City of Milwaukee v. Mohammad A. Choudry ( 2019 )

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
December 27, 2019
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
Appeal No. 2018AP1693 Cir. Ct. No. 2016CV8057
STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I
CITY OF MILWAUKEE,
PLAINTIFF-RESPONDENT,
V.
MOHAMMAD A. CHOUDRY, PAK RENTALS & CONSTRUCTION LLC, PAK
PROPERTY 1 LLC, PAK PROPERTY 2 LLC AND PAK PROPERTY 3 LLC,
DEFENDANTS-APPELLANTS,
SETH DIZARD,
RECEIVER-TRUSTEE-INTERVENOR-RESPONDENT.
APPEAL from an order of the circuit court for Milwaukee County:
WILLIAM SOSNAY, Judge. Reversed and cause remanded with directions.
Before Brash, P.J., Dugan and Donald, JJ.
No. 2018AP1693
¶1 BRASH, P.J. Mohammad A. Choudry, together with his companies
PAK Rentals & Construction LLC; PAK Property 1 LLC; PAK Property 2 LLC;
and PAK Property 3 LLC (collectively “Choudry”), appeal from an order of the
trial court dismissing the action after real estate owned by Choudry was
transferred into an irrevocable trust. The action was filed by the City of
Milwaukee in October 2016 seeking to recover delinquent real estate taxes on
numerous properties owned by Choudry. The City’s complaint also alleged that
there were thousands of code violations that had been assessed against the
properties, constituting a public nuisance. The complaint listed several other
causes of action as well.
¶2 The trial court granted a temporary restraining order in
November 2016 to manage Choudry’s properties and bar Choudry from acquiring
more property. Also at that time, the court appointed a receiver to manage the
properties, with whom Choudry cooperated in making repairs on the properties.
However, after performing these duties for approximately one and one-half years,
the receiver filed a motion to transfer the properties into a trust, with the receiver
as the trustee, asserting that this would allow the receiver to continue managing
the properties without the court’s involvement until such time that all of
Choudry’s debts were repaid; at that point, the remaining assets in the trust would
be returned to Choudry. The court granted the motion in July 2018, and the City
then dismissed the action against Choudry.
¶3 On appeal, Choudry argues that there was never any final
adjudication regarding the causes of action in the complaint, and without that final
adjudication the trial court did not have the authority to impose a remedy. We
agree. We therefore reverse the order of the trial court and remand this matter for
further proceedings consistent with this decision.
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BACKGROUND
¶4 The City alleged that since 2002, Choudry had acquired ninety-three
properties located in the city. The properties were purchased under Choudry’s
name individually and under the business entities listed above. Additionally, this
list of properties included eleven properties for which the City alleged Choudry
was the actual owner of equitable title, even though they were acquired at sheriff’s
sales under the name Usman Akhtar. Furthermore, the City alleged that Choudry
had purchased eleven other properties using fictitious entities. Moreover, the City
asserted that Choudry failed to record with the Milwaukee County Register of
Deeds many of the sheriff’s deeds for the properties it acquired, thereby providing
no official record of ownership.
¶5 Specifically, the complaint listed six causes of action. In the first
cause of action, the City sought a declaration of interest in real property with
regard to the eleven properties that were acquired by Akhtar. The City alleged
that Choudry had paid for the properties—not Akhtar—noting that Choudry had
retrieved several of the unrecorded sheriff’s deeds for those properties from the
Milwaukee County Clerk of Courts’ office, and that the return addresses listed on
those deeds was Choudry’s address.
¶6 The second cause of action sought personal liability for delinquent
taxes on thirty-eight of the properties that were subject to tax foreclosure1 and in
1
The City further noted in its complaint that it had already foreclosed on nineteen of
Choudry’s properties, costing the City over $400,000 in uncollected delinquent real estate taxes.
Moreover, Choudry had sold seven of the properties listed in the complaint to private parties,
receiving $282,300 in consideration.
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personam judgment at the time of filing. The total tax delinquency for those
properties, including interest and penalty, was over $400,000.
