Title: Appeal of: Douglas F. Mann v. Bankruptcy Estate of Badger Lines, Inc.
Citation: N/A
Docket Number: 1998AP000888-CQ
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: March 17, 1999

SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
98-0888-CQ 
 
 
Complete Title 
of Case: 
 
 
In the Matter of: Badger Lines, Inc., 
 
Debtor, 
 
Appeal of: Douglas F. Mann,  
 
Supplementary-Receiver-Appellant, 
 
v. 
Bankruptcy Estate of Badger Lines, Inc., Robert 
Waud, Trustee, The Wisconsin Health Fund and The 
United States Trustee,  
 
Appellees.  
 
CERTIFIED QUESTION FROM THE 7TH CIRCUIT 
 
 
Opinion Filed: 
March 17, 1999 
Submitted on Briefs: 
 
Oral Argument: 
November 11, 1998 
 
 
Source of APPEAL 
 
COURT: 
 
 
COUNTY: 
 
 
JUDGE: 
 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the supplementary-receiver-appellant there 
were briefs by Robert L. Mann and Kohner, Mann & Kailas, S.C., 
Milwaukee and oral argument by Robert L. Mann & Matthew P. 
Gerdisch. 
 
 
For the appellees the cause was argued by John R. 
Byrnes, Assistant U.S. Trustee, with whom on the brief was, David 
W. Asbach, Assistant U.S. Trustee and Ira Bodenstein, U.S. 
Trustee.  
 
No. 
98-0888-CQ 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
No. 98-0888-CQ 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
In the Matter of: Badger Lines, Inc., 
 
                 Debtor, 
 
 
 
Appeal of: Douglas F. Mann,  
 
          Supplementary-Receiver- 
          Appellant, 
 
     v. 
 
Bankruptcy Estate of Badger Lines, Inc.,  
Robert Waud, Trustee, The Wisconsin  
Health Fund and The United States  
Trustee,  
 
          Appellees.  
FILED 
 
MAR 17, 1999 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
CERTIFICATION of a question of law from the United States 
Court of Appeals for the Seventh Circuit.  Certified question 
answered in the negative and cause remanded. 
¶1 
ANN WALSH BRADLEY, J.   This case is before the court 
on a certified question from the United States Court of Appeals 
for the Seventh Circuit.  Wis. Stat. § 821.01 (1995-96);1 7th 
Circuit R. 52.  The essential question before this court2 is 
                     
1 Unless otherwise noted, all further references to the 
Wisconsin Statutes will be to the 1995-96 version. 
2 The Seventh Circuit certified the following question:   
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2 
whether a creditor who initiates supplementary proceedings under 
chapter 816 must do more than serve a debtor with notice to 
appear in order to obtain a superior lien that cannot be 
overcome by another creditor on a simple contract.  Because we 
are persuaded both by authority from other jurisdictions and by 
public policy considerations, we conclude that a creditor's lien 
is valid and superior against other creditors at the time the 
creditor serves the debtor with a summons to appear at the 
supplementary proceeding under Wis. Stat. § 816.03(1)(b).   
¶2 
The facts in this case are not at issue but are of 
paramount importance and therefore require elaboration.  In the 
fall of 1991, Emerald Industrial Leasing Corporation ("Emerald") 
filed suit against Badger Lines, Incorporated ("Badger") in the 
circuit court of Milwaukee County.  Emerald claimed that Badger 
owed it just over $80,000 for services rendered to Badger but 
                                                                  
Does Wisconsin law require that a lien obtained by a 
judgment 
creditor 
who 
institutes 
supplementary 
proceedings under Wis. Stat. § 816.04 be perfected, 
and if so, how is the lien to be perfected? 
 
