2023 WI 19

SUPREME COURT OF WISCONSIN CASE NO.: 2019AP1728 & 2019AP2063

COMPLETE TITLE: In re: The Atrium of Racine, Inc., d/b/a The Atrium and Bay Pointe:

Marilyn Casanova , member of Creditor Committee, Audrey J. Fox, member of Creditor Committee, Dr. Melvin Miritz, member of Creditor Committee, Linda Miritz, member of Creditor Committee, Edward and Louise Langleib Trust, member of Creditor Committee, Carleton Musson, member of Creditor Committee, Wilma Milovancevic, member of Creditor Committee, Helen Taylor, member of Creditor Committee, Louis P. Teicheret Trust, member of Creditor Committee, Reverend Frederick Marks, member of Creditor Committee, Jewel Marks, member of Creditor Committee, Patricia Meier, member of Creditor Committee, Patricia Teernstra, member of Creditor Committee, Andrew Mikaelian, member of Creditor Committee, Marcella Mikaelian, member of Creditor Committee, Josephine Brooks, member of Creditor Committee, Evelyn Odell, member of Creditor Committee, Laurence Freer, member of Creditor Committee, Dorothy Kohl, member of Creditor Committee, Karen Boerger, member of Creditor Committee, Jacqueline Williamson, member of Creditor Committee, Judy Glowinski, member of Creditor Committee, Anne Tredwell, member of Creditor Committee, Marilyn Baham, member of Creditor Committee, Elsie Gotzman, member of Creditor Committee, Lucille Ciaramita, member of Creditor Committee, Joanne Ramaker, member of Creditor Committee, Johanna Sander, member of Creditor Committee, Thomas Eser, member of Creditor Committee, Henryetta Eser, member of Creditor Committee, Grace Nelson, member of Creditor Committee, Jane Odders, member of Creditor Committee, David Nelson, member of Creditor Committee, Ray Katt (deceased), member of Creditor Committee, Louise Katt, member of Creditor Committee, Ethel Hader, member of Creditor Committee, Warren Larsen, member of Creditor Committee, Ellen Larsen, member of Creditor Committee, Frances Scott, member of Creditor Committee, Susan Prouty, member of Creditor Committee, Robert Rainey, member of Creditor Committee, Patricia Rainey, member of Creditor Committee, Helen Eckheart, member of Creditor Committee, Wilma Wise, member of Creditor Committee, Earl Christianson, member of Creditor Committee and Marian Bloch, member of Creditor Committee, Appellants, Var Krikorian, Ruth Minton, Richard Minton, Walter Steidl, Irene Miller, Marian Kornwolf, Marjorie Speckhard, Delores Torphy, Geraldine Baumblatt, Joan Peterson, John Rowland, Julianne Rowland, Lorraine Pavelcik, Marilyn Iselin, Metta Reiker, Prudence White, Elaine Oetlinger, Esther Wulff, Helen Veenstra, Rev. Dr. Ross Henry Larson, Fred and Nancy Flofer, Winifried Wiser, Nazaly Bagdasian, Robert Callaway, Estate of Elaine Zlevor, Marshall Cushman, Bernard Braun, Patricia Braun, Bob Ottum, Holly Ottum, Joyce Ottum, Jeanne Haas, Gloria Murphy, Ralph Anderson, Doris Beuttler, Genevieve Hostak, Marlene Weichmann, Mary Mueller, Wood Family Trust and Mary Holtz, Claimants-Appellants, v. Michael S. Polsky, Esq. , Receiver and The Bank of New York Mellon Trust Company, N.A., Respondents-Petitioners.

In re: The Atrium of Racine, Inc., d/b/a The Atrium and Bay Pointe:

Marilyn Casanova, member of Creditor Committee, Audrey J. Fox, member of Creditor Committee, Dr. Melvin Miritz, member of Creditor Committee, Linda Miritz, member of Creditor Committee, Edward and Louise Langleib Trust, member of Creditor Committee, Carleton Musson, member of Creditor Committee, Wilma Milovancevic, member of Creditor Committee, Helen Taylor, member of Creditor Committee, Louis P. Teichert Trust, member of Creditor Committee, Reverend Frederick Marks, member of Creditor Committee, Jewel Marks, member of Creditor Committee, Patricia Meier, member of Creditor Committee, Patricia Teernstra, member of Creditor Committee, Andrew Mikaelian, member of Creditor Committee,

2 Marcella Mikaelian, member of Creditor Committee, Josephine Brooks, member of Creditor Committee, Evelyn Odell, member of Creditor Committee, Laurence Freer, member of Creditor Committee, Dorothy Kohl, member of Creditor Committee, Karen Boerger, member of Creditor Committee, Jacqueline Williamson, member of Creditor Committee, Judy Glowinski, member of Creditor Committee, Anne Tredwell, member of Creditor Committee, Marilyn Baham, member of Creditor Committee, Elsie Gotzman, member of Creditor Committee, Lucille Ciaramita, member of Creditor Committee, Joanne Ramaker, member of Creditor Committee, Johanna Sander, member of Creditor Committee, Thomas Eser, member of Creditor Committee, Henryetta Eser, member of Creditor Committee, Grace Nelson, member of Creditor Committee, Jane Odders, member of Creditor Committee, David Nelson, member of Creditor Committee, Ray Katt (deceased), member of Creditor Committee, Louise Katt, member of Creditor Committee, Ethel Hader, member of Creditor Committee, Warren Larsen, member of Creditor Committee,Ellen Larsen, member of Creditor Committee, Frances Scott, member of Creditor Committee, Susan Prouty, member of Creditor Committee, Robert Rainey, member of Creditor Committee, Patricia Rainey, member of Creditor Committee, Helen Eckheart, member of Creditor Committee, Wilma Wiser, member of Creditor Committee, Earl Christianson, member of Creditor Committee, Marian Bloch, member of Creditor Committee, Jan Teichert, member of Creditor Committee, Dorothy Nelson, member of Creditor Committee, Metta Reiker, member of Creditor Committee, Prudence White, member of Creditor Committee, Elaine Oetlinger, member of Creditor Committee, Esther Wulff, member of Creditor Committee, Helen Veenstra, member of Creditor Committee, Mark H. Larson, Successor Trustee of the Ross H. Larson and Willetta J. Larson Revocable Trust of 2015, member of Creditor Committee, Fred Hofer, member of Creditor Committee, Nancy Hofer, member of Creditor Committee, Winifred Wiser, member of Creditor Committee, Nazaly Bagdasian, member of Creditor Committee, Robert Callaway, member of Creditor Committee, Estate of Elaine Zlevor, member of Creditor Committee, Marshall Cushman, member of