¶7 The third cause of action was for public nuisance. The City had
issued almost 700 orders to correct nearly 3000 code violations on the properties.
The fines assessed against Choudry for these violations totaled more than
$240,000. The City cited Choudry’s “repeated and ongoing failure to correct
violations,” which caused the properties to deteriorate into public nuisances.
¶8 The fourth cause of action was that Choudry had violated the
Wisconsin Organized Crime Control Act because his business practices relating to
the ownership and management of these properties demonstrated a “pattern of
racketeering activity[.]” Allegations under this cause of action include that
Mohammad Choudry listed his wife as the registered agent with an office in
Wisconsin for two of his limited liability companies, when she actually lived in
Arizona; that Choudry acquired a property at a sheriff’s sale under an entity other
than one of those entities noted above, without that entity’s authorization or
consent; that Choudry acquired properties using fictitious entities; and that
Choudry intentionally refused to record sheriff’s deeds with the Register of Deeds
to conceal the ownership of properties for purposes of “defraud[ing] the City by
misdirecting and undermining its tax collection and code enforcement efforts.” As
a result of these actions, the City alleged that it had suffered a direct loss of over
$426,000 in uncollected taxes.
¶9 The fifth cause of action was that Choudry’s actions surrounding its
property acquisitions were fraudulent pursuant to the Uniform Fraudulent Transfer
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No. 2018AP1693
Act, due to Choudry’s intent to “hinder, delay or defraud” the City from collection
of its claims. See WIS. STAT. § 242.04(1)(a) (2017-18).2 The City noted that
Choudry had spent over $420,000 to acquire the properties while simultaneously
accruing over $1.3 million in debt.
¶10 Finally, the sixth cause of action was to pierce the corporate veil, on
the ground that taking title to the properties in the limited liability companies
listed above was for the purpose of evading legal duties and avoiding personal
liability with regard to the properties. The City alleged that the companies do not
have an identity separate from Mohammad Choudry, noting that there are no
separate business checking accounts or separate accounting records for those
entities, and further, that Mohammad Choudry has listed himself individually as
the plaintiff in eviction actions involving the properties.
¶11 Based on these allegations, the City sought damages in an amount of
almost $1.3 million, an order requiring Choudry to record all unrecorded deeds,
and an injunction barring Choudry from acquiring any further interests in real
property until all claims and judgments of the City were paid and satisfied.
Moreover, the City requested that a receiver be appointed to manage the
properties.
¶12 A temporary injunction was granted on November 3, 2016.
Additionally, Seth E. Dizard was appointed the receiver for the properties. As the
receiver, Dizard was given the authority to manage the properties: to collect all
rents and pay expenses relating to the properties, including paying property taxes
2
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.
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No. 2018AP1693
that were due and owing, as well as to perform all necessary maintenance and
repairs to bring the properties into code compliance.
¶13 Over the next several months, Dizard filed reports with the trial
court regarding his actions as the receiver, and the court held several hearings and
status conferences to discuss the progress being made by Dizard. At one such
hearing in February 2017, the court reminded the parties that the “overall goal …
is to make sure that these properties … are brought up to code, that they’re a safe
and healthy environment for the tenants that are going to reside in them,” and that
they are “made habitable.” The court stated that another goal was to “address the
taxes that are owed on these properties, because that’s certainly important to the
City and to the residents of the community.” The court commended Choudry for
his cooperation with the receiver and the progress made to that point, noting that
Choudry had come to recognize the “seriousness” of the matter. The court also
observed that “the reality of this is that this is going to be a very long process to
reach ultimately what needs to be done here.”
¶14 In April 2017, Choudry was given the opportunity to remediate the
code violations on one of the properties. This was to be accomplished within a
thirty-day time frame. However, at a hearing in July 2017, the trial court pointed
out that Choudry had not used licensed contractors to perform the required repairs,
and had not pulled permits for the work. At a subsequent hearing in August 2017,
the remediation had just been completed—taking much longer than the thirty-day
time frame that had been initially anticipated—which, according to the court, was
due at least in part to “the way [Choudry] approached” performing the work.
