Desjurdin Lacey v. Credit Acceptance Company

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.
August 15, 2024
A party may file with the Supreme Court a
Samuel A. Christensen 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. 2023AP751 Cir. Ct. No. 2022CV539

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

DESJURDIN LACEY AND MILDRED LACEY,

PLAINTIFFS-APPELLANTS,

V.

CREDIT ACCEPTANCE COMPANY,

DEFENDANT-RESPONDENT.

APPEAL from an order of the circuit court for Dodge County:
JOSEPH G. SCIASCIA, Judge. Reversed.

Before Blanchard, Nashold, and Taylor, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

¶1 PER CURIAM. In 2016, Desjurdin Lacey entered into a retail
installment agreement (“the contract”) that required him to make payments on a
No. 2023AP751

used car. He defaulted on the contract. In 2019, Credit Acceptance Corporation
filed an action seeking a deficiency judgment on the contract and obtained a
money judgment (“the judgment”) against Lacey. In 2022, Desjurdin Lacey and
his spouse, Mildred Lacey, obtained an order from the Dodge County Circuit
Court prohibiting creditors that included Credit Acceptance from garnishing
Desjurdin Lacey’s wages.

¶2 Later in 2022, Desjurdin Lacey and Mildred Lacey initiated this
action. The Laceys allege that Credit Acceptance violated provisions of the
Wisconsin Consumer Act and engaged in civil theft by allegedly continuing
garnishment efforts against Desjurdin Lacey’s wages, despite the fact that Credit
Acceptance had been placed on notice of the court order prohibiting such
garnishment. The circuit court order granted a motion by Credit Acceptance to
compel arbitration of the Laceys’ current claims, based on an arbitration clause
contained in the contract. The Laceys appeal.

¶3 Applying the merger doctrine, we conclude that Credit Acceptance
cannot rely on the arbitration clause contained in the contract to compel arbitration
in this action. This is because Credit Acceptance’s contractual right to arbitrate
the Laceys’ claims, which relate to Credit Acceptance’s alleged enforcement of
the judgment it obtained in 2019, merged into the judgment. Accordingly, we
reverse the order dismissing the action in order to allow arbitration.

BACKGROUND

¶4 Desjurdin Lacey defaulted on the 2016 contract to purchase a used
minivan. In January 2019, Credit Acceptance sued to collect on the outstanding
balance, and in February it obtained a money judgment of $10,588.98. Based on

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this deficiency judgment, Credit Acceptance began garnishing Desjurdin Lacey’s
wages from his job at a retail store.

¶5 In August 2022, more than three years after Credit Acceptance
obtained the money judgment, the Laceys commenced a voluntary amortization of
debts proceeding under WIS. STAT. ch. 128 (2021-22) in Dodge County Circuit
Court.1 An affidavit of debts that the Laceys attached to the petition included a
debt of $5,384.09 to Credit Acceptance, representing what the Laceys averred to
be the remaining balance due on the judgment. On September 14, 2022, the court
issued an order appointing a trustee and enjoining creditors from conduct that
included enforcing a garnishment to collect debts that were scheduled in the
ch. 128 proceeding.

1
Under WIS. STAT. § 128.21, a person whose main income is from wages or salary may
commence a circuit court proceeding based on a representation that

… the person is unable to meet current debts as they mature, but
is able to make regular future payments on account sufficient to
amortize the debts over a period of not more than 3 years, and
that he or she desires the aid of the court to effectuate the
amortization. The petition shall also set forth the names and
addresses of any creditors who have levied any executions,
attachments or garnishments, and of any garnishees, and the
court shall forthwith, by order, require that proceedings for the
enforcement of the executions, attachments or garnishments be
stayed during the pendency of proceedings under this section.

WIS. STAT. § 128.21(1). After such a petition is filed, the court appoints a “disinterested trustee”
to come up with a plan for the repayment of debts, “and until the dismissal of the proceedings, no
execution, attachment or garnishment may be levied or enforced by any creditor seeking the
collection of any claim which arose prior to the proceedings, unless such claim is not included by
the debtor in the claims to be amortized.” Sec. 128.21(2), (3).

