Schmidt v. Hudec
| Decision Date | 12 March 2007 |
| Docket Number | No. 05-CV-605.,05-CV-605. |
| Citation | 486 F.Supp.2d 821 |
| Parties | Jerome L. SCHMIDT, and Laura A. Schmidt, Plaintiffs, v. Patrick J. HUDEC, Mary Hudec, and United States of America, Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Lisle W. Blackbourn, Michael J. Frazier, Anthony A. Coletti, Godfrey Leibsle Blackbourn & Howarth SC, Elkhorn, WI, for Plaintiffs.
Patrick J. Hudec, Hudec Law Offices, East Troy, WI, Laquita J. Taylor-Phillips, United States Department of Justice, Washington, DC, for Defendants.
On May 16, 2005, plaintiffs Jerome and Laura Schmidt filed an amended complaint in the Circuit Court of Walworth County, Wisconsin, Case No. 04-CV-01077, against defendants Patrick and Mary Hudec and the United States. The plaintiffs' amended complaint seeks the dissolution of a partnership operated by Jerome Schmidt ("Schmidt") and Patrick Hudec ("Hudec") and the partition and sale of a parcel of real property owned by the partnership. (Am.Compl.2-7.) The amended complaint states that the United States may claim an interest in the property by virtue of an unsatisfied federal tax lien. (Am. Compl. ¶ 28). Pursuant to 28 U.S.C. §§ 1441 and 1444, the United States removed this action to this court on June 3, 2005. As provided in 28 U.S.C. § 2410, the district court has jurisdiction over an action to partition property on which the United States claims a tax lien. See id.
Several motions are before the court. On May 31, 2006, the plaintiffs filed a motion for default judgment and a motion for summary judgment. On August 28, 2006, Patrick and Mary Hudec filed a cross-motion for summary judgment. And on December 5, 2006, the United States filed a motion for summary judgment. No response was filed to the United States' motion for summary judgment. For the reasons stated below, the court will deny the Hudecs' motion for summary judgment and grant the plaintiffs' and the United States' motions for summary judgment.
Because the Hudecs did not file a response to the plaintiffs' proposed findings of fact or the United States' proposed findings of fact, the following facts are deemed to be undisputed. See Civil L.R. (E.D.Wis.) 56(e); Anders v. Waste Mgmt. of Wis., Inc., 463 F.3d 670, 671-72 (7th Cir.2006).
In the early 1990s, Schmidt and Hudec formed a business partnership under the name of Schmidt-Hudec Investments. The partnership owns real property located in the Village of East Troy, Walworth County, Wisconsin, which is legally described as follows: Lots 12, 13 and 14, Block A, Lenck's Park Addition to the Village of East Troy, Walworth County, Wisconsin, (also known as 307-82 West Main Street and 2111 Lenck Street, Village of East Troy, Walworth County, Wisconsin). Schmidt and Hudec purchased the property in October 1991, and took title in the names of Jerome L. Schmidt and Patrick J. Hudec. Schmidt and Hudec operated the building on the property in two sections which Schmidt and Hudec separately managed and leased, except for certain common expenses and management issues, including taxes, insurance, and common area maintenance.
Under the partnership agreement between Schmidt and Hudec, Schmidt owns 55 percent of the assets of the partnership and is responsible for 55 percent of partnership liabilities, and Hudec owns 45 percent of the assets of the partnership and is responsible for 45 percent of partnership liabilities. Schmidt and Hudec based their percent ownership in the property on their agreed allocation of the value of the two sections of the property and on their contribution to the purchase price of the property.
In 1998, Schmidt and Hudec agreed to terminate the partnership and sever their business interests. Schmidt and Hudec agreed to convert the property to condominium ownership with Schmidt and Hudec owning separate units. As a practicing attorney at the time, Hudec agreed to act as the partnership's attorney in preparing a condominium declaration and other documents needed to carry out Schmidt and Hudec's plan to convert the property to condominium ownership.1
On July 31, 1998, Schmidt and Hudec executed a partnership resolution providing for the dissolution of the partnership and distribution of its asset, the property, in the form of condominium units consisting of the Schmidt Unit and the Hudec Unit, respectively. (Frazier Aff. Ex. C.) An attorney then working at Hudec Law Offices, S.C., prepared a draft of a declaration of condominium ownership for the property. (Id. Ex. E.) On August 19, 1998, a surveyor prepared a condominium plat for the property designating the Schmidt Unit as "Unit 1" and the Hudec Unit as "Unit 2," and depicting the remaining areas of the property as limited common areas. (Id. Ex. D.) The condominium plat was approved by officials of the Village of East Troy on August 22, 1998. (Id.) However, the Village's approval subsequently expired, and as a result, the August 1998 condominium plat was never recorded with the Walworth County Register of Deeds. (Id. Ex. G, 9-10.).