3 Creditor Committee, Var Krikorian, member of Creditor Committee, Ruth Minton, member of Creditor Committee, Richard Minton, member of Creditor Committee, Walter Steidl, member of Creditor Committee, Irene Miller, member of Creditor Committee, Marian Kornwolf, member of Creditor Committee, Marjorie Speckhard, member of Creditor Committee, Delores Torphy, member of Creditor Committee, Geraldine Baumblatt, member of Creditor Committee, Joan Peterson, member of Creditor Committee, John Rowland, member of Creditor Committee, Julianne Rowland, member of Creditor Committee, Lorraine Pavelcik, member of Creditor Committee, Marilyn Iselin, member of Creditor Committee, Bernard Braun, member of Creditor Committee, Patricia Braun, member of Creditor Committee, Bob Ottum, member of Creditor Committee, Holly Ottum, member of Creditor Committee, Joyce Ottum, member of Creditor Committee, Jeanne Haas, member of Creditor Committee, Gloria Murphy, member of Creditor Committee, Ralph Anderson, member of Creditor Committee, Doris Beuttler, member of Creditor Committee, Genevieve Hostak, member of Creditor Committee, Marlene Weichmann, member of Creditor Committee, Mary Mueller, member of Creditor Committee, Wood Family Trust, member of Creditor Committee and Mary Holtz, member of Creditor Committee, Appellants, v. Michael S. Polsky, Esq., Receiver and The Bank of New York Mellon Trust Company, N.A., Respondents-Petitioners.

REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 399 Wis. 2d 322, 964 N.W.2d 544 (2021 – unpublished)

OPINION FILED: March 16, 2023 SUBMITTED ON BRIEFS: ORAL ARGUMENT: September 9, 2022

SOURCE OF APPEAL: COURT: Circuit COUNTY: Racine JUDGE: Michael J. Piontek and David W. Paulson

4 JUSTICES: REBECCA GRASSL BRADLEY, J., delivered the majority opinion for a unanimous Court. NOT PARTICIPATING:

ATTORNEYS:

For the respondents-petitioners, there were briefs filed by Katherine Stadler, Carla O. Andres, Michael S. Polsky, and Godfrey & Kahn, S.C., Madison, and Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee. There was an oral argument by Katherine Stadler and Joseph M. Peltz.

For the plaintiffs-appellants, there was a brief filed by John A. Becker and Becker & French, Racine. There was an oral argument by John A. Becker and Thomas M. Devine.

An amicus curiae brief was filed by James E. Bartzen and Boardman & Clark LLP, Madison, for the Wisconsin Bankers Association.

5 2023 WI 19 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. Nos. 2019AP1728 & 2019AP2063 (L.C. No. 2007CV1133)

STATE OF WISCONSIN : IN SUPREME COURT

In re:

The Atrium of Racine, Inc., d/b/a The Atrium and Bay Pointe: Marilyn Casanova, member of Creditor Committee, Audrey J. Fox, member of Creditor Committee, Dr. Melvin Miritz, member of Creditor Committee, Linda Miritz, member of Creditor Committee, Edward and Louise Langleib Trust, member of Creditor Committee, Carleton Musson, member of Creditor Committee, Wilma Milovancevic, member of Creditor Committee, Helen Taylor, member of Creditor Committee, Louis P. Teicheret Trust, member of Creditor Committee, Reverend Frederick Marks, member of Creditor Committee, Jewel Marks, member of Creditor Committee, Patricia Meier, member of FILED Creditor Committee, Patricia Teernstra, member of Creditor Committee, Andrew Mikaelian, member of Creditor Committee, Marcella Mikaelian, MAR 16, 2023 member of Creditor Committee, Josephine Brooks, member of Creditor Committee, Evelyn Odell, Sheila T. Reiff member of Creditor Committee, Laurence Freer, Clerk of Supreme Court member of Creditor Committee, Dorothy Kohl, member of Creditor Committee, Karen Boerger, member of Creditor Committee, Jacqueline Williamson, member of Creditor Committee, Judy Glowinski, member of Creditor Committee, Anne Tredwell, member of Creditor Committee, Marilyn Baham, member of Creditor Committee, Elsie Gotzman, member of Creditor Committee, Lucille Ciaramita, member of Creditor Committee, Joanne Ramaker, member of Creditor Committee, Johanna Sander, member of Creditor Committee, Thomas Eser, member of Creditor Committee, Henryetta Eser, member of Creditor Committee, Grace Nelson, member of Creditor Committee, Jane Odders, member of Creditor Committee, David Nelson, member of Creditor Committee, Ray Katt (deceased), member of Creditor Committee, Louise Katt, member of Creditor Committee, Ethel Hader, member of Creditor Committee, Warren Larsen, member of Creditor Committee, Ellen Larsen, member of Creditor Committee, Frances Scott, member of Creditor Committee, Susan Prouty, member of Creditor Committee, Robert Rainey, member of Creditor Committee, Patricia Rainey, member of Creditor Committee, Helen Eckheart, member of Creditor Committee, Wilma Wiser, member of Creditor Committee, Earl Christianson, member of Creditor Committee and Marian Bloch, member of Creditor Committee,

Appellants,

Var Krikorian, Ruth Minton, Richard Minton, Walter Steidl, Irene Miller, Marian Kornwolf, Marjorie Speckhard, Delores Torphy, Geraldine Baumblatt, Joan Peterson, John Rowland, Julianne Rowland, Lorraine Pavelcik, Marilyn Iselin, Metta Reiker, Prudence White, Elaine Oetlinger, Esther Wulff, Helen Veenstra, Rev. Dr. Ross Henry Larson, Fred and Nancy Flofer, Winifried Wiser, Nazaly Bagdasian, Robert Callaway, Estate of Elaine Zlevor, Marshall Cushman, Bernard Braun, Patricia Braun, Bob Ottum, Holly Ottum, Joyce Ottum, Jeanne Haas, Gloria Murphy, Ralph Anderson, Doris Beuttler, Genevieve Hostak, Marlene Weichmann, Mary Mueller, Wood Family Trust and Mary Holtz,

Claimants-Appellants,

v.