That 
court 
also 
expressly 
invited 
this 
court 
to 
"reformulate [that] question if [we] feel that  course is 
appropriate."  In the Matter of Badger Lines, Inc., 140 F.3d 
691, 699 (7th Cir. 1998).  Though the essence of the certified 
question remains unchanged, this court believes that the way the 
issue is framed above more accurately reflects the arguments of 
the parties. 
Another way of asking the question is whether a receiver's 
lien is "self perfected" when notice is served upon the debtor. 
 Either way the question is framed, it ultimately asks whether 
some additional step is required to have a lien that is superior 
against another creditor on a simple contract. 
No. 
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3 
not paid by Badger.  On October 18, 1991, the circuit court 
entered a default judgment in favor of Emerald in the amount of 
$82,120.26, plus costs and interest, and docketed that judgment 
on October 21, 1991. 
¶3 
Emerald obtained an order from the circuit court 
directing Badger to appear for a supplementary proceeding under 
Wis. Stat. § 816.03 and enjoining Badger from transferring its 
assets.  That order was served on Badger on October 30, 1991.  
On December 17, 1991, the court commissioner appointed Douglas 
F. Mann as supplementary receiver on behalf of Emerald, issued a 
"turnover" order that instructed Badger to turn over its assets 
within ten days, and enjoined Badger from transferring its 
assets.  Wis. Stat. § 816.04.  The court commissioner's orders 
were served on Badger and filed with the Milwaukee County clerk 
of court.  Wis. Stat. § 816.035(1). 
¶4 
On February 11, 1992, Badger filed a voluntary 
petition for bankruptcy under Chapter 7 of the Bankruptcy Code. 
 The bankruptcy court appointed Robert M. Waud as the Chapter 7 
trustee.  In March of 1992, Mann filed with the clerk of 
bankruptcy court a proof of claim asserting that he had a 
receiver's lien on behalf of Emerald.  Waud issued notice of his 
final report that detailed his plan for dispersing Badger's 
available assets, valued at $46,785.13.  That report treated 
Emerald as an unsecured creditor that would receive nothing from 
the distribution of Badger's assets.  Mann filed a motion with 
the bankruptcy court seeking an order from the court for Waud to 
turn over the funds from the assets on the grounds that Mann had 
No. 
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a judicial lien under 11 U.S.C. § 101(36).  Under the Bankruptcy 
Code such a lien is prior and superior to any lien held by the 
creditors in Waud's report so long as it is not an avoidable 
preference under 11 U.S.C. § 547(b). 
¶5 
The bankruptcy court held that under Wisconsin law the 
date on which a receiver is appointed is the date on which a 
receiver's lien is created.  In re Badger Lines, Inc., No. 92-
20872-JES (Bankr. E.D. Wis. Oct. 25, 1995).  This meant that 
Emerald's lien, created at Mann's appointment on December 17, 
1991, came into existence within the 90-day period prior to the 
filing of bankruptcy (commencing on November 13, 1991) and meant 
that the trustee could avoid the lien as being preferential.  
See 11 U.S.C. § 547(b)(4)(A). 
¶6 
Mann appealed and the United States District Court for 
the Eastern District of Wisconsin reversed.  In re Badger Lines, 
Inc., No. 95-C-1243 E.D. Wis. Mar. 12, 1996).  The district 
court determined that under Wisconsin law Emerald obtained a 
receiver's lien3 on the date on which Badger was served with the 
subpoena to appear for a supplementary proceeding.  That date, 
October 30, 1991, was outside the 90-day preference period.  The 
district court did not determine whether Wisconsin law required 
                     