All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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¶6 In December 2022, the Laceys filed the action in this case. The
complaint claims that Credit Acceptance violated WIS. STAT. § 427.104(h) and (j)
of the Wisconsin Consumer Act, and committed civil theft, by making
garnishment efforts against Desjurdin Lacey’s wages, despite the fact that Credit
Acceptance had been placed on notice of the order prohibiting such garnishment.

¶7 Credit Acceptance filed a motion requesting an order compelling
arbitration of the claims in this action, based on an arbitration clause included in
the contract. The Laceys opposed the motion.

¶8 In a written order, the circuit court granted the motion to compel
arbitration.

DISCUSSION

¶9 One argument advanced by the Laceys in the circuit court against
Credit Acceptance’s motion to compel arbitration was the following. The
arbitration clause in the contract—and all of the other rights and obligations
created for the parties by the contract—“dissolve[d]” when those rights and
obligations were “converted” into the money judgment that Credit Acceptance
sought and obtained to resolve its action based on the contract. On appeal, the
Laceys renew this argument. They argue that the circuit court erred in compelling
arbitration “based solely on” the contract, because the contract was “merged into a
money judgment in a separate circuit court action” from this one. On the record of
this case, as argued by the parties, we agree that the motion to compel arbitration
should be denied.

¶10 A motion to compel arbitration involves contract interpretation and
the determination of substantive arbitrability, which are issues that we review de

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novo. Midwest Neurosciences Assocs., LLC v. Great Lakes Neurosurgical
Assocs., LLC, 2018 WI 112, ¶38, 384 Wis. 2d 669, 920 N.W.2d 767. In
considering the issue that we determine to be dispositive under the merger
doctrine, we are not called on to interpret the meaning of any specific provision in
the contract here, including the arbitration clause. Instead, we address only the
legal issue of whether the merger doctrine applies based on the undisputed facts.
See Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, ¶5, 242 Wis. 2d
355, 626 N.W.2d 319 (applying standard de novo review on summary judgment to
a merger issue).

¶11 Turning to the substance of the merger doctrine, this court in 1985
adopted the doctrine as formulated in the RESTATEMENT (SECOND) OF JUDGMENTS
(1982).2 Waukesha Concrete Prods. v. Capitol Indem. Corp., 127 Wis. 2d 332,
343-44, 379 N.W.2d 333 (Ct. App. 1985). The doctrine “is a common-law
principle applied throughout all state and federal forums, in a basically consistent
manner.” Production Credit Ass’n v. Laufenberg, 143 Wis. 2d 200, 205, 420
N.W.2d 778 (Ct. App. 1988).

¶12 The merger doctrine as adopted in Wisconsin provides:

When a valid and final personal judgment is
rendered in favor of the plaintiff:

(1) The plaintiff cannot thereafter maintain an
action on the original claim or any part thereof, although
[the plaintiff] may be able to maintain an action upon the
judgment; and
2
The American Law Institute published the first version of this restatement in 1942 and
the RESTATEMENT (SECOND) OF JUDGMENTS in 1982. See https://www.ali.org/
publications/show/judgments/. We cite to the 1982 version, and for its commentary we refer to
the version updated in June 2024. We refer to all citations to this version and its commentary as
the “RESTATEMENT.”

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(2) In an action upon the judgment, the defendant
cannot avail [the defendant itself] of defenses [that the
defendant] might have interposed, or did interpose, in the
first action.

