Opinion ID: 1581536
Heading Depth: 3
Heading Rank: 4

Heading: What Remains of Common Law Lis Pendens Following the Enactment of Statutory Lis Pendens in Wisconsin

Text: [6] ¶ 23. Case law, treatises, and Wis. Stat. § 840.10 itself make it evident that statutory lis pendens was designed to supplement, not abrogate, common law lis pendens in Wisconsin. Our case law has held that the lis pendens created by statute was evidently intended to be supplemental to the common law, and not repeal it. Brown, 95 Wis. 2d at 93. ¶ 24. Commentators have noted that lis pendens statutes were intended to provide constructive notice of the pending litigation to persons other than the parties to the action. 6A Richard R. Powell, Powell on Real Property ¶ 907.3[2], at 82A-21 (discussing formal statutory notice of lis pendens). Statutory lis pendens is thus intended to provide the means for third parties to obtain notice of the pending litigation and the court's power to enforce the outcome of that dispute against a subsequent purchaser or encumbrancer. Other commentators agree that this statutory notice supersedes the common law, except as to those with actual notice of the pending action or who are not bona fide. 2 Callaghan's Wisconsin Pleading and Practice § 15.02, at 296 (4th ed. 1996) (citing Bell v. Peterson, 105 Wis. 607, 613, 81 N.W. 279 (1899); Brown, 95 Wis. at 93). ¶ 25. The plain language of Wis. Stat. § 840.10(1)(a) supports our conclusion that Wisconsin's lis pendens statute plays no role as to a purchaser who is a party to the relevant litigation. The statute states in relevant part: From the time of filing or recording [of lis pendens in the office of the register of deeds] every purchaser or encumbrancer whose conveyance or encumbrance is not recorded or filed shall be deemed a subsequent purchaser or encumbrancer and shall be bound by the proceedings in the action to the same extent and in the same manner as if the purchaser or encumbrancer were a party thereto. (Emphasis supplied.) At the very least, the plain language of the statute (as if the purchaser were a party thereto) indicates that the statute does not apply to those who are parties. ¶ 26. Parties to litigation have actual notice of the dispute and, therefore, as to these individuals the statute plays no role. This point was illustrated in Hailey v. Zacharais, 39 Wis. 2d 536, 159 N.W.2d 667 (1968). In Hailey, the plaintiff failed to file a notice of lis pendens as required by statute. It was held that the subsequent judgment was not void because [a]s to parties to the action...who appear and participate in the proceedings, the lis pendens serves no real purpose and actually has no application. Id. at 538 (citing Pennfeather v. Kenosha, 210 Wis. 695, 700, 247 N.W. 440 (1933)). [7] ¶ 27. Based on all the above, we hold that because Hansen was a party to the lawsuit, and thus had actual notice of the pending of the appeal, the doctrine of common law lis pendens continued to protect the Gaugerts' interest. Therefore, Hansen took the property subject to the outcome of the litigation on appeal. ¶ 28. Hansen disagrees with this holding for a number of reasons. Hansen argues that once the statutory notice of lis pendens was discharged, and absent any order to stay the discharge, Duve was entitled to sell the property under the rule that enforcement of a judgment is not stayed pending appeal. Chase Lumber and Fuel Co. v. Chase, 228 Wis. 2d 179, 203, 596 N.W.2d 840 (Ct. App. 1999). Hansen contends that seeking discharge of lis pendens is a species of enforcement. This analysis, however, does not go far enough. In this case, Duve, the property owner, sold the disputed land to Hansen, a co-defendant who appeared and participated in the proceedings. Statutory lis pendens is for the benefit of third parties. As a result statutory lis pendens has no role as to Hansen and neither the filing nor the discharge of statutory lis pendens affected the court's jurisdiction over the real property as between Duve, Hansen, and the Gaugerts. [6] Thus under our common law doctrine of lis pendens Hansen, the successor in interest of property that was the subject of a pending action to which his transferor was also a party, took the property subject to the final resolution of the Gaugerts' claim. [7] [8] ¶ 29. Hansen next contends that the doctrine of common law lis pendens does not survive final judgment of the circuit court. In other words, because Duve conveyed the property to Hansen after the circuit court entered its judgment, Hansen asserts that he should not be bound by the court of appeals' decision to reverse the circuit court. In his view, the proper remedy for the Gaugerts after succeeding on appeal is breach of contract damages. We disagree with this analysis. Hansen is bound to the final outcome of the Gaugerts' appeal as the successor in interest to the property and a party to the action. Treatises indicate the majority rule to be that the doctrine remains in effect as long as procedures for review remain available to the losing party. 6A Powell, supra, ¶ 907.4[2], at 82A-24-25; 3 Merrill on Notice § 1169, 93 (1952). [P]ersons who obtain an interest in property involved in litigation after the entry of the court's judgment but before review proceedings are completed are subject to the results of the review. Most types of review that are considered to be continuations of the original litigation qualify to keep the lis pendens in operation. (Footnote omitted.) 