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Siebert v. Cedar Rapids Lodge & Suites, LLC

United States District Court, D. Minnesota

April 10, 2018

John F. Seibert, Appellant,
v.
Cedar Rapids Lodge & Suites, LLC, James T. Rymes, Rhonda Coborn, Michael Coborn, Scott Shisler, and Julie Shisler, Appellees.

          Alexander J. Beeby and Thomas J. Flynn, Larkin Hoffman Daly & Lindgren, Ltd., for Appellant.

          Amy J. Swedberg, Maslon LLP, and Chloe F.P. Golden and Robert H. Miller, Sheehan Phinney Bass & Green P.A., for Appellees.

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, United States District Judge

         Appellant John F. Seibert (“Seibert”) appeals the September 28, 2017 decision of the United States Bankruptcy Court for the District of Minnesota (“Bankruptcy Court”) in the matter of Cedar Rapids Lodge & Suites, LLC v. Seibert (In re Seibert), 16-BKY-41993, 16-ADV-4103, which granted summary judgment to Appellees Cedar Rapids Lodge & Suites, LLC, James T. Rymes, Rhonda Coborn, Michael Coborn, Scott Shisler, and Julie Shisler (“Appellees”) in their adversary proceeding against Seibert. The Bankruptcy Court held that certain judgment debt that Seibert owes to Appellees was excepted from discharge in his bankruptcy. For the reasons set forth herein, the Court affirms the decision of the Bankruptcy Court.

         I. BACKGROUND

         Seibert is a real-estate developer. He was involved in a hotel development project in Cedar Rapids, Iowa. After the development project failed, Appellees sued Seibert in United States District Court for the Northern District of Iowa.[1] (See Cedar Rapids Lodge & Suites, LLC v. JFS Dev't, Inc., No. 09-cv-175 (LRR/JSS) (N.D. Iowa).) Appellees alleged that Seibert fraudulently induced them to invest in the hotel development project and then mishandled the financing, construction, and management of the project. (Tr. of Sept. 26, 2017 Hr'g [Doc. No. 12] (“Tr.”), at 43.) The complaint alleged several claims, including civil racketeering (“RICO”) and fraud. (Id. at 43-44.)

         The Bankruptcy Court accurately described the Iowa case as “a lengthy and highly contentious lawsuit.” (Id.) During two and a half years of litigation, the Iowa court ruled on many motions to compel and motions for sanctions. (See Cedar Rapids, No. 09-cv-175 [Doc. Nos. 95, 103, 108, 113, 171, 193, 216, 246].) Less than a year after the suit was filed, the Iowa court granted Seibert's attorney's motion to withdraw from the case for Seibert's failure to pay fees. (Id. [Doc. No. 95] (Ruling on Pretrial Motions, at 2-4).) After that, Seibert continued to participate in the litigation pro se. (See Tr., at 44.) The Iowa court granted Appellees' motion to compel Seibert to produce certain computer systems and hardware, and it ordered Seibert to pay the cost of forensic computer examination. (Cedar Rapids, No. 09-cv-175 [Doc. No. 164] (Order dated Oct. 3, 2011, at 2-3).) When Seibert failed to pay the cost of the forensic computer examination, the Iowa court granted Appellees' motion for contempt of court. (Id. at 7-10.)

         Appellees moved several times for sanctions against Seibert, asking the Iowa court to enter a default judgment for Seibert's discovery violations. (See Id. [Doc. Nos. 105, 136, 204, 238].) The Iowa court consistently declined to enter default judgment as a sanction. (See Id. [Doc. Nos. 108, 193, 216, 246].) The court found insufficient proof of bad faith in Seibert's discovery and pretrial practices to justify the harsh penalty of default judgment. (See Id. [Doc. No. 216] (Order dated Jan. 18, 2012, at 3-4, 7-8).) The Iowa court did enter a sanction against Seibert for failure to comply with witness and exhibit disclosure deadlines. The court held that Seibert would not be permitted to present witnesses or exhibits at trial that had not been disclosed in compliance with pre-trial disclosure deadlines. (Id. at 8-10.)

         After his attorney withdrew, Seibert continued to actively litigate the Iowa case for some time, filing motions and briefs opposing Appellees' motions. (See Id. [Doc. Nos. 109, 116, 140-41, 148, 165].) He filed a motion for sanctions against the Plaintiffs' attorney, which was denied. (Id. [Doc. Nos. 166, 193].) In late 2011, Seibert was diagnosed with cancer. He filed a motion to continue the trial date, at his oncologist's recommendation, until 90 days after a scheduled surgery. The Iowa court granted the motion to continue. (Id. [Doc. Nos. 205, 216].) Five months later, Seibert filed a motion to continue the trial date for 90 additional days while he began radiation treatment, which was also granted. (Id. [Doc. Nos. 237, 246].)

