Prime Rate Premium Fin. Corp. v. Larson

Citation930 F.3d 759
Decision Date11 July 2019
Docket NumberNo. 18-2071,18-2071
Parties PRIME RATE PREMIUM FINANCE CORPORATION, INC., Plaintiff-Appellee, v. Karen E. LARSON, Individually and as Personal Representative of the Estate of Keith A. Larson, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

ON BRIEF: Eric A. Parzianello, HUBBARD SNITCHLER & PARZIANELLO, PLC, Plymouth, Michigan, for Appellant. Debra Beth Pevos, JACOB & WEINGARTEN, P.C., Southfield, Michigan, for Appellee.

Before: McKEAGUE, THAPAR, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

After four years of perpetual delays, Prime Rate Premium Finance Corporation obtained a sixth trial date to vindicate its claims that Karen Larson and her late husband, Keith Larson, had bamboozled it out of hundreds of thousands of dollars. Yet the day before trial, after red-flag warnings that the district court would entertain no further extensions, Larson moved for a continuance. Her last-minute motion came with an unsigned doctor’s note, the letterhead of which did not match its signature block. Larson did not show up for trial the next day. The district court found that her motion fell "within a pattern of delaying tactics," including exaggerated medical excuses, disputes with her attorneys, and abuse of the bankruptcy process. Having had enough, the court denied Larson’s motion, struck her answer, granted Prime Rate a default judgment, and awarded it $964,530.48. Larson now argues that the district court’s orders denying a continuance and entering a default judgment abused the court’s discretion and violated her due-process rights. We think not and affirm.

I.

Prime Rate Premium Financing Corporation loans money to businesses to pay their insurance premiums. Karen Larson and her late husband, Keith Larson, ran an insurance agency, Larson’s Insurance Solutions Agency. In 2013, the Larsons’ insurance agency sent Prime Rate fourteen agreements to obtain premium financing for several businesses, ranging from a tree-trimming company to a pizza restaurant. Under each agreement, Prime Rate agreed to pay the Larsons’ agency the total premiums that the insured business owed its insurance company under its year-long policy; the agency agreed to pass along the funds to the insurance company; the insured business agreed to repay Prime Rate in monthly installments. But Prime Rate soon learned that the agreements were fraudulent. The insured businesses refused to pay Prime Rate for several reasons. Among them: the Larsons’ agency had forged the insureds’ names or had not forwarded the loaned funds to the insurance company. An agency employee accused Karen Larson of orchestrating this fraud. Prime Rate was left holding the bag to the tune of $321,510.16.

A Michigan regulator caught wind of the Larsons’ misdeeds. Its investigation revealed that they submitted forged applications "to obtain money for [their] personal and business use." It canceled their insurance licenses.

Uncovering the fraud was the easy part. Recovering the money has been another matter. In June 2014, Prime Rate invoked the district court’s diversity jurisdiction to recoup its funds from the Larsons under several state-law theories. (Keith Larson died after Prime Rate sued, and Karen now represents his estate.) A half-decade odyssey resulted. This litigation history puts the default judgment in its proper light.

June 2014 to May 2018 . Before Prime Rate could serve the Larsons, they filed for bankruptcy, which stayed this case. By December 2014, the bankruptcy court had dismissed that matter because the Larsons failed to follow the rules.

Prime Rate next encountered service-of-process headaches. After several failed efforts, a process server served Mr. Larson at their home, but he said his wife was too ill to come to the door. A later service attempt failed because Ms. Larson "didn’t feel like coming downstairs." The clerk entered a default against the Larsons, but they disputed their service. In April 2015, the court held that service on Mr. Larson sufficed to serve them both. It set aside the default, but ordered the Larsons to pay $2,000.

Then came delays caused by Ms. Larson’s struggles with her attorneys. In June 2015, the Larsons’ first attorney withdrew. Two others appeared. By January 2016, those attorneys moved to withdraw because, according to them, Larson falsely accused them of wrongdoing, including sexual assault. The Larsons received time to find new counsel. Two new lawyers appeared in June 2016. By March 2017, they too moved to withdraw. They asserted that Larson accused them of misconduct and that she used falsified evidence. The court again stayed the case to allow the Larsons to find other lawyers. From then on, the Larsons proceeded pro se.

Up next: more bankruptcy filings. In June 2017, the Larsons filed a bankruptcy petition that delayed the case for months. That matter was again dismissed. Undeterred, after her husband died, Larson filed a third petition in March 2018, which stayed this case for 30 days. See 11 U.S.C. § 362(c)(3)(A).