Michael S. Polsky, Esq. , Receiver and The Bank of New York Mellon Trust Company, N.A.,

Respondents-Petitioners.

REBECCA GRASSL BRADLEY, J., delivered the majority opinion for a unanimous Court.

REVIEW of a decision of the Court of Appeals. Reversed.

¶1 REBECCA GRASSL BRADLEY, J. After the Atrium, a senior-living facility, defaulted on debt service payments to a

1 Nos. 2019AP1728 & 2019AP2063

group of bondholders, the facility filed a petition for

receivership.1 The court-appointed receiver sold the Atrium's

assets, generating more than $4 million in proceeds. According

to the receiver, the Atrium owed the bondholders more than $6

million, secured by a valid mortgage lien on the Atrium's

estate. Many of the Atrium's residents claimed they were

entitled to the proceeds of the sale because, under their

residency agreements, they were owed reimbursement of the

entrance fees they paid to the Atrium. The circuit court

concluded the bondholders' mortgage lien was superior to the

residents' entrance fee claims.2 The court of appeals reversed,

applying M&I First National Bank v. Episcopal Homes Management,

Inc., 195 Wis. 2d 485, 536 N.W.2d 175 (Ct. App. 1995) to deem

the residents' claims superior to the bondholders' lien.3

¶2 Before this court, the residents concede the

bondholders possess a valid, perfected mortgage lien on the

Atrium's estate, but the residents argue (1) the bondholders

contracted away the superiority of their mortgage lien, and (2)

1 A receivership is a sequestration of an insolvent estate's assets, and a receiver is an impartial manager of those assets. Admanco, Inc. v. 700 Stanton Drive, LLC, 2010 WI 76, ¶32, 326 Wis. 2d 586, 786 N.W.2d 759; see also, BNP Paribas v. Olsen's Mill, Inc., 2011 WI 61, ¶101, 335 Wis. 2d 427, 799 N.W.2d 792 (Roggensack, J., concurring). 2 Judge David W. Paulson, Racine County, presided. As proceedings continued, Judge Michael J. Piontek and later Judge Jon E. Frederickson rotated onto the case. 3 Casanova v. Polsky, Nos. 2019AP1728 & 2019AP2063, unpublished slip op. (Wis. Ct. App. July 30, 2021).

2 Nos. 2019AP1728 & 2019AP2063

Episcopal Homes grants entrance fee claims superiority. We

disagree and hold: (1) Under Wis. Stat. § 128.17 (2021–22), the

bondholders' mortgage lien is superior to the residents'

contract claims;4 (2) the bondholders did not contract away the

superiority of their lien; and (3) Episcopal Homes does not

apply to the proceeds from the sale of real property with a

properly perfected mortgage lien. We therefore reverse the

decision of the court of appeals.

I. BACKGROUND

A. Bay Pointe Project and Financing Documents

¶3 The Atrium of Racine, Inc. was a nonprofit corporation

that owned and operated a 76-unit senior-living facility. In

2002, the Atrium sought to build an assisted-living home called

Bay Pointe. To finance the project, the Atrium contracted with

the Elderly Housing Authority of the City of Racine (the

Authority) to issue bonds. The Authority sold the bonds to Bank

One Trust Company, National Association,5 trustee for a group of

approximately 800 investors (the Bondholders' Trustee). To effectuate this transaction, various parties entered into a

series of contracts: a Project Contract between the Atrium and

the Authority; a Mortgage and Security Agreement (the Mortgage)

between the Atrium and the Authority (which assigned its

4All subsequent references to the Wisconsin Statutes are to the 2021–22 version unless otherwise indicated. 5Bank One is the predecessor in interest to New York Mellon Trust Company, N.A., which now serves as the Bondholders' Trustee.

3 Nos. 2019AP1728 & 2019AP2063

interest to the Bondholders' Trustee); and, between the

Authority and the Bondholders' Trustee, a Trust Indenture

(collectively, the Financing Documents). As required by

securities regulations, the bond underwriter6 prepared an

Official Statement summarizing the material terms and conditions

of the bond issuance as well as the risks of investing. Because

the Official Statement is not a contract, it was not signed by

any party, nor was it incorporated by reference into any

contract.

¶4 The Project Contract established the process by which

the bonds would issue as well as the terms and conditions

governing the Atrium's construction expenditures. Under its

terms, the Authority would issue and sell revenue bonds,

depositing the proceeds into a Project Fund from which the

Atrium would draw to cover construction expenses.7 Under the

Mortgage, the Atrium pledged its real estate, tangible personal

property, revenue, and proceeds of the foregoing to the

Authority as collateral for repayment of the bond proceeds.

6A bond underwriter purchases bonds from an issuer and distributes those bonds to the public. Sec. Indus. Ass'n v. Bd. of Governors of Fed. Rsrv. Sys., 468 U.S. 207, 217 n.17 (1984). By purchasing and selling bonds on its own account, an underwriter assumes all risk of loss from the issuer. Id. at 218 n.18. 7The proceeds from the sale of the bonds were a loan from the Authority to the Atrium, for which the Atrium signed promissory notes documenting its duty to repay the Authority.

