allowed Heartland to access the 
debtor's property in a way that Town Bank could not.  Heartland 
filed a financing statement for its security interest in the 
proceeds of the malpractice claim before the proceeds came into 
existence.  Therefore, the moment the debtor acquired proceeds 
from his claim, Heartland's interest became superior to that of 
other creditors, including Town Bank, who had not levied the 
proceeds.       
By the Court.—The decision of the court of appeals is 
reversed.  
 
 
No.  2011AP2774.ssa 
 
1 
 
¶47 SHIRLEY S. ABRAHAMSON, C.J.   (dissenting).  I agree 
with the majority opinion that the proceeds of a legal 
malpractice claim may be used as collateral to secure a loan 
under Article 9 of the Uniform Commercial Code.  Majority op., 
¶¶18-24.1  It is unclear from the record whether the malpractice 
claim in question existed at the time of service of the notice 
of the supplementary proceedings.2 
¶48 Relying on In re Badger Lines, Inc., 224 Wis. 2d 646, 
590 N.W.2d 270 (1999), the court of appeals concluded that Town 
                                                 
1 Wisconsin has codified its version of Article 9 of the 
Uniform Commercial Code at Wis. Stat. ch. 409. 
The 
majority 
opinion 
uses 
interchangeably 
the 
terms 
"assign," "assignment," and "assignable" to refer to both 
assignment of rights in the proceeds of a legal malpractice 
claim and assignment of a security interest in the proceeds as 
collateral for a loan under Article 9. 
A property interest may be nonassignable, but may still be 
used as collateral under Article 9, Section 9-408, Wis. Stat. 
§ 409.408.  See, e.g., Belke v. M&I First Nat'l Bank of Stevens 
Point, 
189 
Wis. 2d 385, 
525 
N.W.2d 737 
(Ct. 
App. 
1994) 
(certificates of deposit were properly used as collateral for a 
loan under chapter 409 even though the certificates of deposit 
explicitly stated that they could not be transferred or assigned 
without the bank's consent and the bank did not consent).  For 
an overview of the use of nonassignable property interests as 
collateral to secure loans under the UCC, see Thomas E. Plank, 
The Limited Security Interest in Non-Assignable Collateral Under 
Revised Article 9, 9 Am. Bankr. Inst. L. Rev. 323, 329-36 
(2001); G. Ray Warner, Non-Assignable Rights, Contracts, and 
Leases as Collateral Under Revised Article 9, Am. Bankr. Inst. 
J., Oct. 2000, at 18. 
2 Because I am in dissent in Associated Bank N.A. v. 
Collier, 2014 WI 62, ___ Wis. 2d ___, ___ N.W.2d ___, and in the 
instant case, I do not address the thorny issues raised by the 
parties, such as whether the creditor's equitable lien extends 
to after acquired property and whether the malpractice claim in 
the present case was after-acquired property.  
No.  2011AP2774.ssa 
 
2 
 
Bank 
acquired 
a 
common-law 
equitable 
lien 
superior 
to 
Heartland's interest.     
¶49 Relying on its decision in Associated Bank N.A. v. 
Collier, 2014 WI 62, ___ Wis. 2d ___, ___ N.W.2d ___, of even 
date, the majority opinion concludes that because Town Bank did 
not "levy" before Heartland perfected its statutory lien,3 
Heartland "has the superior interest" in the proceeds.  Majority 
op., ¶4 (citing Associated Bank, 2014 WI 62, ¶3). 
 
¶50 For the reasons stated in my dissent in Associated 
Bank, I do not join the majority opinion in the instant case. 
¶51 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this dissent. 
 