3 We recognize that the lien ultimately exists for the 
benefit of the creditor and that every case will not have a 
receiver appointed.  Where no receiver is appointed it is a 
misnomer to call the lien a "receiver's lien."  Nevertheless, 
since a receiver was appointed here, that term has been employed 
by the various courts that have heard this case.  We will 
perpetuate that practice. 
No. 
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a receiver's lien to be perfected in some manner, how that 
perfection was to be accomplished, and whether that perfection 
took place outside of the preference period.  The matter was 
remanded to the bankruptcy court for a determination of these 
matters. 
¶7 
Although Wisconsin had no statute or case law directly 
on point, the bankruptcy court on remand concluded that 
Alexander v. Wald, 231 Wis. 550, 286 N.W. 6 (1939) and Kellogg 
v. Coller, 47 Wis. 649, 3 N.W. 433 (1879), along with persuasive 
authority from other jurisdictions and public policy reasons, 
established that perfection of a receiver's lien was required 
under Wisconsin law.  In re Badger Lines, Inc., 199 B.R. 934 
(Bankr. E.D. Wis. 1996).  The bankruptcy court further concluded 
that such perfection was accomplished either by the appointment 
of a receiver or the issuance of a turnover order.  Since both 
of these events occurred on December 17, 1991, they were within 
the 90-day preference period and the lien was therefore 
avoidable.   
¶8 
Mann again appealed to the district court which this 
time affirmed.  In re Badger Lines, Inc., 206 B.R. 521 (E.D. 
Wis. 1997).  Looking essentially to the same Wisconsin and 
foreign cases, with the addition of Holton v. Burton, 78 Wis. 
321, 47 N.W. 624 (1890), the district court determined that 
Wisconsin law required perfection of a receiver's lien in order 
for that lien to be valid.  Much like the bankruptcy court, the 
district court determined that perfection would occur either at 
the time the receiver was appointed or at the time a turnover 
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order was issued.  Since both of these events occurred within 
the 90-day preference period, the district court agreed with the 
bankruptcy court that Mann's receiver's lien was avoidable. 
¶9 
Mann appealed to the Seventh Circuit.  That court 
reviewed the cases cited by the parties and relied upon by the 
bankruptcy and district courts and concluded that they were not 
dispositive.  In re Badger Lines, Inc., 140 F.3d 691 (7th Cir. 
1998).  The Seventh Circuit noted that none of the cited cases 
dealt 
specifically 
with 
"perfection," 
none 
of 
the 
cases 
presented the exact facts presented here, and none was decided 
after 1939 with most before 1900.  Given these facts, especially 
considering 
that 
bankruptcy 
and 
debtor/creditor 
law 
has 
developed significantly since the late nineteenth century, the 
Seventh Circuit refused to speculate how this court would decide 
the issue of perfection and instead certified the issue to this 
court.  Wis. Stat. § 821.01. 
¶10 This case requires us to ascertain the necessary steps 
to obtain an enforceable lien.  Therefore, it presents a 
question of law which this court reviews independently of the 
federal courts' determinations.  Daanen & Janssen, Inc. v. 
Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 N.W.2d 842 (1998); 
Dziewa v. Vossler, 149 Wis. 2d 74, 77, 438 N.W.2d 565 (1989).   
¶11 While the Seventh Circuit is correct that this case is 
ultimately a bankruptcy preference case, the question before 
this court is only incidentally related to bankruptcy and need 
not even arise in conjunction with bankruptcy.  Rather, we view 
this as an issue between two unsecured judgment creditors, one 
No. 
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7 
of whom happens to be a trustee for the estate in bankruptcy and 
consequently brings with him the trappings of bankruptcy law and 
procedure.  For all of its uniqueness, bankruptcy law normally 
looks to state law to determine property interests.  Butner v. 
United States, 440 U.S. 48, 55 (1979).  As a result, unless 
perfection is a concept under state law, "it is not a valid 
concept under the Bankruptcy Code."  In re Swartz, 18 F.3d 413 
(7th Cir. 1994). 
¶12 The parties are in agreement that Wisconsin law does 
not specify whether a receiver's lien must be perfected and, if 
so, how that is to be accomplished.  We agree with the parties 
that this is an open question in Wisconsin law.  Supplementary 
proceedings are actions 
initiated 
by 
unsatisfied judgment 
creditors to identify a debtor's property, other than real 
property, on which the creditor can execute his or her judgment. 
 These proceedings, governed by chapter 816 of the Wisconsin 
statutes, are the statutory equivalent of a creditor's bill in 
equity at common law and follow essentially the same rules of 
law.  Alexander v. Wald, 231 Wis. 550, 552, 286 N.W. 6 (1939).  
While the statutory scheme authorizes the appointment of a 
receiver, the statute says not a word about a receiver's lien.  
In light of this statutory silence this court has on prior 
occasions concluded that a receiver's lien is an equitable 
creation and therefore governed by the common law.  Candee v. 
Egan, 84 Wis. 2d 348, 360, 267 N.W.2d 890 (1978). 
¶13 In the context of liens, "perfection" has more than 
one definition.  See Fidelity Financial Services, Inc. v. Fink, 
No. 
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8 
118 S. Ct. 651, 654 (1998).  For current purposes, perfection 
"refers to that single date, or moment in time," when a creditor 
obtains a superior lien that cannot be overcome by another 
creditor on a simple contract.  In re Loken, 175 B.R. 56, 62 
(9th Cir. B.A.P. 1994); see also 11 U.S.C. § 547(e)(1)(B).  
Requiring a creditor to perfect a lien arose as a method of 
providing notice of the lien to third parties and was a way of 
minimizing the occurrence of "secret liens" that could not be 
discovered by third parties.  In re Van Kylen, 98 B.R. 455, 464 
(W.D. Wis. 1989).  
¶14 In 
Wisconsin, 
if 
a 
receiver's 
lien 
requires 
perfection, that requirement stems from our case law and not 
from any provision within chapter 816.  C.f., Wis. Stat. 
§ 409.301 et seq. (perfecting security interests in secured 
transactions).  The trustee argues that our cases have presumed 
that something more than service of a subpoena to appear at a 
supplementary proceeding is required for an enforceable lien.  
However, the trustee also admits that to date we have not 
specifically 
articulated 
the 
contours 
of 
that 
additional 
requirement.  
¶15 Both parties agree that the most relevant Wisconsin 
case law is to be found in three rather old cases:  Alexander, 
231 Wis. at 550 (1939); Holton, 78 Wis. at 321 (1890); and 
Kellogg, 47 Wis. at 649 (1879).  Of these three cases, Holton 
serves as the trustee's best authority that a lien obtained by a 
creditor in supplementary proceedings must be perfected to be 
enforceable.  In Holton, this court concluded that a debtor can 
No. 
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9 
voluntarily assign his property in equal shares even after 
supplementary proceedings have been initiated against him or 
her.  This court concluded that such a voluntary assignment was 
permissible because "the particular creditor has not acquired a 
valid lien upon the property of such insolvent [debtor] before 
proceedings for such distribution are instituted."  Holton, 78 
Wis. at 324.  See also id. at 328 (holding that voluntary 
assignment is permissible "when such assignment is made before 
the creditor has acquired any specific lien upon property under 
such proceedings . . . "). 
¶16 The trustee argues that language in Holton strongly 
supports its contention that a creditor does not obtain an 
enforceable lien by merely subpoenaing a debtor to appear at a 
supplementary proceeding.  This court might be more inclined to 
agree with the trustee if Holton were the only word on the 
matter.  However, the discussion in both Kellogg and Alexander 
diminishes the trustee's argument. 
¶17 In Kellogg, two creditors disputed which had the prior 
lien against a debtor.  Although Kellogg had the sheriff serve 
an order to appear on the debtor before Coller obtained her 
order to appear, the sheriff inadvertently made a technical 
error in his affidavit that rendered Kellogg's order invalid.  
Kellogg, 47 Wis. at 651.  Before the sheriff's mistake was 
rectified, Coller served the debtor with her order to appear.  
Id.   
¶18 This court concluded that the sheriff's good faith 
effort at service was sufficient to give Kellogg a prior lien 
No. 
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against the debtor.  Id. at 656-57.  In so holding, this court 
said nothing of perfection, rather noting that "the general rule 
was that the creditor who, after filing his bill, obtained the 
first service of the subpoena upon the judgment debtor, thereby 
obtained a prior lien upon the equitable assets of such debtor." 
 Id. at 656.  In fact, this court paid scant attention to 
anything other than the date of service, minimizing an event 
that the trustee specifically has argued is determinative: 
 
