Milwaukee Ctr. for Independence, Inc. v. Milwaukee Health Care, LLC , 929 F.3d 489 ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-3205
MILWAUKEE CENTER FOR
INDEPENDENCE, INC.,
Plaintiff-Appellee,
v.
MILWAUKEE HEALTH CARE,
LLC, agent of Wellspring of
Milwaukee, et al.,
Defendants-Appellants.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 15-CV-1479 — Lynn Adelman, Judge.
____________________
ARGUED APRIL 10, 2019 — DECIDED JULY 8, 2019
____________________
Before BAUER, MANION, and ROVNER, Circuit Judges.
MANION, Circuit Judge. Milwaukee Health Care, LLC
(MHC) and Milwaukee Center for Independence, Inc. (MCFI)
entered into an agreement in 2014. Per that agreement, MCFI,
a non-profit organization dedicated to providing medical care
2 No. 18-3205
for individuals with brain injuries, would operate a brain-in-
jury center in MHC’s nursing facility. MHC would handle all
billing and collections for the services MCFI provided and,
through a process outlined in the agreement, remit the funds
collected to MCFI (after taking a cut for itself).
But MHC failed to follow through on its obligations under
the contract, redirecting MCFI’s funds to pay its employees
and other creditors instead. MCFI sued MHC for breaching
the contract and brought claims against MHC’s principal,
William Nicholson. The district court, exercising diversity ju-
risdiction, 1 entered summary judgment against MHC for
breach of contract and against Nicholson for conversion and
civil theft. The district court awarded MCFI over $2 million
in damages, interest, and costs against MHC and Nicholson,
jointly and severally. It also awarded MCFI over $200,000 in
attorney’s fees and costs against Nicholson alone.
MHC and Nicholson appeal the judgments against Ni-
cholson. Because we agree with the conclusions of the district
court, we affirm.
I.
William Nicholson was the CEO of “the Congress Compa-
nies,” a collection of businesses involved in the construction
of medical facilities. In 2013, Nicholson and another investor,
1 See 28 U.S.C. § 1332. MCFI is a Wisconsin corporation with its prin-
cipal place of business in Wisconsin. MHC is a Delaware LLC whose
members, William Koski and William Nicholson, are both citizens of
New Jersey. See generally Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir.
1998) (“[T]he citizenship of an LLC for purposes of the diversity jurisdic-
tion is the citizenship of its members.”). The amount in controversy well
exceeds $75,000.
No. 18-3205 3
William Koski, 2 formed MHC to operate the Wellspring of
Milwaukee nursing home, with Nicholson serving as the
managing member. The Wellspring facility was in a building
owned by Milwaukee Healthcare Properties I, LLC (Milwau-
kee Properties), another of Nicholson’s companies. The prop-
erty was subject to a mortgage from Oppenheimer Multifam-
ily Housing and Healthcare Finance, Inc. (Oppenheimer).
The United States Department of Housing and Urban Devel-
opment (HUD) insured the mortgage.
In 2014, MCFI and MHC entered into an agreement
whereby MCFI would operate an 18-bed brain-injury clinic
within the Wellspring facility, the Nexday Brain Injury Rehab
Center (BIRC). The agreement outlined a specific process for
MCFI to obtain compensation for services performed at the
BIRC. MHC would bill and collect from third parties (e.g.,
Medicaid and private insurance companies) for MCFI’s ser-
vices in MHC’s own name and on MHC’s own behalf. MHC
would then place any funds collected for MCFI’s services
(BIRC Collections) into a general account, which was subject
to a control agreement with Branch Banking & Trust Com-
pany. The agreement then required MHC to maintain a spe-
cial checking account with a Milwaukee-area bank (the BIRC
Depository Account) and transfer all BIRC Collections into
that account. On the third business day of every month, MCFI
would submit an invoice to MHC. On the 20th of each month,
MHC would remit to MCFI either the amount of the invoice
or the amount in the BIRC Depository Account, whichever
2 Koski was originally a party to this suit along with Nicholson, but
after the district court dismissed the claims against them in MCFI’s First
Amended Complaint, MCFI did not name Koski as a defendant in its
Second Amended Complaint.