         On August 20, 2012, two days before the final pretrial conference was scheduled to take place, Seibert sent the Iowa court a letter stating, “due to my health I will not be attending the pre-trial or trial in the upcoming weeks. I had been hopeful that my condition would improve, however the effects and side effects of my treatments have not subsided.” (Id. [Doc. No. 253].) Seibert did not move for another continuance and did not submit any additional documentation from his oncologist. When Seibert did not appear at the final pretrial conference, Appellees moved for a default judgment under Federal Rule of Civil Procedure 55(a). (Id. [Doc. No. 255].)

         The Iowa court delayed ruling on the motion for default judgment and scheduled an evidentiary hearing to determine damages. (Id. [Doc. No. 257].) Seibert moved to continue the evidentiary hearing. The court denied Seibert's motion, instructing him that he could appear telephonically to accommodate his cancer treatments. (Id. [Doc. No. 261].) Seibert did not appear, in person or remotely, at the evidentiary hearing.[2] (Id. [Doc. No. 267] (Order dated Oct. 24, 2012, at 2).) The court issued an order granting a default judgment for Seibert's failure to appear, and awarding $12, 176, 735.22 for Seibert's fraud and RICO violations. (Id. at 3-10.) The Iowa court made no specific factual findings about Seibert's liability. Instead, the court stated that the “‘facts alleged in complaint are taken as true, except facts relating to the amount of damages.'” (Id. at 3 (quoting Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir. 2001).)

         On June 30, 2016, Seibert declared bankruptcy under Chapter 7 of the Bankruptcy Code. (Tr., at 42-43.) Appellees filed an adversary action in the United States Bankruptcy Court for the District of Minnesota, seeking a determination that Seibert's judgment debt from the Iowa case was not dischargeable in bankruptcy. (Appellant's App. [Doc. No. 16], Ex. 2 [Doc. No. 16-1] (Adv. Compl.).) Appellees moved for summary judgment, arguing that the debt was dischargeable under 11 U.S.C. § 523(a)(2)(A), because it was a debt obtained by “false pretenses, a false representation, or actual fraud.” Appellees asserted that the Iowa court's judgment collaterally estopped Seibert from contesting that his judgment debt was obtained by fraud. (Tr., at 42.)

         The Bankruptcy Court agreed. The Bankruptcy Court held that the only contested issue was whether collateral estoppel is applicable to a default judgment like the one entered against Seibert. (Tr., at 51.) The Bankruptcy Court stated that “courts agree that a default judgment can serve as a basis for applying collateral estoppel if the party against whom the judgment is used had a full and fair opportunity to defend the claims.” (Id. at 52 (citing In re Bush, 62 F.3d 1319 (11th Cir. 1995); In re Brandl, 179 B.R. 620 (Bankr. D. Minn. 1995)).)

         The Bankruptcy Court rejected Seibert's argument that he did not have a full and fair opportunity to defend the suit because of his cancer, noting that the Iowa court had “follow[ed] the recommendations of Mr. Seibert's oncologist” when it continued the trial twice. (Id. at 53.) Additionally, the Bankruptcy Court pointed to an admission that Seibert had made earlier in the adversary proceeding, acknowledging that his decision to take a default had been informed by his bankruptcy attorney's advice “not to participate in trial, for legal and tactical reasons.” (See In re Seibert, 16-ADV-4103 [Doc. No. 16] (Resp. to Mot. of Thomas F. Miller to Withdraw, ¶ 3); Tr., at 53-54.) Ultimately, the Bankruptcy Court found that Seibert “actively and substantially participated” in the Iowa suit, had a full and fair opportunity to defend the suit, and “specifically chose not to participate in the trial or damages hearing.” (Tr., at 54.) The Bankruptcy Court held that collateral estoppel applied to bar Seibert from contesting summary judgment, stating, “[c]ollateral estoppel cannot be avoided by failing to appear and plead, especially when the party has been actively involved in the lawsuit up until the final trial or hearing on damages.” (Id. at 54.)

         The Bankruptcy Court determined that the damages award and attorneys' fees award from the Iowa suit were excepted from discharge in bankruptcy. (Id. at 57-58.) It further determined that Seibert's debt from an earlier judgment in that litigation, holding Seibert in ...


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