Court Opinion

ID: 8203596
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:49:37.706803+00
Date Added: 2024-06-11T16:41:03.212620
License: Public Domain

PATIENCE DRAKE ROGGENSACK, J.
¶ 85. {concurring). Although I agree with the lead opinion that a reverse and remand is the proper disposition, I do not join the opinion. I write in concurrence to clarify that it is BNP Paribas's (Paribas) secured interest in the assets that the circuit court sold to Olsen's Mill Acquisition Company (OMAC) over Paribas's objection and the circuit court's approval of a sale that failed to pay Paribas anything on its unsecured claim while other unsecured creditors were paid that drive the result that we must reach in our review of the ch. 128 (2007-08)1 proceeding now before us.
¶ 86. Paribas repeatedly refused to consent to the sale to OMAC of assets in which Paribas held perfected security interests, alleging that it was not fully compensated for the value of its security in those assets. In addition, Paribas received nothing on its unsecured claims, while other unsecured claimants were paid. Accordingly, I conclude that the circuit court violated the provisions of ch. 128 and exceeded its authority in regard to the sale to OMAC in two major respects: (1) it approved the sale of assets in which Paribas held a security interest free and clear of all liens, without either Paribas's consent or the completion of a statutory determination of the value of Paribas's security in the assets *459sold and payment for the value of its security; and (2) it approved the sale to OMAC that paid Paribas nothing on its unsecured claims while other unsecured claimants were paid.
¶ 87. With these conclusions established, I would remand to the circuit court to determine an appropriate remedy consistent with ch. 128. Accordingly, I respectfully concur.
I. BACKGROUND
¶ 88. Paribas is a secured lender of Olsen's Mill, a major grain elevator operation, with sites throughout Wisconsin. Paribas loaned Olsen's Mill approximately $58 million for which Paribas took a second mortgage on certain real estate and secured interests in the following collateral:
all Accounts; all Bank Accounts; all Chattel Paper; all Commercial Tort claims; all Deposit Accounts; all Documents; all General Intangibles; all Instruments, including all Commodity Accounts and Commodity Contracts; all Inventory; all Investment Property; all Payment Intangibles; all Supporting Obligations; all books and records pertaining to the Collateral, including, any computer software, hardware and access codes[]; and to the extent not otherwise included, all Proceeds and products of any and all of the foregoing.
Security Agreement, at 2. Paribas timely perfected its security interest in its collateral.2
¶ 89. Olsen's Mill defaulted on its obligations to Paribas, and Paribas then filed the ch. 128 proceeding that is now before us. Olsen's Mill agreed to Paribas's *460request for the appointment of a receiver to take control of and to preserve Olsen's Mill's ch. 128 estate. Michael S. Polsky was appointed receiver.
¶ 90. The parties agreed upon the order that appointed Polsky, which order provided that the receiver was empowered:
to sell any and all of Olsen's property free and clear of all liens, with all liens attaching to the proceeds of sale, through public or private proceedings, in a commercially reasonable manner, subject to the prior consent of the creditors holding perfected liens on the assets being sold, and the approval of the Court.
(emphasis added).
¶ 91. As part of Polsky's duties to Olsen's Mill's ch. 128 estate, he sent out notice of an April 7, 2009 auction of certain of Olsen's Mill's assets.3 The notice was in accord with the agreed upon order quoted in ¶ 6, above. The Auction Procedures noticed certain restrictions on the sale, including that Olsen's Mill's assets were subject to perfected security interests, including those of Paribas, and that the assets' sales were subject to the consent of the secured parties, for the assets in which a party held security.
¶ 92. The description of Auction Lots was very broad, including:
All owned real estate; All owned equipment; All owned inventory (including prepaid inventory); All owned grain inventory; All owned non-grain inventory (including prepaid inventory); Belmont owned equipment; *461Boscobel owned equipment; Milwaukee owned equipment; Ripon/Metomen owned equipment; Viroqua owned equipment; Algoma owned real estate and equipment (Oshkosh operation); Auroraville owned real estate and equipment; Berlin owned real estate and equipment; Newton/Westfield owned real estate and equipment; Omro owned real estate (4 lots); Stockton/Stevens Point owned real estate and equipment; Warren owned [] and equipment; All other owned equipment (not included in lots 7-19); Real estate leases with Olsen Bros. Enterprises; All rolling stock and equipment owned by Olsen Leasing, LLC; Intangible assets; Any combination of lots 2 through 22.