 
                                                 
3 See majority op., ¶4. 
No.  2011AP2774.awb 
 
1 
 
¶52 ANN WALSH BRADLEY, J.   (dissenting).  Although I join 
the dissent, I write separately to voice my concern with this 
court's recent trend in sua sponte expanding the issues before 
it.  
¶53 In this case a majority of the court voted to issue a 
post oral argument order raising an issue heretofore non-
existent.  It asked: 
(1) whether the potential proceeds from a legal 
malpractice claim can be lawfully assigned as security 
for a contemporaneously incurred debt; 
(2) if 
the 
potential 
proceeds 
from 
a 
legal 
malpractice 
claim 
are 
assignable, 
whether 
such 
assignment was future property at the time of the 
supplemental exam conducted in this case. 
Attorney's Title Guar. Fund, Inc. v. Town Bank, No. 2011AP2774, 
unpublished order (Nov. 19, 2013).   
¶54 Issues 
relating 
to 
the 
assignability 
of 
legal 
malpractice claims were never raised by the parties in this 
court, or in the court of appeals, or in the circuit court.  An 
exchange at oral argument nails this point: 
Chief Justice Abrahamson: And there's no, is there an 
issue in this case as to whether your assignment was 
any good? 
Attorney for Heartland: No, our assignment has never 
been contested. 
¶55 Rather than presenting an even playing field, the 
majority appeared to offer an assist to Heartland's opposing 
counsel.  The answer to the new issue raised by the majority 
could have proven to be outcome determinative, obviating the 
need to address the issues actually raised and litigated by the 
parties.  
No.  2011AP2774.awb 
 
2 
 
¶56 By 
raising 
sua 
sponte 
a 
brand 
new 
outcome-
determinative issue, an appellate court tends to blur the lines 
between the role of the lawyer as advocate and the role of the 
judge as impartial decision maker.  In contrast to the other 
branches of government, the judicial branch's role seems better 
fitted to respond to issues presented rather than creating 
issues to present. 
¶57 As I have previously written:  
[T]he courts play a passive role in our system of 
government. Unlike the legislative or the executive 
branch of government which have as their regular fare 
the responsibility to raise and resolve the issues of 
the day, our role is to respond to the issues 
presented. . . . The wisdom of such restraint is 
apparent. 
The rule of law is generally best developed when 
issues are raised by the parties and then tested by 
the fire of adversarial briefs and oral arguments. 
Indeed, "[t]he fundamental premise of the adversary 
process is that these advocates will uncover and 
present more useful information and arguments to the 
decision maker than would be developed by a judicial 
officer acting on his own in an inquisitorial system." 
Adam A. Milani & Michael R. Smith, Playing God: A 
Critical Look at Sua Sponte Decisions By Appellate 
Courts, 69 Tenn. L. Rev. 245, 247 (2002), citing 
United States v. Burke, 504 U.S. 229 (1992) (Scalia, 
J., concurring). 
City of Janesville v. CC Midwest, Inc., 2007 WI 93, ¶¶67-68, 302 
Wis. 2d 599, 734 N.W.2d 428 (Bradley, J., dissenting).  
¶58 Although the issue addressing the validity of the 
assignment of legal malpractice claims relates to the issues 
presented by the parties, it was not necessary for the court to 
address the validity of the assignment in order to answer the 
questions presented.  
No.  2011AP2774.awb 
 
3 
 
¶59  Heartland filed a petition for review, asking this 
court to address the following questions: 
1) Does a judgment creditor's common law receiver's 
lien attach to personal property acquired by a 
judgment debtor indefinitely into the future after the 
judgment 
creditor 
has 
conducted 
supplementary 
proceedings?  
2) Where a judgment creditor has admittedly failed to 
make a supplemental commissioner's order, directing 
the judgment debtor to appear at a supplementary 
examination, a matter of public record by filing this 
order and proof of service in the court file, as is 
required by Wis. Stat. § 816.035(1), should a court 
nevertheless enforce the judgment creditor's secret 
receiver's lien in the judgment debtor's personal 
property? 
¶60 I would have addressed those questions and those 
alone.  Indeed, it is not apparent to me why the issue raised 
sua sponte by the majority was not subject to our usual approach 
of forfeiture.  Here it was not a matter of merely failing to 
preserve for appellate review an issue that was previously 
raised.  Rather, the issue never previously existed in this 
case. 
¶61 Typically, where a party has not raised an issue 
before the circuit court or the court of appeals, we deem that 
issue forfeited. See, e.g., Bostco LLC v. Milwaukee Metro. 
Sewerage Dist., 2013 WI 78, ¶83, 350 Wis. 2d 554, 835 N.W.2d 160 
(declining to address an inverse condemnation/takings claim 
where its proponent "is attempting to make a fundamentally 
different argument than that which it raised and tried before 
the circuit court . . . ."); State v. Dowdy, 2012 WI 12, ¶5, 338 
Wis. 2d 565, 808 N.W.2d 691 (declining to decide "whether a 
No.  2011AP2774.awb 
 
