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Associated Bank, N.A. v. Brogli

Court of Appeals of Wisconsin, District II

July 25, 2018

Associated Bank, N.A., Plaintiff,
v.
Kathryn Brogli, Defendant-Respondent, Arline A. Brogli, Defendant-Appellant, Daniel R. Brogli, Stephen J. Brogli, Ralph L. Zaun Individually and as Trustee of the Ralph L. Zaun and Edith Zaun Revocable Trust Dated June 25, 1993 and Edith Zaun Individually and as Trustee of the Ralph L. Zaun and Edith Zaun Revocable Trust Dated June 25, 1993, Defendants.

          APPEAL from an order of the circuit court for Ozaukee County: No. 2012CV259 PAUL V. MALLOY, Judge. Reversed and cause remanded.

          Before Neubauer, C.J., Reilly, P.J., and Hagedorn, J.

          NEUBAUER, C.J.

         ¶1 Arline A. Brogli appeals from an order adopting a referee's recommendation for the division of property interests, asserting various procedural problems with the court's adoption of the referee's amended report. Because the circuit court failed to address Arline's objection to the referee's amended report, and adopted it without reviewing the evidence considered by the referee, the court was unable to appropriately exercise its discretion in determining whether the referee's challenged findings of fact were clearly erroneous as required by statute. We therefore reverse and remand.

         BACKGROUND

         ¶2 This 2012 suit started as a foreclosure action against Arline and Kathryn Brogli (Arline's former daughter-in-law), and their husbands.[1] The property was a residence and about eighty-one acres of land in the Village of Fredonia.

         ¶3 In 2013, the parties entered into a stipulation and order by which they would sell a portion of the land (about seventy-six acres), use the proceeds to pay off the mortgage and other bills, and dismiss the mortgagee bank. After those payments, $183, 091.29 remained. Recognizing they had "disagreements over how to divide those net proceeds between themselves" and intending "to preserve the net proceeds of the sale pending the resolution of their disputes," they agreed, and the court ordered them, to place those proceeds into trust, divided equally ($91, 545.65 each) between Arline and Kathryn, and held in their attorneys' trust accounts unless disbursed via the parties' written agreement or a court order. Still pending in the action were cross-claims relating to responsibility for the default, rights to possession, and resulting damages. The parties agreed to mediate these claims.

         ¶4 At a January 2014 hearing, the court allowed amendments to the cross-claims and notified the parties that, if the case did not soon settle, it was inclined to appoint a referee. Arline and Kathryn amended their cross-claims, essentially adding requests for a partition of the property.

         ¶5 Unable to settle, in July 2014, the parties were directed to agree on a referee. The parties selected Attorney Douglas Mann, an experienced bankruptcy trustee. The resulting January 2015 order of reference issued pursuant to Wis. S . § 805.06 (2015-16) authorized Mann to regulate the proceedings, require tat [2] production of evidence, examine witnesses, and maintain the property, all with the aim of determining the property's fair market value, its equitable division, and the basis, if any, for its partition or sale. The order directed Mann to "report his findings and recommendation to the Court."

         ¶6 Mann reviewed documents requested from the parties and deposed Arline and Kathryn. On July 17, 2015, he filed his report, but without the transcript of proceedings and evidence as required by Wis.Stat. § 805.06(5)(a). Mann found the fair market value of the dwelling and remaining five acres was $100, 000. Mann also found that, over the years, Kathryn contributed to the dwelling $296, 521.50 and Arline possibly contributed $7447.12. Based on those contributions, Mann recommended the value of the property be divided ninety-seven percent to Kathryn and three percent to Arline.

         ¶7 On July 27, Kathryn sent an e-mail to Mann without copying Arline. The e-mail suggested changes to his report. The report had noted that the net proceeds of $183, 091.29 from the 2013 sale were divided equally between the parties, and the report appeared to consider that division a closed issue. Kathryn's e-mail indicated that "the parties did not split" that amount, but rather the attorneys "just held one half of the proceeds in their trust accounts." The e-mail went on to "assume" the $183, 091.29 was to be divided in accordance with the 97/3 recommended ratio. Finally, the e-mail suggested other property-related charges totaling $31, 464.91 that were Arline's responsibility were already paid out of the proceeds, such that Kathryn should first be paid an equal amount out of the proceeds.

         ¶8 On July 28, Mann forwarded Kathryn's e-mail to Arline, asking for any response in two days, by July 30. Arline did not respond by July 30.

         ¶9 On July 31, Mann amended his report, pointing out Kathryn had advised the $183, 091.29 in sale proceeds should be subject to his proposed division.[3] Mann recommended that, given the lack of response from Arline, those proceeds should be divided in accordance with the 97/3 ratio after Kathryn was first paid $31, 464.91. On August 4, Kathryn filed a proposed order that would adopt the amended report.

