Cedar Rapids Lodge & Suites, LLC et al v. JFS Development, Inc. et al
ORDER granting 255 Motion for Default Judgment. The Clerk of Court is directed to enter judgment in favor of Plaintiffs and against Seibert in the amount of $12,176,735.22, with prejudgment interest from December 3, 2009, until the date of ju dgment at the current legal rate pursuant to 28 USC 1961(a), postjudgment interest at the current legal rate pursuant to 28 USC 1961(a) and, once approved by the court, such reasonable attorney fees and costs as Plaintiffs demonstrate in their subsequent fee application. Signed by Chief Judge Linda R Reade on 10/24/2012. (NEF/copy mailed to DEF Vosburg) (pac)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
CEDAR RAPIDS DIVISION
CEDAR RAPIDS LODGE & SUITES,
LLC et al.,
JFS DEVELOPMENT, INC., f/k/a JCS
DEVELOPMENT, INC., et al.,
TABLE OF CONTENTS
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RELEVANT PROCEDURAL HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . 2
ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RICO Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Actual damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fraud in the inducement of investment.. . . . . . . . . . . . 3
Construction remediation and construction
administration-related damages.. . . . . . . . . . . . . . . . . 4
Undercapitalization and misappropriation of funds.. . . . 6
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Treble damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Prejudgment interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Postjudgment interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Attorney’s fees and costs. . . . . . . . . . . . . . . . . . . . . . . . . 10
Collateral estoppel in bankruptcy. . . . . . . . . . . . . . . . . . . . 10
Damages for State Law Claims.. . . . . . . . . . . . . . . . . . . . . . . . . 10
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The matter before the court is Plaintiffs’ “Motion for Entry of Default Against
Defendant John F. Seibert” (“Motion for Default Judgment”) (docket no. 255).
II. RELEVANT PROCEDURAL HISTORY
On August 24, 2012, the Clerk of Court entered default against Seibert. See
Default Entry (docket no. 256). The court incorporates the factual and procedural
background from its August 28, 2012 Order (docket no. 257) regarding the Motion for
Default Judgment. On September 27, 2012, the undersigned held an evidentiary hearing
to determine damages. Attorneys Kevin Visser and Robert Miller appeared on behalf of
Plaintiffs. John F. Seibert did not appear. See Notice (docket no. 264) (notifying the
court that Seibert would not appear).
Plaintiffs assert the following claims against Seibert: (1) civil racketeering in
violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1962(a-c) (Count I); (2) conspiracy to engage in civil racketeering in violation of RICO
(Count II); (3) intentional misrepresentation and/or fraud brought by individual plaintiffs
(Count VIII); (4) fraudulent nondisclosure brought by individual plaintiffs (Count IX); (5)
intentional misrepresentation and/or fraud brought by Cedar Rapids Lodge & Suites, LLC
(“CRLS”) (Count X); (6) fraudulent nondisclosure brought by CRLS (Count XI); (7)
negligent misrepresentation and/or omission brought by individual plaintiffs (Count XII);
(8) negligent misrepresentation and/or omission brought by CRLS (Count XIII); (9) breach
of the fiduciary duty of care brought by CRLS (Count XIV); (10) breach of the fiduciary
duty of loyalty brought by CRLS (Count XV); (11) violation of the Consumer Fraud Act,
Iowa Code § 714.16, brought by individual plaintiffs (Count XVI); (12) violation of the
Consumer Fraud Act brought by CRLS (Count XVII); and (13) waste and/or
misappropriation of corporate assets brought by CRLS (Count XVIII).
When a defendant is in default, its “liability to the plaintiff is deemed established
and the plaintiff is not required to establish [its] right to recover.” Brown v. Kenron
Aluminum & Glass Corp., 477 F.2d 526, 531 (8th Cir. 1973). “When a default judgment
is entered on a claim for an indefinite or uncertain amount of damages, facts alleged in the
complaint are taken as true, except facts relating to the amount of damages, which must
be proved in a supplemental hearing or proceeding” by a preponderance of the evidence.
Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir. 2001).
The court will first assess the actual damages Plaintiffs suffered as a result of
Seibert’s RICO violations. The court will then consider whether the Plaintiffs are entitled
to treble damages, prejudgment interest, postjudgment interest, attorney fees and costs.
The court will then consider damages under Plaintiffs’ state law claims.
