Case: 14-2968

Document: 44

Filed: 06/08/2015

Pages: 11

In the

United States Court of Appeals

For the Seventh Circuit
____________________
No.142968
CHRISE.CARHART,
PlaintiffAppellee,
v.

CARHARTHALASKAINTERNATIONAL,LLC,
Defendant,

CHRISTOPHERG.HALASKAandHALASKAINTERNATIONAL,
INC.,
Appellants.
____________________
AppealfromtheUnitedStatesDistrictCourtforthe
EasternDistrictofWisconsin.
No.2:14mc00023JPSJ.P.Stadtmueller,Judge.

____________________
ARGUEDAPRIL17,2015DECIDEDJUNE8,2015
____________________

Case: 14-2968

Document: 44

Filed: 06/08/2015

Pages: 11

No.142968

Before POSNER and WILLIAMS, Circuit Judges, and WOOD,

DistrictJudge.*
POSNER,CircuitJudge.KarlMarxfamouslyremarkedthat
all great worldhistoric facts and personages appear
twice : the first time as tragedy [Napoleon I], the second
timeasfarce[thegreatNapoleonsnephew,NapoleonIII].
William Gaddis reversed the sequence in his satirical law
novel A Frolic of His Own (1994). At the beginning of the
noveltheprotagonist,whilestandinginfrontofhiscartry
ing to hotwire it, accidentally causes the car to start. It
lurchesforward,injuringhimsohesueshimselfforhaving
negligentlyinjuredhimself.Thecasebeforeusbringsusface
tofacewithaformofselfsuingthatbringsinitstrainava
rietyofbusinessandlegalcomplexities.
ChrisE.CarhartandChristopherG.Halaska,therespec
tive sole owners of Carhart, Inc. and Halaska International,
Inc.,formedaWisconsinlimitedliabilitycompanythatthey
named CarhartHalaska International, LLC (and that the
partiescallCHIforshort,aswillwe),owned5050bytheir
two corporations. Well treat Messrs. Carhart and Halaska
rather than their corporations as the coowners of CHI, be
causebothmenhavelitigatedthecaseintheirownnamesas
well as in the names of their corporations, with each man
and corporation on the same side of the case seeking the
same relief, and thus Carhart, Inc. and Carhart constituting
one litigating unit and Halaska International, Inc. and
Halaskaanother.
CHIthe new companysupplied construction materi
als to builders and provided engineering services. We use
Hon.AndreaR.WoodoftheNorthernDistrictofIllinois,sittingbydes
ignation.

Case: 14-2968

No.142968

Document: 44

Filed: 06/08/2015

Pages: 11

thepasttensebecause,aswellsee,thecompanyisdefunct.
We dont know the current status of the two component
corporations.
AMinnesotacompanycalledMROIndustrialSales,LLC,
was a sales agent for CHI. In 2012 CHI terminated MRO,
which reacted by suing CHI in the federal district court in
Minnesota for breach of contract and related wrongs. Juris
dictionwasbasedondiversityofcitizenship,forremember
that CHI is a citizen of Wisconsin. Within weeks after the
suit was filed, Carhart obtained an assignment of MROs
claim, for which he claims to have paid MRO $150,000. By
steppingintoMROsshoeshe becametheplaintiff inasuit
against a company of which he was (through his wholly
ownedcorporation)ahalfowner.
HalaskaforthwithsuedCarhartbothonHalaskasown
behalfandonbehalfofCHIinaWisconsinstatecourt.The
suitchargedCarhartwithhavingbreachedhisfiduciarydu
tiestoCHIandHalaskabybecomingtheplaintiff(asaresult
ofMROsassignmenttoit)intheMinnesotasuitandalsoby
writingchecksonCHIbankaccountswithoutHalaskasap
proval, depositing payments owed CHI into Carharts own
corporate account, entering into a contract on CHIs behalf
withoutlettingHalaskaknowthatCarharthadaconflictof
interestrelatingtothetransaction,andwithholdingaccount
ing and other financial information concerning CHI from
Halaska.EssentiallytheclaimisthatCarhartplunderedthe
company that he and Halaska coowned, the plundering
presumably consisting of his withdrawing his own invest
ment and siphoning off part or maybe all of Halaskas in
vestmentthelatterbeingaplausiblethoughnotcompulso