6A Powell, supra, ¶ 907.4[2], at 82A-25. In Wisconsin, an action is pending until there is an exhaustion of rights of appeal. See Larson v. Fetherston, 44 Wis. 2d 712, 718, 172 N.W.2d 20 (1969). As a result, common law lis pendens operates until the time to seek an appeal has expired or until there is an exhaustion of the right to appeal. ¶ 30. Based upon the foregoing analysis, we find unpersuasive Hansen's contention that Wis. Stat. § 808.07 trumps common law lis pendens. Pursuant to § 808.07, [a]n appeal does not stay the execution or enforcement of the judgment or order appealed from except as provided [in § 808.07] or as otherwise expressly provided by law. Wis. Stat. § 808.07(1). The Gaugerts did not obtain a stay pursuant to § 808.07(2) of the circuit court's order expunging statutory lis pendens. However, because Hansen is bound by the decision of the court of appeals' reversing the circuit court because of the common law of lis pendens and his party status, the order expunging statutory lis pendens has no effect on the Duve to Hansen transaction. Accordingly, the absence of a stay of Judge Mawdsley's order discharging statutory lis pendens does not change our analysis. ¶ 31. Further, as a doctrinal matter, although an objective of common law lis pendens was to preserve the status of property pending the outcome of litigation, the doctrine of lis pendens is distinct from a stay. 6A Powell, supra, ¶ 907.1, at 82A-3. Unlike a judicial stay, the lis pendens does not prevent transfer of property even though it is involved in a court action, but any transfer is made with the risk that the transfer may be nullified if the judgment goes against the transferor. 6A Id. (footnote omitted). Thus, neither common law lis pendens nor statutory lis pendens barred Duve's transfer of the property to Hansen either before or after the entry of final judgment in the circuit court. Pursuant to their contractual agreement, Duve transferred the property to Hansen. Hansen, as a party to the litigation, took the property with the risk that on appeal the circuit court's order would be reversed. Hansen argues that this analysis results in a de facto stay of the final judgment because the property owner's ability to convey marketable title is still tied by the operation of lis pendens. ¶ 32. We recognize that although lis pendens does not bar the alienation of property, in the ordinary case the pendency of litigation either attacking a seller's title or bringing claims against it is treated as an encumbrance and as making the title unmarketable. 2 Patton on Land Titles § 580, at 135 (2d ed. 2000 Supp.); also 6A Powell, supra, ¶ 907.1, at 82A-3 (risk that transfer may be nullified is sufficiently great that title examiner or insurer will protect itself by noting that title is subject to pending litigation through the lis pendens doctrine). As a result, the practical effect of lis pendens may be in some instances to restrict a seller's ability to alienate his property to another party defendant. As previously noted, however, lis pendens and a stay are separate legal doctrines. The legislative intent expressed in Wis. Stat. § 808.07 fulfills a different purpose than common law lis pendens. The two strands of law may have some overlap in effect, but our analysis here is an effort to give full expression to each rule. ¶ 33. Arguably, the Gaugerts could have sought to enjoin the sale of the farmland by Duve to Hansen. However from the Gaugerts' perspective such a step would have been a redundancy, given that pursuant to the common law of lis pendens Hansen purchased the real property subject to the final judgment of the courts upon the Gaugerts' claim. ¶ 34. Next Hansen contends that our conclusion in this case leaves him worse off as a result of prevailing in the circuit court proceedings, because the property could be sold freely to a nonparty. We note, however, that at the circuit court hearing on Duve's motion to discharge statutory lis pendens, counsel for Hansen appeared and urged the court to grant Duve's motion to expunge lis pendens. Hansen could have opposed Duve's motion in order to ensure that Duve could not convey the property to a third party who was not on constructive notice of the pending litigation. ¶ 35. Finally, we will examine a number of cases from other jurisdictions relied upon by both the court of appeals and Hansen. As previously noted, the court of appeals concluded that the Gaugerts' failure to obtain a stay rendered their demand for specific performance moot. The court of appeals and Hansen direct our consideration of several Illinois cases, including Duncan v. Farm Credit Bank, 940 F.2d 1099 (7th Cir. 1991) (applying Illinois law), and Town of Libertyville v. Moran, 535 N.E.2d 82 (Ill. App. Ct. 1989). ¶ 36. In Duncan, the Seventh Circuit considered a situation somewhat similar to the case at hand. Duncan filed a lis pendens and sued Farm Credit Bank seeking to enforce a right of first refusal to repurchase foreclosed property. Duncan, 940 F.2d at 1101. After the district court dismissed the suit, the Duncans did not seek a stay of judgment and the Bank sold the disputed property to a third party. Id. The Seventh Circuit examined its own rule for obtaining a stay, Fed. R. Civ. P. 62(c). The court determined that unless the rule is invoked, an appellant risks being unable to realize the benefits of the successful appeal. Id. at 1103. The Duncan court concluded, in light of Illinois law providing for termination of a lis pendens upon a court's final judgment, the Duncans failure to seek a stay