United States of America v. The Estate of Beulah E. Gallego et al
Filing
17
MEMORANDUM OPINION AND ORDER granting 15 Motion for Default Judgment. Signed by U.S. District Judge Lawrence L. Piersol on 9/20/2019. (CLR)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DtVlSlON
UNITED STATES OF AMERICA,
CIV. NO. 17-5091
Plaintiff,
MEMORANDUM OPINION AND ORDER
vs.
GRANTING MOTION FOR DEFAULT
THE ESTATE OF BEULAH E.
JUDGMENT
GALLEGO/GALLIGO; LYNN GALLEGO
a/k/a/ LYNN(LEONA)GALLlGOrRANDALL,
as Administrator ofthe Estate of Beulah E.
Gallego/Galligo; FRANKEE WHITE DRESSS;
THE OGLALA SIOUX TRIBE; and ANY
PERSON IN POSSESSION,
Defendants.
In this case, the United States is seeking to foreclose on a loan made under the provisions
ofSection 184 ofthe Housing and Community Development Act, 12U.S.C,§ 1715z-13a("Section
184"), and secured by a leasehold mortgage on real property held in trust for Oglala Sioux Tribe
("the Tribe") and leased by the Tribe to Beulah E. Gallego ("Gallego), a tribal member, who died
intestate on September 25, 2011. Named defendants are The Estate ofBeulah E. Gallego; Frankee
White Dress; The Oglala Sioux Tribe; and Any Person in Possession. Frankee White Dress is
Gallego's eldest daughter and upon the government's information and belief, she inherited the
majority of the real property from Gallego's estate.
In the present case, the Government has applied to the Court for a defaultjudgment against
the Estate and a judgment of foreclosure upon the leasehold interest for the principal sum of
$69,887.89, together with interest, plus any additional sums advanced in relation to this action.
Doc. 15. Additionally, the Government asks the Court to issue a decree ofsale as to the leasehold
interest in the real property. Doc. 15. For the following reasons, the Government's motion for
order of defaultjudgment is granted and its motion for judgment offoreclosure and decree of sale
are denied.
BACKGROUND
I.
Facts
On November 28, 2000, the Oglala Sioux Tribe entered into a residential lease with
Emabelle Skye for a parcel of land situated on Pine Ridge Indian Reservation ("the Real
Property"). Doc. 1-6. Emabelle Skye assigned the residential lease ofthe Real Property to Beulah
Gallego ("Gallego") and the assignment was recorded as an encumbrance in the Bureau of Indian
Affairs "BIA" Title Status Report ofthe Real Property. Doe. 1-5. On August 1, 2007, a leasehold
mortgage was executed by Gallego and delivered to Wells Fargo Bank, N.A., as security for a
$55,736.00 promissory note made by Wells Fargo to Gallego under the provisions of Section 184
of the Housing and Community Development Act, 12 U.S.C. § 1715z-13a ("Section 184"). Doc.
1,
9, 10; 1-2; 1-3. The BIA issued a certificate of approval for "the leasehold mortgage on the
trust or restricted land owned or leased by BEULAH E GALLEGO, as security for a $55,736.00
loan to be made by WELLS FARGO BANK,N.A." Doe. 1-4. The BlA's certificate of approval
stated that "[sjhould foreclosure be necessary, the mortgagee shall give written notice to the[BIA]
Office prior to initiation of such proceedings." Doc. 1-4.
Under the terms of the promissory note, Gallego was required to make monthly payments
on the first day of each month until the loan matured in September 2037. Doe. 1, ^ 14. The
promissory note provides that failure to pay any ofthe debt when due constitutes default. Doe. 1-
2. The promissory note states that upon default, the noteholder may require the borrower "to pay
immediately the full amount of the [pjrincipal which has not been paid and all interest that
[borrower] owe[s] on that amount. The date must be at least 30 days after the date on which the
notice is mailed to [borrower] or delivered by other means." Doc. 1-2. The leasehold mortgage
also provides that the lender shall give notice to the borrower prior to acceleration following
borrower's breach of any covenant in the mortgage. Doe. 1-3. The leasehold mortgage provides
that:
The notice shall specify:(1)the default;(b)the action required to cure the default;
(e) a date, not less than 30 days from the date the notice is given to [b]orrower, by
which the default must be cured; and(d)that failure to cure the default on or before
the date specified in the notice may result in acceleration of the sums secured by
[the mortgage] and sale ofthe Property.