Waukesha Concrete, 127 Wis. 2d at 343-44 (quoting RESTATEMENT § 18). One
comment to the current version of the RESTATEMENT elaborates in the following
terms:

When the plaintiff recovers a valid and final
personal judgment, [the plaintiff’s] original claim is
extinguished and rights upon the judgment are substituted
for it. The plaintiff’s original claim is said to be “merged”
in the judgment. It is immaterial whether the defendant had
a defense to the original action if [the defendant] did not
rely on it, or if [the defendant] did rely on it and judgment
was nevertheless given against [the defendant]. It is
immaterial whether the judgment was rendered upon a
verdict or upon a motion to dismiss or other objection to
the pleadings or upon consent, confession, or default.

RESTATEMENT § 18 cmt. a. As this court has stated, “[b]y operation of merger,
upon entry of judgment, the contract sued upon loses all of its vitality and ceases
to bind the parties to its execution.” Production Credit, 143 Wis. 2d at 205.

¶13 The merger doctrine was applied in Waukesha Concrete in the
context of a claim by a supply company against the surety of a contractor.
Waukesha Concrete, 127 Wis. 2d at 344. The supply company as creditor sought
to enforce the interest rate based on terms in its contract with the contractor, which
called for a higher rate post-judgment. Id. at 343. However, the contractual
interest rate was extinguished upon the entry of a final judgment, and in its place a
“new cause of action based upon the judgment” called for a new rate of interest at
the lower statutory rate. Id. at 344. Turning to Production Credit, this court
concluded there that, once rights and obligations in a contract have been merged
into the judgment, post-merger attempts to collect costs and attorney’s fees that

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were authorized only by the merged contract could not be sustained. See
Production Credit, 143 Wis. 2d at 204-07 (“In the absence of an express
agreement otherwise, the obligation of a debtor to pay the creditor’s costs and fees
of collection or foreclosure is merged in a judgment in favor of the creditor.”).

¶14 With this precedent in mind, and based on the briefing of the parties,
we conclude that the merger doctrine applies here to preclude enforcement of the
arbitration clause contained in the contract. In the words of the RESTATEMENT
formulation, “a valid and final personal judgment” was “rendered in favor of”
Credit Acceptance. Therefore, Credit Acceptance “cannot thereafter maintain an
action on” “any part” of “the original claim,” which was based on the contract,
except that Credit Acceptance can “maintain an action upon” the money judgment
it obtained. See RESTATEMENT § 18.

¶15 It is true that Credit Acceptance is not now pursuing a new action
against the Laceys. The Laceys are suing Credit Acceptance. But the nature of
the new action is exclusively directed at Credit Acceptance’s alleged conduct in
enforcing the judgment. There can be no dispute that the arbitration clause in the
contract here formed, in the words of the test under the merger doctrine, “any part”
of the contractual benefits for which that the parties are presumed to have
bargained. As Credit Acceptance itself points out, the claims in the current action
that it seeks to arbitrate did not even accrue until long after the contract action was
resolved in the judgment that Credit Acceptance sought and obtained. Here,
through “operation of merger, upon entry of judgment, the contract sued upon
[lost] all of its vitality and cease[d] to bind the parties to its execution.” See
Production Credit, 143 Wis. 2d at 205.

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¶16 We now address Credit Acceptance’s arguments to the contrary,
which are not robustly developed.

¶17 Credit Acceptance argues that the Laceys failed to preserve this
merger doctrine argument by failing to raise it in the circuit court. To be sure, the
argument that the Laceys made in the circuit court on this issue was not as well
developed as the argument that they present on appeal. But we now explain why
we conclude that the argument was sufficiently preserved in the circuit court.

¶18 Appellate courts strive to avoid reversals that would “blindside trial
courts ... based on theories which did not originate in their forum,” and therefore it
is not enough to raise general, related issues in order to preserve particular
arguments for appellate review. See State v. Rogers, 196 Wis. 2d 817, 827, 539
N.W.2d 897 (Ct. App. 1995) (explaining that the forfeiture rule requires that, to
preserve its arguments, a party must “make all of [its] arguments to the trial
court”). This court need not, but typically will, reject arguments raised for the first
time on appeal. See State v. Kaczmarski, 2009 WI App 117, ¶7, 320 Wis. 2d 811,
772 N.W.2d 702 (forfeiture is a rule of judicial administration and we may
exercise discretion to address issues raised for the first time on appeal).

