JANICE MILLER KARLIN, Bankruptcy Judge.
Defendant Bradley Roberson is currently representing himself in this adversary proceeding, and ten months into the proceeding filed a motion to dismiss alleging that this Court lacks personal jurisdiction over him.
Defendant Stacy Roberson, added to this adversary proceeding more recently via an amended complaint and also proceeding pro se, filed her own motion to dismiss alleging a lack of personal jurisdiction.
Both Mr. and Ms. Roberson have also requested a one hundred twenty day extension of all deadlines in the adversary proceeding, to enable the Robersons to prepare their defense to the Trustee's amended complaint. Because of the inordinate delay already encountered in this case due to the Robersons' pro se status, the Court will not further delay this litigation, and also denies these requests.
The Chapter 7 Trustee, Darcy Williamson, filed a complaint against (only) Mr. Roberson on May 5, 2015. That complaint stated two claims: Count 1 for avoidance of fraudulent conveyances under 11 U.S.C. § 548
Shortly thereafter, however, Mr. Roberson's counsel withdrew from the proceeding. Discovery deadlines were extended to give Mr. Roberson, now proceeding pro se, additional time to answer the discovery propounded to him and retain new counsel if he chose. After receiving leave from the Court, the Trustee then filed an amended complaint on December 18, 2015, adding new counts and one new defendant, Stacy Roberson. The additional counts are: Count 3 for accounting and turnover of documents under § 542 and Kansas statutory sections 58-651 and 58-662, Count 4 for conversion of property and turnover, and Count 5 for breach of fiduciary duty. Plaintiff appropriately served the amended complaint on both defendants, but neither answered or filed a timely dispositive motion.
This is where the procedural history gets complicated. On January 5, 2016, the Trustee filed a request for a Clerk's entry of default against Mr. Roberson, and on January 8, 2016, the Clerk entered default. On January 11, 2016, the Court received lengthy correspondence from Mr. Roberson, generally setting out his version of the facts of the case and disputing the claims made against him in the amended complaint. As a result, the Court liberally treated the correspondence as an answer to the amended complaint, and directed the Clerk to so file it on January 12, 2016. Via letter from the Clerk's Office, Mr. Roberson was instructed to file an amended answer within fourteen days that—paragraph by paragraph—explained why he felt the Trustee's position was incorrect factually and as a matter of law. He was also instructed that his wife and co-defendant, Ms. Roberson, must also file a proper answer to the amended complaint.
The correspondence construed by the Court as Mr. Roberson's answer to the amended complaint also makes no mention of this Court's jurisdiction. Nevertheless, on January 26, 2016, rather than file an amended answer to the amended complaint, Mr. Roberson filed the motion to dismiss for lack of personal jurisdiction that is the subject of this order. Mr. Roberson's motion also requests a one hundred twenty day extension of all deadlines for Stacy Roberson to obtain counsel and prepare an adequate defense. The Trustee responded to Mr. Roberson's motion, alleging that Mr. Roberson had waived any argument that the Court lacked personal jurisdiction against him by not including the argument in his answer to the complaint. The Trustee also filed a request for Clerk's entry of default against Ms. Roberson, who had not filed an answer to the amended complaint. Soon thereafter, Ms. Roberson filed a motion to dismiss that is identical to Mr. Roberson's; it also seeks the lengthy extension of all deadlines. Pending resolution of the motions to dismiss, the Court directed the Clerk to not enter default against Ms. Roberson.
The amended complaint, highly summarized, generally alleges an all too common scenario: older parents become deceased or infirm, no formal probate or accounting of caretaker expenditures is undertaken, and some years later the adult children dispute what happened with the funds from the parents' estate. Fortunately, the Roberson family tree is not as complicated as some—William Roberson was married to Betty Roberson, and they had two children, namely Bradley Roberson and Tara Roberson. A brief time line of events as alleged by the Trustee is necessary to the analysis below.
William Roberson owned real property at 431 Westchester Road, in Topeka, KS. In 2009, a transfer on death deed was recorded on that property by William and Betty Roberson, conveying the property to Tara Roberson at their death. At the same time, Betty Roberson executed a power of attorney, designating William Roberson as her attorney-in-fact and Tara Roberson as the alternate. Years later, on August 20, 2013, William Roberson passed away. At that point, title to the 431 Westchester property transferred to Tara Roberson via the transfer on death deed, and she held title in fee simple. Two days later, on August 22, 2013, Tara Roberson listed the property for sale, as Betty Roberson required assisted care and could no longer stay in the home. No sale of the property was made at that point, however.