of that judgment pending appeal, and [the subsequent buyers'] status as a non-party, we cannot grant any relief to the Duncans. Id. at 1104. ¶ 37. The Duncan case, like the court of appeals in Gaugert II, relied upon Moran. The Moran decision provides additional background concerning Illinois law. In Moran, the Town of Libertyville filed a condemnation action to acquire certain property. Moran, 535 N.E.2d at 83. After a jury returned an award of just compensation, the Town appealed but did not request a stay of judgment or pay the award. During the pendency of the appeal the property was sold to a nonparty to the litigation. Id. The Town argued that because it filed a notice of lis pendens pursuant to state statute, the notice remained in effect during the pendency of the appeal. Id. at 84. The court disagreed, noting that Illinois Supreme Court Rule 305(i) (107 Ill. 2d R. 305) specifically addressed the effect of the failure to obtain a stay upon interests in property. This Illinois rule provided in part: If a stay is not perfected within the time for filing the notice of appeal...the reversal or modification of the judgment does not affect the right, title, or interest of any person who is not a party to the action in or to any real or personal property that is acquired after the judgment becomes final and before the judgment is stayed.... (Emphasis supplied). Moran, 535 N.E.2d at 85 (quoting Rule 305(i)) (emphasis supplied). [8] ¶ 38. The Moran court concluded that the Illinois rule pertaining to obtaining a stay provided the exclusive means by which an appellant may protect its interest in property pending appeal and that the statute providing for lis pendens was inapplicable on appeal. Id. at 85. Further, the court wrote that the practice and historical notes to the Illinois lis pendens statute refer the reader to Illinois Supreme Court Rule 305(i). Wisconsin Stats. §§ 808.07 and 840.10 do not contain sections analogous to the Illinois rules. ¶ 39. In Gaugert II the court of appeals noted that in the Illinois cases it cited the third-party purchaser was not a party to the appeal and was not subject to the court's jurisdiction. The court of appeals concluded, however, that a different result was not required in this case merely because Hansen was a named party. In the court's view, had the Gaugerts sought a stay, the circuit court would have had the luxury of being able to fashion relief that prevented Hansen from disturbing the status quo because he was subject to the court's authority. Preventing an alteration of existing conditions is preferable to later untangling changes in an attempt to restore things to the way they were. Gaugert, 2000 WI App 34, ¶ 22 n.8. While we may agree with this sentiment, the Gaugerts are entitled to what the law permits, and Hansen is subject to what the law demands. In the present case Hansen was a party to the case since its initial filing and therefore purchased the property subject to the final resolution of the case. ¶ 40. Hanson also directs our attention to Da Silva v. Musso, 559 N.E. 2d 1268 (N.Y. Ct. App. 1990). In Da Silva, the plaintiff fled a notion of pendency and commenced an action for specific performance of a contract to convey real property. Specific performance was granted, but the award was reversed on appeal. Plaintiff appealed again, but did not obtain a stay and his notice of pendency was cancelled. The defendants sold the disputed property to a buyer who had actual knowledge of the pending appeal. Id. at 1269. In its review of the matter, the New York Court of Appeals reinstated the order for specific performance. Additional litigation occurred. Upon further review, the court determined that once a final judgment or order dismissing the plaintiff's complaint has been entered, the plaintiff has no further right to restrain the free transfer of the property that was the subject of the complaint unless he has followed the statutorily prescribed procedures for continuing the previously filed notice of pendency. Id. at 1272. The Da Silva court noted that a buyer's actual knowledge of the pending appeal does not assist the plaintiff where the plaintiff has not complied with other statutorily prescribed procedures. Id. [9] ¶ 41. The reasoning of the Da Silva decision was linked closely to the statutes of that jurisdiction. We do not discern from the language of Wis. Stat. § 808.07 any intent to abandon the application of common law principles of lis pendens to the parties to litigation concerning real property. Even if we were to find that § 808.07 is ambiguous on this issue, we would nevertheless reach the same conclusion. It is a rule of statutory construction that an intent to change the common law must be clearly expressed. Esser Distributing Co. v. Steidl, 149 Wis. 2d 64, 69, 437 N.W.2d 884 (1989). At the time § 808.07 was created, our prior holdings had established that statutory lis pendens was a supplement to common law lis pendens. The language of the statute does not address either common law lis pendens or statutory lis pendens. The parties have not provided any dispositive evidence from the legislative history of § 808.07 that would lead us to conclude that the enactment of the statute was intended to modify the common law of lis pendens. ¶ 42. Based upon all the above, we conclude that neither the dissolution of statutory lis pendens nor the adoption of Wis. Stat. § 808.07(1) prevent Hansen from holding the property subject to the final resolution of the case in the appellate courts.