4 No. 18-3205
was less, after taking a cut for itself (the “Wellspring Interim
Daily Rate”). 3
In addition to these terms, the agreement called for MHC
to approach Oppenheimer and HUD about approval for
MCFI to acquire a security interest in the receivables of which
the BIRC Collections would be proceeds. The agreement
notes any such interest would be subordinate to any security
interest held by Oppenheimer, HUD, or an accounts-receiva-
ble lender. The parties do not indicate what Oppenheimer
and HUD thought about MCFI acquiring a security interest in
those receivables, but it is clear MCFI never got one.
In 2015, the parties entered into a renewal agreement con-
taining substantially similar terms.
While the parties operated under these agreements, MHC
suffered significant cash-flow problems. MHC’s financial
woes prompted Nicholson to invest his personal funds multi-
ple times, totaling over $4 million. In an effort to manage
these problems, Nicholson directed the CFO of the Congress
Companies, Ed Tabor, to get involved to “help manage the
cash.”
Under Tabor’s direction, MHC began redirecting BIRC
Collections to make its payroll and pay other creditors, pri-
marily Milwaukee Properties. In 2015, MHC entered into a
line-of-credit arrangement with SCM Specialty Finance Op-
portunities Fund, L.P. (SCM), an accounts-receivable lender.
Under that agreement, MHC placed all the money it collected
3 This round-about way for MCFI to receive its compensation was
apparently a consequence of Wisconsin law, which did not allow MCFI
to bill in its own name.
No. 18-3205 5
(including BIRC Collections) into one of two lock-box ac-
counts (one for government payors, the other for private
payors). Every day, SCM would sweep out all the funds in
those accounts and apply them toward MHC’s outstanding
debt to SCM. MHC would then request a new draw on the
line of credit to obtain operating capital.
MCFI received its last full payment from MHC in March
2015. By the end of that year, MHC owed MCFI over $1 mil-
lion.
MCFI sued MHC in December 2015 and ceased operating
the BIRC in February 2016. In its operative complaint, MCFI
claimed MHC breached the contract and sought to hold Ni-
cholson liable under theories of veil-piercing (to hold him per-
sonally liable for MHC’s breach), conversion, and civil theft.
MCFI maintained Tabor was Nicholson’s agent, so Nicholson
was personally responsible for Tabor’s redirection of the BIRC
Collections.
MHC acknowledged it breached the contract, but Nichol-
son contested his personal liability. The parties filed cross-
motions for summary judgment. In his briefs to the district
court, Nicholson argued (1) MCFI could not pierce the LLC’s
veil, (2) MCFI’s claims for conversion and civil theft
amounted to an impermissible claim for tortious breach of
contract, and (3) MCFI was just another vendor with no par-
ticular interest in the BIRC Collections. However, concerning
his relationship with Tabor, Nicholson “concede[d] that Ni-
cholson was principal, and Tabor was Nicholson’s agent.” 4
4 Defendants’ Response to Motion for Summary Judgment, Doc. 73,
at 23.
6 No. 18-3205
Yet, he maintained nothing either he or Tabor did amounted
to a conversion of the BIRC Collections.
The district court entered summary judgment for MCFI on
its claims for breach of contract, conversion, and civil theft.
After noting Nicholson’s concession of his agency relation-
ship with Tabor, the district court observed Nicholson’s only
defense against MCFI’s tort claims was his argument MCFI
had no interest in the BIRC Collections. The district court con-
cluded MCFI had such an interest, and therefore held Nichol-
son liable for conversion and civil theft. The district court also
held MCFI’s tort claims were not improperly conflated with a
claim for breach of contract.