Paribas held perfected security interests in many of these assets and second mortgages on certain real estate. Baylake Bank and Capital Crossing held the first mortgages and primary security on the real estate and certain equipment.
¶ 93. The highest bid, $18,210,000, was submitted by PRM Wisconsin, LLC (PRM), an entity affiliated with Paribas. The second highest bid was submitted by OMAC, an entity affiliated with the then current owners of Olsen's Mill. In the PRM bid, $9,000,000 was allocated to inventory, $6,500,000 was allocated to all owned equipment and real estate and $2,710,000 was to cover outstanding checks due to various farmers and producers. Paribas was to receive the $9,000,000 for inventory, "in partial satisfaction of its secured claim." Baylake Bank and Capital Crossing received "full satisfaction of [their] secured claim[s]."
¶ 94. At the hearing to confirm the sale, Polsky informed the court that the conditions of the Auction Procedures had been followed; that the purchase price was in excess of the liquidation value of the assets; that the secured creditors had consented; and that PRM was *462ready to proceed in closing on the sale. Polsky asserted that the sale to PRM was in the best interests of creditors and all other interested parties.
¶ 95. Olsen's Mill objected to the sale, and requested that OMAC be permitted to make an alternative offer outside of the Auction Procedures. Ultimately, the circuit court did as Olsen's Mill requested; it permitted a new offer and accepted that offer.
¶ 96. Under OMAC's offer, although Paribas was paid $9 million for its interest in inventory, the payment was not due until six months after the sale. Paribas was paid nothing on its unsecured claim that could approach $50 million, while the unsecured claims of grain producers for future purchases received $5 million.
¶ 97. Paribas refused to consent to the sale, and Polsky objected as well. Polsky informed the court that OMAC's proposal violated ch. 128 because it would give the buyer's choice of unsecured claims payment in full, while other unsecured claimants would get nothing. Polsky also pointed out that claims of a higher priority, such as taxes, wages and administrative expenses would not be fully funded under OMAC's proposal. He also brought to the court's attention that Paribas had not consented to the sale of assets in which it held a perfected security interest and it had not consented to financing OMAC's purchase of the inventory during the six-month period after closing on the sale.
¶ 98. The circuit court heard the objections of Paribas and Polsky and noted that Paribas had properly perfected security interests in certain assets and that it did not consent to the sale to OMAC and did not consent to the release of its liens and security interests on the items sold. However, notwithstanding the objections made and noted by the circuit court, the circuit court transferred all of the sale assets to OMAC, free and clear of all liens.
*463¶ 99. Paribas appealed, and the court of appeals affirmed. We granted review and now reverse and remand.
II. DISCUSSION A. Standard of Review
¶ 100. This case requires us to interpret and apply ch. 128 in regard to the sale of Olsen's Mill's assets to OMAC, under undisputed facts. The interpretation and application of statutes in light of undisputed facts present questions of law that we decide independently, but benefitting from the discussions in previous court decisions. Admanco, Inc. v. 700 Stanton Drive, LLC, 2010 WI 76, ¶ 15, 326 Wis. 2d 586, 786 N.W.2d 759.
B. Chapter 128 Principles
¶ 101. Under ch. 128, an insolvent debtor makes a voluntary assignment for the benefit of the debtor's creditors. Wis. Stat. § 128.01. A court then may sequestrate the property of the debtor and appoint a receiver to administer that property. Wis. Stat. § 128.08; Admanco, 326 Wis. 2d 586, ¶ 32.
¶ 102. During the course of administration, ch. 128 proceedings address objections made to claims against the debtor's estate, Wis. Stat. § 128.15, and provide for the orderly distribution of an insolvent debtor's property. Wis. Stat. § 128.17.
¶ 103. A creditor with a perfected security interest in the debtor's property is not required to participate in a ch. 128 proceeding. Wis. Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 325-26, 195 N.W.2d 664 *464(1972).4 The value of a secured party's perfected security in each asset of the debtor's ch. 128 estate is protected, and it is only the excess that is above that value that is subject to administration, absent a secured party's consent. See Kneeland v. Am. Loan & Trust Co., 136 U.S. 89, 97 (1890) (explaining vested contract rights in a receivership); see also Wis. Stat. § 128.18(4).
