Herman Eugene Paulson v. Daniel M. McDermott, et al

Filing

OPINION FILED - THE COURT: Arthur B. Federman, Barry S. Schermer and Thomas L. Saladino AUTHORING JUDGE:Arthur Federman (PUBLISHED) [4470285] [16-6018]

United States Bankruptcy Appellate Panel
For the Eighth Circuit

___________________________
No. 16-6018
___________________________
In re: Herman Eugene Paulson, Eugene Paulson
lllllllllllllllllllllDebtor
-----------------------------Herman Eugene Paulson
lllllllllllllllllllllDebtor - Appellant
v.
Daniel McDermott
lllllllllllllllllllllU.S. Trustee - Appellee
Sunflour Railroad, Inc.
lllllllllllllllllllllCreditor - Appellee
____________
Appeal from United States Bankruptcy Court
for the District of South Dakota - Aberdeen
____________
Submitted: October 6, 2016
Filed: November 17, 2016
____________
Before FEDERMAN, Chief Judge, SCHERMER and SALADINO, Bankruptcy
Judges.
____________

Appellate Case: 16-6018

Page: 1

Date Filed: 11/17/2016 Entry ID: 4470285

FEDERMAN, Chief Judge

Debtor Herman Eugene Paulson appeals from an Order of the Bankruptcy
Court1 denying his motion to reinstate his dismissed Chapter 13 bankruptcy case and
an Order denying his motion to reconsider that Order. For the reasons that follow,
we affirm.
FACTUAL BACKGROUND
This case stems from a long-running dispute between the Debtor and two of
his creditors, People’s State Bank and Sunflour Railroad, Inc. The details of that
dispute have been recounted in numerous decisions from the South Dakota state
courts, the South Dakota Bankruptcy Court, this Bankruptcy Appellate Panel, and
the Eighth Circuit Court of Appeals, 2 and need not be repeated in detail here.
To summarize, however, People’s State Bank and Sunflour Railroad each
have state court judgments against the Debtor. Sunflour’s judgment relates to a
dispute over the Debtor’s grain elevator which encroached on a railroad right of way:
When the Debtor refused Sunflour’s demand that he remove the grain elevator from
its property, Sunflour sued him in state court. That lawsuit resulted in a money

1

The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for the
District of South Dakota.
2

See, e.g., In re Paulson, 477 B.R. 740 (B.A.P. 8th Cir. 2012), aff’d 524
Fed. Appx. 306 (8th Cir. 2013); In re Paulson, 2016 WL 3050095 (Bankr. D. S.D.
May 20, 2016) (slip copy); Paulson v. Peoples State Bank (In re Paulson), 2012
WL 709848 (Bankr. D. S.D. March 5, 2012) (slip copy); Paulson v. Sunflour R.R.,
Inc. (In re Paulson), 2012 WL 761260 (Bankr. D. S.D. March 7, 2012) (slip copy);
Sunflour R.R., Inc. v. Paulson, 670 N.W.2d 518 (S.D. 2003).

Appellate Case: 16-6018

Page: 2

Date Filed: 11/17/2016 Entry ID: 4470285

judgment in favor of Sunflour the amount of $19,280, which became a lien on the
Debtor’s property. 3 The South Dakota Supreme Court has affirmed this judgment.4
The Debtor’s debt to People’s Bank stems from a loan which was secured by
the Debtor’s personal property. When the Debtor defaulted on the loan, People’s
obtained a state court judgment in the amount of about $60,000, as well as possession
of the collateral. The Debtor did not appeal this judgment, but instead filed a “writ
of prohibition” from the South Dakota Supreme Court, which was denied.
After the Debtor’s attempts to challenge the judgments in the state courts
proved unsuccessful, he convened a group of individuals which he refers to as “the
Peoples Seventh Amendment Jury.” The “jury” purported to void the judgments
against the Debtor as being fraudulently obtained and also assessed punitive
damages against the parties involved in the alleged fraud. In 2013, the Debtor filed
the Peoples Seventh Amendment Jury’s judgment and other documents containing
the heading of “Our One Supreme Court” in the South Dakota state court. The filing
of these documents resulted in the Debtor being convicted of the crime of accusing
a state court judge of treason and threatening the judge with death. That conviction
was affirmed by the South Dakota Supreme Court. 5
3

See S.D. Codified Laws § 15-16-7 (2016) (“When a judgment has been
docketed with a clerk of the circuit court, it shall be a lien on all the real property,
except the homestead, in the county where the same is so docketed, of every
person against whom any such judgment shall be rendered . . . .”).
4

The original judgment entered in 2002, which was in the amount of
$9,000, plus interest, was affirmed on appeal. See Sunflour R.R., Inc. v. Paulson,
670 N.W.2d 518 (S.D. 2003). Subsequently, Sunflour obtained a Supplemental
Judgment, in which the state court added costs to the judgment amount, resulting in
a judgment of $19,280. It is not clear from the record whether the Debtor appealed
from the supplemental judgment.
5

State v. Paulson, 861 N.W.2d 504 (S.D. 2015).