A. RICO Damages
Plaintiffs claim three categories of damages against Seibert: “(1) fraud in the
inducement of investment damages; (2) construction remediation and constructionadministration-related damages; and (3) undercapitalization and misappropriation of funds
damages.” Plaintiffs’ Pre-Hearing Brief on Damages (“Damages Brief”) (docket no. 262)
Fraud in the inducement of investment
At the hearing, Ron Nielsen, a certified public accountant and certified fraud
examiner with Clifton Gunderson, LLP, testified regarding the damages Plaintiffs suffered
as a result of Seibert’s fraud in the inducement to invest. Nielsen’s report was admitted
into evidence as Exhibit 1 (docket no. 206-1). In his report, Nielsen lists the initial
investment contributions and capital call contributions for all of the CRLS investors. Only
the plaintiffs who do not wish to remain involved with the operation of CRLS upon the
conclusion of the instant action are seeking damages in this category. Their contributions
are as follows:1
March 2007 May 17, 2009 Total Capital
Investment Capital Call Capital Call
Jacob L. Sailer
Ronald J. Sailer
Based on these figures, the court finds that Seibert fraudulently induced the listed
plaintiffs to invest a total of $296,756 in CRLS. The court shall award Plaintiffs this
amount for fraud in the inducement to invest.
Construction remediation and construction administration-related
At the hearing, several witnesses testified regarding Plaintiffs’ construction
remediation and construction administration-related damages.
Jonathan Nehmer, an
architect with Jonathan Nehmer & Associates, Inc., testified regarding architectural,
design and other issues with the hotel, not including electrical and mechanical issues.
Nehmer’s report was admitted as Exhibit 4 (docket no. 266-4). Nehmer reviewed the
design team’s documents for building the hotel, the AmericInn standards and the pay
applications and draw information for paying the contractor. Nehmer also visited the
CRLS hotel in December 2010.
Nehmer’s report contains cost estimates for the
The court notes that, in the Damages Brief, Plaintiffs improperly calculated the
initial investment and total capital call contributions for Jerred Ruble. The court calculated
these totals based on the figures in Nielsen’s report. The court notes that Ruble’s initial
investment was $35,000 plus another $17,500 when he bought shares from his former
business partner. See Damages Brief at 11. Additionally, the court declines to award
damages for Kopriva’s capital call contributions, because Nielsen’s report lists these
contributions as unpaid. Nielsen Report, Exhibit 4 at 7, 9.
remediation or installation of twenty-one items within the hotel. Nehmer concludes that
the total cost for remediating the listed items is $1,288,671.
Brion Koning, an acoustical consultant with Cavanaugh Tocci Associates, Inc.,
testified regarding the plumbing noise transmitted between guest rooms within the hotel.
Koning’s report was admitted as Exhibit 2 (docket no. 266-2). He did not testify to an
amount of damage related to the plumbing noise; however, the damages for remediation
of the noise transfer between guest rooms are included in Nehmer’s report.
Thomas Reilly, a professional engineer with Salem Engineering, Inc., testified
regarding the hotel’s electrical and mechanical issues. Reilly’s report was admitted as
Exhibit 3 (docket no. 266-3). In his report, Reilly states that he found fifty-three separate
hotel items requiring corrective measures. Reilly states that the total construction costs for
remediating these items is $626,100. Reilly also states in his report that the design costs
for the work would be 15-20% of the construction costs and that the project management
costs would be approximately 10% of the construction costs. Therefore, the court finds
that $109,567.50, 17.5% of the construction costs, is the appropriate measure of damages
for the design costs and $62,610, 10% of the construction costs, is the appropriate measure
of damages for the project management costs. Thus, the total amount of damages relating
to the hotel’s electrical and mechanical issues is $798,277.50.
Nielsen also testified regarding construction costs damages. In his report, Nielsen
states that the cost of constructing the hotel exceeded the construction cost maximum in the
contract by $315,555.14. Nielsen also states that the cost for improvements and repairs
to bring the building up to code and receive a final Certificate of Occupancy is $34,000.
The total amount for these damages is $349,555.14.2
Plaintiffs also request $33,682.00 in legal costs associated with obtaining a
Certificate of Occupancy in 2009. However, this figure is not contained in either Nielsen’s
testimony or his report. The only reference to legal costs relating to the Certificate of
Larry Steinbronn, a building envelope consultant with Shive-Hattery, Inc., testified
regarding the cost to remediate the mold found in the hotel. Steinbronn’s report was
admitted as Exhibit 5 (docket nos. 266-5 through 266-10). In his report, Steinbronn states
that the cost to remediate the mold for the ground floor is $130,000. Nehmer testified
during the hearing that, for rooms requiring mold remediation, the cost for replacing the
furniture, fixtures and equipment would be $7,500 per room. Nehmer also testified that
the cost for reconstructing the rooms would be $10,000 per room. Because there are
twenty rooms on the first floor, Plaintiffs request a total of $150,000 to replace the
furniture, fixtures and equipment in the affected rooms and $200,000 to reconstruct the
affected rooms. Plaintiffs also request $64,800 in damages for lost revenue during the
mold remediation. The lost revenue figure is based on occupancy and profit statistics
contained in Victoria Richman’s expert report admitted into evidence during the court’s
February 13, 2012 hearing. See Richman Report, Exhibit 8 (docket no. 225-14) at 12.