¶ 104. As we have explained, "[a] secured creditor under ch. 128 cannot have his security taken away from him without his consent," and a secured creditor is not required to participate in a ch. 128 proceeding. Wis. Brick, 54 Wis. 2d at 325-26. However, if a secured creditor chooses to participate in a ch. 128 proceeding, his claim against the debtor's estate is limited to the unsecured portion of what the debtor owes because the portion of the debt that is secured cannot be defeated by the ch. 128 administration. Id. at 326; see also Kneeland, 136 U.S. at 97.5 In addition, a secured party who chooses to participate in a ch. 128 proceeding must give notice of his security interest and object to any sale that attempts to diminish the value of his security because the court's decision in regard to distribution of the debtor's estate cannot be challenged in a collateral proceeding asserting the secured interest. Littlejohn v. Turner, 73 Wis. 113, 123, 40 N.W 621 (1888).6
*465¶ 105. Although a ch. 128 insolvency proceeding is sometimes referred to as a "state bankruptcy,"7 a ch. 128 insolvency proceeding differs from a federal bankruptcy proceeding in significant respects. For example, a debtor's obligations are not discharged in a ch. 128 proceeding.8 Voluntary Assignment of Tarnowski, 191 Wis. 279, 286, 210 N.W 836 (1926). Therefore, when there are insufficient assets to pay all creditors, the debtor's obligation to the creditors remains after the conclusion of a ch. 128 proceeding.
¶ 106. However, even though a secured creditor with a perfected lien cannot have his security taken from him without his consent, Wis. Stat. § 128.18(4), when a secured creditor chooses to participate in a ch. 128 proceeding, ch. 128 provides a procedure somewhat similar to cram down9 under the federal Bankruptcy *466Act.10 In this regard, a ch. 128 proceeding may be held to determine the value of a participating secured party's security in each asset in which such an interest is held and for which the secured creditor seeks payment out of the general fund for that part of his claim that is unsecured. Wis. Stat. § 128.25(5) and (6).
¶ 107. When an asset in which a perfected security interest is held is for the payment of money, a secured party who chooses to participate in the ch. 128 proceeding can determine the value of his security by executing against the obligation to pay. Wis. Stat. § 128.25(5). All or some portion of his debt may be satisfied by execution.
*467¶ 108. Or in the alternative, a secured party or a receiver may petition the court to determine the value of a secured party's interest in each asset in which a secured party who chooses to participate in the ch. 128 proceeding has a perfected security interest. Wis. Stat. § 128.25(6). Valuation of secured interests may be obtained by compromise, § 128.25(6)(a); by litigation, § 128.25(6)(b); or by a receiver's sale, § 128.25(6)(c). All of the actions taken under § 128.25(5) and (6) are subject to court approval. Therefore, although a secured creditor who chooses to participate in a ch. 128 proceeding cannot be forced to accept a sale of estate property in which he has a perfected lien if the sale price will not fully satisfy the value of his security interest in the property sold, how to ascertain the value of that security interest when the secured party claims under the general fund is provided by statute.11 See Wis. Stat. § 128.25.
C. Paribas's Secured Interest
¶ 109. Olsen's Mill owed a debt of approximately $58 million to Paribas. Paribas chose to participate in *468the ch. 128 proceeding now before us. It had a perfected security interest in many of Olsen's Mill's assets.12 However, from the record before us we cannot determine the value of Paribas's security interest in the assets that were sold or in the assets that remain under the administration of the receiver because no Wis. Stat. § 128.25(6) proceedings were held in circuit court.13
¶ 110. Paribas and the receiver petitioned the circuit court to accept the sale to PRM, which action may fall within Wis. Stat. § 128.25(6)(a) as a compromise to determine the value of Paribas's security interest in some of the assets. However, the circuit court refused their compromise. Because the court then summarily accepted OMAC's offer to purchase, no litigation was conducted to determine the value of Paribas's security interest in the assets that were sold to OMAC.
¶ 111. Accordingly, the record before us does not answer the questions of how much of the $58 million owed to Paribas was secured by those assets that were sold and how large Paribas's unsecured claim against the general fund was. Without Paribas's consent to the sale, or a Wis. Stat. § 128.25(6) determination of the value of Paribas's security in the assets sold and that payment for the value of its security was accorded to Paribas, the circuit court contravened the provisions of ch. 128 when it approved the sale to OMAC free and clear of all liens.
