United States District Court, D. Minnesota
John F. Seibert, Appellant,
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.
Swedberg, Maslon LLP, and Chloe F.P. Golden and Robert H.
Miller, Sheehan Phinney Bass & Green P.A., for Appellees.
MEMORANDUM OPINION AND ORDER
RICHARD NELSON, United States District Judge
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
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. (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.)
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
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.)
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.
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].)
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. (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).)
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.)
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)).)
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.)
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 ...