April 10, 2019
FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF WISCONSIN. NO. 15-CV-1479 - LYNN ADELMAN, JUDGE.
Bauer, Manion, and Rovner, Circuit Judges.
Manion, Circuit Judge.
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 for individuals with brain injuries,
would operate a brain-injury 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).
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
jurisdiction,  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.
Nicholson appeal the judgments against Nicholson. Because we
agree with the conclusions of the district court, we affirm.
Nicholson was the CEO of "the Congress Companies,"
a collection of businesses involved in the construction of
medical facilities. In 2013, Nicholson and another investor,
William Koski,  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 (Milwaukee
Properties), another of Nicholson's companies. The
property was subject to a mortgage from Oppenheimer
Multifam-ily Housing and Healthcare Finance, Inc.
(Oppenheimer). The United States Department of Housing and
Urban Development (HUD) insured the mortgage.
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 services 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 Company.
The agreement then required MHC to maintain a special
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 was
less, after taking a cut for itself (the "Wellspring
Interim Daily Rate").
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-receivable 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.
2015, the parties entered into a renewal agreement containing
substantially similar terms.
the parties operated under these agreements, MHC suffered
significant cash-flow problems. MHC's financial woes
prompted Nicholson to invest his personal funds multiple
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
Tabor's direction, MHC began redirecting BIRC Collections
to make its payroll and pay other creditors, primarily
Milwaukee Properties. In 2015, MHC entered into a
line-of-credit arrangement with SCM Specialty Finance
Opportunities Fund, L.P. (SCM), an accounts-receivable
lender. Under that agreement, MHC placed all the money it
collected (including BIRC Collections) into one of two
lock-box accounts (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.
received its last full payment from MHC in March 2015. By the
end of that ...