4 Nos. 2019AP1728 & 2019AP2063

¶5 Bank One purchased $8,050,000 in Atrium bonds from the

Authority under the Trust Indenture,8 which assigned to Bank One

(as Bondholders' Trustee) the Authority's Mortgage lien on the

Atrium's estate. After purchasing the bonds, Bank One perfected

its security interest in the real estate by filing the Mortgage

with the Racine County Register of Deeds. It also filed a UCC

financing statement with the Wisconsin Department of Financial

Institutions, which documented Bank One's security interest in

the Atrium's assets and perfected its security interest in

collateral other than real estate.9 No party disputes the

bondholders possess a properly perfected mortgage lien on the

Atrium's estate.

B. Residency Agreements

¶6 Before moving into the Atrium, each resident signed a

residency agreement10 requiring the resident to pay an entrance

8A trust indenture is a "document containing the terms and conditions governing a trustee's conduct and the trust beneficiaries' rights." Trust indenture, Black's Law Dictionary 919 (11th ed. 2019). 9The parties do not dispute that when New York Melon succeeded Bank One in interest, all necessary continuation, assignment, and name-change documents were filed with the State.

Over time, the Atrium altered the form, substance, and 10

language of these agreements for new residents. The record contains six different versions of the agreement, but the differences among them do not affect our analysis.

5 Nos. 2019AP1728 & 2019AP2063

fee ranging from $40,000 to $238,000.11 Collectively, Atrium

residents had paid over $7.5 million in entrance fees at the

time this suit started. Upon moving out of the Atrium, each

resident's entrance fee would be partly refundable when a new

resident moved into the Atrium and paid an entrance fee. To

calculate a refund, the Atrium used one of two formulas

depending on which version of the residency agreement the

resident signed. The first formula provided for a flat 90%

refund. The second formula used an "option ratio," under which

the refund varied based on the value of the new resident's

entrance fee. Once a new fee was paid, the Atrium used that

money to refund the entrance fee paid by the former resident.

Entrance fees were deposited in the Atrium's general operating

account——commingled with the funds for day-to-day expenses——

rather than a segregated account.

C. Receivership

¶7 This suit arose when the Atrium defaulted on its debt

service payments to the bondholders. Under Wis. Stat. ch. 128, the Atrium commenced a voluntary assignment for the benefit of

Certain agreements required Atrium residents to pay a 11

security deposit in addition to an entrance fee. In the conclusion section of their brief, the residents request we hold "the residents are entitled to reimbursement of their entrance fees and security deposits out of the proceeds of the sale of the Atrium before payment to the Bondholders." The residents do not, however, develop any argument regarding security deposits specifically; rather, the residents ask us to treat their entrance fees as security deposits under Episcopal Homes. As explained in this opinion, the bondholders' properly perfected mortgage lien has priority over the residents' claims with respect to the proceeds from the sale of real property.

6 Nos. 2019AP1728 & 2019AP2063

creditors in the circuit court. The court appointed a receiver,

vesting him with "all of the usual powers . . . pursuant to

Chapter 128 of the Wisconsin Statutes[.]" The court

specifically authorized the receiver "to sell any and all

property of the [Atrium] free and clear of all liens, with all

liens attaching to the proceeds of sale in the order of their

priority, through public or private proceedings, in any

commercially reasonable manner, subject to the prior approval of

[the] Court."

¶8 The receiver notified the Atrium's creditors and other

interested parties of his appointment and requested they file

their verified claims with the circuit court. Residents

individually filed proofs of claim for refund of entrance fees

collectively totaling more than $7 million. One resident, Dr.

Ross Henry Larson, moved for the creation of a resident

committee under Wis. Stat. § 128.10. The circuit court granted

Dr. Larson's motion but emphasized the narrow scope and limited

duties of the committee:

The Court's already indicated that I have reservations about any committee that has power to [a]ffect a power of the receiver. . . . If it's necessary that I authorize a resident creditors committee, I will do so. But I'm being very, very specific here that the duties of that committee will not interrupt or overlap with the receiver's duty, but those resident committees can be obviously to advise. It'll be a way for [the receiver] to interact with all of the creditors without having to go through 70 different notices and approvals. ¶9 The bondholders filed their own proof of claim for $6,264,620.65. The receiver noted the bonds were "secured by

7 Nos. 2019AP1728 & 2019AP2063

first position properly perfected security interests and

mortgages" and determined the Atrium owed the bondholders' trust

more than $6,097,000. As for cash in the Atrium's estate, the

receiver found only two accounts, neither holding funds

sufficient to continue operating the Atrium——or to pay the debt

owed to the bondholders. The first account was a "general

operating account" containing $80,795.11; the second was a

"Resident Trust Account" containing less than $3,000. According

to counsel for the receiver, the Resident Trust Account "did not

have entrance fees deposited" into it. Instead, it held "some

minimal amount of funds that [were] paid by the residents for

various services at the debtor's facilities[.]"

¶10 Given the extent of the claims against the Atrium's

estate and its meager amount of cash, the receiver moved for

authorization to enter into a listing agreement and sell the

Atrium's assets. The receiver concluded a sale would maximize

the estate's value for the benefit of the creditors. After the

circuit court granted the receiver's motion, the receiver entered into a listing agreement with Senior Living Investment

Brokerage, Inc.

¶11 Along with the motion for authorization to sell the

assets, the receiver moved for permission to use the Atrium's

revenue to continue operating the facility. The residents

objected to this motion. Allowing the receiver to spend the

Atrium's revenue, they argued, would "dissipate[]" the Atrium's

assets and leave "nothing . . . available for the return of millions of dollars in entrance fee funds." In response to this 8 Nos. 2019AP1728 & 2019AP2063

objection, the receiver again noted the bondholders' secured

interest in the Atrium’s assets. Without authorization to use

the Atrium's assets, he determined the Atrium would be forced to

close. The circuit court granted the receiver's motion.

¶12 Months later, the receiver moved for declaratory

relief, requesting the circuit court declare the bondholders'

Mortgage lien superior to the residents' entrance fee claims.