The parties submitted additional briefing on damages. In
his damages brief, Nicholson tried to walk back his earlier
concession concerning his relationship with Tabor, arguing
he meant to say he was Tabor’s principal inasmuch as he was
Tabor’s superior within MHC, not that Tabor was his personal
agent. The district court rejected that argument outright and
held Nicholson to his concession. The court awarded MCFI
$1,903,452.47, plus interest and costs, against Nicholson and
MHC jointly and severally. It also awarded $198,669.50 in at-
torney’s fees, plus costs, against Nicholson alone. 5
II.
We review the grant of summary judgment de novo.
Spierer v. Rossman, 798 F.3d 502, 507 (7th Cir. 2015). “When
5 The district court also awarded MCFI $33,362.66, plus interest,
against MHC for unreimbursed improvements MCFI had made to the
Wellspring facility.
No. 18-3205 7
reviewing cross-motions for summary judgment, ‘we con-
strue all inferences in favor of the party against whom the mo-
tion under consideration is made,’” that is, the party appeal-
ing the judgment. Med. Protective Co. of Fort Wayne v. Am. Int’l
Specialty Lines Ins. Co., 911 F.3d 438, 445 (7th Cir. 2018) (quot-
ing Schlaf v. Safeguard Prop., LLC, 899 F.3d 459, 465 (7th Cir.
2018)). “Summary judgment is appropriate … if, on the evi-
dence provided, no reasonable juror could return a verdict in
favor of” that party. Ball v. Kotter, 723 F.3d 813, 821 (7th Cir.
2013). Because this is a diversity case, “we apply state sub-
stantive law.” Med. Protective Co., 911 F.3d at 445. Specifically,
we apply Wisconsin law because this case comes to us from
the Eastern District of Wisconsin and neither party disputes
that Wisconsin law applies. See id.
A. Waiver & Concession
Before getting to the merits of this case, we note Nicholson
makes a number of arguments in his briefs to this court that,
as MCFI points out, were not raised to the district court.
Those arguments are waived, and we will not address them.
See Wheeler v. Hronopoulos, 891 F.3d 1072, 1073 (7th Cir. 2018)
(“Failing to bring an argument to the district court means that
you waive that argument on appeal.”).
In addition, Nicholson spends a significant portion of his
brief arguing about his relationship with Tabor. Nicholson
tells us Tabor and he were co-agents, going so far as to argue
he was not Tabor’s principal at all. 6 But all of that is moot
6 “In a relationship of coagency, neither agent is the other’s agent.
Thus, neither is vicariously liable for wrongs committed by the other.
Each coagent owes duties to the common principal.” Restatement (Third)
8 No. 18-3205
given Nicholson’s express concession in his briefing to the
district court “that Nicholson was principal, and Tabor was
Nicholson’s agent.” Nicholson is bound to his admission,
however much he regrets it now. Cf. Soo Line R.R. Co. v. St.
Louis Sw. Ry. Co., 125 F.3d 481, 483 (7th Cir. 1997) (“[J]udicial
efficiency demands that a party not be allowed to controvert
what it has already unequivocally told a court by the most
formal and considered means possible.”). The manner of Ni-
cholson’s concession bolsters that conclusion. Nicholson did
not just concede his relationship with Tabor in some throw-
away line buried in the brief. He expressly stated, at the end
of the section of his brief discussing conversion, that though
he was Tabor’s principal and Tabor was his agent, it did not
matter because MCFI had no interest in the BIRC Collections.
Nowhere in the three briefs Nicholson filed with the district
court before the damages phase does Nicholson argue he is
not personally liable because he had an insufficient relation-
ship with Tabor. Thus, Nicholson cannot argue this is just “a
new twist” on an earlier argument. Cf. United States v. Billups,
536 F.3d 574, 578 (7th Cir. 2008) (concluding the appellant’s
reliance on different authority on appeal was not a new argu-
ment). This is a blatant attempt to contradict what he already
admitted, and we will not allow it.
B. Nicholson’s Remaining Arguments
Setting aside the arguments Nicholson conceded or did
not develop before the district court, we are left with two: (1)
MCFI cannot pursue its claims for conversion and civil theft
of Agency § 1.04 cmt a. Nicholson argues the “common principal” was
MHC.