After a receiver has been appointed in the first 
proceeding, and has duly qualified as such, we see no 
objection to the appointment of the same receiver in 
all other proceedings against the same debtor.  This 
is little more than a formal matter. 
Id. at 658 (emphasis added). This court is not persuaded that 
the appointment of a receiver is the apogee of obtaining a valid 
lien against a debtor when we have called that appointment 
nothing more exalted than a "formal matter." 
¶19 In Alexander this court faced an issue similar to the 
present one where a dispute arose between a creditor who had 
initiated supplementary proceedings and a bankruptcy estate.  In 
Alexander both the service of notice on the debtor and the 
appointment of a receiver occurred outside the time the 
bankruptcy estate could avoid preferences.  Alexander, 231 Wis. 
at 551.  Notwithstanding this fact, this court made scant 
mention of the appointment of a receiver instead reiterating the 
importance Kellogg placed on the creditor's service of the order 
to appear.  Id. at 552.  Again, this court is persuaded that if 
the appointment of a receiver was as significant an event as the 
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trustee would have us believe, this court would have at least 
referenced that fact in these opinions.4   
¶20 However, this court did not.  This court therefore has 
come to the conclusion that our prior decisions only dimly 
illumine our path in this case.  In light of Wis. Stat. chapter 
816's silence and the limited aid provided by our earlier 
decisions, this court must turn to policy considerations to 
resolve this issue.  
¶21 At oral argument, and in the Seventh Circuit, the 
trustee maintained that Wisconsin's aversion to "secret liens" 
tipped the scales in favor of perfecting the lien before it 
became enforceable.  The trustee contended that, short of 
physically 
searching 
the 
record 
of 
judgments 
in 
every 
courthouse, a bankruptcy trustee will have no way of knowing 
whether the possibility exists that a creditor has obtained a 
lien superior to it.  The trustee argues that it is certainly 
conceivable, and probably likely, that a bankruptcy trustee 
could go through the time and effort of locating a debtor's 
property only to have a receiver appear once the heavy lifting 
is completed, assert its prior lien, and inequitably reap the 
fruits of the trustee's labor. 
¶22 This court certainly is aware that Wisconsin does not 
favor secret liens, Wilson v. Rudd, 70 Wis. 98, 35 N.W. 321 
                     