The residents again objected, and filed a motion for summary

judgment "in the amount of $7,983,739" asking the court to

impose a constructive trust in that amount. The residents also

filed a motion for declaration of interest, maintaining the

Financing Documents, along with the Official Statement,

established the superiority of their entrance fee claims. After

briefing, the court held a joint hearing on the parties'

motions.

¶13 In an April 2018 order, the circuit court granted the

receiver's motion for declaratory relief and denied the

residents' motion for summary judgment. In its written decision, the court found (1) the residents were not entitled to

a constructive trust on any proceeds from the sale of the

Atrium's assets and (2) none of the Financing Documents or the

Official Statement subordinated the bondholders' Mortgage lien

to the residents' entrance fee claims. Despite having both of

their motions denied, the residents did not appeal this order.

D. Sale of the Atrium

¶14 More than a year later, with the priority dispute resolved, the receiver found a suitable buyer for the Atrium, a 9 Nos. 2019AP1728 & 2019AP2063

senior-housing and healthcare company called PC39. The parties

negotiated an Asset Purchase Agreement (APA), and set the sale

price of the Atrium at $5,500,000. The sale included all of the

Atrium's real and personal property but excluded any liability

relating to the residents' entrance fees. Under the APA, the

proceeds from the sale were to be paid to the bondholders.

¶15 The receiver moved for authorization to proceed with

the sale pursuant to the APA, but the residents objected, citing

the APA's payment of proceeds to the bondholders. The parties

filed a stipulation requesting an order for the proceeds to be

held in escrow pending resolution of the residents' objection.

In the stipulation, the residents noted their intention to

appeal the April 2018 order on payment priority. The receiver

and the trustee jointly responded to the residents' objection,

arguing the deadline for appealing the April 2018 decision had

long passed; therefore, the residents had waived their right to

appeal the order.

¶16 In resolving the residents' objection, the circuit court issued two orders. The first, entered on July 31, 2019,

authorized the receiver to sell the Atrium's assets, while the

second required the receiver to hold the sale proceeds in escrow

10 Nos. 2019AP1728 & 2019AP2063

pending appeal. About a week later, the sale closed, and the

receiver placed the net proceeds of $4,711,518.7812 in escrow.

E. Appeals

¶17 Soon after the sale closed, the residents filed a

proposed order with the circuit court on September 6, 201913

reiterating the substance of the April 2018 order but adding:

"This order is final for the purposes of appeal." Later that

day, the receiver sent the court a letter in response, again

emphasizing the residents' window for appeal had passed. He

also asserted "[t]here [was] no basis to modify or vacate the

2018 Order[.]" The court did not respond to either letter.

¶18 Around this time, the residents appealed the July 31,

2019 sale order.14 Thereafter, the circuit court entered the

residents' proposed order on October 17, 2019, reaffirming the

substance of the April 2018 priority order and stating the new

order was final for purposes of appeal.15 The residents appealed

this order, not the April 2018 order.16

12According to a status report filed by the receiver, the total amount placed in escrow reflects the Atrium's list price minus "Court-approved professional fees, the commission owed to Senior Living Investment Brokerage, Inc., a deferred maintenance credit to the Buyer in the amount of $250,000, taxes, and other customary prorations pursuant to the Asset Purchase Agreement, as amended, the Sale Order and the Stipulation." 13Only the cover letter, but not this proposed order, appears in the appellate record. 14 This appeal was docketed as appeal No. 2019AP1728. 15Like the proposed order, the order entered by the circuit court is not in the appellate record. 16 This appeal was docketed as Appeal No. 2019AP2063. 11 Nos. 2019AP1728 & 2019AP2063

¶19 On appeal, the two cases were consolidated, and the

court of appeals reversed the circuit court's priority judgment.

Relying on Episcopal Homes, the court of appeals concluded "the

rights of the Residents to their entrance fees and security

deposits are superior to the Bondholders' rights to the Atrium's

assets[.]"17 In addition to their priority argument, the

residents also contended "[t]he receiver violated his fiduciary

duty to the residents when he took the side of one creditor over

another." The court of appeals rejected this argument.18

¶20 On August 27, 2021, the bondholders and the receiver

filed a petition for review, presenting the following two

issues: (1) "May an undocumented, unrecorded lien——created by

judicial fiat——have priority over the Trustee's properly

perfected first mortgage and security interest?" and (2) "Did

the Court of Appeals (and, by extension, this Court) lack

jurisdiction over these appeals by virtue of the failure to

appeal from a final order dated April 23, 2018?" We granted

review on both issues. Without filing a petition for review or cross-review, the residents in their briefing again claimed the

receiver violated his fiduciary duties. The receiver filed a

motion to deem the issue forfeited, to which the residents filed

a response. We "decline[d] to foreclose our right to consider

[the question]" and ordered supplemental letter briefing, which

the parties submitted.

17 Casanova, Nos. 2019AP1728 & 2019AP2063, ¶18. 18 Id., n.12.

12 Nos. 2019AP1728 & 2019AP2063

II. STANDARD OF REVIEW

¶21 "Whether to grant 'a declaratory judgment is addressed

to the circuit court's discretion.' When the exercise of

discretion turns on a question of law, however, our review is"

independent. Talley v. Mustafa Mustafa, 2018 WI 47, ¶13, 381 Wis. 2d 393, 911 N.W.2d 55 (quoting Olson v. Farrar, 2012 WI 3, ¶24, 338 Wis. 2d 215, 809 N.W.2d 1).

¶22 This case requires us to determine the priority of a

properly perfected mortgage lien interest, which is a question

of statutory interpretation. See BNP Paribas v. Olsen's Mill,

Inc., 2011 WI 61, ¶37, 335 Wis. 2d 427, 799 N.W.2d 792.

"Statutory interpretation presents a question of law" this court

reviews independently. Teigen v. Wis. Elections Comm'n, 2022 WI

64, ¶12, 403 Wis. 2d 607, 976 N.W.2d 519 (citing T.L.E.-C. v.