No. 18-3205 9
because it did not have an ownership interest in the BIRC Col-
lections, and (2) MCFI’s tort claims are simply repackaged
claims for breach of contract. We take each in turn.
1. MCFI’s Ownership Interest
Under Wisconsin law, both conversion and civil theft re-
quire the victim to have an ownership interest in the property
converted or stolen. WIS. STAT. § 895.446(1) (creating a civil
cause of action for victims of theft); WIS. STAT. § 943.20(1)(b)
(defining theft to include the intentional use, transfer, con-
cealment, or retention of possession of money “without the
owner’s consent, contrary to his or her authority, and with in-
tent to convert … to the use of any other person except the
owner”); H.A. Friend & Co. v. Prof’l Stationery, Inc., 720 N.W.2d
96, 100 (Wis. Ct. App. 2006) (listing “intentional control or tak-
ing of property belonging to another” as the first element of
conversion). Nicholson argues MCFI did not have such an
interest in the BIRC Collections; it merely had a right to pay-
ment. See generally Kentuckiana Healthcare, Inc. v. Fourth St. So-
lutions, LLC, 517 F.3d 446, 447 (7th Cir. 2008) (“If you simply
owe someone money and fail to pay it, you have broken a
contract but you have not taken your creditor’s property.”).
He notes MHC billed and collected in its own name and on
its own behalf, the BIRC Collections were held in MHC’s bank
accounts, and MCFI acknowledged other entities could claim
security interests in the BIRC Collections. All of this, he says,
shows MCFI did not have an ownership interest in the BIRC
Collections. We disagree. 7
7 In a related argument, Nicholson contends the BIRC Collections
cannot be subject to a claim for conversion because they were commin-
gled with other funds in MHC’s accounts. In his briefing to the district
10 No. 18-3205
Our analysis on this point begins, and just about ends,
with Methodist Manor of Waukesha, Inc. v. Martin, 647 N.W.2d
409 (Wis. Ct. App. 2002). In that case, Evelyn Martin was a
resident at a Methodist Manor nursing home. Id. at 410. 8 Her
son, Frederick Martin, was a joint holder on her bank account
and would receive “on his mother’s behalf her monthly in-
come from Social Security and other unknown sources.” Id.
at 411 (internal quotation marks omitted). Wisconsin law and
Evelyn’s contract with Methodist Manor required Evelyn to
pay all but $40 of her monthly Social Security income to Meth-
odist Manor on the 15th of each month. Id. at 411 & n.1; see
also WIS. STAT. § 49.45(7)(a) (1999–2000). Nevertheless, Fred-
erick did not forward his mother’s Social Security income to
Methodist Manor, instead using the funds “for himself or oth-
ers.” Martin, 647 N.W.2d at 411.
court, Nicholson’s only argument about commingling in relation to the
tort claims was one sentence in a paragraph asserting MHC was not
MCFI’s “fiduciary or trustee” for the purposes of MCFI’s civil-theft
claim. Whether that was sufficient to avoid waiver of the argument he
makes here is immaterial because the argument fails in any event. Just
because money was “mingled” with other money does not defeat a claim
for conversion. See Regas v. Helios, 186 N.W. 165, 166 (Wis. 1922) (allow-
ing a claim for conversion where the defendant “proceeded to treat the
money as his own by mingling it with his own funds”); Cotton v. Sharp-
stein, 14 Wis. 226, 234 (1861) (“[W]hen [the defendant] so mingles
[money] without authority and then refuses to pay, I am unable to see
why such refusal should not be just as much evidence of a conversion as
though the money were still in a separate parcel.”).
8 Martin was an appeal from a motion to dismiss, so the Wisconsin
Court of Appeals treated the facts alleged in the complaint as true. 647
N.W.2d at 410.