4 It is not altogether uncommon for a state to conclude that 
the creation of a lien without requiring some sort of perfection 
of that lien is sufficient to obtain a superior lien against 
other creditors.  See, e.g., In re Prior, 176 B.R. 485, 495 
(S.D. Ill. Bankr. 1995) (applying Illinois law). 
No. 
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12
(1887), and we in no way back away from that aversion.  However, 
this court remains ultimately unconvinced that either the 
appointment of receiver or the issuance of a turnover order has 
the effect of making the lien significantly more public than 
service of a subpoena upon the debtor.   
¶23 The appointment of a receiver or the issuance of a 
turnover order does not record the existence of the lien in some 
statewide registry.  The trustee recognizes this but argues that 
either of these actions would nonetheless have the practical 
effect of making the existence of the lien more public.  The 
trustee contends that practically speaking, one may assume that 
the receiver would act quickly and deliberately to obtain actual 
possession of the debtor's property and thereby announce to the 
world that a creditor has a lien on the debtor's property.  
However, as the Seventh Circuit also recognized, the trustee's 
argument would be more persuasive were it arguing that actual 
possession of the debtor's property perfected a creditor's lien.5 
  
¶24 This court is more persuaded by the United States 
Court of Appeals for the Ninth Circuit's analysis of this issue 
in In re Hilde, 120 F.3d 950, 956 (9th Cir. 1997).  Hilde 
                     
