Statutory Interpretation – Receivership Proceedings

Listen to this article

WI Court of Appeals – District III

Case Name: Nash Finch Company v. Gordy’s Chippewa Foods, Inc., et al.

Case No.: 2018AP1419

Officials: Stark, P.J., Hruz and Seidl, JJ.

Focus: Statutory Interpretation – Receivership Proceedings

This appeal involves receivership proceedings commenced under WIS. STAT. ch. 128 (2017-18). Michael Polsky is the court appointed receiver of Gordy’s Chippewa Foods, Inc., and twenty-four related entities (collectively, “the Gordy’s Entities”). Nash Finch Company, which instituted the receivership proceedings, had a perfected security interest in assets owned by some of the Gordy’s Entities. Huiras Construction, Inc., and Northwest Wisconsin Refrigeration Services LLC (collectively, “Huiras”) were unsecured creditors of the Gordy’s Entities. During the course of the receivership proceedings, some assets belonging to the Gordy’s Entities were sold, and the proceeds were disbursed to Nash Finch. Because the sale proceeds were insufficient to satisfy Nash Finch’s secured claim, unsecured creditors of the Gordy’s Entities—including Huiras—received nothing.

On appeal, Huiras argues the receivership proceedings were not conducted in a lawful manner because it was clear from the outset that there was no “reasonable possibility” the Gordy’s Entities’ unsecured creditors would receive a dividend from the receivership estate. In essence, Huiras argues that unless there is a reasonable possibility unsecured creditors will receive a dividend, a secured creditor may not use WIS. STAT. ch. 128 receivership proceedings to collect on its security interest. Huiras further argues that by improperly participating in the ch. 128 proceedings, Nash Finch waived its security interest, and the proceeds of the receivership estate should therefore be distributed pro rata between Nash Finch and the Gordy’s Entities’ unsecured creditors. Huiras also argues that the circuit court erred by ordering it to pay Polsky’s attorney fees and costs as a sanction under WIS. STAT. § 802.05(3).

We reject Huiras’s argument that Nash Finch’s participation in the WIS. STAT. ch. 128 receivership proceedings was improper and thus resulted in a waiver of Nash Finch’s security interest. We therefore affirm in part. However, we conclude the circuit court erred by sanctioning Huiras on the court’s own initiative without following the procedure set forth in WIS. STAT. § 802.05(3)(a)2. Moreover, the sanction the court imposed—i.e., the payment of Polsky’s attorney fees and costs—is not available when a court orders sanctions on its own initiative. See § 802.05(3)(b). We therefore reverse that portion of the court’s order requiring Huiras to pay Polsky’s attorney fees and costs as a sanction under § 802.05(3), and we remand for the court to reconsider the issue of sanctions using the proper legal standards.

Full Text

Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.