Liebing v. Sand

• Decision Date: 26 March 2018
• Docket Number: No. 17-CV-142-LRR,17-CV-142-LRR
• Court: U.S. District Court — Northern District of Iowa
• Parties: ROGER LIEBING, et al., Plaintiffs, v. ROBERT SAND, et al., Defendants.

ROGER LIEBING, et al., Plaintiffs, v. ROBERT SAND, et al., Defendants.

No. 17-CV-142-LRR

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF IOWA CEDAR RAPIDS DIVISION

March 26, 2018

REPORT AND RECOMMENDATION

TABLE OF CONTENTS

I. Background ...................................................................................... 3

II. The Southern District of Iowa Complaint .................................................. 5

III. The SDIA Order Dismissing Plaintiffs' Complaint ....................................... 9

IV. The Instant Complaint ....................................................................... 10

V. Applicable Law Regarding Defendants' Motion to Dismiss ........................... 18

VI. Defendants' Motion to Dismiss ............................................................ 19

A. Standing ...................................................................................... 20

B. Defendant Prosecutors are Entitled to Immunity From Suit ........................ 21

C. Defendant Judges are Entitled to Absolute Immunity ................................ 23

D. Defendant Investigators are Entitled to Absolute Immunity ........................ 26

E. Other Grounds for Dismissal Against Non-Prison Defendants ..................... 27

1. Whether Litigation is Barred by the Rooker-Feldman Doctrine ................. 28 2. Whether Litigation is Barred by Heck v. Humphrey ............................... 30

3. Whether Litigation is Barred by Issue Preclusion .................................. 31

4. Whether Plaintiffs Have Exhausted Iowa Tort Claims Act ....................... 32

5. Whether Claims are Barred by the Statute of Limitations ........................ 32

F. Claims Against the Prison Defendants .................................................. 33

1. Failure to Exhaust Administrative Remedies ....................................... 35

2. Claims Against Defendants in Their Official Capacities .......................... 37

3. Lack of Substantive Allegations Against Individual Defendants ................. 37

4. Failing to Allege the Discipline has Been Reversed or Invalidated ............. 38

5. Failure to Allege Segregation Was Atypical or Significant ....................... 39

6. Failure to Allege Prejudice Regarding Access to Courts ......................... 41

G. Defendants' Claim of Qualified Immunity ............................................. 42

VII. Defendants' Motion For Sanctions ....................................................... 43

VIII. Conclusion .................................................................................. 45

This matter is before me for a Report and Recommendation regarding defendants' motions to dismiss the complaint (Doc. 36) and for sanctions (Doc. 38). Plaintiffs allege a violation of constitutional rights and bring this suit pursuant to Title 42, United States Code, Section 1983.¹ For the reasons that follow, I respectfully recommend the Courtdismiss the complaint with prejudice. Regarding defendants' motion for sanctions, I respectfully recommend the Court deny defendants' motion for sanctions for failure to comply with Rule 11, but consider imposing sanctions sua sponte because another federal court dismissed many of the same baseless claims.

I. BACKGROUND

In June 2011, the State of Iowa charged plaintiff Alan Lucas with the crimes of first degree theft, ongoing criminal conduct, and money laundering. Iowa v. Lucas, FECR094149 (Linn Cnty., Iowa Dist. Ct.). In October 2013, Lucas was convicted in state court of ongoing criminal conduct and first degree theft (the state having dismissed the money laundering charge before trial). The court sentenced defendant to thirty years in prison. Assets seized by the state pursuant to the criminal case, including a BMW vehicle, were liquidated and the proceeds were provided to the clerk of court for distribution to the victims. The Iowa Court of Appeals affirmed Lucas' conviction. See Iowa v. Lucas, 870 N.W.2d 687 (Table), 2015 WL 4468844 (Iowa App. 2015).

In its opinion, the Iowa Court of Appeals summarized the underlying facts as follows:

Covenant Investment Fund, L.P. (Covenant) is a hedge fund formed by Noah Auwles, who acted as the fund's general partner. It consists of a "family" of different funds, or what is known as "a fund of a fund." Some of Covenant's investors complained to the Iowa Insurance Commissioner about its poor performance. Auwles was advised to break up Covenant by liquidating each of the funds and distributing the money to the fund's investors. Auwles liquidated one of Covenant's funds, UltraSharp, before selling Covenant.

In May 2010, Auwles sold Covenant to Lucas for the purchase price of one dollar and Lucas's agreement to assume liability for a $62,540 debt Covenant owed. Lucas owned a number of shell corporations that were not profitable when he took control of Covenant. One of those corporations, Phalanx Technology Holdings, was about to be evicted from its office because it owed $9000 for rent.