About five months later, on January 18, 2014, Betty Roberson executed a new power of attorney in Topeka. The 2014 power of attorney appointed Bradley and Stacy Roberson as her co-attorneys-in-fact, authorizing them to make financial and health care decisions in Kansas and in the state of Washington on Betty's behalf. At some point thereafter, Betty Roberson relocated to Washington, where Bradley and Stacy Roberson lived. On January 31, 2014, Tara Roberson quit claimed the 431 Westchester property to Bradley Roberson for no consideration. Shortly thereafter, on February 20, 2014, Bradley and Stacy Roberson sold the 431 Westchester property for $245,000 to unrelated buyers. (The Trustee alternatively alleges that the 431 Westchester property was sold, and that Defendants received funds in their capacity as co-attorneys-in-fact for Betty Roberson.) After payment of the first and second mortgages, closing costs, and taxes, Bradley and Stacy Roberson received the net sum of $38,430.17. This entire amount was deposited into Bradley and Stacy Robersons' joint account at Twin Star Credit Union in Olympia, Washington. The Trustee alleges that these funds were used, disbursed, converted, and spent for Bradley and Stacy Robersons' personal expenses, wants, and needs.
Betty Roberson had a bank account at CoreFirst Bank in Topeka and at Cottonwood Valley Bank in Cottonwood Falls, Kansas. At all times relevant, two monthly deposits were made into the Cottonwood Valley account:
On June 30, 2015, Betty Roberson passed away. Between February 1, 2014 and January 2015, Bradley and Stacy Roberson drew checks on Betty Roberson's account for a total of $32,084. The Trustee estimates $46,737.75 was spent in this manner through June 2015. Bradley and Stacy Roberson continued to draw checks on the Cottonwood Valley bank account until August 2015. The Trustee's amended complaint alleges additional facts concerning Tara Roberson's transfer of certain personal property to Bradley Roberson within the two years proceeding her bankruptcy petition, but these additional facts appear irrelevant to resolution of the current motions.
On January 15, 2015, Tara Roberson filed a Chapter 7 bankruptcy petition. The Trustee is now pursuing causes of action against Bradley and Stacy Roberson on Tara Roberson's behalf, alleging those causes of action are property of the bankruptcy estate.
The concept of personal jurisdiction requires that "the court must have jurisdiction over the defendant's person, his property, or the res that is the subject of the suit."
The Trustee contends that Mr. Roberson has waived his personal jurisdiction challenge, and it is true that "[a] defect in the district court's jurisdiction over a party. . . is a personal defense which may be asserted or waived by a party."
As a result of Rule 12(h)(1)'s strictures, if the lack of personal jurisdiction defense is not make in a preliminary motion under Rule 12, is omitted from the answer, or is omitted from any permitted amendment to the answer, then the defense is waived. As stated by the leading treatise on federal procedure, if a "party wishes to raise any of these defenses [including lack of personal jurisdiction], that must be done at the time the first significant defensive move is made—whether it be by way of a Rule 12 motion or responsive pleading."
In this case, the Trustee filed her complaint against Mr. Roberson on May 5, 2015. On June 7, 2015, Mr. Roberson, represented by counsel, filed his answer to that complaint. In his answer, Mr. Roberson asserted that service of the complaint had been made to the wrong address, but he did not raise the matter of personal jurisdiction. Mr. Roberson, through counsel, then participated in a scheduling conference with the Trustee, submitted a report of parties' planning meeting, and a scheduling order was entered. Discovery commenced by both parties (the docket notes indicate that initial disclosures were made in mid-July 2015, and subpoenas were issued in August 2015), and again, no personal jurisdiction defense was ever mentioned. Mr. Roberson's counsel then withdrew from his representation. The Trustee then filed an amended complaint two months later, on December 18, 2015, adding Ms. Roberson and additional counts to the complaint. After the Trustee requested and obtained a Clerk's entry of default against Mr. Roberson for his failure to answer that amended complaint, Mr. Roberson then submitted a lengthy, pro se "answer" to the amended complaint, setting out his version of the facts. Out of consideration to Mr. Roberson's pro se status,
Mr. Roberson, therefore, either through counsel or proceeding pro se, actively participated in this litigation for eight months without raising personal jurisdiction. As a result, he has waived that defense under Rule 12(h).