¶19 As we have noted, the Laceys argued in the circuit court that the
arbitration clause in the contract was “dissolve[d]” when the rights and obligations
of the parties under the contract were “converted” into the money judgment that
Credit Acceptance sought and obtained to resolve the action on the contract. The
Laceys did not use the word “merge” or “merger,” but this recognizably stated the
merger concept.

¶20 Further, in support of their argument in the circuit court, the Laceys
cited a footnote in Menard, Inc. v. Liteway Lighting Prods., 2004 WI App. 95,

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273 Wis. 2d 439, 685 N.W.2d 365, abrogated on other grounds by Kruckenberg
v. Harvey, 2005 WI 43, 279 Wis. 2d 520, 694 N.W.2d 879, and also highlighted
one opinion cited in the Menard footnote, Post v. Schwall 157 Wis. 2d 652, 460
N.W.2d 794 (Ct. App. 1990). The Laceys cited this authority for the proposition
that a “money judgment was sufficient to dissolve the contract between the
parties.” See Menard, 273 Wis. 2d 439, ¶24 & n.4; Post, 157 Wis. 2d at 659-60.3
At and around the cited passages in Post, this court addressed “res judicata”
principles that evoke the merger doctrine.4 See Post, 157 Wis. 2d at 658-60.

3
More specifically, footnote 4 of Menard states:

To the extent Menard’s argument relates to a timeline
wherein the judgment was satisfied and then items were
returned, Liteway was given a money judgment, not a replevin
judgment. The money judgment was sufficient to dissolve the
contract between the parties, giving Liteway a right to payment
and Menard ownership of the goods, defective or not. See Post
v. Schwall, 157 Wis. 2d 652, 659-60, 460 N.W.2d 794 (Ct. App.
1990). Permitting Menard to return the goods after judgment as
a means of satisfying the judgment is to allow Menard to elect
Liteway’s remedy.

Menard, Inc. v. Liteway Lighting Prods., 2004 WI App. 95, ¶24 n.4, 273 Wis. 2d 439, 685
N.W.2d 365 (emphasis added), abrogated on other grounds by Kruckenberg v. Harvey, 2005 WI
43, 279 Wis. 2d 520, 694 N.W.2d 879.
4
As this court has explained, under the approach used in the RESTATEMENT, the merger
doctrine “is an aspect of res judicata”:

the term “res judicata” is used in a broad sense to include three
concepts: “merger—the extinguishment of a claim in a judgment
for plaintiff; bar—the extinguishment of a claim in a judgment
for defendant; and issue preclusion—the effect of the
determination of an issue in another action between the parties
on the same claim … or a different claim….”

Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, ¶9 & n. 5, 242 Wis. 2d 355, 626
N.W.2d 319 (quoting RESTATEMENT ch. 3, intro. note (1982)).

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¶21 On this record, we conclude that reversal on this issue would not
blindside the circuit court. Moreover, our addressing the issue is not unfair to
Credit Acceptance, which had an opportunity in the circuit court, and now again
on appeal, to provide persuasive arguments that the merger doctrine does not
apply here.

¶22 Moving to the merits of the merger argument, Credit Acceptance
does not rely on any particular language in the arbitration agreement to support its
position that the merger doctrine does not apply, and therefore we do not
reproduce that language in detail. It is sufficient to acknowledge that the contract
contains broad language entitling either side to arbitrate any “dispute” “arising out
of or in any way related to” the contract. Further, given our conclusion that the
merger doctrine applies, we need not reach separate disagreements between the
parties about how the contract defined “a dispute” that could be arbitrated at the
election of either side of the contract, about whether Credit Acceptance waived
arbitration through its litigation conduct, or about whether the waiver issue must
be decided by a court or an arbitrator.