Doc. 1-3.
The form residential lease executed by Emabelle Skye and the Tribe and then assigned to
Gallego, provides that "subsequent to the Lessee's breach of any covenant or agreement under a
mortgage or other security instrament for which the Lease . . . [is] pledged as security, and upon
the expiration ofany applicable cure period,[the Tribe, as lessor], shall have an option []to acquire
the Lessee's Leasehold interest,(subject to all valid liens and encumbrances) upon either payment
in full of all sums secured by the mortgage or assumption of the loan with the approval of the
lender or the applicable Federal Agency." Doc. 1-6, 11.
On May 8, 2011, Wells Fargo Bank sent Gallego a letter stating that she was $1,306.04 in
arrears on her note as of the date of the notice. Doc. 1-8. The notice provided that if Gallego did
not pay $1,306.04 by June 7, 2011, Wells Fargo Bank will proceed with acceleration. Doc. 1-8.
The notice further provided that once acceleration has occurred, the bank may take steps to
terminate Gallego's ownership in the property by a foreclosure proceeding. Doc. 1 -8.
On June 16, 2011, Wells Fargo Bank sent Theresa Two Bulls, President of Oglala Sioux
Tribe a notice that Gallego's note was in default and that the Tribe,"as lessor, had the right offirst
refusal to acquire the lessee's interest in the property(subject to all valid liens and encumbrances)
upon (a) payment of all sums in arrears, and (b) either payment of the balance of the loan or
assumption of the mortgage. Doc 1-9. In order to exercise the right of first refusal, the notice
specified that the Tribe "must perform one of the following within thirty (30) days of this notice
or on/or before 07/01/11
1. Send a written request to assume the loan with the payment ofall sums in arrears
to us and Beulah E. Gallego. The total arrearage if received on/or before
07/01/11 is $2,588.26. The [tjotal arrearage if received on/or before 08/01/11,
is $3,009.00.
2. Remit the total balance due on the loan. The total balance due ifreceived on or
before 07/11/11, is $55,410.96. The total balance due if received on/or before
08/01/11, is $55,729.65.
Doc. 1-9. "If you do provide the lessee and us written notice of your desire to exercise the right
of first refusal, Beulah E. Gallego, as lessee shall have fifteen (15) days from the date of such
notice to cure the default." Doc. 1-9. Finally, the notice provided that "[i]n the event that the
[Tribe] fails to exercise their right of first refusal in accordance with that set forth above. Wells
Fargo [] may invoke remedies provided by mortgage or by applicable law." Doc. 1-9.
On September 25,2011, Gallego died intestate. Doc. 1,1|4; 1-1. Gallego's daughter, Lynn
Gallego, served as administrator of Gallego's estate in the Oglala Sioux Tribal Court. Doc. 1, If 6.
The Government states that upon information and belief, Frankee White Dress is Gallego's eldest
daughter and was given the majority interest to Gallego's real and personal property upon her
death. Doe. 1, Tf 6.
On September 18,2012, Wells Fargo Bank assigned to the Secretary ofHousing and Urban
Development ("HUD") its promissory note and leasehold mortgage on the Real Property as
provided for in Section 184. Doe. 1, Tf 13; 1-7.
II.
Procedural History
On December 5, 2017, the Government filed a verified complaint against defendants the
Estate, Frankee White Dress,the Tribe, and Any Person in Possession (collectively,"Defendants")
alleging a claim offoreclosure of the leasehold mortgage. Doc. 1.
On February 5, 2018, the Tribe filed its Answer to the Verified Complaint and raised
numerous affirmative defenses. Doc. 6. The remaining defendants (the Estate, Frankee White
Dress, the Tribe, Any Person in Possession) were personally served with a copy of the summons
and verified complaint in this matter, but have not filed an answer to the verified complaint. Docs.
4, 7, 8, 9. The deadline for filing an answer has passed and the Government indicated that it has
attempted contact with the remaining defendants and "none ofthe parties indicated they would be
formally answering the complaint." Doc. 11, Tf 6.
On March 23, 2018, the Government filed an Application for Entry of Default as to Any
Person in Possession ofthe real property,the Estate, and Frankie White Dress. Doc. 10. The Clerk
of Courts filed its Entry of Default as to these defendants on March 26, 2018. Doc. 12.