Case: 14-2968

Document: 44

Filed: 06/08/2015

Pages: 11

No.142968

ryinferencefromthefactthatCHI,aswereabouttosee,is
nowassetless.
HalaskaaskedtheWisconsinstatecourttoappointare
ceivertowindupCHI(thatis,arrangeitsaffairsandhaving
done so dissolve it) because it was in imminent danger of
insolvencyasaresultofunpaiddebtsnotlimitedtoMROs
claim bought by Carhart, and of Carharts other acts of be
trayalofCHI.Thereceiverwasappointedbutshortlyafter
wardinformedthedistrictcourtinMinnesotathatCHIwas
insolvent and had no liquid assets out of which to pay a
lawyertodefendagainstthesuitbyCarhart(insuccessionto
MRO)inMinnesota.Thereceiverthereforeconsentedtothe
entry of a default judgment for $242,000 against CHI (the
amountsoughtbyCarhartinthatsuit).Thejudgmentyield
edCarhartapotentialprofitof$92,000($242,000$150,000)
on his purchase of MROs claim. (We say potential profit
becauseitsrealizationdependedonCHIspossessingatleast
$242,000worthofassets,which,aswellsee,itdidnot.)Pre
sumablythedifferencebetweenthetwofiguresrepresented
potential(butagain,notactual)compensationtoCarhartfor
havingassumedtherisk,originallybornebyMRO,oflosing
thesuitagainstCHIthathehadboughtfromMRO.
Whichbringsusatlasttothepresentsuit:asuitinfeder
al district court in Wisconsin brought by Carhart against
CHIunderFed.R.Civ.P.69(a)(1)toexecutethe$242,000de
faultjudgmentthathehadobtainedasaresultofthereceiv
ersinabilitytodefendCHIagainsttheMinnesotasuit.CHI
wasleftwithitssuit(jointlywithHalaska)againstCarhartin
theWisconsinstatecourt,wherethatsuitwas,andaswell
see still is, pending. That suit was the companys only re
maining asset, and Carhart filed the present case (the Wis

Case: 14-2968

No.142968

Document: 44

Filed: 06/08/2015

Pages: 11

consin federal court suit to enforce its $242,000 judgment

againstCHI)inordertoobtainit.Thedistrictcourtexecuted
thejudgment,orderingtheseizureandsaleofCHIslawsuit
in order to satisfy Carharts judgment (in part), the lawsuit
being as we said CHIs only remaining asset. The lawsuit
wassoldatpublicauction;Carhart,theonlybidder,bought
itfor$10,000.Bydoingsoheextinguishedallpossibilitythat
CHIcouldobtainreliefagainsthimforhisallegedplunder
ing of the company. At a total cost of $150,000 (for Carhart
gothis$10,000paymentrightbackafterthesale,sinceitwas
theproceedsofthesaleoftheassetthatCarhartexecutedhis
judgementupon),hehadinsulatedhimselfagainstpotential
liabilitytoCHIforallegedlyplunderingthecompany.
Butthis assumesthatWisconsinlaw allows alawsuitto
bethekindofpropertythatcanbeseizedtopayajudgment.
Fed. R. Civ. P. 69(a)(1) authorizes a federal district court to
enforce a money judgment by writ of execution but (with
immaterial exceptions) only pursuant to the procedure au
thorized by the state in which the federal court is located,
and, as discussed below, it is unclear whether Wisconsin
considersalawsuittobepropertythatcanbeseizedtopaya
judgment.SeeWis.Stat.,ch.815.
Carhart was ingenious! The question is whether his
scheming was legal. An anterior question is whether we
havejurisdictiontoanswerthatquestion.Theappellantsare
Halaska and his wholly owned corporation (but which we
can,aswesaidearlier,ignore).ButHalaskawasnotnamed
asadefendantinCarhartssuittoexecutethe$242,000Min
nesotajudgment;onlyCHIwasandCHIisnotappealing.
Halaska has a substantial financial stake in the proceeding,
given his half ownership (maybe whole ownership, given