Appellate Case: 16-6018

Page: 3

Date Filed: 11/17/2016 Entry ID: 4470285

Meanwhile, as People’s Bank was attempting to collect its judgment and
obtain possession of its collateral, and apparently around the time the Debtor was
convening the private jury, the Debtor filed his first Chapter 13 bankruptcy petition
on August 22, 2011. Three things relevant to this appeal occurred in that first
bankruptcy case:
One, the Debtor filed several pleadings and initiated adversary proceedings
seeking the Bankruptcy Court’s determination that, inter alia, the state court
judgments obtained by Sunflour and People’s Bank were void based on fraud, and
that the decision of the Peoples Seventh Amendment Jury was valid. Those attempts
failed when the Bankruptcy Court held that, under the Rooker-Feldman doctrine, it
lacked the authority to invalidate the state court judgments.6
Two, the Debtor made five attempts at filing a Chapter 13 plan, each of which
drew objections from People’s Bank and Sunflour on the grounds that they contained
only vague language about selling collateral to pay People’s claim, and language
indicating Sunflour’s claim was invalid and would not be paid. The creditors also
asserted that the plans lacked detailed provisions regarding payments, failed to
properly account for them as secured creditors, were not feasible, and were not
proposed in good faith. None of the proposed plans was confirmed.
And, finally, after the Bankruptcy Court denied confirmation of the Debtor’s
third proposed plan, the Chapter 13 Trustee filed a motion to dismiss the case. 7 On
March 16, 2012, the Bankruptcy Court granted that motion for many reasons,
including that the Debtor continued to refuse to properly provide for the payment of
6

The Rooker-Feldman doctrine “precludes a federal action if the relief
requested in the federal action would effectively reverse the state court decision or
void its holding.” In re Paulson, 477 B.R. at 743 n. 3 (citations omitted).
7
The Debtor filed his fourth and fifth proposed plans while the Motion to
Dismiss was pending.

Appellate Case: 16-6018

Page: 4

Date Filed: 11/17/2016 Entry ID: 4470285

Sunflour’s and People’s secured claims, resulting in unreasonable delay. 8 After the
Court denied the Debtor’s motion for new trial or amendment of judgment, he
appealed to this panel, which affirmed, 9 and then to the Eighth Circuit Court of
Appeals, which affirmed by a decision filed on August 5, 2013. 10
The Debtor then filed this Chapter 13 bankruptcy case on September 28, 2015.
On March 1, 2016, the Debtor filed an adversary proceeding against more than
twenty defendants, including Sunflour and its principals and attorneys, again
attacking the validity of the state court judgments. In addition to the arguments
which had previously been rejected by the courts, he also now asserts that ConAgra
and the political and judicial leaders of South Dakota have conspired to destroy his
livelihood as an organic farmer and take over the food industry.
Meanwhile, the Debtor filed two proposed Chapter 13 plans in this case, both
of which continue to turn on his claim that People’s and Sunflour’s liens are not
valid. As before, Sunflour and People’s Bank objected to confirmation of each of
the proposed plans.
After the Bankruptcy Court denied confirmation of the second plan, the
United States Trustee (the “UST”) filed a motion, on March 30, 2016, to dismiss the
bankruptcy case. Sunflour filed a joinder of that motion on April 25, 2016. In
essence, the UST’s motion asserted that the plans in the current case were
substantially similar to the ones rejected in the first case, and were simply continued
attempts to retry or void the state court judgments, which the courts have repeatedly
said the Bankruptcy Court lacks the authority to do. The UST asserted that the
8

Paulson v. Sunflour R.R., Inc., 2012 WL 761260 (Bankr. D. S.D. March 7,

2012).
9

In re Paulson, 477 B.R. 740.

10

In re Paulson, 524 Fed. Appx. 306 (8th Cir. 2013) (Mem).