The case law supports this result. The Tenth Circuit has explicitly found the defense of personal jurisdiction waived when a defendant fails to either timely file a motion to dismiss asserting that ground or raise the defense in an answer, even when the defendant later attempts to raise the defense.
Ms. Roberson was just brought in to this lawsuit via the amended complaint on December 18, 2015, and is raising personal jurisdiction in her motion in lieu of an answer.
Despite this broad personal jurisdiction directive, however, the Tenth Circuit's case law requires more than just compliance with Rule 7004. Rather, the Tenth Circuit "requires that before `a federal court can assert personal jurisdiction over a defendant in a federal question case, the court must determine (1) whether the applicable [federal] statute potentially confers jurisdiction by authorizing service of process on the defendant and (2) whether the exercise of jurisdiction comports with due process.'"
The first step then is to determine whether Ms. Roberson was properly served under Rule 7004. Rule 7004 permits service by first class mail upon individuals at "the individual's dwelling house or usual place of abode."
Because Rule 7004's nationwide service of process applies, the Court moves to the second step in determining Ms. Roberson's personal jurisdiction challenge: namely, "`whether the exercise of jurisdiction comports with due process'"
There are several takeaways from this Tenth Circuit jurisprudence. First, it is the defendant, Ms. Roberson's, burden to show that this Court's exercise of jurisdiction will place her at a severe disadvantage. Second, it is not mere inconvenience that must be shown, but rather the "highly unusual" case where the burden of litigating in this forum causes "constitutionally significant inconvenience." And third, even if this burden is met, the exercise of jurisdiction may still be justified if there is a sufficient government interest.
Ms. Roberson's motion to dismiss simply states that she lives outside the state of Kansas, that if she did have contacts with Kansas, they were not related to the claims against her, and that she made non annual visits to Kansas "only for a week or two." Notwithstanding the matter that these "facts" are not made by affidavit,
But even if she had made such an attempt, addressing the factors urged by the Tenth Circuit for considering "whether the defendant has met his burden of establishing constitutionally significant inconvenience,"
The second factor, the inconvenience to Stacy Roberson of having to litigate in Kansas, rather than in her home state of Washington, is more sympathetic to Ms. Roberson. It would certainly be more convenient for Ms. Roberson to attend hearings in her home state. But, as Ms. Roberson presumably did when she was allegedly withdrawing funds from Betty Roberson's accounts in Kansas, many things can be done electronically. Most, if not all, discovery can be conducted via emailed documents or telephone, and many hearings at this Court can also be conducted with the parties appearing telephonically. As a result, the distance to a courthouse is not as large of a concern to the Court as it once was. And the fact that Ms. Roberson does not have an attorney would be just as true in Washington as in Kansas.
Regarding the third factor—judicial economy, it appears that conducting the adversary proceeding in this forum may be more efficient, as Tara Roberson's bankruptcy case has already been proceeding in this forum for some time. Even more importantly, the judge assigned to this matter has been managing the adversary proceeding since its initial filing in May 2015 (including entering a Scheduling Order, granting authority to amend, granting some continuances, allowing counsel to withdraw, construing a letter as an answer, directing the Clerk not to enter default as to Ms. Roberson, reviewing the motions and briefs concerning jurisdiction, etc.), and thus has already developed some familiarity with the matter.
Regarding the fourth factor, the probable site of discovery proceedings, as noted above, most discovery can be handled electronically, whether by sending scanned documents back and forth by email, or conducting a deposition by telephone or video. And finally, the fifth factor, the nature of Ms. Roberson's activity and the impact of that activity beyond Ms. Roberson's home state of Washington, is closely related to the "contacts" question. Again, Ms. Roberson was not physically located in Kansas while she sold the 431 Westchester property or conducted Betty Roberson's affairs through her Kansas bank accounts, but these activities affected the real property in Kansas and were done under the Kansas power of attorney authority she was given. When analyzing these factors, Ms. Roberson has not carried her burden of showing the constitutional inconvenience required.