Case: 14-2968

Document: 44

Filed: 06/08/2015

Pages: 11

No.142968

Carhartsdefection),andcompletecontrol,ofCHI.WithCHI
crumblinginthefaceofCarhartsdefectionandhislitigation
against CHIand in fact in receivershipHalaska, as sole
remaining owner,is thecompanysalterego,trying topick
upthepiecesfromthedisasterthatbegan withMROssuit
andwhat he contends isthe plundering of hiscompany by
his business partner. He belongs in this suit. And while he
wasnotanamedpartyanddidnotmovetointerveneinthe
district court until after he had filed a notice of appeal
(which the district court held was too late), he participated
fullyintheproceeding,justasifhehadintervenedandbe
comeaparty.Thejudgetreatedhimasaparty.Hewasthus
adefactoparty.
Butistheresuchathinginfederallaw?Ajudgecansay
toapersonwhohasasubstantialinterestinacasebutisnot
a party you belong in this case, so I want you to move to
intervene and Ill grant your motion. This may not be an
enforceableorder,butitslikelytobeobeyed.Thatsineffect
what happened in this case, minus the dialogue and the
formal motion. With CHI abandoned by Carhart and in re
ceivership, yet the receiver apparently helpless for lack of
financing (though he had filed an objection in the district
court,hedidnotfileanappealfromthedistrictcourtsdeci
sion), Halaska was Carharts only opponent. Halaska had a
legitimate interest in the case as the half and maybe sole
ownerofCHI,andsothejudgedeemedhimapartywithout
insistingontheformalityofamotiontointervene.
We conclude that Halaska was and remains a party. Cf.
SEC v. Enterprise Trust Co., 559 F.3d 649, 65152 (7th Cir.
2009). Appeals by those who participated as if parties are
frequently entertained despite a failure to achieve formal

Case: 14-2968

No.142968

Document: 44

Filed: 06/08/2015

Pages: 11

statusasaparty.Mostoftheseappealsinvolvepersonswho
participate in trial court proceedings as if they had inter
vened,andwhoseemtohavebeentreatedonallsidesasde
factoparties.15ACharlesAlanWrightetal.,FederalPractice
and Procedure 3902.1 (2d ed., updated Apr. 2015). Thats
thiscase.
So we have jurisdiction, and come at last to the merits,
wheretheprincipalissueistheproprietyofthejudgeshav
ingorderedtheauctioningoffofCHIslawsuit(CHIsonly
remaining asset) in order to provide partial satisfaction of
Carhartsjudgment.Thisisaseparatequestionfromwheth
erWisconsinlawallowsalawsuittobepropertythatcanbe
seizedtopayajudgment.Thatquestionwouldbecomemoot
if,whetherornotthelawsuitisseizableproperty,thedistrict
judge erred in thinking seizure the appropriate remedy in
thiscase.Thealternativewouldhavebeentoallowthelaw
suit against Carhart to proceed to judgment. CHI (which is
tosayHalaska)mighthavebeenabletoprovethatCarharts
initialdecisiontobuyMROsclaimagainstCHIhadinitiat
edatrainofeventslikelytoculminate,andinfactculminat
ing,inthecompanysdestruction.Forallweknow,ajudge
orjurymighthavefoundmeritinthesuitandorderedCar
hart to pay damages to CHI greater than the $242,000 that
CHIowedhim.Inthateventthecompanywouldhavecome
out of the protracted litigation ahead of the game, rather
thangettingnothingfromitslegalstrugglewithCarhartex
cept the $10,000 that he paid for the lawsuit at the public
auctionwhich CHI cant keep, because its to be used to
satisfyaportionoftheMinnesotajudgmentthatCarhartob
tained.ItsasifCarharthadpulleda$10,000wadofbillsout
of his left pants pocket and stuffed it into his right pants
pocket.