¶15 Also at that August 2017 hearing, the City noted that there were
upcoming substantial expenses for several properties—replacing roofs and
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No. 2018AP1693
furnaces before winter—that would require the sale of several of the properties in
order to obtain the money necessary to cover these expenses. Choudry stated that
it preferred that the properties be mortgaged to cover the expenses instead of sold,
but did not object to the receiver’s motion. The trial court authorized the sale of
the properties at a September 2017 hearing. At a status conference in December
2017,3 Dizard reported that he was marketing the properties that he had been
authorized to sell, and that the remaining properties being retained were “stable”—
there were no outstanding violations with the City, and they were being managed
“without significant issue.”
¶16 In May 2018, Dizard filed a motion to authorize him as the receiver
to transfer the properties into a trust. Dizard estimated that it would take “several
more months to fully stabilize the [p]roperties, and fully abate the nuisance caused
by [Choudry],” and further, that it would be “several years before the debts and
liabilities caused by the nuisance, including the costs of this litigation, can be
repaid.” Therefore, Dizard asserted that the creation of a trust would allow for
Dizard to continue the duties that he had been performing as the receiver “without
the need for further court involvement.”
¶17 Choudry retained new counsel and objected to the motion. Choudry
argued that the underlying reason for Dizard’s motion to transfer the properties to
a trust was the City’s desire to enjoin Choudry from “ever being in the real estate
business again in the City of Milwaukee.” Choudry further pointed out that
throughout the proceedings, there had never been any litigation on the merits of
3
Also at this conference, the trial court heard and granted a motion by Choudry’s
counsel to withdraw from the case due to Choudry’s lack of payment of attorney’s fees.
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No. 2018AP1693
the City’s allegations. Thus, Choudry asserted that transferring the properties into
a trust would not resolve the dispute between Choudry and the City; it would
merely release the receiver.
¶18 At the hearing on the motion on July 13, 2018, the trial court
disagreed with Choudry. It stated that “the proof is in the pudding”—that the
record reflected that the “allegations” of the City had been proven in the reports
filed by Dizard as the receiver. The City noted that with the court’s approval of
the trust, it would move to dismiss the case subject to the operation of the trust,
which would “accomplish[] what everybody’s goals are”—paying off the taxes
and other debt associated with the properties without requiring continuous court
involvement. The court therefore granted the motion. The City then moved to
dismiss the matter pursuant to the trust being authorized and active, which was
also granted by the court. This appeal follows.
DISCUSSION
¶19 Throughout these proceedings, in which there were numerous
hearings and status conferences held on the record, the record demonstrates that
the merits of the City’s complaint were never litigated beyond the grant of the
temporary injunction and appointment of Dizard as the receiver. In fact, as stated
above, the City moved to dismiss its complaint upon the trial court’s order
authorizing the transfer of Choudry’s properties into a trust.
¶20 We therefore focus our analysis on Choudry’s argument that because
there was no final judgment regarding the allegations in the complaint filed by the
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No. 2018AP1693
City, the trial court had no legal authority to order a remedy. 4 “The issue of
whether judicial authority exists” is a question of law that we review de novo.
GMAC Mortg. Corp.of Penn. v. Gisvold, 215 Wis. 2d 459, 480, 572 N.W.2d 466(1998).
¶21 Choudry asserts that neither the City nor Dizard provide any law
supporting the premise that the trial court had the authority to authorize the
creation of the trust. For example, in response to Choudry’s objection to
transferring the properties to a trust, Dizard cited WIS. STAT. § 813.16 in support
of his statement that the trial court has broad discretion to fashion a remedy. That
statute outlines the trial court’s authority to appoint a receiver; it does not address
the court’s discretion to impose other remedies.