Appellate Case: 16-6018

Page: 5

Date Filed: 11/17/2016 Entry ID: 4470285

“failure to propose a plan that bears any semblance of conforming to the Court’s
concerns creates an unjustifiable and unreasonable delay prejudicial to creditors,”
amounting to cause for dismissal pursuant to § 1307(c)(1) of the Bankruptcy Code.
He also asserted that the case should be dismissed for bad faith.
The deadline to respond to that motion to dismiss was April 25, 2016, and the
Debtor failed to respond by that date. Therefore, the Bankruptcy Court entered an
order on April 26, 2016 granting the UST’s motion and dismissing the case (the
“Dismissal Order”). On April 29, 2016, after the Dismissal Order had been entered,
the Debtor filed an objection to the UST’s motion to dismiss. He also filed a motion
to reinstate the case on May 4, 2016. The UST and Sunflour objected.
On May 20, 2016, the Bankruptcy Court entered an Order denying the
Debtor’s motion to reinstate the case. On June 2, 2016, the Debtor filed a motion to
reconsider the denial of the motion to reinstate. The Bankruptcy Court denied that
motion on June 7, 2016.
On June 21, 2016, the Debtor filed a Notice of Appeal of the May 20
Order Denying Reinstatement and the June 7 Order Denying Reconsideration.

ISSUES ON APPEAL
This appeal is untimely as it relates to the April 26, 2016 Dismissal Order;
rather, as the UST suggests, our review is limited to the Bankruptcy Court’s Orders
denying the motion to reinstate and denying the motion to reconsider.
Federal Rule of Bankruptcy Procedure 8002(a)(1) provides that, generally, “a
notice of appeal must be filed with the bankruptcy clerk within 14 days after entry
of the judgment, order, or decree being appealed.”11 However, certain motions, if
11

Fed. R. Bankr. P. 8002(a)(1). See also 28 U.S.C. § 158(c)(2) (providing
that the time provided in Rule 8002 applies to appeals taken from bankruptcy
courts to the Bankruptcy Appellate Panel).

Appellate Case: 16-6018

Page: 6

Date Filed: 11/17/2016 Entry ID: 4470285

timely filed, toll the time to appeal, such that the time for appeal will begin running
from the entry of the order disposing of such motions.12 These include motions to
alter or amend the judgment under Federal Rule of Civil Procedure 59(e)13 and
motions for relief under Federal Rule of Civil Procedure 60(b), 14 if filed within 14
days from the order from which relief is sought. 15
Here, the Dismissal Order – which was a final, appealable order16 – was
entered on April 26, 2016. Absent the filing of a tolling motion, the deadline to file
an appeal that Order was May 11, 2016.
Instead of filing a notice of appeal of that Order, the Debtor filed the motion
to reinstate on May 4, 2016, which the Court analyzed under Rule 60(b)(1),
discussed below. The Court denied the motion to reinstate on May 20, 2016.
When a party files a “motion for reconsideration,” such as the Debtor’s motion
to reinstate, the time to appeal the merits of the original order complained of – here
the Dismissal Order – begins to run again when the court disposes of that motion.17

12

Fed. R. Bankr. P. 8002(b)(1); Barger v. Hayes Cty. Non-Stock Co-Op (In
re Barger), 219 B.R. 238, 243 (B.A.P. 8th Cir. 1998).
13

Fed. R. Civ. P. 59, made applicable in bankruptcy cases by Fed. R. Bankr.

P. 9023.
14

Fed. R. Civ. P. 60, made applicable in bankruptcy cases by Fed. R. Bankr.

P. 9024.
15

Fed. R. Bankr. P. 8002(b)(1)(B) and (D).

16

See, e.g., In re Paulson, 477 B.R. at 742 (reviewing dismissal order as a
final order).
17

See Hanson v. Sabala (In re Sabala), 334 B.R. 638, 641 (B.A.P. 8th Cir.
2005) (“According to Rule 8002(b), the time period for appeal runs from the entry
of the order disposing of the last outstanding motion which has a tolling effect.”).