Case: 14-2968

Document: 44

Filed: 06/08/2015

Pages: 11

No.142968

ItmightbethoughtthatifCHIslawsuithadhadaposi
tivenetexpectedvalue,someoneattheauctionwouldhave
bidmorethan$10,000forit.Noonedid,andthismightsug
gest that the lawsuit had only negligible value. But maybe
not. Suits are difficult to value; that is doubtless why MRO
sold its claim against CHI to Carhart for what may have
beenmuchlessthanitwasworth($150,000versus$242,000,
thoughwedontknowonwhatthelatterfigurewasbased).
And Carhart as claimant had the best sense of the value of
CHIsclaimagainsthimbecauseheknewwhathehaddone
thatmightmakehimliablefordamages;whatsenseofthat
wouldabidderatapublicauctionhave?Ifsomeonewereto
placeanundisclosedsumofmoneyinanenvelopeandchal
lengeyoutobidagainstthemforit,youdbeafooltoaccept
the challenge; for if you underbid you would get nothing
andifyourbidhappenedtobethewinningbidyouwould
certainly have overpaid, because your opponent would
know thetrue amountintheenvelope.And so it wouldbe
in this case. Better to let CHI litigate its claim and let the
statecourtdecidewhatitwasworthwhichmayhavebeen
alotmorethanCarhartssuccessful$10,000bid.
Butthisraisesthequestionwhetherthedistrictjudgecan
befaultedforhavingadoptedanapproachtovaluationthe
public auctionthat, as should have been foreseen, proved
tobeenormouslydisadvantageoustoCHI.Whenviewedas
aformofproperty(thepropertyofCHI),alawsuitiswhatis
calledachoseinaction,namelyaformofintangibleprop
ertyascontrastedwithachunkofrealestate,theclassicex
ampleoftangibleproperty.LongagotheSupremeCourtof
Wisconsinsuggestedthatachoseinaction,includingthere
forealegalclaim,whileitcanbegarnishedcannotbesoldto
satisfyadebt.Stormv.Cotzhausen,38Wis.139,14344(1875).

Case: 14-2968

No.142968

Document: 44

Filed: 06/08/2015

Pages: 11

But those were the days when the sale of a lawsuit was
forbidden by the common law doctrines of champerty and
maintenance,doctrinesthathavebeenabrogatedor diluted
in many states, including Wisconsin. Wis. Stat. 895.375
statesthatnoaction,specialproceeding,crosscomplaintor
counterclaiminanycourtshallbedismissedontheground
thatapartytotheactionisapartytoacontractsavoringof
champertyormaintenanceunlessthecontractisthebasisof
theclaimpleaded.Todaytrolldomtheseekingoffinan
cial advantage by buying or otherwise obtaining a legal
claim (as distinct from filing a legal claim in order to seek
redress for injury)thrives. The commonest example of a
lawtrollisthepatenttroll,whoacquiresbypurchaseorap
plicationtothePatentandTrademarkOfficeapatentthathe
uses not to protect an invention but to obtain a license fee
from, or legal judgment against, an alleged infringer. Car
hartwasatrollofsortsinbuyingMROslegalclaiminorder
toextinguishCHIslawsuitagainsthim.Buttheimmediate
issue is his being allowed to bid on CHIs suit against him
(and thus buy a second lawsuit). Even if (a question we
neednt try to answer) a lawsuit is property that Wisconsin
lawallowstobebeseizedtopayadebt,Carhartshouldnot
have been allowed to buy CHIs lawsuit to satisfy (in part)
his judgment against CHI. For as we said, CHIs suit was
enveloped in too much uncertainty for potential bidders to
be able to value and thus bid intelligently on it (see Kristo
pherWood,Comment:ShortCircuitingtheJusticeSystem:
HowDefendantsAreMisusingWritsofExecution,39Pep
perdine Law Review 747, 78788 (2012)), especially because
Carhartwasasapracticalmatteronbothsidesofthetrans
action.Iftherewasasmokinggunpieceofevidenceprov
ing Carharts misdeeds that would come out in discovery,