Thus, the total damages amount for mold remediation is $544,800.
Based on the above evidence, the court shall award Plaintiffs a total of
$2,981,303.64 for construction remediation and construction administration-related
Undercapitalization and misappropriation of funds
Nielsen also analyzed Seibert’s undercapitalization of the hotel and misappropriation
of funds through undocumented loans. In his report, Nielsen states that there is a total of
$33,006.10 in unpaid penalties and interest as a result of Seibert’s failure to pay AmericInn
franchise fees. Additionally, Nielsen found a total of $376,231 in undocumented loan
payments that Seibert authorized. Nielsen further states that Defendants failed to pay
Occupancy is in Nielsen’s discussion of the May 17, 2009 capital call, which the court
assesses in Parts III(A)(1)(a) and III(A)(1)(c).
$250,000 in initial capital contributions to CRLS. Finally, Nielsen’s figures show that
Plaintiffs3 paid the following amounts in capital call contributions:
March 2007 May 17, 2009
Capital Call Capital Call
James T. Rymes
Pamela J. Cobb, Trustee
Michael and Rhonda
Scott & Julie Shisler
The total amount of these capital call contributions is $121,615.
Based on the above evidence, the court shall award Plaintiffs a total of $780,852.10
for Seibert’s undercapitalization and misappropriation of funds.
After thoroughly reviewing the record, the court finds it appropriate to grant
Plaintiffs the relief they seek.
The court finds that Plaintiffs have proven by a
preponderance of the evidence that they are entitled to recover $4,058,911.74 in actual
damages on their RICO claims.
Plaintiffs maintain that any damages awarded under RICO should be automatically
trebled. See 18 U.S.C. § 1964(c) (“Any person injured in his business or property by
reason of a violation of section 1962 of this chapter . . . shall recover threefold the
damages he sustains . . . .”); see also H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 233
The court addressed the capital call contributions from Plaintiffs who do not wish
to remain involved in the hotel in Part III(A)(1)(a). Thus, these damages reflect the capital
call contributions from Plaintiffs who wish to remain involved in the hotel after the
completion of the lawsuit.
(1989) (“[A] person found in a private action to have violated RICO is liable for treble
damages . . . .”); Jones v. Phipps, 39 F.3d 158, 161 (7th Cir. 1994) (upholding a default
judgment award of treble damages under RICO). The court finds that, under RICO,
Plaintiffs are entitled to treble damages. Thus, the court shall award Plaintiffs a total of
$12,176,735.22 in damages.
Plaintiffs argue that they are entitled to prejudgment interest on the full treble
damages amount. Plaintiffs argue that the court should award prejudgment interest
because treble damages are not primarily punitive in nature.
“Prejudgment interest serves ‘to reimburse the claimant for the loss of the use of
its investment or its funds from the time of the loss until judgment is entered.’” Am.
Milling Co. v. Brennan Marine, Inc., 623 F.3d 1221, 1226 (8th Cir. 2010) (quoting Arco
Pipeline Co. v. SS Trade Star, 693 F.2d 280, 281 (3d Cir. 1982)). “‘[P]rejudgment
interest should ordinarily be granted unless exceptional or unusual circumstances exist
making the award of interest inequitable.’” Masters v. UHS of Del., Inc., 631 F.3d 464,
475 (8th Cir.) (alteration in original) (quoting Stroh Container Co. v. Delphi Indus., Inc.,
783 F.2d 743, 752 (8th Cir. 1986)), cert. denied, 131 S. Ct. 2920 (2011) .
“Since the RICO statute does not contain any provisions concerning the award of
prejudgment interest, the district court ha[s] discretion as to whether to award such
interest.” Abou-Khadra v. Mahshie, 4 F.3d 1071, 1084 (2d Cir. 1993). An award of
should be a function of (i) the need to fully compensate the
wronged party for actual damages suffered, (ii) considerations
of fairness and the relative equities of the award, (iii) the
remedial purpose of the statute involved, and/or (iv) such other
general principles as are deemed relevant by the court.
Wickham Contracting Co. v. Local Union No. 3, Int’l Bhd. of Elec. Workers, AFL-CIO,
955 F.2d 831, 833-34 (2d Cir. 1992).
“[P]rejudgment interest should not be awarded if the statutory obligation on which
interest is sought is punitive in nature.” Id. at 834 (citing Rodgers v. United States, 332
U.S. 371, 374-76 (1947)). While the argument could be made that treble damages under
RICO are punitive damages, courts have considered treble damages as compensatory
damages in determining whether to award prejudgment interest. See, e.g., Liquid Air
Corp. v. Rogers, 834 F.2d 1297, 1310 n.8 (7th Cir. 1987) (“Although there is some sense
in which RICO treble damages are punitive, they are largely compensatory in the special
sense that they ensure that wrongs will be redressed in light of the recognized difficulties
of itemizing damages.”); Aetna Cas. Sur. Co. v. P&B Autobody, 43 F.3d 1546, 1572 (1st
Cir. 1994) (“It may reasonably be argued, however, that RICO damages are primarily
compensatory in nature, and thus prejudgment interest was properly awarded.”).
