Larson Manufacturing et al v. Western Showcase Homes et al

Filing 157

ORDER denying 145 Motion to Stay. Signed by US Magistrate Judge Veronica L. Duffy on 1/24/2019. (CG)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION

LARSON MANUFACTURING COMPANY
OF SOUTH DAKOTA, INC., SUPERIOR
HOMES, LLC,

4:16-CV-04118-VLD

Plaintiffs,
ORDER DENYING DEFENDANTS’
MOTION TO STAY

vs.
WESTERN SHOWCASE HOMES, INC.,
AMERICAN MODULAR HOUSING
GROUP, LLC, AMERICAN MODULAR
HOUSING GROUP, INC., PAUL
THOMAS,

[DOCKET NO. 145]

Defendants.

INTRODUCTION
This matter is pending before the court pursuant to defendants’ removal
of the action from South Dakota state court. Jurisdiction is premised on
diversity of citizenship of the adverse parties and an amount in controversy in
excess of $75,000. See 28 U.S.C. § 1332. The parties have consented to this
court’s handling of their case pursuant to 28 U.S.C. § 636(c). Now pending is a
motion by defendants to stay these proceedings pending resolution of litigation
in Canada. See Docket No. 145. Plaintiffs oppose the motion. See Docket No.
154.

FACTS
This case arises out of contracts between plaintiffs and defendants for
the production and sale of modular housing units by plaintiffs to defendants
and related financing agreements. A more complete recitation of the facts is
contained in this court’s order denying the parties’ cross-motions for partial
summary judgment. See Docket No. 142. The facts from that earlier opinion
are incorporated herein by reference.
Plaintiffs’ original complaint contained 21 counts involving nine
separately-named projects. See Docket No. 1-1. Midway through this
litigation, the parties settled the claims relating to five of those projects so that
the remaining claims concern only four projects, plus some free-standing
claims of debt, guarantee, fraud and deceit, conversion, and piercing the
corporate veil. The housing projects still being litigated herein are the [Doug]
Simon Unit, Units C5452HTC 1 & 2, Unit 5383, and the Aspen project. See
Docket No. 58. The claims related to the following projects have been settled:
the Carlyle Units (Waugh Who), the Heidt Unit, Unit 5334, the Colt Unit, and
the Stephenson Unit.
In addition to the present litigation pending before this court, there are at
least four lawsuits pending in Canada. Two of those cases, like this one, were
begun in 2016 and two were initiated in 2017.1 The parties and claims being
litigated in Canada are as follows.

The court is not aware whether the 2016 cases in Canada were begun before
or after this one.
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2

In Larson Manufacturing Co. v. Aspen Village Properties Ltd.,
QBG 16-2044, plaintiff herein Larson Manufacturing Company of South
Dakota, Inc. is suing Aspen Village Properties Ltd., the Canada Revenue
Agency, and various contractors or subcontractors seeking to foreclose its
mortgage interest in the Aspen project.
In Jahnke v. Thomas, QBG 16-2125, Gregory Jahnke, the principal in
the Aspen properties, is suing defendant herein Paul Thomas, and Craig
Johnson, Dale Larson, and Jeffrey Ries, the latter three of which are principals
in plaintiffs herein. The subject of that lawsuit involves the credit agreement
and mortgages involved in the Aspen project.
In Western v. Aspen Village Properties, Ltd., QBG 17-2616, plaintiff
herein Western Showcase Homes, Inc. is suing Aspen Village Properties, Ltd.;
Aspen Village Developments, Ltd.; Aspen Creek Developments Ltd.; and
Gregory Jahnke. The subject matter of that suit is apparently enforcement of
the sales agreement related to the Aspen project.
In Mauri Gwyn v. Larson Manufacturing Co., QBG 17-2404, plaintiff
Mauri Gwyn is suing plaintiff herein Larson Manufacturing Co. and defendant
herein American Modular Housing Group, Inc. seeking an accounting upon the
sale of condominiums by Larson and AMHG.
DISCUSSION
Defendants move to stay this case until the Canadian foreclosure lawsuit
is concluded. Defendants purport to express “surprise” at the “recent”
discovery of this foreign litigation. However, on July 9, 2018, defendants filed
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with the court answers to interrogatories they propounded to plaintiffs in which
plaintiffs state, under oath, that in order to mitigate their losses, they inter alia
began foreclosure proceedings in Canada. See Docket No. 107-7 at p. 11.
Although defendants filed these with the court in July, 2018--six months
ago--plaintiffs signed the interrogatories in late January, 2018, and
presumably defendants were served shortly thereafter. Id. at p. 12. Therefore,
the court infers defendants’ “surprise” at discovering the foreclosure lawsuit is
approximately a year old.
In addition, defendants assert they served plaintiffs with requests for
documents regarding the Canadian lawsuits and that plaintiffs did not provide
copies of such documents until this month—January, 2019. This assertion is
not persuasive. First, the court notes that defendants themselves filed
documents from the Jahnke v. Thomas lawsuit with this court in July, 2018.
See Docket No. 107-10. Therefore, these documents were in defendants’
possession for at least the last 7 months. Secondly, the court notes that two of
the named defendants in this lawsuit—Paul Thomas and American Modular
Housing Group, Inc.—were named defendants in two of the Canadian lawsuits:
Jahnke v. Thomas and Mauri Gwyn v. Larson Manufacturing Co. These
defendants would have been served personally with pleadings in these lawsuits
in 2016 and 2017, respectively. They certainly had knowledge of the lawsuits
since that time. Again, the court concludes the existence of the Canadian
lawsuits is not much of a “surprise” to these defendants.

