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In re Hansmeier

United States District Court, D. Minnesota

November 8, 2017

In re PAUL HANSMEIER Debtor.
v.
RANDALL L. SEAVER, Trustee of the Bankruptcy Estate of Paul Hansmeier Appellee. SANDIPAN CHOWDHURY; BOOTH SWEET, LLP, Appellant,

          Paul A. Godfread, GODFREAD LAW FIRM, P.C., for appellant;

          Matthew D. Swanson, FULLER, SEAVER, SWANSON & KELSCH, P.A., for appellee.

          MEMORANDUM OPINION AND ORDER REVERSING THE BANKRUPTCY COURT ORDER

          JOHN R. TUNHEIM Chief Judge United States District Court.

         In 2013, Appellants Sandipan Chowdhury and Booth Sweet, LLP, obtained a judgment against Debtor Paul Hansmeier in the United States District Court for the District of Massachusetts. The judgment was attached as a lien against Hansmeier's condominium. Subsequently, Hansmeier filed for bankruptcy. Hansmeier's condominium was sold and the Chapter 7 Trustee (“Trustee”) approved payment of the judgment.

         In 2016, the First Circuit vacated Chowdhury and Booth Sweet's judgment and remanded the case to the United States District Court. The Trustee brought an adversary proceeding in Bankruptcy Court against Chowdhury and Booth Sweet seeking recovery of the amount paid on the judgment. After Chowdhury and Booth Sweet did not respond to the complaint, the Trustee filed for default judgment without first filing for an entry of default. The Bankruptcy Court entered default judgment and, ultimately, denied Chowdhury and Booth Sweet's motion to vacate. Because the Bankruptcy Court did not follow the proper two-step procedure required by Federal Rule of Civil Procedure 55, this Court will construe the Bankruptcy Court's default judgment as an entry of default and will reverse and remand the case to the Bankruptcy Court for further proceedings consistent with this opinion.

         BACKGROUND

         I. AF HOLDINGS, LLC V. CHOWDHURY

         On November 13, 2012, AF Holdings brought a copyright-infringement action in the United States District Court for the District of Massachusetts against Chowdhury alleging that Chowdhury knowingly and illegally reproduced and distributed a copyrighted video allegedly owned by AF Holdings. Complaint ¶ 1, AF Holdings, LLC v. Sandipan Chowdhury, No. 12-cv-12105-JLT (D. Mass. Nov. 13, 2012). Prenda Law, Inc., represented AF Holdings in the copyright action. Chowdhury brought counterclaims against AF Holdings including unfair or deceptive conduct in violation of Massachusetts law. Answer ¶¶ 49-59, Chowdhury, No. 12-cv-12105-JLT. Booth Sweet represented Chowdhury.

         While AF Holdings' action against Chowdhury was pending, the United States District Court for the Central District of California concluded that AF Holdings and Prenda Law were the alter egos of Hansmeier and his partners, who collectively forged the signature of Alan Cooper, the groundskeeper of one of Hansmeier's partners, on the copyright assignment of a different video. See Ingenuity 13 LLC v. Doe, No. 2:12-cv-8333-ODW(JCx), 2013 U.S. Dist. LEXIS 64564, at *6-9 (C.D. Cal. May 6, 2013). In light of these revelations, Chowdhury moved for default judgment, alleging that AF Holdings fraudulently signed Cooper's name on the copyright assignment of the video Chowdhury allegedly distributed. Mem. Supp. Def.'s Mot. Default J. at 2-3, Chowdhury, No. 12-cv-12105-JLT. The United States District Court for the District of Massachusetts granted Chowdhury's motion and awarded Chowdhury $64, 180.80 with interest. Final Judgment (“Chowdhury Judgment”), Chowdhury, No. 12-cv-12105-JLT. On October 17, 2014, the Chowdhury Judgment was attached as a lien against Hansmeier's Minnesota condominium.

         AF Holdings appealed the Chowdhury Judgment to the United States Court of Appeals for the First Circuit. On August 4, 2016, the First Circuit vacated the Chowdhury Judgment as to Hansmeier on jurisdictional grounds and remanded the matter to the United States District Court for the District of Massachusetts. AF Holdings, LLC v. Chowdhury, No. 13-2535 (1st Cir. Aug. 4, 2016).

         II. Hansmeier's Bankruptcy

         On July 13, 2015, Hansmeier filed a voluntary Chapter 13 bankruptcy petition. (App. at 19, U.S. Trustee's Mot. to Convert Case to Chapter 7 (“Mot. to Convert”) ¶ 18, June 1, 2017, Docket No. 15.) In September or October 2015, Hansmeier listed his condominium for sale without notifying the Chapter 13 trustee. (Id. at 18-19, Mot. to Convert ¶ 16.) In November 2015, Hansmeier accepted an offer to sell the condominium for $1, 200, 000 and moved for approval to sell the condominium. (Id.; App. at 35, Mot. to Sell Free & Clear.)

         On December 3, 2015, the Bankruptcy Court converted Hansmeier's case to a Chapter 7 case and approved the sale of the condominium but ordered that the proceeds “shall be used at closing only to satisfy the underlying first mortgage on the property, judgment lien, realtor fees, and all other usual and customary closing costs such as deed recording fees paid to the county.” (App. at 68-69, Order at 1-2.) On December 15, 2015, the condominium was sold and the Chowdhury Judgment was included among the closing costs. (App. at 70, ALTA Settlement Statement.) The Chapter 7 Trustee approved the terms of the sale and payment of the Chowdhury Judgment.

         Following the First Circuit's vacatur of the Chowdhury Judgment on August 4, 2016, the Chapter 7 Trustee demanded recovery of the amount paid to satisfy the judgment. (App. at 268-69, Letter from Matthew D. Swanson to Edward P. Sheu (Oct. 25, 2016).) Chowdhury and Booth Sweet objected to repayment of ...


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