On October 11, 2018, the Government filed a motion for default judgment,judgment of
foreclosure, and request for decree of sale. Doc. 15. Attached to Plaintiffs motion are proposed
orders for default judgment,judgment of foreclosure, and decree of sale. Doe. 15-1. The Tribe
has not responded to the Government's October 11, 2018, motion.
LEGAL STANDARD
When a defendant has failed to plead or otherwise defend in an action, the defendant is
deemed to have admitted the well-pleaded allegations of the complaint. See Brown v. Kenron
Aluminum & Glass Corp., All F.2d 526, 531 (8th Cir. 1973) (citation omitted) ("If the court
determines that the defendant is in default, his liability to the plaintiff is deemed established and
the plaintiff is not required to establish his right to recover."); D.H. Blair & Co. v. Gottdiener, 462
F.3d 95, 107 (2d Cir. 2006)("Rule 55 tracks the ancient common law axiom that a default is an
admission of all well-pleaded allegations against the defaulting party.").
A party may obtain entry of default judgment hy following the two-step process outlined
in Rule 55 of the Federal Rules of Civil Procedure. See Johnson v. Dayton Elec. Mfg. Co., 140
F.3d 781, 783 (8th Cir. 1998). First, pursuant to Rule 55(a), the party seeking default must have
the clerk enter the default by submitting the required proof that the opposing party has failed to
plead or otherwise defend the action. See Fed. R. Civ. P. 55(a). Second, pursuant to Rule 55(h),
the moving party may seek entry ofjudgment on the default under either subdivision (h)(1) or
(b)(2) ofthe rule. See Fed. R. Civ. P. 55(h).
In the present case, the Government moves the court for entry ofjudgment on the default
pursuant to Rule 55(b)(2).
The entry of a default judgment pursuant to Rule 55(b)(2) is committed to the sound
discretion of the district court. United States v. Harre, 983 F.2d 128, 130 (8th Cir. 1993). The
entry of default judgment is appropriate when a party's conduct includes "willfol violations of
court rules, contumacious conduct, or intentional delays." Ackra Direct Mktg. Corp. v. Fingerhut
Corp., 86 F.3d 852, 855 (8th Cir. 1996)(citation omitted). Default judgments are not favored by
the law, and defaultjudgment is not an appropriate sanction for a "marginal failure to comply with
the time requirements." Harre,983 F.2d at 130.
DISCUSSION
In the present case, the Government has applied to the Court for a defaultjudgment against
the Estate and a judgment of foreclosure upon the leasehold interest for the principal sum of
$69,887.89,together with interest, plus any additional sums advance in relation to this action. Doc.
15-1. Additionally, the Government asks the Court to issue a decree of sale as to the leasehold
interest in the real property. Doc. 15-1. On March 26, 2018, the Clerk of Courts filed its Entry
of Default as to the Estate, Any Person in Possession, and Frankee White Dress. Doc. 12. The
Tribe, also a named defendant is this action, filed an answer to the complaint alleging various
affirmative defenses.
On February 6, 2018, summonses were returned, executed by The Estate and Any Person
in Possession and were filed with the Court. Doc. 7, 8. On March 20, 2018, a summons was
returned, executed by Frankee White Dress and filed with the Court. Doe. 9. Neither the Estate,
Any Person in Possession, nor Frankee White Dress have filed answers or other responsive
motions in this action. On March 23, 2018,the Government filed a motion for entry of default and
in its declaration in support thereof, the Government indicated that it attempted contact with each
ofthese parties and none indicated they would be formally answering the complaint in this matter.
Doc. 11,16. On March 26, 2018, the Clerk filed its Entry of Default as to the Estate, Any Person
in Possession and Frankee White Dress, Doe. 12, and was it mailed to the defendants via United
States Postal Service on March 26, 2018.' The Government in this ease is seeking a default
judgment against the Estate. The Court concludes that the Estate's failure to defend amounts to
willful conduct that would justify entry ofjudgment by default against it.
The Government contends that the Court may order a judgment of foreclosure and decree
of sale at this time despite the fact that the Tribe has filed affirmative defenses to the foreclosure
action in this case. The Government argues that the Tribe's only interest in the property was its
right of first refusal which has expired and that it has no claim against the Trihe. Section 184
provides that before a mortgagee or HUD may foreclose on a Section 184 loan, it must "offer to
transfer the account to an eligihle tribal member,the tribe, or the Indian housing authority serving
the tribe." Attached to the Government's verified complaint is a Notice of Lessor Right of First
Refusal from Wells Fargo to Theresa Two Bulls, President of Oglala Lakota Sioux Tribe,
providing the Tribe thirty days to assume the loan with payment of all sums in arrears or remit
payment of the total balance due on the loan. Doe. 1-9. The Government states in its verified
complaint that the Tribe declined to exercise its right of first refusal. Doe. 1.