When Lucas took control of Covenant, it had $189,000 in the bank from the UltraSharp liquidation. Although that money was supposed to be distributed to investors, Lucas had spent between $157,000 and $167,000 of that $189,000 within a year of assuming control of Covenant. Lucas used Covenant funds to pay the rent for Phalanx Technology Holdings, start-up expenses for a data center Lucas wanted to build, and the salary of the person hired to raise capital for the data center. Lucas also used Covenant funds to purchase a BMW for business and pay a number of personal expenses, including his wife's credit card debt and the property taxes on his personal residence.

2015 WL 4468844, at *1. Lucas unsuccessfully appealed the court's order of restitution. Iowa v. Lucas, 884 N.W.2d 222, (Table), 2016 WL 1705511 (Iowa App. 2016). Lucas had absented himself from trial after the first day and the State subsequently charged him with failure to appear. He was convicted and unsuccessfully appealed that conviction as well. Iowa v. Lucas, 885 N.W.2d 220 (Table), 2016 WL 3272899 (Iowa App. 2016). The State of Iowa also brought a civil suit against Lucas and business entities he controlled for ongoing criminal conduct, consumer fraud, and Blue Sky law violations. The state court entered default judgment against Lucas and his business entities; he again unsuccessfully appealed the entry of default judgment. State ex rel Miller v. Lucas, 839 N.W.2d 675 (Table), 2013 WL 4769374 (Iowa App. 2013).

Following Lucas' conviction and appeals, on September 9, 2014, Lucas was convicted of contempt for violating a protective order by writing letters to the partners in Covenant Investment Fund. Iowa v. Lucas, FECR 094149. Judge Nancy Baumgartner, named as a defendant in the instant litigation, was the judge who entered the judgment against Lucas. On February 16, 2017, Judge Christopher Bruns, also named as a defendant in the instant litigation, found Lucas in contempt of court a second time for contacting the victims of his crimes. Id. Appeals of those contempt convictions are pending.

On July 14, 2016, the same plaintiffs in this case filed a similar lawsuit against many of the same defendants in the United States District Court for the Southern District of Iowa (SDIA), Case No. 16-CV-419. On August 8, 2016, the District Court dismissed the complaint. (16-CV-419, Doc. 8). Plaintiffs allege the dismissal was without prejudice. (17-CV-142, Doc. 42-1, at 10). This is not accurate. There is nothing in the order stating that the dismissal was without prejudice. Thus, the dismissal is properly considered to be with prejudice. Semtek Int'l v. Lockheed Martin Corp., 531 U.S. 497, 506 (2001) (holding that where a court does not specify that an involuntary dismissal is without prejudice, the dismissal operates as one with prejudice). Plaintiffs did not appeal that order. They did, however, later file a motion to set aside and vacate the judgment under Federal Rule of Civil Procedure 60(b). The motion was denied. (16-CV-419, Doc. 12). Plaintiffs did not appeal that order either.

II. THE SOUTHERN DISTRICT OF IOWA COMPLAINT

Because it is important to the issue of sanctions, I will summarize plaintiffs' Southern District of Iowa (SDIA) complaint so that a comparison can later be made between that complaint and the one filed in this Court.

In the SDIA case, plaintiffs filed the action pro se. In a 99-page complaint, plaintiffs sought relief for Lucas' allegedly wrongful arrest and conviction, and for the subsequent loss of cash assets and personal property seized by the State of Iowa as part of the prosecution. Plaintiffs also sought injunctive relief. In the SDIA case, plaintiffs alleged that Covenant Investment Fund (CIF) was organized under Delaware law and attracted limited parties from eight states, including Iowa. Its general partner, Covenant Asset Management, LLC (CAM) was allegedly a limited liability company based in Cedar Rapids, Iowa. CAM's sole business was managing the assets of CIF. CIF and CAM shared offices with Covenant Benefits, LLC and Covenant Advisors. Noah Auwles was "[a]t the center of all of the[se] Covenant entities." (16-CV-419, Doc. 8, at 7).

Plaintiffs further alleged that in 2008, the United States economy suffered significant losses and CIF lost most of its original investment. Plaintiffs alleged that from August 2009 through January 2010, a number of limited partners of CIF approached Lucas about taking over CIF. In 2010, plaintiffs alleged that Lucas, through his company Prosapia Financial, LLC (Prosapia) arranged for Prosapia Capital Management (PAM) to purchase 100% of Auwles' interest in the Covenant entities. Lucas took over as the operating manager of CIF and CAM.

In the SDIA complaint, plaintiffs alleged that the CIF limited partners or investors were informed of these changes and at least one requested to withdraw his investment. When the request was denied, the investor filed a complaint with the Iowa Insurance...