No. 18-3205 11
Methodist Manor sued Frederick for conversion. Id. The
trial court dismissed the complaint, but the Wisconsin Court
of Appeals reversed. The court concluded Methodist Manor,
pursuant to the law and its contract with Evelyn, was “the one
rightfully entitled” to the Social Security income. Id. at 412
(internal quotation marks omitted). Therefore, Frederick was
“under a duty to remit [the Social Security income] to Meth-
odist Manor,” and his failure to do so amounted to a conver-
sion of Methodist Manor’s property. Id. (internal quotation
marks omitted).
Drawing out the similarities between the case before us
and Martin defeats most of Nicholson’s arguments. Nichol-
son says MCFI cannot have an ownership interest in the BIRC
Collections because MHC acquired them in its own name and
on its own behalf. But that was just as true of Evelyn Martin
receiving her Social Security income in her own name and on
her own behalf. Nicholson says MHC owned the BIRC De-
pository Account where the BIRC Collections were stored be-
fore being remitted to MCFI, but the Social Security income in
Martin presumably was also held in the Martins’ bank ac-
count until it was turned over to Methodist Manor. At bot-
tom, the cases are materially indistinguishable. Both in Mar-
tin and here, one party received funds from an outside source
and was required to remit those funds to the other party. If
that was enough to create an ownership interest in Martin, it
is enough here.
Despite the evident similarities between this case and Mar-
tin, Nicholson fights the analogy, pointing instead to Method-
ist Manor Health Center, Inc. v. Py, 746 N.W.2d 824 (Wis. Ct.
App. 2008). Ruth Ann Py was another resident at a Methodist
Manor nursing home. Id. at 826. According to the terms of
12 No. 18-3205
her contract, Py was to pay Methodist Manor $2,450 each
month. Id. Py’s granddaughter, Nadine Ray, had control of
Py’s checkbook and handled her accounts. Id. at 827. At Py’s
request, Ray would deliver large amounts of cash to her
grandmother ranging from $500 to $5,000. Id. Meanwhile, Py
allegedly became deficient in her payments to Methodist
Manor, accruing an outstanding balance of $32,700. Id. at 826–
27.
The Wisconsin Court of Appeals held Methodist Manor
did not have a claim for conversion against Ray. The court
considered Martin “inapposite” because “there [was] no evi-
dence … that Ray received funds that were to be applied to
the cost of Py’s care.” Id. at 828. Unlike the situation in Mar-
tin, there was no evidence Methodist Manor was entitled to
any specific money in Py’s accounts; it merely had a right to
payment. See id. at 830 (citing approvingly the trial court’s
conclusion “Ruth Ann Py owed money to Methodist Manor
for what Methodist Manor provided [her] with” but the
money was Py’s).
The facts of this case are much closer to Martin than they
are to Py. Here, MCFI had more than a generic right to pay-
ment; the agreements entitled MCFI to specific funds MHC
collected for services at the BIRC. Indeed, the parties point to
no provision in the agreements under which MCFI could re-
ceive any funds MHC collected unrelated to the BIRC. Under
the reasoning of Martin, MCFI had an ownership interest in
the BIRC Collections.
We address one other argument Nicholson makes relating
to MCFI’s ownership interest: MCFI could not have a prop-
erty interest in the BIRC Collections because it acknowledged
the receivables from the BIRC, of which the BIRC Collections
No. 18-3205 13
would be proceeds, could be subject to security interests held
by MHC’s creditors, including MCFI itself. See generally WIS.
STAT. § 409.203(6) (“The attachment of a security interest in
collateral gives the secured party the rights to proceeds pro-
vided by s. 409.315 … .”); WIS. STAT. § 409.315(1)(b) (“A secu-
rity interest attaches to any identifiable proceeds of collat-
eral.”). Nicholson points to Wisconsin law that an enforceable
security interest requires the party granting the interest to
have “rights in the collateral or the power to transfer rights in
the collateral.” WIS. STAT. § 409.203(2)(b). He argues if the
BIRC Collections were MCFI’s property, MHC would not
have been able to grant security interests in the receivables.