¶23 Credit Acceptance correctly notes that in both Production Credit
and Waukesha Concrete, as reflected in our summaries above, the topics that were
deemed merged did not include a right to arbitration. But Credit Acceptance fails
to develop and support an argument that any aspect of the merger doctrine as
adopted in Wisconsin excludes arbitration as a topic that may be subject to the
merger doctrine.

¶24 Nor does Credit Acceptance distinguish Wisconsin case law by
directing us to material differences between the contract claims here and the
contract claims that have been deemed merged into judgments in prior cases. For

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example, Credit Acceptance does not identify how the Laceys’ claims relate to
obligations of either party under the contract that were not resolved by the
judgment. Credit Acceptance accurately observes that the parties bound
themselves in the contract to the obligations of the arbitration clause. But the only
topics that Credit Acceptance now seeks to arbitrate (its alleged wrongdoing in
collection efforts) are based on the judgment that resulted from the already-
litigated breach of contract claim. For similar reasons, in Production Credit, we
rejected the creditor’s argument that the contractual right to attorney’s fees and
costs was not merged into the judgment because this right was “separable” from
the debtor’s obligation to make loan payments. See Production Credit, 143
Wis. 2d at 206. This was because the obligation to pay fees and costs “arose out
of the loan agreement,” which “contemplated [only] one indebtedness.” See id.

¶25 In order for Credit Acceptance to prevail here, it would need to
identify an exception to the merger doctrine, or a way to distinguish the merger
doctrine case law, because the merger doctrine as described in Wisconsin cases is
generally sweeping and unqualified: “[b]y operation of merger, upon entry of
judgment, the contract sued upon [lost] all of its vitality and cease[d] to bind the
parties to its execution.” See id. at 205 (emphasis added).

¶26 Bank of Sun Prairie is an example of a case in which an argument
based on the merger doctrine was denied, but Credit Acceptance fails to develop
an argument that any statement in that case supports its argument here. To the
contrary, the discussion in Bank of Sun Prairie implicitly treats the merger
doctrine as generally sweeping in its reach. Starting from that implicit premise,
the opinion carefully explains why the doctrine does not apply in one particular
context involving enforcement actions for property held as collateral for a debt. In
doing so, we addressed at length, and rejected, an argument that an action for

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foreclosure of a mortgage should be dismissed based on the merger doctrine
because the mortgage holder had previously obtained a deficiency judgment in a
foreclosure action on a different mortgage, involving different property, that
secured the same debt. Bank of Sun Prairie, 242 Wis. 2d 355, ¶¶6-21; see id.,
¶¶8-9 (citing RESTATEMENT cmt. g, which provides in part that “[t]he creditor
retains the right to enforce a lien or gain possession of property held as collateral
for the debt”). The analysis turned on legal rules specifically permitting an action
to foreclose on a mortgage securing a debt that has been reduced to a judgment,
and the court’s conclusion was that the judgment did not preclude the mortgage
holder “from seeking foreclosure on a different mortgage on different property
that secures the same debt.” Id., ¶¶8-21. As noted, Credit Acceptance does not
explain why the arbitration clause here is not subject to the merger doctrine, either
in a manner analogous to the enforcement of a lien on another property as in Bank
of Sun Prairie, or through some other category of exclusions to the doctrine.

¶27 Separately, Credit Acceptance briefly cites as persuasive authority
two federal district court opinions. We conclude that neither opinion is persuasive
here.

¶28 Morrison v. Midland Funding, LLC, No. 20-CV-6468-FPG, 2021
WL 2529618 (W.D.N.Y. June 21, 2021), is readily distinguishable, and it is also
not persuasive. In Morrison, a credit card agreement that was the subject of a
default judgment and subsequent collection efforts contained a provision which
stated that the eventual creditor “will not require [the eventual debtor] to
arbitrate[ in] a case we file to collect money you owe to us. However, if you
respond to the collection lawsuit by claiming any wrongdoing, we may require
you to arbitrate.” Id. at *4. This aspect of the facts in Morrison significantly
distinguishes it from this case. Here, we do not have an underlying contract that

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explicitly contemplated arbitration in the context of a later lawsuit alleging
wrongdoing in collection efforts on the judgment resulting from an action on the
contract. As acknowledged above, the contract here contains broad language
entitling either side to arbitrate any “dispute” “arising out of or in any way related
to” the contract. But unlike the contract in Morrison, the contract here does not
specifically contemplate the Laceys eventually claiming wrongdoing in response
to collection efforts made on a judgment.