And out of an abundance of consideration for Ms. Roberson's pro se status, even if she had met her burden of showing constitutionally significant inconvenience, the federal interest in litigating this adversary proceeding in this forum is strong. The Bankruptcy Code strives to treat debtors and creditors fairly, and to do so it must have a national reach for property and persons affecting the bankruptcy estate, no matter where situated.
Even after all this, there is one more step. Another requirement for Rule 7004(f) to apply, is that the Court must also be assured that it has subject matter jurisdiction over this adversary proceeding, i.e., is this "a case under the Code or a civil proceeding arising under the Code, or arising in or related to a case under the Code."
First, Rule 7004 applies to core proceedings, i.e., those "arising under the Code". Section 157(b)(2) of title 28 defines core proceedings, and the Trustee's amended complaint cites subsections A, E, H, and O of that statute. Those subsections state that core proceedings are: "(A) matters concerning the administration of the estate," "(E) orders to turn over property of the estate," "(H) proceedings to determine, avoid, or recover fraudulent conveyances," and "(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims[.]" In addition, the Tenth Circuit BAP has stated that core proceedings have no existence outside of bankruptcy, depend on bankruptcy laws for their existence, and could not proceed in another court.
Second, Rule 7004 also applies to "related to" proceedings, which are those that "could have been commenced in federal or state court independently of the bankruptcy case, but the outcome of that proceeding could conceivably have an effect on the estate being administered in bankruptcy."
The first two of the Trustee's claims —for fraudulent conveyance under § 548, and her derivative claim for recovery of the avoided transfer under §§ 550, 551, and 542—undoubtedly arise under the Code and are core proceedings. These claims are directly dependent on Bankruptcy Code sections for their existence and are designated as core under 28 U.S.C. § 157(b)(2)(H).
The Trustee's third claim is for an accounting of funds during the time Ms. Roberson acted as Betty Roberson's power of attorney under K.S.A. §§ 58-651 and 58-662, and for turnover of those account records under § 542. As the daughter of Betty Roberson, Debtor Tara Roberson is "an adult member of the principal's family" who may petition for an accounting by the attorney-in-fact (Stacy Roberson) if the principal (Betty Roberson) is deceased.
The Court's analysis is lengthy, but it is confident of its result. Ultimately, the Court is satisfied that Rule 7004's nationwide service of process applies to Ms. Roberson, and that, as a result, her motion to dismiss should be denied.
The Court denies Mr. Roberson's motion to dismiss,
In the alternative to the dismissal of the Trustee's Amended Complaint, both Mr. and Ms. Roberson have requested a one hundred and twenty day extension of all deadlines for Ms. Roberson to obtain counsel and prepare her defense. But the Court sees no reason to further delay this adversary proceeding. Mr. Roberson has been involved in this litigation for eleven months, and Ms. Roberson was served with the amended complaint three months ago. The Court therefore denies their alternate request for an extension of deadlines. Under Rule 12(a)(4)(A), both Mr. and Ms. Roberson should file a detailed answer to the Trustee's amended complaint within fourteen days of the date of this Order.
Because the Trustee's amended complaint is sufficiently detailed, however, and the facts therein are not controverted by the Robersons' motions, the Court relies on the facts alleged in the amended complaint to assess the motions to dismiss. See Pytlik v. Prof. Resources, Ltd., 887 F.2d 1371, 1376 (10th Cir. 1989) ("In ascertaining the facts necessary to establish jurisdiction, the court must accept as true the allegations set forth in the complaint to the extent they are uncontroverted by the defendant's affidavits." (internal citations omitted)); Behagen v. Amateur Basketball Ass'n of USA, 744 F.2d 761, 733 (10th Cir. 1984) ("The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits."); Am Land Program, Inc. v. Bonaventura Uitgevers Maatschappii, N.V., 710 F.2d 1449, 1454 (10th Cir. 1983) (analyzing the facts alleged in plaintiff's complaint, when assessing defendant's motion to dismiss based on personal jurisdiction, and noting that "the allegations of the complaint are taken as true to the extent they are not contradicted by affidavits;" if the defendant does counter with a sworn affidavit, then the plaintiff must support the allegations in their complaint with an affidavit or some other evidence of their own).