In light of the foregoing, the court finds it appropriate to award Plaintiffs
prejudgment interest on the entire treble damages amount. The court finds that the
remedial nature of RICO supports granting prejudgment interest. See Boyle v. United
States, 556 U.S. 938, 944 (2009) (noting RICO’s remedial purposes). Furthermore, the
court agrees with the reasoning of the First and Seventh Circuit Courts of Appeals that
treble damages are compensatory rather than punitive in nature. See Liquid Air Corp., 834
F.2d at 1310 n.8; Aetna Cas. Sur. Co., 43 F.3d at 1572. Thus, the court shall award
prejudgment interest on the entire treble damages amount from December 3, 2009, the date
Plaintiffs filed the Complaint, until the date of judgment at the current statutory rate
pursuant to 28 U.S.C. § 1961(a). See Sheehan v. Guardian Life Ins. Co., 372 F.3d 962,
969 (8th Cir. 2004) (upholding the district court’s calculation of prejudgment interest using
the rate established in 28 U.S.C. § 1961(a)).
Plaintiffs argue that they are entitled to postjudgment interest pursuant to the federal
statute. “Interest shall be allowed on any money judgment in a civil case recovered in a
district court.” 28 U.S.C. § 1961(a). Thus, the court shall award postjudgment interest
on the entire treble damages amount from the date of judgment at the current statutory rate
pursuant to 28 U.S.C. § 1961(a).
Attorney’s fees and costs
Plaintiffs argue that they are entitled to their reasonable attorney’s fees and costs
under RICO. Pursuant to RICO, “[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter . . . shall recover . . . the cost of the
suit, including a reasonable attorney’s fee.” 18 U.S.C. § 1964(c). Plaintiffs state that they
will make a subsequent fee application following judgment in this matter. Thus, the court
shall award Plaintiffs their reasonable attorney’s fees and costs after reviewing any fee
application Plaintiffs wish to file.
Collateral estoppel in bankruptcy
Plaintiffs request that the court explicitly state in its order that “the [c]ourt’s
decision shall have collateral estoppel effect in any subsequent bankruptcy proceeding.”
Damages Brief at 10. Because there is no bankruptcy proceeding currently pending, the
court declines to determine at this stage whether this decision would have collateral
estoppel effect in any subsequent bankruptcy proceeding. The determination of whether
this damages award would be nondischargeable is best left to the bankruptcy court in the
event that Seibert files for bankruptcy in the future. Cf. Tremaine v. Downs, No. 2:04-cv151-FtM-29SPC, 2007 WL 865557, at *1 (M.D. Fla. Mar. 21, 2007) (“Plaintiffs seek to
have the Court specifically find that any award of damages would be non-dischargeable in
bankruptcy. As plaintiffs are essentially seeking an advisory opinion in the event that
defendant files for bankruptcy, the Court will not make such a finding, or interfere prepetition with the administration of a bankruptcy filing.”).
B. Damages for State Law Claims
Plaintiffs assert that their “damages claimed under their RICO counts subsume the
damages claimed under the various state law counts” and further state that, if the court
“issues a default judgment on damages pursuant to [Federal Rule of Civil Procedure]
55(b)(2) on . . . Plaintiffs’ RICO counts against Seibert and awards to . . . Plaintiffs all
of the damages sought thereunder, the [c]ourt need not undertake any further analysis of
. . . [P]laintiffs’ state law counts for the purposes of determining damages.” Damages
Brief at 4-5 (citing Holmberg v. Morrisette, 800 F.2d 205, 209 (8th Cir. 1986)). Because
the court has awarded Plaintiffs their requested RICO damages, the court shall not award
any damages for Plaintiffs’ state law claims.
In light of the foregoing, the Motion for Default Judgment (docket no. 255) is
GRANTED. The Clerk of Court is DIRECTED to ENTER JUDGMENT in favor of
Plaintiffs and against Seibert in the amount of $12,176,735.22, with prejudgment interest
from December 3, 2009, until the date of judgment at the current legal rate pursuant to 28
U.S.C. § 1961(a), postjudgment interest at the current legal rate pursuant to 28 U.S.C. §
1961(a) and, once approved by the court, such reasonable attorney fees and costs as
Plaintiffs demonstrate in their subsequent fee application.
IT IS SO ORDERED.
DATED this 24th day of October, 2012.
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