Chowdhury v. Hansmeier
| Decision Date | 21 February 2019 |
| Docket Number | Case No. 18-cv-1433 (WMW),Case No. 18-cv-0761 (WMW) |
| Parties | Sandipan CHOWDHURY and Booth Sweet LLP, Appellants, v. Paul HANSMEIER, Appellee. Paul Hansmeier, Plaintiff, v. Sandipan Chowdhury and Booth Sweet LLP, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Paul Allen Godfread, Godfread Law Firm, Woodbury, MN, for Appellants.
Paul Hansmeier, Woodbury, MN, pro se.
In these related bankruptcy matters, Appellants/Defendants Sandipan Chowdhury and Booth Sweet LLP (Appellants) appeal the March 7, 2018 order of the United States Bankruptcy Court for the District of Minnesota, which granted summary judgment in favor of Appellee/Plaintiff Paul Hansmeier. Appellants also move to withdraw the underlying adversary proceeding (Adversary Proceeding Number 16-04124) from the bankruptcy court to this Court. For the reasons addressed below, the motion to withdraw is denied and the bankruptcy court's March 7, 2018 summary judgment order is affirmed.
The facts relevant to this dispute arose in November 2012, when AF Holdings, LLC, commenced a copyright-infringement lawsuit against Chowdhury in the United States District Court for the District of Massachusetts. Chowdhury answered the complaint and asserted counterclaims against AF Holdings. Booth Sweet, a Massachusetts law firm, has at all times represented Chowdhury in both the AF Holdings lawsuit and in the underlying bankruptcy proceedings in this case.
The district court entered default judgment against AF Holdings as to Chowdhury's counterclaims on October 22, 2013. In doing so, the district court held AF Holdings, Hansmeier, and several others jointly and severally liable to Chowdhury for a total amount of $ 64,180.80 (the AF Holdings judgment). Hansmeier moved to set aside the default judgment against him, arguing that the judgment against him was void because he was not a party to the AF Holdings lawsuit nor served with process. The district court denied Hansmeier's motion and reaffirmed its prior conclusion that AF Holdings is an alias of Hansmeier and others. Hansmeier appealed the AF Holdings judgment to the United States Court of Appeals for the First Circuit. Meanwhile, the district court certified the AF Holdings judgment for registration in other districts on April 3, 2014. The AF Holdings judgment was registered as a lien on Hansmeier's Minnesota homestead (homestead property) in October 2014.
Hansmeier filed a voluntary petition under Chapter 13 of the Bankruptcy Code on July 13, 2015, in the United States Bankruptcy Court for the District of Minnesota. The schedules attached to Hansmeier's petition identify his interest in the homestead property and list the AF Holdings judgment as a disputed debt. Appellants noted their appearance in the bankruptcy proceedings as "Judgment Creditors" in July 2015 and filed a proof of claim as to the AF Holdings judgment lien several months later.
In November 2015, the United States Trustee moved to convert Hansmeier's bankruptcy case from Chapter 13 to Chapter 7 based on the bad faith of the debtor. Later that month, Hansmeier moved for an order permitting the sale of the homestead property, with $ 71,620.90 of the proceeds of that sale to be used to satisfy the AF Holdings judgment lien on the property. The bankruptcy court granted both motions in December 2015 and appointed Randall L. Seaver as the Chapter 7 Trustee of Hansmeier's bankruptcy estate. The sale of the homestead property closed on December 15, 2015, and a payment of $ 71,620.90 was made to Appellants as full satisfaction of the AF Holdings judgment.1
The First Circuit vacated the AF Holdings judgment on August 4, 2016. As relevant here, the First Circuit observed that Hansmeier had not been properly named and served in the district court action and held that "a judgment cannot be entered against those who are not made parties through proper service." The First Circuit also observed that, contrary to Chowdhury's argument on appeal, "the fact that non-parties do not, or cannot, dispute alter ego allegations that would permit both serving them and holding them liable on the judgment does not obviate the need to call them before the court before entering judgment." Consequently, the First Circuit remanded the case to the district court. Because the bankruptcy proceedings remained ongoing in Minnesota, however, the remanded AF Holdings case was automatically stayed. See 11 U.S.C. § 362.