Appellate Case: 16-6018

Page: 7

Date Filed: 11/17/2016 Entry ID: 4470285

Since the Order denying the motion to reinstate was entered on May 20, the deadline
to file an appeal relating back to the Dismissal Order was June 3, 2016. The Debtor
did not file a notice of appeal by that deadline. Instead, the Debtor filed, on June 2,
a motion to reconsider the Order denying his motion to reinstate the case.
The Eighth Circuit has held that a second motion for relief from judgment or
for reconsideration does not toll the appeal period for a second time. 18
[A second] motion to vacate, whether treated as a Rule 60(b) or a Rule
59(e) motion, even though filed within ten days of an order denying a
prior motion to alter or amend, preserves for appeal, at most, only the
orders denying the motions to alter or vacate. It does not preserve for
review the merits of the underlying order which was challenged in the
first motion.19
Therefore, as the UST asserts, the Debtor’s June 2 motion for reconsideration
– which was a second motion for relief under Rule 59 or 60 – did not toll the time to
appeal the Dismissal Order.

Therefore, the filing of the June 2 motion for

reconsideration preserved only the right to challenge the Orders denying the motion
to reinstate and the motion for reconsideration of the Order denying the motion to
reinstate; it did not preserve an appeal of the Dismissal Order itself. Our review,
therefore, is limited to the Orders denying the motion to reinstate and motion to
reconsider.

18

Stark v. Lambert, 750 F.2d 45, 47 (8th Cir. 1984) (“[A] motion to
reconsider a motion for a new trial is not itself a motion for a new trial, and is
therefore insufficient to toll the running of the time period in which to file a notice
of appeal.”) (citation omitted; emphasis in original). See also In re Barger, 219
B.R. at 240 (holding that a successive Rule 59 or Rule 60 motion does not toll the
period for appealing the underlying order).
19

In re Barger at 242-43.

Appellate Case: 16-6018

Page: 8

Date Filed: 11/17/2016 Entry ID: 4470285

STANDARD OF REVIEW
We review a bankruptcy court’s findings of fact for clear error and its
conclusions of law de novo. 20 “[A] finding is ‘clearly erroneous' when although
there is evidence to support it, the reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has been committed.” 21 Rule 60(b)
motions are within the discretion of the trial court, and we will reverse the denial of
a Rule 60(b) motion only when the court has clearly abused its discretion. 22 An
abuse of discretion will only be found if the lower court’s judgment was based on
clearly erroneous factual findings or erroneous legal conclusions. 23

DISCUSSION
Because the Debtor had not responded to the UST’s motion to dismiss before
the dismissal Order was entered, the Bankruptcy Court treated the motion to reinstate
as one filed under Rule 55(c), which provides that “[t]he court may set aside an entry
of default for good cause, and it may set aside a final default judgment under Rule
60(b).”24 Rule 60(b) provides that, “[o]n motion and just terms, the court may
relieve a party . . . from a final judgment, order, or proceeding” for the following
reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;

20

Fed. R. Bankr. P. 8013; In re Barger, 219 B.R. at 243.

21

Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504,
1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co.,
333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
22
Id.
23

Id.

24

Fed. R. Civ. P. 55(c), made applicable here by Fed. R. Bankr. P. 7055.

Appellate Case: 16-6018

Page: 9

Date Filed: 11/17/2016 Entry ID: 4470285

(2) newly discovered evidence that, with reasonable diligence, could
not have been discovered in time to move for a new trial under Rule
59(b);
(3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based
on an earlier judgment that has been reversed or vacated; or applying it
prospectively is no longer equitable; or
(6) any other reason that justifies relief. 25
The Debtor asserted in his motion to reinstate that his failure to timely respond
to the motion to dismiss was that he was being flooded with motions in the pending
adversary proceeding and that he had not fully understood that a response deadline
as to the motion to dismiss had been set. As a result, the Court properly analyzed
the motion under Rule 60(b)(1) for excusable neglect.
The determination as to whether neglect is excusable is an equitable
one, taking into account all relevant circumstances surrounding the
party’s omission. However, relief under Rule 60(b) is an extraordinary
remedy. Factors to consider in this determination include (1) the danger
of prejudice to the [non-moving party]; (2) the length of the delay and
its potential impact on judicial proceedings; (3) the reason for the delay,
including whether it was within the reasonable control of the movant;
and (4) whether the movant acted in good faith.26
The burden under a Rule 60(b) motion is difficult because the rule “provides for
extraordinary relief which may be granted only upon an adequate showing of

25

Fed. R. Civ. P. 60(b)(1).

26

In re President Casinos, Inc., 397 B.R. 468, 473 (B.A. P. 8th Cir. 2008)
(citing Pioneer Investment Servs. Co. v. Brunswick Assoc. L.P., 507 U.S. 380, 381,
113 S.Ct. 1489, 1490-91, 123 L.Ed.2d 74 (1993); additional citations omitted).

