Cedar Rapids Lodge & Suites, LLC v. John F. Seibert, Julie Kalla-Bargy Seibert, JFS Dev., Inc.
| Decision Date | 07 February 2018 |
| Docket Number | Case No: 14-CV-04839 SRN/KMM |
| Parties | Cedar Rapids Lodge & Suites, LLC, James T. Rymes, Rhonda Coborn, Michael Coborn, Scott Shisler, Julie Shisler, and Pamela J. Cobb Revocable Trust, Plaintiffs, v. John F. Seibert, Julie Kalla-Bargy Seibert, JFS Development, Inc. f/k/a JCS Development, Inc., Trinity Business Consulting Inc., Royal Business Consulting Corp., and Preferred Business Consulting Corp., Defendants. |
| Court | U.S. District Court — District of Minnesota |
Amy J. Swedberg, Charles G. Frohman, and Martin S. Fallon, Maslon LLP, 90 South Seventh Street, Suite 3300, Minneapolis, Minnesota 55402, and Brian D. Thomas, Chloe F.P. Golden, and Robert H. Miller, Sheehan Phinney Bass & Green P.A., 1000 Elm Street, Manchester, New Hampshire 03105, for Plaintiffs.
Alexander J. Beeby and Thomas J. Flynn, Larkin Hoffman Daly & Lindgren, Ltd., 8300 Norman Center Drive, Suite 1000, Minneapolis, Minnesota 55437, for Defendants.
This matter is before the Court on Defendants' Motion to Dismiss under Rule 12 [Doc. No. 183] ("Motion to Dismiss") and Plaintiffs' Motion for Leave to Amend [Doc. No. 192] ("Motion to Amend"). For the reasons set forth below, the Court grants Plaintiffs' Motion to Amend and denies Defendants' Motion to Dismiss.
When evaluating a motion to dismiss under Rule 12(b)(6), the Court assumes the facts in the complaint to be true and construes all reasonable inferences from those facts in the light most favorable to the plaintiff. Hager v. Ark. Dep't of Health, 735 F.3d 1009, 1013 (8th Cir. 2013) (citing Gross v. Weber, 186 F.3d 1089, 1090 (8th Cir. 1999)). Thus, the Court recites the facts as alleged in Plaintiffs' Complaint. Because the Court determines that Plaintiffs' Motion to Amend should be granted in full, see infra Part III.A., it recites the facts and claims as set forth in the proposed Second Amended Complaint [Doc. No. 192-1] ("SAC"), noting changes from earlier pleadings where appropriate.
Plaintiffs are judgment creditors of Defendants John F. Seibert ("John Seibert") and JFS Development, Inc. ("JFS Development"). (SAC ¶¶ 1, 3.) Plaintiffs filed this action in 2014, alleging that Defendants had engaged in various fraudulent transfers to prevent Plaintiffs from collecting their judgment. (See Compl. [Doc. No. 1].)
Defendant John Seibert is a real estate developer residing in Minnesota. (Id. ¶ 4.) Defendant Julie Kalla-Bargy Seibert ("Julie Seibert") is his wife, also residing in Minnesota. (Id. ¶ 8.) JFS Development is a Minnesota hospitality development and management company owned by John Seibert, which was formally dissolved in 2011. (Id. ¶ 75.) Defendant Trinity Business Consulting Inc. ("Trinity") is a Minnesota corporation incorporated by John Seibert in June 2013. (Id. ¶¶ 7, 339.) Defendant Preferred Business Consulting Corp. ("Preferred") is a Minnesota corporation incorporated by John Seibert inJanuary 2014. (Id. ¶¶ 5, 118.) Defendant Royal Business Consulting Corp. ("Royal") is a Minnesota corporation incorporated by John Seibert in August 2014. (Id. ¶¶ 6, 230.)
In December 2009, Plaintiffs filed a complaint against John Seibert and JFS Development in Iowa federal district court, alleging, inter alia, fraud, civil racketeering (RICO violations), and breach of fiduciary duty in relation to a hotel development project in Cedar Rapids. (Id. ¶ 12.) The Iowa court entered a judgment against John Seibert for $12,176,735.22 in damages in November 2012, and for $2,150,707.12 in attorneys' fees and costs in January 2013. (Id. ¶¶ 13-14.) The Iowa court entered a judgment against JFS Development for $978,891.39. (Id. ¶ 3.) The Iowa court also issued a $77,928.68 sanctions judgment against John Seibert during the litigation of the Iowa action. (Id. ¶ 24.)
Plaintiffs had filed for prejudgment attachment of assets owned by John Seibert and JFS Development in early 2010, but the motion was denied. (Id. ¶¶ 18-19.) During the three years between the complaint and the judgment in the Iowa action, from late 2009 to late 2012, John Seibert's self-reported net worth changed from approximately $5.4 million to negative $1.3 million. (Id. ¶¶ 15, 21-22.)
