Court Must Adjudicate the Merits before Transferring Properties to Trust Over Owner’s Objection
In City of Milwaukee v. Choudry, 2018AP1693 (Dec. 27, 2019), the Wisconsin Court of Appeals reversed a circuit court order transferring the defendant’s properties into a trust. The appellate court held that, because the trial court never made a final judgment on the merits of the case, it lacked authority to impose a remedy.
Starting in 2002, Mohammad Choudry, personally and through several business entities, purchased 93 properties in the City of Milwaukee. These properties accumulated over $400,000 in delinquent property taxes and nearly 3,000 municipal code violations (triggering more than $240,000 in fines). Three years ago, the City filed a lawsuit against Choudry seeking to declare his properties a public nuisance, to collect monies owed, and to fix outstanding code violations.
Among other steps, the City asked the court to appoint a receiver for the properties, who would manage them and bring them into compliance with the law. The circuit court issued a temporary injunction prohibiting Choudry from acquiring more property. It also appointed a receiver to manage Choudry’s existing properties. For approximately one and one-half years, the receiver worked with Choudry and regularly consulted with the court regarding management of the properties, payment of the delinquent taxes, and efforts to remediate the code violations.
In May 2018, the receiver filed a motion to transfer the properties into a trust controlled by the receiver. The receiver asserted that it would take several more years to finish paying back taxes, cleaning up the properties, and paying all expenses. A trust would allow this process to continue without the court’s involvement. When the taxes on all of the properties were up to date, ownership of the properties would revert to Choudry.
Choudry objected. He noted that the case had not been litigated on the merits—that is, he never had the opportunity to put on a defense—and transferring the properties into a trust would merely release the receiver, not resolve the dispute. The circuit court disagreed, asserting that “the record reflected that the ‘allegations’ of the City had been proven in the reports filed by … the receiver.” Choudry, slip op., ¶18. On that basis, the circuit court granted the receiver’s motion. The City then made, and the court granted, a motion to dismiss the case.
Choudry appealed, and the court of appeals reversed.
The court of appeals held that the circuit court lacked authority to transfer Choudry’s properties into a trust. Although Wis. Stat. § 813.16 empowers a court to appoint a receiver, it does not authorize other remedies. Choudry, slip op., ¶21. The appellate court then distinguished the case on which the receiver relied, Beloit Liquidating Trust v. Grade, 2004 WI 39, 270 Wis. 2d 356, 677 N.W.2d 298; while that case did involve a trust created without a final judgment, the case also involved a reorganization plan approved by the bankruptcy court—the equivalent of a final judgment. Choudry, slip op., ¶22.
Nor could the circuit court use its inherent equitable authority to create a trust in these circumstances. Wis. Stat. § 701.0401(4) authorizes circuit courts to equitably create a trust, but only in response to a legal wrong. Choudry, slip op., ¶24 (citing Breier v. E.C., 130 Wis. 2d 376, 389, 387 N.W.2d 72 (1986)). Here, because the trial court made no final determination of legal wrongdoing, it had no authority to transfer Choudry’s properties into a trust. Choudry, slip op., ¶¶25-26.
The appellate court reversed the dismissal and remanded the case with instructions that the transfer to the trust be unwound, with the receivership restored and the trial court to conduct further proceedings. Id., ¶27.
For municipalities and courts, nuisance properties present unique challenges. The Choudry decision makes clear that in nuisance actions, as in any other litigation, a court must reach a final judgment on the merits before it can grant certain remedies.