Appellate Case: 16-6018

Page: 10

Date Filed: 11/17/2016 Entry ID: 4470285

exceptional circumstances.” 27 The Eighth Circuit has held that the excuse given for
the late filing should be given the greatest import of these factors. 28
The Debtor suggests here that his response was in fact timely, if one considers
the mailing rules applicable to pro se litigants. He also asserts that his responding
to the motion to dismiss “one day” after the deadline was excusable under the
circumstances.

He also suggests that he was deprived of proper notice and

opportunity to respond to the motion to dismiss.
On a motion to dismiss a Chapter 13 case for cause under § 1307(c), the notice
need only be “reasonable,”29 which the 21-day response time given by the
Bankruptcy Court in this instance was. In addition, the 21-day response period after
the March 30 filing would have resulted in a deadline of Wednesday, April 20.
Therefore, contrary to the Debtor’s assertion, the April 25 deadline did account for
the three additional days required under Rule 9006(f) for persons being notified via
U.S. Mail. Moreover, the Monday, April 25 deadline also accounted for the fact that
the twenty-fourth day fell on a Saturday under Rule 9001(a)(6)(C).

Further,

Sunflour’s joinder in the UST’s motion, which was filed on the April 25 response
deadline, did not adversely affect the Debtor’s ability to respond to the UST’s
motion, nor did the Bankruptcy Court base its dismissal on the joinder. The Debtor
27

Sanders v. Clemco Indus., 862 F.2d 161, 169 n. 14 (8th Cir. 1988)
(citation omitted).
28

See Lowry v. McDonald Douglas Corp., 211 F.3d 457, 463 (8th Cir.
2000), cert. denied, 121 S.Ct. 309 (2000).
29

Fed. R. Bankr. P. 1017(f)(1) (“Rule 9014 governs a proceeding to dismiss
or suspend a case . . . .except under §§ 706(a), 1112(a), 1208(a) or (b), or 1307(a)
or (b)); Fed. R. Bankr. P. 9014(a) (“In a contested matter not otherwise governed
by these rules, relief shall be requested by motion, and reasonable notice and
opportunity for hearing shall be afforded the party against whom relief is sought.
No response is required under this rule unless the court directs otherwise.”).

Appellate Case: 16-6018

Page: 11

Date Filed: 11/17/2016 Entry ID: 4470285

was not denied any notice or procedural rights, and his April 29 response was
untimely.
But more importantly, this case does not turn on the Debtor’s failure to timely
file a response in any event. As the Bankruptcy Court said, in addition to Pioneer’s
reason-for and prejudice-from delay factors enumerated above, a court considering
a Rule 60(b)(1) motion must also consider whether the party seeking relief has a
meritorious defense to present, if the defense was allowed to be presented late.30
Thus, even though our review is limited to the Orders denying the motions to
reinstate and for reconsideration, the linchpin of those decisions was that the Debtor
has no meritorious defense to the UST’s motion to dismiss and so the reason for the
dismissal itself does require discussion.
In sum, the Bankruptcy Court found that the Debtor’s present case is merely
a rehash of the very same arguments which have already been repeatedly rejected by
the courts, namely, that the state court judgments are void. The record amply
supports this finding.
As we said in the Debtor’s appeal of the dismissal of his prior case: “The
issue underlying the court’s findings of cause for dismissal due to unreasonable
delay and denial of confirmation is the debtor’s unwillingness to accept that the bank
and the railroad are secured creditors.”31 The unwillingness continues, even in his
arguments in this appeal. As a result, and because the Debtor has made no attempt
to correct the significant impediments to getting a plan confirmed, the Court did not
err in refusing to reinstate the Debtor’s case.

30

Union Pac. R.R. Co. v. Progress Rail Servs. Corp., 256 F.3d 781, 783 (8th
Cir. 2001) (citations omitted).
31

In re Paulson, 477 B.R. at 745-46 (emphasis added).

Appellate Case: 16-6018

Page: 12

Date Filed: 11/17/2016 Entry ID: 4470285

CONCLUSION
Because the Bankruptcy Court did not clearly err in concluding that the Debtor
had no meritorious defense to the UST’s Motion to Dismiss, the Bankruptcy Court’s
Orders denying the Debtor’s motion to reinstate the dismissed case and denying his
motion to reconsider are AFFIRMED.
_______________________

Appellate Case: 16-6018

Page: 13

Date Filed: 11/17/2016 Entry ID: 4470285