*469¶ 112. On remand, the circuit court should determine the value of Paribas's security in the assets sold to OMAC, at the time of the sale. The circuit court then can determine whether the value of Paribas's security was taken from it without its consent or payment for the value of its security due to the sale, contrary to Wisconsin Brick and Wis. Stat. § 128.18(4). The circuit court then also will be able to determine the value of Paribas's unsecured claim against the general fund of the receivership.
D. Paribas's Unsecured Claim
¶ 113. The sale of Olsen's Mill's assets to OMAC provided Paribas with only $9 million against a debt of approximately $58 million. In addition, the $9 million that it received for inventory was not due to be paid until six months after the sale.14 Although it is not possible on the record before us to determine the amount of Paribas's unsecured claim, it appears to be significant.
¶ 114. Distributions of property from the debtor's estate are controlled by Wis. Stat. § 128.17, which separates debts into classes with varying degrees of priority. Section 128.17 provides in relevant part:
*470Order of distribution. (1) The order of distribution out of the debtor's estate shall be as follows:
a. The actual and necessary costs of preserving the estate subsequent to the commencement of the proceedings.
b. Costs of administration including a reasonable attorney's fee for the representation of the debtor.
c. [Omitted from the statute]
d. Wages, including pension, welfare and vacation benefits, due to workmen, clerks, traveling or city salespersons or servants, which have been earned within 3 months before the date of the commencement of the proceedings, not to exceed $600 to each claimant.
e. Taxes, assessments and debts due the United States, this state or any county, district or municipality.
f. Other debts entitled to priority.
g. Debts due to creditors generally, in proportion to the amount of their claims, as allowed.
h. After payment of the foregoing, the surplus, if any, shall be returned to the debtor.
¶ 115. Paragraph (l)(g) addresses the distribution to unsecured creditors. It requires that the payment of unsecured creditors must be a proportionate payment. Compliance with the statute requires an aggregation of the amount of all unsecured claims that are allowed and then payment of each claim in an amount proportional to the total amount of all unsecured outstanding claims from whatever assets are available to satisfy these claims.
¶ 116. Because the record before us does not permit us to know the priority in which Paribas's security attached to assets that were sold, we cannot determine the amount of Paribas's unsecured claim in the assets *471that were sold to OMAC. However, with a payment of $9 million, which was not due for six months after closing on the sale, against a debt of $58 million and Paribas having only a second mortgage on the real estate sold, some significant portion of Olsen's Mill's debt to Paribas must have been unsecured.
¶ 117. The purpose of a ch. 128 proceeding is to provide an orderly distribution of the insolvent debtor's property, which is not encumbered by liens, to all unsecured creditors. As we explained in Linton v. Schmidt, 88 Wis. 2d 183, 277 N.W.2d 136 (1979), "The object and purpose of assignment law is to afford an equal distribution of the assignor's estate to all creditors in proportion to their claims." Linton, 88 Wis. 2d at 198.
¶ 118. The circuit court did not even consider by what amount the $58 million that Olsen's Mill owed to Paribas was unsecured. The circuit court was not free to order a sale that did not treat all creditors equally in proportion to their unsecured claims. Id. Accordingly in regard to Paribas's interests, the sale to OMAC contravened Wis. Stat. § 128.17(l)(g).
III. CONCLUSION
¶ 119. I conclude that the circuit court violated the provisions of ch. 128 and exceeded its authority in regard to the sale to OMAC in two major respects: (1) it approved the sale of assets in which Paribas held a security interest free and clear of all liens, without either Paribas's consent or the completion of a statutory determination of the value of Paribas's security in the assets sold and payment for the value of its security; and (2) it approved the sale to OMAC that paid Paribas nothing on its unsecured claims while other unsecured claimants were paid.
*472¶ 120. With these conclusions established, I would remand to the circuit court to determine an appropriate remedy consistent with ch. 128. Accordingly, I respectfully concur.
¶ 121. I am authorized to state that Justices ANNETTE KINGSLAND ZIEGLER and MICHAEL J. GABLEMAN join in this concurrence.