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In addition to the “surprise” argument, in support of its motion,
defendants recycle many of the same arguments they urged in support of their
motion for partial summary judgment. They argue plaintiffs cannot “double
recover”—i.e. they cannot obtain a judgment against defendants in this
litigation for the full amount of the debt owed while at the same time reaping
the recovery of their Canadian foreclosure action. Defendants warn that
allowing both lawsuits to proceed could result in inconsistent verdicts.
The court is not persuaded. The validity of the mortgage interest as
against real property is a separate issue from the validity of the debt as
between plaintiffs and defendants. The foreclosure proceedings will not
determine the total amount of debt owed to plaintiffs by defendants as a result
of their contract. Only this lawsuit will determine that issue.
Defendants argue that if this case goes to trial first and foreclosure
proceedings later net more than what defendants owe plaintiffs on the debt, the
trial in this matter may have been for naught and thus a waste of the parties’
and the court’s resources. The same may be said for the Canadian litigation.
Since the parties in this action cannot agree upon the amount of debt
defendants owe plaintiffs under the note, if the Canadian foreclosure suits are
allowed to proceed first, they may net more than is owed on the note, a
determination that will not be capable of being made until this lawsuit
proceeds. Thus, if the Canadian lawsuits go forward, those lawsuits may
ultimately prove unnecessary and a waste of the parties’ and the court’s

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resources. The several lawsuits are hopelessly intertwined and there is no
single necessary and prudent way to resolve which case(s) should proceed first.
When this case goes to trial, it will be plaintiffs’ burden to prove their
damages by a preponderance of the evidence. If they have collected from
foreclosing on mortgages in Canada prior to trial, those amounts must be offset
against the amount owed by defendants under their debt agreement. To the
extent the amount that will be received from foreclosing on mortgages in
Canada is contingent at the time of the trial in this matter, it will be incumbent
on plaintiffs to apply any after-collected foreclosure sums against any judgment
they receive in this matter on the debt. The court can ensure that such an
order is incorporated into the judgment in this case.
It is true Canada has a substantial interest in this litigation, as
defendants argue. The real property is located there and the parties stipulated
Saskatchewan law applies to their third debt agreement. But the District of
South Dakota has an equally substantial interest in this litigation. The
plaintiffs manufactured the homes here, paid its employees to perform that
manufacturing here, and loaned money to defendants pursuant to the finance
agreements here. The interests of Canada in this litigation are not such as to
outweigh the interests of the District of South Dakota.

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CONCLUSION
Based upon the foregoing, the court hereby
DENIES defendants’ motion to stay this case in favor of Canadian
proceedings [Docket No. 145]. The current scheduling order in this matter
remains in full force and effect.
DATED January 24, 2019.
BY THE COURT:
VERONICA L. DUFFY
United States Magistrate Judge

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