Many of the Tribe's affirmative defenses to foreclosure regard its claim that the notice of
right of first refusal that it received was in derogation of the rights afforded it by Section 184.
Speeifieally, the Trihe alleges the following deficiencies: 1)it was sent by the private lender, Wells
Fargo Bank, rather than HUD; 2) it was sent before the private lender assigned the notice and
leasehold mortgage to HUD;3)it was issued pursuant to a residential lease, not pursuant to Section
184; 4) it did not offer to transfer the loan and leasehold mortgage to an eligible tribal member,
the Tribe, or the Indian housing authority serving the Tribe, but only gave the Tribe a right offirst
refusal to acquire the leasehold interest; 5)it informed the Tribe that it could acquire the leasehold
^ The Clerk's Entry of Default was returned as undeliverable only as to Any Person in Possession. Doc. 13.
6
interest only by pajdng all sums in arrears and either assuming the loan or remitting the total
balance due on the loan in the lease; 6) it gave the Tribe an unreasonably short period of time to
exercise its rights of first refusal; 7)it informed the Tribe that its right of first refusal was subject
to eaneellation if the borrower cured the default; and 8) the notice was confusing and only gave
the Tribe fifteen (15) days to exercise its rights of first refusal. While the Court agrees that the
Government does not assert a claim against the Tribe, the Tribe remains a party to this action and
has asserted certain affirmative defenses, specifically with regard to its statutory right to receive
an offer to assume or extinguish the mortgage.^
The Court acknowledges that many of the affirmative defenses presented by the Tribe in
this ease were rejected by the Court in United States v. Big Crow, Civ. No.15-5008, 2016 WL
885901 (D.S.D. Mar.2,2016)(J. Piersol). However,inBig Crow,the Tribe raised these ar^ments
in a motion to dismiss the Government's verified complaint to foreclose. Having addressed each
ofthe Tribe's arguments in turn, the Court denied the Tribe's motion to dismiss and subsequently
entered an order for default judgment against the mortgagor/borrower, a judgment offoreclosure,
and decree of sale.
In the present ease, however,the Tribe raised its objections instead as affirmative defenses
in its answer to the Government's complaint. In order for the Court to enter a judgment of
foreclosure and decree of sale, the Government must first bring a motion addressing the merits of
the Tribe's affirmative defenses in this ease and/or the Tribe's standing to object to the foreclosure
in this case.
Accordingly, it is hereby ORDERED that:
1) The Government's motion for order of default judgment. Doc. 15, is GRANTED;
Plaintiff shall have and recover judgment against Defendant Estate of Beulah E.
Gallego/Galligo for the principal sum of$69,887.89,together with interest as provided
^ The Tribe also objects to foreclosure based on noncompliance with other provisions of Section 184 that
do not pertain to the notice the Tribe received of its right of first refusal. Specifically, the Tribe states the following
objections: 1) neither HUD nor the private lender gave written notice to the BiA prior to the initiation of foreclosure
proceedings, as it alleges is required by the Certificate of Approval of the Leasehold Mortgage; 2)the assignment by
the original mortgagor, Ernabelle Skye, to Beulah Gallego, Is not valid for failure to receive prior written consent of
the Tribe and the Secretary of the Interior; 3) the relief sought In paragraph 4 of the Request for Relief is not
authorized under Section 184 and should be denied In that "[ajll Defendants," including the Tribe, cannot "be barred
and foreclosed of and from all rights, title, or interest in and to said property," because the Tribe has rights in and to
the property.
by law, plus any additional sums advanced in relation to this action; interest will
continue to accrue at the legal rate after judgment until paid pursuant to 28 U.S.C. §
1961(a); and
2) The Government's motions for judgment of foreclosure and decree of sale, Doc. 15,
are DENIED without prejudice to their refiling.
lb
Dated this^^ day of September,2019.
BY THE COURT:
Lawrence L. Piersol
United States District Judge
ATTEST:
,CLERK
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