Schmidt and Hudec attempted to convert the property to condominium ownership again in 2003. On May 29, 2003, Schmidt and Hudec executed a declaration of condominium, prepared by an attorney at Hudec Law Offices, S.C. (Id. Ex. F.) In the fall of 2003, Hudec sent the declaration of condominium to the Walworth County Register of Deeds Office for recording; however, the Walworth County Register of Deeds Office refused to record the declaration of condominium because it failed to conform to statutory requirements applicable at the time. As a result, the declaration of condominium was never recorded with the Walworth County Register of Deeds, the property was never converted to condominium ownership, and the property remains a partnership asset.
In 2004, Schmidt, unaware that the property had not been converted to condominium ownership, obtained a buyer interested in purchasing what he believed to be his condominium unit of the property. Upon obtaining a title search in July 2004, Schmidt learned that the property had never been converted to condominium ownership. As a result, Schmidt was unable to sell his interest in the property.
The parties have tried unsuccessfully to negotiate the sale of Hudec's interest in the property to Schmidt. (Schmidt Aff. ¶ 14.) Schmidt now desires to end his business relationship with Hudec entirely, dissolve the partnership, and obtain a distribution of partnership assets through the liquidation of the property.
After Schmidt and Hudec agreed to convert the property to condominium ownership, they agreed, to pay the real estate taxes separately with Schmidt paying 55 percent of the real estate taxes each subsequent year. Hudec, however, failed to pay his 45 percent share of the real estate taxes. As of July 2004, real estate taxes for the property for the year 2002 were delinquent in the amount of $2,121.75, and real estate taxes for the property for the year 2003 were delinquent in the amount of $2,115.83. The delinquent real estate taxes correspond to the 45 percent share of the real estate taxes owed by Hudec.
On February 24, 2003, and September 1, 2003, federal income taxes were assessed against Hudec for the 1999 and 2000 years, respectively. On June 25, 2004, the Internal Revenue Service filed a notice of federal tax lien in the amount of $334,730.82 against Hudec in connection with those assessments. (Government Ex. D.) Despite these notices and demands for payment of the assessments, Hudec has neglected, failed, or refused to pay the liabilities. Consequently, Hudec currently owes to the United States $222,577.68, plus statutory interest and additions accruing from March 6, 2006. (Government Exs. C, E, and F.) The federal tax lien is not a partnership debt; rather, it is Hudec's personal debt. The United States, through its attorney, has agreed that upon sale of the property, the United States will exercise its lien only against Hudec's ownership interest in the property. (Frazier Aff. ¶ 10.)
In their motion for default judgment, the plaintiffs assert that defendants Patrick and Mary Hudec are in default because they did not file their answer to the plaintiffs' amended complaint within the time limits set forth in Fed.R.Civ.P. 12(a) or Wis. Stat. § 802.06(1). The plaintiffs filed a copy of the Hudecs' answer to their amended complaint in this court on May 16, 2006. The Hudecs' filed their answer to the plaintiffs' amended complaint in Walworth County Circuit Court, but did not file a copy of their answer in this court. The United States filed a response to the plaintiffs' motion for default judgment indicating that it does not take a position on the motion. Defendants Patrick and Mary Hudec did not file a response to the plaintiffs' motion for default judgment.
The decision to enter default lies within the district court's discretion. O'Brien v. R.J. O'Brien & Assocs., Inc., 998 F.2d 1394, 1398 (7th Cir.1993). Because a default judgment is a harsh sanction, it should be employed only in extreme situations when other less drastic sanctions have proven unavailing. Silva v. City of Madison, 69 F.3d 1368, 1377 (7th Cir.1995).
A review of the procedural history of this case in the Walworth County Circuit Court reveals that the plaintiffs were served with a copy of Hudecs' answer approximately 25 days after the plaintiffs filed their amended complaint. See Schmidt v. Hudec, Case No. 04-CV-01077 (Cir. Ct. of Walworth Co. Wis.2005). The plaintiffs filed an amended summons and complaint on June 10, 2005, in Walworth County Circuit Court. The Hudecs served a copy of their answer to the amended complaint upon plaintiffs' counsel by mail on July 5, 2005, and filed their answer in Walworth County Circuit Court on July 7, 2005. (Answer to Am. Compl. 2.) Because the plaintiffs were provided a copy of the Hudecs' answer, it appears the plaintiffs were not prejudiced by...
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...part of its reply in support of its pending motion to dismiss. In short, default judgment is not appropriate. See Schmidt v. Hudec, 486 F. Supp. 2d 821, 825-26 (E.D. Wis. 2007) (improper filing of answer to amended complaint in state court rather than federal court does not warrant default ......