Plaintiffs allege that John Seibert liquefied and secreted his assets while publicly holding himself out to be insolvent. In August 2011, at a hearing on Plaintiffs' motion for contempt of court, John Seibert represented to the Iowa court that he was "broke" and could not pay the $77,928.68 sanctions judgment. (Id. ¶ 30.) The Magistrate Judge in that case held John Seibert in contempt of court, but declined to incarcerate him, finding a lack of clear and convincing evidence that he was able to comply with the sanctions order. (Id.¶ 31.) But Plaintiffs allege that, over the course of 2011, John Seibert was "systematically liquidating hundreds of thousands of dollars from his business interests and secreting and/or transferring the cash proceeds." (Id. ¶ 33.) For example, in May 2011, John Seibert liquidated his interest in Forest Lake Enterprises, LLC and Forest Lake Operations, LLC, which operated a Culver's restaurant in Forest Lake, Minnesota, for $173,125.00. (Id. ¶ 34.) Additionally, in October 2011, John Seibert finalized the sale of his interest in a family farm and used $150,000.00 of the $158,928.39 proceeds to pay down the mortgage on his home. (Id. ¶¶ 34, 499.)
After the conclusion of the Iowa action, Plaintiffs took efforts to collect the judgment. In 2012 and 2013, Plaintiffs obtained charging orders against John Seibert's 49% interest in a Culver's restaurant in Monticello, Minnesota. (Id. ¶¶ 36, 39, 43.) Shortly after the second charging order, John Seibert secretly transferred his interest to his son-in-law, Eric Knott, for $10,000.00. (Id. ¶ 46.) The interest was valued at approximately $330,750.00 at the time. (Id. ¶¶ 48-52.)
Between 2010 and 2013, Plaintiffs allege, John Seibert transferred $105,324.23 to his wife Julie Seibert. (Id. ¶ 69.) In 2010, John Seibert liquidated his interest in Coon Rapids Lodge for $35,132.50, and converted the proceeds into cash and a $30,500.00 cashier's check made payable to Julie Seibert. (Id. ¶¶ 56-61.) Plaintiffs allege several other money transfers to Julie Seibert in 2010 and 2011, and also that after John Seibert began working for BriMark Builders, LLC ("BriMark") in 2012, he regularly endorsed his paychecks over to his wife. (Id. ¶¶ 62-68.) John Seibert "retained effective control of these transferred assets, however, by using Julie Seibert's credit card to incur his personalexpenses." (Id. ¶ 71.) Additionally, Plaintiffs allege that JFS Development transferred $7,418.00 to Julie Seibert on February 14, 2011, without receiving reasonably equivalent value in exchange. (Id. ¶ 63.)
John Seibert worked for BriMark from May 2012 to August 2014. (Id. ¶¶ 84-121, 155-58.) The President of BriMark, Brian Wogernese, is a longtime friend and business colleague of John Seibert. (Id. ¶¶ 85, 104.) From May 2012 until June 2013, John Seibert was paid a bi-weekly salary of $910.00 for his work at BriMark. (Id. ¶ 86.) He routinely endorsed these checks over to his wife. (Id. ¶¶ 62-68, 88-93.) In June 2013, Plaintiffs served John Seibert with notice of intent to garnish his wages at BriMark. (Id. ¶ 94.) Immediately, John Seibert stopped receiving regular salary payments from BriMark and instead received "reimbursement of expenses" and a series of irregular "commissions" for executed construction contracts. (Id. ¶¶ 95-98.) One such commission, of $25,927.90, was paid out in the interim between Plaintiffs' notice of intent to garnish wages and service of their first garnishment summons on BriMark. (Id. ¶ 100.) After Plaintiffs sent the garnishment summons to BriMark, Brian Wogernese forwarded to John Seibert an email that he had received from BriMark's attorney, urging Wogernese to "come clean and not try to delay the inevitable" with regard to the garnishment. (Id. ¶ 104.)
Around the same time that Plaintiffs were attempting to garnish his wages with BriMark, John Seibert incorporated the real estate development corporation Trinity. (Id. ¶ 108.) Julie Seibert was named President and sole shareholder, and John Seibert was named Vice-President. (Id. ¶¶ 109-10.) Julie Seibert works as a hairdresser and has no experience or education in real estate development. (Id. ¶ 109.) Plaintiffs allege that JohnSeibert began negotiating with BriMark to have his wages paid to Trinity, but abandoned that course of action to prevent exposing Julie Seibert to liability. (Id. ¶¶ 112-15.)
John Seibert next attempted to be paid by BriMark through his company Preferred, which he incorporated in January 2014 and of which he was the President and sole shareholder. (Id. ¶ 118.) Plaintiffs allege that no corporate formalities were observed in the incorporation of Preferred, and that Preferred's principal place of business and registered business address is John Seibert's home. (Id. ¶¶ 125-26.)
John Seibert negotiated with BriMark to establish a "Sales Representative Agreement" between Preferred and BriMark, and directed BriMark's billing department to make the check for his next expense reimbursement out to Preferred. (Id. ¶¶ 132-33.) John Seibert ostensibly terminated his employment with BriMark on February 11, 2014, but continued his development work for the company and began submitting invoices, through Preferred, as an independent contractor. (Id. ¶¶ 136-42.) Shortly after John Seibert's employment with BriMark purportedly ended, however, Plaintiffs discovered that he was still representing BriMark publicly. (Id. ¶¶ 144-45.) Plaintiffs inquired with BriMark as to whether John Seibert had been rehired on March 18, 2014, and while BriMark initially stated that he had not, it official rehired John Seibert ten days later. (Id. ¶¶ 146-55.) John Seibert worked for BriMark for five...
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