We are unconvinced. Just because MCFI gave the impres-
sion MHC could grant security interests in the receivables
does not mean MCFI did not have an ownership interest in
the BIRC Collections. If the true owner of property gives the
impression that another is the owner, the true owner cannot
later contest a security interest the other granted in the prop-
erty. See Kloety v. Delles, 45 Wis. 484, 488–89 (Wis. 1878); 68
Am. Jur. 2d Secured Transactions § 203. However, nothing in
that rule serves to negate the true owner’s rights in the prop-
erty—he is just “estopped from showing that a security inter-
est is not valid.” 68 Am. Jur. 2d, supra. Therefore, at most
MCFI’s acknowledgement of the security interests of MHC’s
creditors only estops MCFI from contesting the interests of
those creditors. It does not prevent MCFI from asserting its
ownership of the property against MHC. See Kloety, 45 Wis.
at 489 (“Under these circumstances, we think the plaintiff is
estopped to deny as against [the secured party] that his wife is
the owner of the property.” (emphasis added)).
14 No. 18-3205
2. Contract and Tort
This leaves only Nicholson’s argument that he is not sub-
ject to the tort claims because they conflate tort and contract.
In that regard, “Wisconsin has a long history of attempting to
maintain the distinction between contract and tort claims.”
Butler v. Advanced Drainage Sys., Inc., 717 N.W.2d 760, 773
(Wis. 2006) (Roggensack, J., concurring). But maintaining that
distinction does not preclude the bringing of a tort claim
every time there is a contract between the victim and the tort-
feasor. See Cotton v. Sharpstein, 14 Wis. 226, 228 (1861). Wis-
consin courts only require “a duty existing independently of
the performance of the contract for a cause of action in tort to
exist.” Greenberg v. Stewart Title Guar. Co., 492 N.W.2d 147,
151 (Wis. 1992) (quoting Landwehr v. Citizens Trust Co., 329
N.W.2d 411, 414 (Wis. 1983)); accord Cotton, 14 Wis. at 229
(“[A] party, by entering into a contract with the owner in re-
spect to property, does not thereby incapacitate himself from
wrongfully invading the rights of the owner which exist inde-
pendent of the contract.”). To proceed on a tort claim when
there is a contract, “a contract may create the state of things which
furnishes the occasion of a tort”; it just cannot create “the un-
derlying duty for the tort.” Landwehr, 329 N.W.2d at 414
(quoting Colton v. Foulkes, 47 N.W.2d 901, 903 (Wis. 1951)).
As the district court concluded, the contract between the
parties here “created the state of things” which allowed the
tort to occur; it did not create the duty Nicholson breached.
By the terms of the parties’ agreement, MCFI obtained an
ownership interest in the BIRC Collections. The duty to re-
frain from converting or stealing the BIRC Collections was en-
tirely independent of the contract. It arose from the common
law and Wisconsin statutes, not the contract between MCFI
No. 18-3205 15
and MHC. See Atkinson v. Everbrite, Inc., 592 N.W.2d 299, 301–
02 (Wis. Ct. App. 1999) (“[T]ort obligations are in general ob-
ligations [that are] imposed by law … to avoid injury to oth-
ers.” (quoting W. PAGE KEETON ET AL., PROSSER AND KEETON
ON THE LAW OF TORTS § 92 (5th ed. 1984))). Accordingly, the
presence of a contract between MCFI and MHC does not bar
holding Nicholson liable for the torts. Cf. H.A. Friend & Co.,
720 N.W.2d at 102 (“Van Der Puy had a duty, regardless of
the existence of the contract, not to retain or use money that
belonged to Friend without Friend’s consent or authoriza-
tion.”).
III.
MCFI had an ownership interest in the BIRC Collections
and was entitled to proceed on its tort claims against Nichol-
son, who was personally involved in the wrongful redirection
of those funds through the actions of his agent, Tabor. The
district court’s grant of summary judgment to MCFI is
AFFIRMED.