Debtor-Creditor — legal malpractice claims

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Wisconsin Supreme Court

Civil

Debtor-Creditor — legal malpractice claims

Legal malpractice claims can be assigned as collateral.

“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 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.”

Reversed.

2011AP2774 Attorney’s Title Guaranty Fund Inc. v. Town Bank

Roggensack, J.

Attorneys: For Appellant: Hutchinson, David H., New Berlin; For Respondent: Cisar, David I., Milwaukee; Mullaney, Peter F., Milwaukee