The Chapter 7 Trustee filed an adversary complaint in the bankruptcy court against Appellants on November 18, 2016, seeking to recover the $ 71,620.90 that had been paid in satisfaction of the AF Holdings judgment, plus costs and interest (the adversary proceeding). Hansmeier subsequently sought declaratory relief against the Chapter 7 Trustee as to which portion of the funds used to satisfy the AF Holdings judgment was the property of the bankruptcy estate. Hansmeier and the Chapter 7 Trustee settled that dispute pursuant to a written settlement agreement. Under the settlement agreement, the Chapter 7 Trustee agreed to assign to Hansmeier the bankruptcy estate's interest in the claims asserted in the adversary proceeding against Appellants for the recovery of the AF Holdings judgment. The settlement agreement also provides that, if Hansmeier recovers any portion of the AF Holdings judgment from Appellants, the bankruptcy estate is entitled to the first $ 25,000, Hansmeier is entitled to the second $ 25,000, and any additional recovered amount will be divided equally between the bankruptcy estate and Hansmeier.
The bankruptcy court approved the settlement agreement between Hansmeier and the Chapter 7 Trustee on December 6, 2017. Subsequently, in January 2018, the bankruptcy court granted Hansmeier's waiver of discharge2 and approved a stipulation to substitute Hansmeier for the Chapter 7 Trustee as the plaintiff in the adversary proceeding. Appellants subsequently moved to dismiss the adversary complaint, and Hansmeier cross-moved for summary judgment. Following a hearing, the bankruptcy court denied Appellants' motion to dismiss and granted Hansmeier's motion for summary judgment on March 7, 2018. This appeal followed.
In bankruptcy proceedings, a district court sits as an appellate court and reviews the bankruptcy court's conclusions of law de novo and its findings of fact for clear error. Reynolds v. Pa. Higher Educ. Assistance Agency , 425 F.3d 526, 531 (8th Cir. 2005). A bankruptcy court's grant of summary judgment is reviewed de novo. Caldwell v. DeWoskin , 831 F.3d 1005, 1008 (8th Cir. 2016).
Summary judgment is proper when, viewing the evidence in the light most favorable to the nonmoving party and drawing all reasonable inferences in that party's favor, there is "no genuine dispute as to any material fact" and the moving party is "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Fed. R. Bankr. P. 7056 (); see also Windstream Corp. v. Da Gragnano , 757 F.3d 798, 802-03 (8th Cir. 2014). A genuine dispute as to a material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The nonmoving party must cite "particular parts of materials in the record" that support any assertion that a fact is genuinely disputed. Fed. R. Civ. P. 56(c)(1)(A) ; accord Krenik v. Cty. of Le Sueur , 47 F.3d 953, 957 (8th Cir. 1995).
Appellants argue that the bankruptcy court lacked subject-matter jurisdiction over Hansmeier's claims in the adversary proceeding and that this Court should withdraw the adversary proceeding from the bankruptcy court to this Court. Appellants also contend that, even if there were subject-matter jurisdiction, the bankruptcy court erred by granting summary judgment to Hansmeier for several reasons. The Court addresses each argument in turn, beginning with Appellants' jurisdictional arguments.
Bankruptcy courts have subject-matter jurisdiction over civil proceedings "arising under title 11, or arising in or related to cases under title 11." In re McDougall , 587 B.R. 87, 90 (8th Cir. BAP 2018) (quoting 28 U.S.C. § 1334(b) ). Such proceedings are either "core proceedings" or "non-core, related proceedings." Id. A core proceeding is a proceeding "that arises only in bankruptcy or involves a right created by federal bankruptcy law." Id. (internal quotation marks omitted). Non-core related proceedings "do not invoke a substantive right created by federal bankruptcy law and could exist outside of a bankruptcy, although they may be related to a bankruptcy." Id. (internal quotation marks omitted). Here, Appellants argue that the bankruptcy court lacked subject-matter jurisdiction over the adversary proceeding because it was neither a core proceeding nor a non-core related proceeding.
Core proceedings are those either "arising under" federal bankruptcy law or "arising in" a case brought under federal bankruptcy law. In re Farmland Indus., Inc. , 567 F.3d 1010, 1017-18 (8th Cir. 2009) (quoting 28 U.S.C. § 157(b)(1) ). Proceedings "arising under" federal bankruptcy law are "those proceedings that involve a cause of action created or determined by a statutory provision of title 11." Id. at 1018 (internal quotation marks omitted). Proceedings "arising in" a bankruptcy case are proceedings "that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy." Id. (internal quotation marks omitted). Proceedings that "arise in" a bankruptcy case involve "claims that by their nature, not their particular factual circumstance, could only arise in the context of a bankruptcy case." Id. (quoting Stoe v. Flaherty , 436 F.3d 209, 218 (3d Cir. 2006) ). Core proceedings may...
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