Five trial dates came and went over these years. Apart from the delays described above, other legitimate delays arose from Mr. Larson’s death and from a car accident involving the Larsons’ son.

May to August 2018 . In May 2018, the court warned Larson that it would grant "[n]o further continuances" of an August 14 trial date. Its final pretrial order told the parties to provide their trial documents by August 1.

On August 1, instead of trial documents, Larson sent an ex parte email captioned "Karen Larson Fractured Ribs, Concussion, Neck Injury." The email had two attachments. A letter dictated by Larson stated that she had fallen while in a state courthouse, that she was "far too injured to do anything," and that the case must be "dismissed immediately." An "excuse slip" from "Mathews Medical Center" noted that Larson was "unable to return to work at this time because of broken ribs and a concussion."

In an August 6 order, the court noted that Larson had disobeyed its pretrial order by not cooperating with Prime Rate in trial prep. Her actions, the court warned, were grounds for sanctions, including a default judgment, under Federal Rules of Civil Procedure 16(f) and 37(b)(2). "Absent a proper motion supported by reliable documentation," the court continued, it would "proceed with trial." It ended by again warning that "failure ... to abide by the Court’s orders, submit required documentation, or appear in court as directed, will be met with the imposition of sanctions, including a default judgment."

On August 13—the day before trial—Larson moved for a continuance. She included an unsigned letter purportedly from Dr. Mazin Yonan. The letterhead referenced "MATHEW’S MEDICAL CENTER" (with an apostrophe); the signature block spoke of "Mathews Medical Center" (without one). The body stated that the prior excuse slip "denoted the extent of [Larson’s] injuries" and warned that "seeking further medical information may actually violated [sic] her HIPPA [sic] rights." It opined that "Karen’s injury status has not changed and under no circumstances would she be able to participate in any hearings." And it asserted that "this injury was witnessed by numerous members of the Oakland County sheriff’s department who were present at the occurrence of the aforementioned fall, and within close proximity, after which, a formal report was filed."

The next day, Larson did not appear. The court denied her motion for a continuance, struck her answer, and entered a default. Fed. R. Civ. P. 55(a). It expressed doubt about the letter’s authenticity. It also summarized the history of delays, the failure to cooperate in trial prep, the prejudice to Prime Rate, and the prior sanctions. Prime Rate moved for a default judgment and put on two witnesses. Fed. R. Civ. P. 55(b)(2). The court granted the motion and trebled the damages under a state-law claim. It memorialized these oral rulings in a later order, and entered a judgment for $964,530.48.

II.

We begin with an issue critical to a court’s power to coerce one person to pay another: its subject-matter jurisdiction. The parties agree that diversity jurisdiction exists because they are "citizens of different States." 28 U.S.C. § 1332(a)(1). Yet a circuit court must ensure that the district court had jurisdiction "even though the parties are prepared to concede it." Delay v. Rosenthal Collins Grp., LLC , 585 F.3d 1003, 1004 (6th Cir. 2009) (citation omitted). For some 200 years it has been the rule that—no matter the time and resources spent—an appellate court must wipe out everything that has occurred if the lower court lacked jurisdiction. See Grupo Dataflux v. Atlas Global Grp., L.P. , 541 U.S. 567, 571, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004) (citing Capron v. Van Noorden , 6 U.S. (2 Cranch) 126, 2 L.Ed. 229 (1804) ). It thus behooves parties to be meticulous in jurisdictional matters.

Prime Rate was not meticulous. To begin with, its complaint alleged that the Larsons were Michigan "resident[s]." But "it has long been settled that residence and citizenship [are] wholly different things." Steigleder v. McQuesten , 198 U.S. 141, 143, 25 S.Ct. 616, 49 L.Ed. 986 (1905). "[A] mere averment of residence" does not aver citizenship, id. , so "[w]hen the parties allege residence but not citizenship, the court must dismiss the suit," Guar. Nat’l Title Co. v. J.E.G. Assocs. , 101 F.3d 57, 59 (7th Cir. 1996). Citizenship instead turns on "domicile." Von Dunser v. Aronoff , 915 F.2d 1071, 1072 (6th Cir. 1990). "Domicile," a legal term of art, requires that a person both be present in a state and have "the intention to make his home there indefinitely or the absence of an intention to make his home elsewhere." Stifel v. Hopkins , 477 F.2d 1116, 1120 (6th Cir. 1973).

In addition, Prime Rate’s complaint alleged only that it was "a South Carolina corporation." Yet a corporation is a citizen of the state in which "it has been incorporated" and of the state in which...

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