¶22 Dizard also cited Beloit Liquidating Trust v. Grade, 2004 WI 39,
¶6, 270 Wis. 2d 356, 677 N.W.2d 298, in which a trust was created to liquidate the
remaining assets of Beloit Corporation after its bankruptcy proceedings. In that
case, at the time the trust was created, the bankruptcy court had already confirmed
Beloit Corporation’s reorganization plan. See id., ¶5. Generally, under
bankruptcy law, a confirmed plan has the same effect as a final judgment. See
Adair v. Sherman, 230 F.3d 890, 895 (7th Cir. 2000) (“The law is well settled that
a confirmation order is res judicata as to all issues decided[.]” (citation omitted));
Wallis v. Justice Oaks II, Ltd., 898 F.2d 1544, 1550 (11th Cir. 1990) (“[A]
bankruptcy court’s order confirming a plan of reorganization is given the same
4
Although Choudry raises several other issues in its appeal, based on our decision, we
need not address them. See Maryland Arms Ltd. P’ship v. Connell, 2010 WI 64, ¶48, 326
Wis. 2d 300, 786 N.W.2d 15 (stating that appellate courts “should decide cases on the narrowest
possible grounds,” and that we need not address issues that are not dispositive).
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No. 2018AP1693
effect as any district court’s final judgment on the merits.”).5 Thus, Dizard’s
reliance on Beloit Liquidating is misplaced due to the significant distinguishing
factor that there is no final judgment on the merits in this case.
¶23 Instead, on appeal Dizard and the City focus their arguments on the
trial court’s equitable powers. A trial court has the “authority to grant equitable
relief, even in the absence of a statutory right.” McFarland State Bank v. Sherry,
2012 WI App 4, ¶32, 338 Wis. 2d 462, 809 N.W.2d 58 (citations omitted).
“Wisconsin has long held that a trial court vested with equitable powers may
enjoin public or private nuisances.” State v. Weller, 109 Wis. 2d 665, 675, 327
N.W.2d 172 (Ct. App. 1982). Furthermore, pursuant to WIS. STAT. § 701.0401(4),
a trust may be created by a court “pursuant to its statutory or equitable powers.”
¶24 However, while the trial court has the authority to grant equitable
relief, that relief “must be in response to the invasion of legally protected rights.”
Breier v. E.C., 130 Wis. 2d 376, 389, 387 N.W.2d 72 (1986). In other words,
“[t]he exercise of equitable authority … may provide complete justice only where
there is a wrong.” Id. (emphasis added).
¶25 Here, the “wrong” was never definitively determined by the trial
court before it provided relief by ordering the creation of the trust. Rather, a
temporary injunction was granted, in which the court found that the City had “a
reasonable probability of success on the merits” of its claims. (Emphasis added.)
5
This court also recognized the concept of a confirmed plan having the same effect as a
final judgment in Beloit Liquidating Trust v. Grade, 2003 WI App 176, ¶16, 266 Wis. 2d 388,
669 N.W.2d 232, rev’d by Beloit Liquidating Trust v. Grade, 2004 WI 39, 270 Wis. 2d 356, 677
N.W.2d 298; however, because that case as decided by this court was overturned by our supreme
court, it no longer has precedential value. See Blum v. 1st Auto & Cas. Ins. Co., 2010 WI 78,
¶42, 326 Wis. 2d 729, 786 N.W.2d 78.
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No. 2018AP1693
This was followed by almost two years of proceedings in which the court
monitored the progress of Dizard in his role as the receiver; however, those
proceedings did not include litigation regarding the merits of the City’s claims.
¶26 While Dizard’s actions as receiver are related to some of the
allegations set forth in the complaint—overseeing repairs to the properties to
address the code violations pursuant to the public nuisance claim, and paying
down the delinquent property taxes which relates to the cause of action seeking
personal liability for delinquent taxes on properties owned by Choudry’s assorted
corporate entities—the trial court never made rulings to establish that Choudry had
committed a “wrong” against the City. Therefore, we conclude that because a
final judgment was never reached regarding the City’s claims against Choudry, the
trial court did not have the authority to order the relief requested—the transfer of
Choudry’s properties into a trust. See id. at 389.
¶27 Accordingly, we reverse the trial court’s order dismissing the action
after it authorized Choudry’s properties to be transferred into a trust, and further,
we remand this matter to be reopened, to continue the receivership, and to conduct
further proceedings as appropriate, consistent with this decision.
By the Court.—Order reversed and cause remanded with directions.
Not recommended for publication in the official reports.
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