5 The trustee asserted as much at oral argument.  Whatever 
its merits, concluding that perfection of a lien occurs only 
with the actual possession of the debtor's property is not 
without its own set of problems.  Most noticeably, "possession" 
is not a significantly more definite word than "perfection."  
Especially when dealing with mobile personal property, as these 
liens do, ascertaining when and how possession occurs can be 
difficult and imprecise. 
No. 
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13
presented facts indistinguishable from this case and therefore 
required the Ninth Circuit to address these same issues of liens 
and perfection.  Although the Hilde court arrived at its 
decision in large part due to a California statute that has no 
counterpart in Wisconsin, we nonetheless find that court's 
analysis on this issue of secret liens helpful.   
¶25 Hilde noted that a trustee is "not without options to 
deal with the situation" of the existence of unknown liens on 
the debtor.  Id.  The trustee has three options.  First, the 
trustee can inquire of the debtor to see whether he or she has 
been served with notice to appear at a supplementary proceeding 
by any creditor.  Id.  Second, though somewhat arduous, the 
trustee can search the court records to see whether the debtor 
has had any judgments against it.  Id.  At oral argument in this 
case, the trustee conceded that this was possible though it was 
somewhat time consuming.  Third, a trustee can contact a 
debtor's creditors to see whether any of them have received a 
judgment against the debtor and have initiated supplementary 
proceedings.  Id.  Though these options may at times be rather 
inefficient and will depend on the veracity of the debtor and 
creditors for their success, this court concludes that these 
options are not impossible to accomplish and in many cases are 
quite simple and unobtrusive.   
¶26 Moreover, this court believes that these options are 
more closely aligned with the actual practices of parties 
involved in these matters.  As Mann pointed out at oral 
argument, it is not uncommon for the various creditors to 
No. 
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14
encounter one another in the course of their attempts to seek 
out the available assets of the debtor.  When these encounters 
occur, the creditors are able to determine which of them first 
served the debtor to obtain the superior lien.  By concluding 
that a receiver's lien is valid at the time the debtor is 
served, the competing creditors will readily and quickly be able 
to ascertain which among them has the superior lien.  Once that 
creditor is determined, the other creditors will no longer 
continue in their efforts of location and recovery and will only 
act to insure that the superior creditor acts with due 
diligence. 
¶27 Aside from the fact that this court does not find the 
trustee's secret lien argument persuasive, we also conclude that 
policy interests are served by holding that no additional step 
is necessary to perfect a receiver's lien after service.  As 
Mann asserted at oral argument, requiring an additional step 
beyond service in order to obtain a superior lien removes any 
incentive for negotiation and settlement between the creditor 
and the debtor.  If the creditor has no protection unless and 
until a receiver is appointed, he or she will in all likelihood 
bolt to have the court appoint a receiver who will then go about 
the business of liquidating the debtor's assets.  The same can 
be said regarding the issuance of a turnover order.  Even if the 
parties were contemplating negotiation or in the process of 
settlement, the creditor would need to seek a receiver or 
turnover order to preserve his or her rights.  Such imposed 
protraction benefits no one, wastes the parties' time and money, 
No. 
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15
and burdens the courts with potentially unnecessary hearings and 
proceedings. 
¶28 In summary, this court concludes that Wis. Stat. 
chapter 816 does not articulate whether a creditor must do more 
than serve a debtor with notice to appear at supplementary 
proceedings in order to obtain a valid and superior lien against 
another creditor on a simple contract.  Additionally, the case 
law of this court does not provide definitive answers to the 
issue. 
 
Based 
on 
the 
persuasive 
authority 
from 
other 
jurisdictions as noted above, as well as policy arguments 
advanced by Mann in this court, we conclude that a receiver's 
lien is superior against another creditor on a simple contract 
at the time the creditor serves the debtor with notice to appear 
at supplementary proceedings under Wis. Stat. chapter 816.  
Accordingly, Wisconsin law does not require a creditor to take 
additional steps to perfect a receiver's lien beyond service on 
the debtor. 
By the Court.—Certified question answered in the negative 
and cause remanded to the United States Court of Appeals for the 
Seventh Circuit. 
 
 
 
 
1