S.E., 2021 WI 56, ¶13, 397 Wis. 2d 462, 960 N.W.2d 391).

Additionally, this case requires us to interpret contracts, also

a question of law this court reviews independently. Tufail v.

Midwest Hosp., LLC, 2013 WI 62, ¶22, 348 Wis. 2d 631, 833 N.W.2d 586 (citing Ehlinger v. Hauser, 2010 WI 54, ¶47, 325 Wis. 2d 287, 785 N.W.2d 328).

III. DISCUSSION

A. Finality of the April 2018 Order

¶23 As a threshold matter, the bondholders and the

receiver ask us to conclude the residents forfeited their right

to appeal the circuit court's decision on priority. They argue

the April 2018 order was final for purposes of appeal. Because the residents did not appeal that order until July 2019, they 13 Nos. 2019AP1728 & 2019AP2063

argue the residents lost the right to appeal it. For the

purpose of deciding the important substantive issue of law

presented by the dispute over priority, we assume without

deciding the April 2018 order was not final and the residents

properly appealed the circuit court's July 31, 2019 order

establishing the superiority of the bondholders' Mortgage lien

over the residents' entrance fee claims.

B. Financing Documents

¶24 Relying on provisions of the Financing Documents and

the Official Statement, the residents assert the bondholders

contracted away the superiority of their Mortgage lien. Certain

provisions, they argue, subordinated the bondholders' Mortgage

lien to the contractually required repayment of the residents'

entrance fees. We disagree.

¶25 The receivership statutes control the resolution of

this issue. When an entity is placed under receivership, the

receiver may, with court permission, "sell assets and distribute

the proceeds of the sale." BNP Paribas, 335 Wis. 2d 427, ¶42. Upon closing, the receiver must distribute the proceeds among

the estate's creditors pursuant to Wis. Stat. § 128.17, which

establishes the order of payment:

(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

14 Nos. 2019AP1728 & 2019AP2063

representation of the debtor.

(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. Section (f) describes certain secured claims and encompasses

mortgages under Wis. Stat. § 706.11, which grants priority to

mortgages "executed to a state or national bank." This

provision includes the Mortgage because the Bondholders' Trustee

is a national bank association. Section 706.11(1) provides that

when "[a]ny mortgage executed to a state or national bank" "has been duly recorded, it shall have priority over all liens upon

the mortgaged premises and the buildings and improvements

thereon . . . filed after the recording of such mortgage" with

exceptions only for certain categories of liens under which the

residents' entrance fee claims undisputedly do not fall.

¶26 Secured creditors like the Bondholders' Trustee have

"the right, on the debtor's default, to proceed against collateral and apply it to the payment of the debt." Secured

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creditor, Black's Law Dictionary 465 (11th ed. 2019). A secured

creditor "cannot have his security taken away from him without

his consent." BNP Paribas, 335 Wis. 2d 427, ¶44 (quoting Wis.

Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 326, 195 N.W.2d 664 (1972)).

¶27 Section (g) describes unsecured claims. BNP Paribas,

335 Wis. 2d 427, ¶115 (Roggensack, J., concurring) ("Paragraph

(1)(g) addresses the distribution to unsecured creditors.").

Unlike secured creditors, unsecured creditors have "no property

interest in the debtor's assets[.]" BNP Paribas, 335 Wis. 2d 427, ¶43. Accordingly, when distributing proceeds from the sale

of an estate, a receiver must satisfy debts held by secured

creditors before satisfying those held by unsecured creditors.

See id., ("[U]nsecured creditors are entitled to distribution of

any proceeds of a sale only after priority claims have been

satisfied." (citations omitted)).

¶28 The parties agree the bondholders are secured

creditors and the residents are unsecured creditors. Both seek first payment from the proceeds of the sale of the Atrium's

assets, which are insufficient to pay either claim, much less

both. Typically, those facts alone would settle this dispute:

Because Wis. Stat. § 128.17 prioritizes the claims of secured

creditors over those of unsecured creditors, the bondholders

would receive first payment. In this case, however, the

residents argue the bondholders subordinated their secured

interest to the residents' interest in their entrance fees.

16 Nos. 2019AP1728 & 2019AP2063

¶29 To subordinate a secured interest, a secured creditor

usually signs a subordination agreement, a contract modifying

"the priorities that would otherwise exist." Scotiabank de

Puerto Rico v. Brito (Plaza Resort at Palmas, Inc), 469 B.R. 398, 408 (B.A.P. 1st Cir. 2012); see also, Restatement

(Third) of Property § 7.7 cmt. a (1997) (explaining a

subordination agreement is a document "reducing [a] mortgage's

priority below that of some other interest or group of interests

in the real estate to which the mortgage would otherwise be

superior"). The residents do not contend the bondholders signed

a subordination agreement. Instead, they argue the bondholders

consented in the Financing Documents and the Official Statement

to the subordination of their Mortgage. Although "[i]t is true

that a subordination can be incorporated" into any contract, see

Restatement (Third) of Property § 7.7 cmt. a, the Official

Statement is not a contract and the Financing Documents do not

contain any provision subordinating the bondholders' Mortgage.

¶30 The residents first point to the definitions of "permitted liens" and "permitted encumbrances" in the Official

Statement, Project Contract, and the Mortgage. The parties

construe these phrases to include entrance fees. We agree with

this construction. The Mortgage states "permitted encumbrances"

include "[l]iens permitted under Section 5.12(b) of the [Project

Contract]." According to the Project Contract, "Permitted Liens

shall consist of . . . [e]ntrance fees or similar funds

deposited by or on behalf of such residents[.]" The residents therefore argue if the Financing Documents grant either 17 Nos. 2019AP1728 & 2019AP2063

permitted liens or permitted encumbrances priority over the

bondholders' Mortgage lien, entrance fees must be refunded

before the Mortgage is paid.