4 
 
circuit court has inherent authority to reduce the length of 
probation, and if so, what standard applies [because] [n]either 
Dowdy's petition to the circuit court nor the circuit court's 
order was grounded in the court's alleged inherent authority."); 
Schill v. Wis. Rapids Sch. Dist., 2010 WI 86, ¶45, 327 Wis. 2d 
572, 786 N.W.2d 177 ("Because the issue of the circuit court's 
competence was never raised in the circuit court, we treat the 
issue as having been forfeited."). 
¶62 This court has emphasized that the forfeiture rule "is 
essential to the efficient and fair conduct of our adversary 
system of justice."  State v. Huebner, 2000 WI 59, ¶12, 235 
Wis. 2d 486, 611 N.W.2d 727.  The rule: 
gives the parties and the circuit court notice of the 
issue and a fair opportunity to address it; encourages 
attorneys to diligently prepare for and conduct 
trials; and prevents attorneys from "sandbagging" 
opposing counsel by failing to object to an error for 
strategic reasons and later claiming that the error is 
grounds for reversal. 
Schill, 327 Wis. 2d 572, ¶45 n.21. It further "encourages 
litigation of all issues at one time, simplifies the appellate 
task, and discourages a flood of appeals."  State v. Caban, 210 
Wis. 2d 597, 605, 563 N.W.2d 501 (1997). 
¶63 With 
its 
order 
for 
additional 
briefing 
on 
the 
assignability of legal malpractice claims, the court offered 
Town Bank a new bite at the apple.  It suggested a new, possibly 
outcome-determinative argument which Town Bank had previously 
not made.  This action is a departure from precedent suggesting 
that the development of arguments be left to the litigants.  
See, e.g., Jankee v. Clark Cnty., 2000 WI 64, ¶7, 235 Wis. 2d 
No.  2011AP2774.awb 
 
5 
 
700, 612 N.W.2d 297 ("If an issue is not raised in the petition 
for review or in a cross petition, 'the issue is not before 
us.'"); Gardner v. Gardner, 190 Wis. 2d 216, 238 n.3, 527 N.W.2d 
701 (Ct. App. 1994) ("We will not independently develop 
[appellant]'s argument and, therefore, we will not consider this 
issue"); Estate of Balkus v. Sec. First Nat'l Bank, 128 Wis. 2d 
246, 255 n.5, 381 N.W.2d 593 (Ct. App. 1985) (declining to 
address issue not developed by the appellant). 
¶64 Now, after ordering additional briefing and having a 
second round of oral arguments on these new issues, the majority 
comes to the conclusion that the parties' initial decision not 
to contest this issue was correct.  In the end, the majority's 
efforts to sua sponte develop its own potentially dispositive 
issue was for naught.   
¶65 This unnecessary excursion underscores the wisdom of 
exercising judicial restraint. The role of the lawyer as 
advocate and the role of the judge as impartial decision maker 
should be kept separate. 
¶66 Accordingly, I respectfully dissent. 
¶67 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON joins this dissent.   
 
 
 
No.  2011AP2774.awb 
 
 
 
1