 All further references to the Wisconsin Statutes are to the 2007-08 version unless otherwise indicated.

 There was no question raised in this proceeding that Paribus did not timely perfect its security interests in its collateral.

 Polsky did not seek to auction all of Olsen's Mill's assets. Apparently, some intangibles such as accounts receivable, life insurance policies, licensed software, etc. remained in the possession of Polsky and not subject to sale.

 The secured creditor did not participate in the receivership proceeding in Wisconsin Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 195 N.W.2d 664 (1972).

 Stated otherwise, a creditor who has full or excessive security for an outstanding debt will not choose to participate in a ch. 128 proceeding because he will be making no claim against the general fund of the receivership, which general fund pays unsecured claims.

 The present ch. 128 is somewhat different from the statutes in place when Littlejohn v. Turner, 73 Wis. 113, 40 N.W *465621 (1888), was decided. However, the concept that a secured creditor who chooses to participate in a ch. 128 proceeding is to give notice of its perfected security interest in property of the estate remains valid. See Premke v. Pan Am. Motel, Inc., 35 Wis. 2d 258, 267, 151 N.W.2d 122 (1967); Wis. Stat. § 128.25.

 See Jeffrey L. Murrell, Chapter 128: Wisconsin's Bankruptcy Alternative, Wisconsin Lawyer, May 2008, at 8.

 The validity of ch. 128 proceedings ordering a receiver to take control of and administer property of a debtor has been challenged by a claim that the federal government has preempted the field with the federal Bankruptcy Act. Gelatt v. DeDakis, 77 Wis. 2d 578, 580, 254 N.W.2d 171 (1977). That challenge was set aside in part by suspending a past provision of ch. 128 that discharged the debt of the debtor in a ch. 128 proceeding. Id. at 585 (citing Voluntary Assignment of Tarnowski, 191 Wis. 279, 210 N.W. 836 (1926)).

 Cram down refers to the power of a federal bankruptcy court under 11 U.S.C. § 1129(b)(1) to compromise the security of a secured creditor when the court determines that the holders of secured interests receive the "indubitable equivalent *466of such claims." 11 U.S.C. § 1129(b)(2)(A)(iii); Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD), 634 F.3d 79, 87 (2d Cir. 2011).

 Wisconsin Stat. § 128.25 is a uniform law: The Uniform Act Governing Secured Creditors' Dividends in Liquidation Proceedings. Wis. Stat. § 128.25(10). The history of this uniform act relates the act's intended parallels with the federal Bankruptcy Act,
The purpose of taking security is primarily for protection in the event of insolvency. The determination of the adequacy of security is, therefore, vitally affected by these rules. It likewise affects the evaluation of all other claims, present or prospective, that may depend for payment upon the general assets of the debtor. Uniformity is accordingly desirable for the benefit of interstate business generally.
Legislation on this subject in all English speaking countries has generally followed the principle of the bankruptcy rule.
This principle has therefore been adopted in this act as being the only one likely to be generally accepted by the Legislatures of the several states.
Unif. Act Governing Secured Creditors' Dividends in Liquidation Proceedings, Commissioners' Prefatory Note, 9C U.L.A. 77, 78 (1941).

 The lead opinion quotes heavily from Paul A. Lucey's two page article, The Liquidating "Chapter IT in State Court, 20 Am. Bankr. Inst. J. 12 (Feb. 2001), to make broad sweeping statements that could be interpreted as contrary to Wis. Stat. § 128.25. Lead op., ¶¶ 48-49.1 do not find Paul Lucey's article persuasive. He cites no authority and provides not one footnote to support his assertions.
This writer could find only one case that cites to the Uniform Act Governing Secured Creditors' Dividends in Liquidation Proceedings, which is the name the Wisconsin legislature adopted from the National Uniform Law Commission and gave to Wis. Stat. § 128.25. Hamberg v. Guaranteed Mortgage Co. of New York, 38 N.Y.S.2d 165 (S. Ct. N.Y. 1942), mentions the Act, but only to explain that it does not apply to the problem under review by the court. Id. at 174-75.

 See ¶ 4 above.

 Furthermore, neither the receiver's inventory (Wis. Stat. § 128.15(l)(a)) nor the debtor's inventory (Wis. Stat. § 128.13) is in the record before us. Therefore, we have not been provided a framework from which to determine the total assets of Olsen's Mill before the sale, indicating the security interests levied against each asset. Such a framework would have been helpful to us in instructing the circuit court on remand.

 I can see no lawful basis for requiring Paribas to finance OMAC's purchase for six months. In so doing, the circuit court approved a sale that actually paid Paribas less than $9 million for its secured interest in inventory. While it is possible under some circumstances to charge the proceeds from the sale of an asset with the expenses of a sale that are attributable to the asset sold, see Thomsen v. Cullen, 196 Wis. 581, 588, 219 N.W 439 (1928), that is not what occurred here. There is no basis in the record before us for this charge against the payment to Paribas for its perfected security in the inventory.