¶31 The residents direct our attention to the phrase

"subject to" as it appears in both the Official Statement and

the Mortgage. The Official Statement provides, in relevant

part:

Pursuant to the Mortgage, the Corporation has granted to the Trustee a first mortgage lien on the campus currently owned by the corporation . . . subject in each case to Permitted Liens as defined in the Project Contract. (Emphasis added.) The Mortgage contains similar language:

This Mortgage constitutes a direct and valid lien on and security interest in the Mortgaged Property subject only to Permitted Encumbrances. (Emphasis added.) Neither provision subordinates the

bondholders' Mortgage.

¶32 Because the Official Statement is not a contract, it

is incapable of containing a subordination agreement. It is not

an agreement at all, in whole or in part. The residents contend

the Official Statement must be "controlling" because there is no

other explanation for why it exists. To the contrary, it exists

18 Nos. 2019AP1728 & 2019AP2063

because the government says it must.19 The residents accurately

argue the Official Statement serves as a notice to investors of

investment risks and "what claims might be superior to theirs,"

but nothing in the Official Statement actually subordinates the

bondholders' Mortgage.

¶33 Undefined in the only contract in which the pertinent

language appears, the phrase "subject to" must take its ordinary

meaning. See Town Bank v. City Real Est. Dev., LLC, 2010 WI 134, ¶33, 330 Wis. 2d 340, 793 N.W.2d 476 ("We construe []

contract language according to its plain or ordinary meaning")

(citing Huml v. Vlazny, 2006 WI 87, ¶52, 293 Wis. 2d 169, 716 N.W.2d 807). As used in the Mortgage, it means "to be affected

by or possibly affected by (something)." Subject to, Merriam-

Webster's Collegiate Dictionary, https://unabridged.merriam-

webster.com/collegiate/subject%20to (last visited Jan. 9, 2023).

See, e.g., 15 U.S.C. § 77j(a)(1) ("[A] prospectus 19

relating to a security other than security issued by a foreign government or political subdivision thereof, shall contain the information contained in the registration statement"); Wis. Stat. § 551.303(2)(a) (requiring "[a] copy of the latest form of prospectus filed under the Securities Act of 1933"); 17 C.F.R. § 240.15c2-12 ("Prior to the time the Participating Underwriter bids for, purchases, offers, or sells municipal securities in an Offering, the Participating Underwriter shall obtain and review an official statement that an issuer of such securities deems final as of its date, except for the omission of no more than the following information: The offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, any other terms or provisions required by an issuer of such securities to be specified in a competitive bid, ratings, other terms of the securities depending on such matters, and the identity of the underwriter(s).").

19 Nos. 2019AP1728 & 2019AP2063

In construing a statute, the court of appeals embraced this

definition "as suitable for the facially broad phrase 'subject

to.'" State v. Quisling, 2018 WI App 35, ¶25, 382 Wis. 2d 272,

915 N.W.2d 730. To be affected by or possibly affected by

something is not necessarily to be trumped, dominated, or primed

by it. These provisions merely contemplate the possibility

entrance fees could take priority over the bondholders'

Mortgage; they do not create a lien, much less accord it

priority over a properly recorded mortgage.

¶34 The residents' entrance fees are nothing more than

unsecured, contingent liabilities of the Atrium. As the

residents themselves concede, their entrance fees are not liens

and the residents never attempted to create liens. Although the

Mortgage is subject to Permitted Encumbrances, which include

liens permitted under Section 5.12(b) of the Project Contract,

the entrance fees never became liens on the real property of the

Atrium. Having never become liens, the residents' unsecured

claims for recovery of their entrance fees could not possibly trump the bondholders' Mortgage.

¶35 Other provisions on which the residents rely likewise

merely acknowledge superior claims might exist. Section 5.12(a)

of the Official Statement provides:

[R]esidents of the facilities that require entrance fees may have certain rights with respect to their entrance fees and therefore the entrance fees held by the Corporation may not be available to pay the Series 2002 Bonds in the event of a foreclosure. (Emphasis added.) The Project Contract similarly states:

20 Nos. 2019AP1728 & 2019AP2063

The Obligor agrees that it will not create or suffer to be created or exist any Lien upon its Property . . . other than Permitted Liens whenever created, all of which Permitted Liens may be superior to the Lien of the Mortgage[.] (Emphasis added.). The key word in these provisions is "may."

Like "subject to," this word does not subordinate the

Mortgage. It most naturally conveys only "a possibility." May,

Black's Law Dictionary 1000 (8th ed. 2004); see also, May,

Webster's Second New International Dictionary 1517 (citation

omitted). In effect, these provisions merely convey there is a possibility Permitted Liens could be superior to the Mortgage

lien. Possibilities are not realities; the residents never

attempted to create liens on the Atrium's real property, and

these provisions do not subordinate the bondholders' secured

lien to the residents' unsecured claims for entrance fees.

¶36 The residents cite one more provision, Section 3.8 of

the Mortgage, which reads:

Section 3.8. Permitted Encumbrances. Except for the Permitted Encumbrances, Obligor will not enter, create or suffer to be created any further Lien upon the Mortgaged Property, or any part thereof, whether or not prior to or subordinate to or on a parity with the Lien of this Mortgage, without the prior written consent of the Trustee[.] (Emphasis added.) Notwithstanding the fact the residents have

disclaimed having any liens on the Atrium's real property,

nothing in this provision subordinates the Mortgage to any

Permitted Encumbrance or "any further Lien." Regardless of

whether the residents possess liens or not, this provision says nothing about the priority accorded to them. Notably, Section

21 Nos. 2019AP1728 & 2019AP2063

3.8 contemplates the Permitted Encumbrances or other Lien may be

merely "subordinate to or on a parity with" the Mortgage lien;

nevertheless, the Atrium agreed it would not "enter, create or

suffer to be created any further Lien"——even one subordinate to

the Mortgage——without the prior written consent of the

Bondholders' Trustee. The residents present no evidence the

Bondholders' Trustee consented to subordination of the

bondholders' Mortgage.