¶29 Further, the court in Morrison does not satisfactorily address the fact
that the collection actions sought to be arbitrated there (involving claims filed
under the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq.) were not
taken pursuant to the credit card agreement that had been reduced to a default
judgment, but instead the collection actions were taken pursuant to the default
judgment. See Morrison, No. 20-CV-6468-FPG, at **3-5. For example, the court
in Morrison states that the merger doctrine could not apply to avoid enforcement
of the arbitration clause, because this would render contracts “meaningless
whenever a party breached any portion of an agreement and the other party
obtained a judgment on such breach.” Id. at *4. This concern by the court in
Morrison may be implicitly premised on the scenario in which a lawsuit based on
a contract is resolved in a manner that produces a judgment as to some claims, but
reserves the parties’ rights regarding one or more additional claims. Credit
Acceptance does not suggest that any such claim-splitting event occurred here at
the time it sought and obtained the judgment on the contract. And we see no basis

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to think that there was.5 In short, Credit Acceptance gives us no reason to
conclude that all terms of the contract here, including the arbitration clause, were
not merged into the judgment. Therefore, at least so far as Credit Acceptance
argues its position, the reasoning in Morrison does not apply here in the face of
clear Wisconsin law defining the merger doctrine.

¶30 Similarly, we do not consider persuasive the briefly stated reasoning
in the other opinion cited by Credit Acceptance, and the opinion may rest on
California law that is not operative in Wisconsin. See Muschetto v. Kenosian &
Miele, LLP, No. SACV-17-1020 JVS (DFMx), *3, 2017 WL 10562628 (C.D. Cal.
Oct. 23, 2017). At bottom, the court in Muschetto, like the court in Morrison,
fails to provide a satisfactory explanation for treating an arbitration clause as a
term of a contract that is necessarily, or even arguably, what the court deems to be
“separate from those [terms] that resulted in a prior judgment.” See Muschetto,
No. SACV-17-1020 JVS (DFMx), *3. In the instant case, the parties accepted all
of the rights and obligations stated in the terms contained in a single contract, and
Credit Acceptance’s action on that contract resulted in a single judgment. Under
Wisconsin law, all claims that either side could make under that contract merged

5
We need not, and do not, express any view about whether or how Credit Acceptance
might have been able to preserve its arbitration rights through a different approach to the contract
or to the litigation that produced the judgment that it sought and obtained. See Milton R.
Friedman, FRIEDMAN ON CONTRACTS AND CONVEYANCES OF REAL PROPERTY § 8.18 (7th ed.
2005) (stating that “[t]he effect of merger may be qualified by agreement”). We need not reach
that issue because we are presented with no evidence that the parties here agreed or took any
steps to limit the effect of the merger doctrine before or at the time the judgment was entered.
That is, Credit Acceptance does not suggest any manner in which the parties purported to
distinguish among the various rights that they had established in the single contract—including
singling out the arbitration clause for special consideration—by the time that Credit Acceptance
sought and obtained a single judgment to resolve its lawsuit against Desjurdin Lacey.

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into the judgment that Credit Acceptance sought and obtained, including any
claims that either party might later want to make to enforce the arbitration clause.

CONCLUSION

¶31 For all of these reasons, we reverse the circuit court’s order granting
the motion to compel arbitration.

By the Court.—Order reversed.

This opinion will not be published. See WIS.
STAT. RULE 809.23(1)(b)5.

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