Case: 14-2968

10

Document: 44

Filed: 06/08/2015

Pages: 11

No.142968

Carhart would already know of its existence, but what

wouldanoutsiderknowaboutCHIanditsfinancialdifficul
ties,oraboutCarhartandhis(orhiscorporations)contrac
tualorstatutorydutiestoCHI?Norcouldanoutsider(apo
tentialbidderattheauctionofCHIslawsuit)usediscovery
totrytofindout.
Neither do we know the exact value of the lawsuit. But
we know the floor. Carhart says he paid MRO more than
$150,000foritsclaim(itseemsthathepaidforMROsattor
neys fees as well, but no amount is stated). He must have
thought CHIs only assetits lawsuit against himworth
morethan that.Yet Carhartpaidonly$10,000for CHIs as
sets at the auction, and that almost certainly was too low.
Wisconsinallowsanexecutionsaletobesetasidewhenthe
pricebidissolow asto shocktheconscienceofthe court.
Wilsonv.Craite,210N.W.2d700,702(Wis.1973),citingAn
thonyGrignanoCo.v.Gooch,47N.W.2d895,897(Wis.1951),
andCollinsv.Smith,44N.W.510,512(Wis.1890).Inbothcit
edcasestheSupremeCourtofWisconsinstatedthatthebid
prices would be so low as to shock the conscience if they
wereprovedasallegedtobe45percentand24percentofthe
value of the properties. In the present case (in which the
property was a lawsuit) the bid price may have been less
than 7 percent of a minimum reasonable estimate of the
propertys value, if that minimum reasonable estimate
wouldhavebeen$150,000.
SothedistrictjudgeshouldhaveallowedCHIsWiscon
sinstatecourtslawsuittoproceedandforthefurtherrea
sonthatbyauctioningoffthelawsuitthejudgeplacedahead
ofCHIsothercreditorsthecreditorCarhartwhohadal
legedly destroyed the LLC for his own financial gain. That

Case: 14-2968

No.142968

Document: 44

Filed: 06/08/2015

Pages: 11

11

madehisclaimvulnerabletoequitablesubordination,which
allows a claims priority to be reduced if the claimant is
guilty of misconduct that injures other creditors or confers
anunfairadvantageontheclaimant.InreKreisler,546F.3d
863, 866 (7th Cir. 2008); see also In re Maders Storefor Men,
Inc.,254N.W.2d171,184(Wis. 1977)(there maybeclaims
which are genuine, in the sense that they are neither sham
norunlawfulorotherwisesubjecttocompletedisallowance,
but which arise under circumstances such that it would be
inequitable to permit them to participate in distribution of
theestateonanequalbasiswithothergeneralclaims).Re
ducingaclaimsprioritymaybeappropriatewhentheclaim
holder,amemberofanLLC(suchasCarhart,whosecorpo
ration,theformalmember,washispuppet)commitsawill
fulfailuretodealfairlywiththelimitedliabilitycompanyor
itsmembersinconnectionwithamatterinwhichthemem
berormanagerhasamaterialconflictofinterest.Wis.Stat.
183.0402.ItwillbefortheWisconsinstatecourttodecide
whetherCarhartsclaimshouldbeequitablysubordinated.
Although the sale of CHIs lawsuit to Carhart has taken
place,Carhartwasnotapurchaseringoodfaith,andsothe
sale did not moot CHIs challenge to the sale. As no valid
interestwouldbeimpairedbyrescindingthesale,weorder
the district court to rescind it, thus enabling CHI to prose
cute its suit against Carhart in the Wisconsin state court,
wherethesuitwillagainbependingoncethesaleofthesuit
toCarhartisrescinded.Thejudgmentofthedistrictcourtis
thereforereversedandthecaseremandedwithinstructions.