¶37 Nothing in the Financing Documents or the Official

Statement subordinates the bondholders' Mortgage. The

provisions cited by the residents merely contemplate the

possibility that the Mortgage could be subordinated to other

liens. Nothing in the Financing Documents or the Official

Statement creates any liens or other encumbrances, much less

subordinates the mortgage to them. We therefore apply Wis.

Stat. § 128.17, which accords the bondholders' Mortgage

priority.

C. Episcopal Homes ¶38 The residents next rely on Episcopal Homes——a court of

appeals decision not binding on this court. Friends of Frame

Park, U.A. v. City of Waukesha, 2022 WI 57, ¶63, 403 Wis. 2d 1,

976 N.W.2d 263 (Rebecca Grassl Bradley, J., concurring)

(explaining this court is not bound by the decisions of the

court of appeals); see also State v. Yakich, 2022 WI 8, ¶31, 400 Wis. 2d 549, 970 N.W.2d 12. We need not consider whether that

case was correctly decided because, contrary to the residents'

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analysis, Episcopal Homes differs materially from the present

case as a matter of both fact and law.

¶39 Episcopal Homes involved a senior-living facility that

defaulted on bond repayments. Episcopal Homes, 195 Wis. 2d at 492. In that case, a group of roughly 1,700 bondholders bought

more than $11 million in bonds to fund the construction of a

facility called DeKoven. Id. at 490. Under a series of

financing documents, the bondholders held a security interest in

an account containing approximately $1,000,000 in entrance fees.

Id. at 492–93. DeKoven's residency agreements subordinated

entrance fee repayments to the bondholders' lien. Id. at 492.

After DeKoven defaulted on its bond repayments, the bondholders

claimed a secured interest in the segregated entrance fee

account funds. Id.

¶40 The circuit court granted summary judgment in favor of

the DeKoven residents and imposed a constructive trust against

the entrance fee account. Id. at 496. The court of appeals

affirmed, concluding DeKoven had contracted with each resident as landlord and tenant; accordingly, the court deemed the rental

agreements leases. Id. at 489, 506. Based on the language of

the rental agreements, the court concluded the entrance fees

were effectively security deposits under Wis. Admin. Code § ATCP

134.02(11), governed by the public policy espoused in the

administrative code. Id. at 507, 509. Because Wisconsin Admin.

Code § 134.06(3) prohibits using standard forms to place

additional conditions on the return of security deposits, the

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court determined any subordinating provisions in the rental

agreements were unenforceable. Id. at 511–12.

¶41 The court of appeals also upheld the circuit court's

imposition of a constructive trust against the segregated

entrance fee account. Id. at 514. It held the subordination

provisions unconscionable because they violated public policy.

Id. at 513. Additionally, the court concluded the bondholders

would have been unjustly enriched if those provisions were

enforced. Id. Because the court decided the elements of a

constructive trust were satisfied, it affirmed the circuit

court. Id. at 514.

¶42 The residents in this case claim their entrance fees,

like those paid by the DeKoven residents, constitute security

deposits. In their view, the sale proceeds represent "what is

left of their entrance fees" entitling them to the proceeds

under Episcopal Homes. Misconstruing Episcopal Homes, the court

of appeals adopted the residents' arguments and ignored

Wisconsin law governing the priority of properly perfected mortgage liens over unsecured claims with respect to proceeds

from the sale of mortgaged real estate.

¶43 Episcopal Homes is inapplicable to the facts of this

case. In Episcopal Homes, the court of appeals exercised

equitable powers against a segregated account containing funds

traceable to the residents' payment of entrance fees. In

contrast, the residents of the Atrium seek to usurp a first

priority lien on the proceeds from the sale of real property. Whatever equitable powers courts may possess, nothing in law or 24 Nos. 2019AP1728 & 2019AP2063

equity authorizes courts to disrupt the statutorily prescribed

priority of secured lenders. See Law v. Siegel, 571 U.S. 415, 421 (2014) (citing Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988) ("We have long held that 'whatever equitable

powers remain in the bankruptcy courts must and can only be

exercised within the confines of' the Bankruptcy Code.")). In

this case, Wis. Stat. §§ 706.11 and 128.17 grant the

bondholders' Mortgage lien unequivocal superiority. The

residents' argument for extending Episcopal Homes beyond a

segregated account of entrance fees not in receivership to reach

the materially distinct proceeds from the sale of real property

subject to a perfected mortgage lien asks this court to

disregard the plain language of chapter 128. We have no legal

authority to do so.

D. Fiduciary Duties

¶44 As a final matter, the residents challenge the court

of appeals' decision holding the receiver did not violate his

fiduciary duties to the residents when he moved the circuit court to issue an order on priority. Casanova v. Polsky, Nos.

2019AP1728 & 2019AP2063, unpublished slip op., ¶18 n.12 (Wis.

Ct. App. July 30, 2021). This argument is underdeveloped. The

residents do not engage in any detailed analysis to support this

argument and do not request any relief to remedy the receiver's

alleged breach of fiduciary duty. Because we need not address

underdeveloped arguments, we decline to address this claim.

Papa v. Wis. Dep't of Health Servs., 2020 WI 66, ¶42 n.15, 393 Wis. 2d 1, 946 N.W.2d 17; see also, Teigen v. Wisconsin 25 Nos. 2019AP1728 & 2019AP2063

Elections Comm'n, 2022 WI 64, ¶45, 403 Wis. 2d 607, 976

N.W.2d 519 (lead op.).

IV. CONCLUSION

¶45 Under Wis. Stat. § 128.17, the bondholders' Mortgage

lien has priority over the residents' entrance fee claims. No

provision of the Financing Documents subordinates the

bondholders' lien, and Episcopal Homes does not extend to the

proceeds from the sale of real property with a properly

perfected mortgage lien. The bondholders are therefore entitled

to first payment from the proceeds of the sale of the Atrium's

assets.

By the Court.—The decision of the court of appeals is

reversed.

26 Nos. 2019AP1728 & 2019AP2063

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