         ¶10 By August 11 letter, Arline objected to Kathryn's proposed order and to the referee's amended report. She copied the circuit court on the letter. Arline complained about Kathryn's failure to copy her in on the July 27 e-mail to Mann, which Arline alleges prevented her from timely responding. She asserted that, "[a]s a result, the basis for [Mann's] amended conclusions do not square with the facts." Specifically, she stated that neither attorney was holding $91, 545.65 in trust and the only remaining asset was the residence (and surrounding land), which Mann valued at $100, 000. Arline indicated that a "formal response has and will be delivered" to Mann, along with a request that Mann reconsider his recommendation or, alternatively, reinstate his original report. No such "formal" response, however, is identified in the record. We see no other written objections to the report by Arline to the circuit court.

         ¶11 On August 17, Arline advised she was seeking relief under Chapter 13 of the United States Bankruptcy Code, which automatically stayed the circuit court proceedings. See 11 U.S.C. § 362 (2015). Because of the stay, Arline sought dismissal of the action without prejudice. Kathryn opposed the dismissal, noting she was seeking relief from the stay and also expressed concern Arline had not reported her share of the 2013 sale proceeds in the bankruptcy action. Kathryn subsequently moved for confirmation that those proceeds were being held in trust and for adoption by the court of the amended report.

         ¶12 In December 2015, the court requested a status report from the parties.[4] Kathryn advised that the bankruptcy court granted the motion to lift the stay on December 10. She would file the related order once signed. The circuit court set a status hearing for January 20, 2016. On January 4, Kathryn filed the bankruptcy court order lifting the stay.[5]

         ¶13 On January 20 the court held a status hearing. The parties advised the court the remaining property (the dwelling and land) had been sold, subject to bankruptcy court approval (which was subsequently given). The court was also informed, much to its consternation, the $183, 091.29 sale proceeds had been disbursed from the attorney trust accounts to Arline and Kathryn.[6] The court pointed to the order requiring counsel to hold those proceeds in trust unless they were disbursed via written agreement or another court order.

         ¶14 Kathryn asserted she had a written agreement to receive the funds. Entitled "Interim Agreement" on the mediator's letterhead, it itemized various points about selling the property and stated Kathryn's counsel was "to release funds in her trust account to" Kathryn. Arline countered that the "Interim Agreement" was a memorandum from a mediation that was not completed, was missing items, was not signed, and its terms were not followed by the parties. As for why Arline received the funds she held in trust, she indicated she took them because Kathryn received her share.

         ¶15 The court instructed Arline to submit evidence in five days, by January 25 (later adjourned to January 27), that she was authorized to receive the 2013 sale proceeds of $91, 545.65.

         ¶16 The court acknowledged Arline's objection to the referee's amendment of the report in response to Kathryn's request that the money held in trust be divided on a 97/3 basis. The court granted Arline thirty days thereafter, by February 26, to submit whatever documents she deemed appropriate to the referee, so that he could consider whether to again amend his report and recommendation.

         ¶17 At the January 27 hearing, the court heard testimony addressing the disbursement of the funds held in trust, but did not hear testimony or argument on the proper division of those funds .[7]

         ¶18 The court heard testimony from Attorney Larry Kahn, the mediator, regarding whether the parties had agreed to disburse the 2013 sale proceeds. According to Kahn, Kathryn requested the written "Interim Agreement," which he provided based off of his notes. Kahn later held a telephone conference, during which Arline asked for release of her share because she was in desperate financial need and it was otherwise unfair that Kathryn had received her share. Kahn recalled the parties agreed Arline could receive funds, but he could not recall the amount, nor was the agreement put in writing. Kathryn denied that she agreed to any such disbursement.

         ¶19 The circuit court expressed frustration the proceeds placed in trust were disbursed without proper authorization. Based on Kahn's testimony, the court believed there was some understanding to disburse at least some proceeds to Arline, but this did not comply with the requirement that an agreement be in writing. The court acknowledged Kathryn had an agreement to receive the proceeds, but indicated her "Interim Agreement" was more in the nature of a "summary" and was not signed by the parties.

         ¶20 The court began to say that it was "standing by my order that any additional … submittals to" the referee, Mann, should be made by Arline, but then stopped and reversed course, stating, "I'm just going to adopt Mr. Mann's report as the equitable" outcome. The court indicated the 97/3 split was "consistent with [its] recollection" of handling the divorce action between Kathryn and her husband, in that Arline was not helpful with maintaining the property, and Kathryn worked to keep "the place afloat."

         ¶21 Additional hearings were held in March and April 2016 for the drafting of a final order. On June 1, the court entered the final order, which found the $183, 091.29 sale proceeds to be "joint assets of the parties subject to division by this court," and Arline received a share of those proceeds "without the court's consent." The order adopted Mann's amended report recommendation ...


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