Berg v. Berg

David A. Berg, individually and in his capacityas President/Chief Manager of Majestic Properties & Development, LLC, Plaintiff, v. Janie Warren Berg, individually and in her capacity as Governor, Member,Secretary and Treasurer of Majestic Properties & Development, LLC;Lighthouse Management Group, Inc., a Minnesota Corporation;Kathleen Gearin, as Special Master appointed by the Minnesota District Court;and Majestic Properties & Development, LLC, a Minnesota Limited Liability Company, Defendants.

File No. 19-cv-2676 (ECT/KMM)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

January 30, 2020

OPINION AND ORDER

Frederic W. Knaak, Holstad & Knaak PLC, St. Paul, MN, for Plaintiff David A. Berg.

Scott M. Rodman and Kendal K. O'Keefe, Arnold, Rodman & Kretchmer PLLC, Bloomington, MN, for Defendant Janie Warren Berg.

Brian A. Dillon, Lathrop GPM LLP, Minneapolis, MN, for Defendant Lighthouse Management Group, Inc.

Bryan R. Feldhaus and Michelle K. Kuhl, Lommen Abdo, P.A., Minneapolis, MN, for Defendant Kathleen Gearin.

Plaintiff David A. Berg is a dissatisfied party to an ongoing Minnesota state-court divorce proceeding. He has several complaints about the state courts' handling of that case. These include, among others, that the state district court violated his federal constitutional rights when it found him in default and ordered him jailed as a contempt sanction for discovery violations and that the Minnesota Court of Appeals violated his federal constitutional rights when it denied his petition for a writ of prohibition. In this case, Mr. Berg seeks "declaratory and injunctive relief directed at the state district court," Compl. ¶ 1 [ECF No. 1], essentially to undo that court's adverse orders. Mr. Berg also seeks damages from his former spouse stemming from her alleged failure to account for money received from the operations of a business, though as Mr. Berg states these same allegations have been and continue to be considered a "central and critical issue in the state court case." Compl. ¶ 47. Defendants seek dismissal on several grounds. Because there are ongoing state-court proceedings that implicate important state interests and offer Mr. Berg an opportunity to pursue his claims, this case must be dismissed under Younger v. Harris, 401 U.S. 37 (1971). One defendant also seeks sanctions against Mr. Berg's counsel for filing and persisting with this case. That motion will be denied.

I

Mr. Berg has sued three defendants in this case. They are his former spouse, Janie Warren Berg; the special master appointed to oversee and resolve discovery disputes in the dissolution proceeding, former Ramsey County District Court Judge Kathleen R. Gearin; and the receiver appointed to preserve the Bergs' marital estate pending the outcome of the dissolution proceeding, Lighthouse Management Group, Inc. Mr. Berg's complaint might be understood to say that there is a fourth defendant, a business organization owned jointly by the Bergs called Majestic Properties & Development, LLC. Compl. ¶ 14. But Mr. Berg acknowledged at the hearing on these motions that Majestic had not been served withprocess, and a close reading of the complaint reveals no claims against, and no request for relief from, Majestic. Though he seeks "declaratory and injunctive relief directed at the state district court," Compl. ¶ 1, Mr. Berg has not sued the state district court.

Understanding Mr. Berg's claims in this case requires summarizing the proceedings in the state-court dissolution case. Ms. Berg brought the case in Dakota County District Court on June 15, 2017. Id. ¶ 5. Presiding Judge Karen J. Asphaug appointed Judge Gearin as special master just over one year later, in July 2018, "for purposes of overseeing and resolving any discovery issues between the parties," assertedly with the Bergs' agreement. Id. ¶¶ 22, 8; Feldhaus Decl., Ex. 1 [ECF No. 22-1]. As special master, Judge Gearin was given "the sole discretion to determine the appropriate procedures for resolution of all assigned matters and . . . the authority to take all appropriate measures to perform the assigned duties." Id. Judge Gearin was given authority to "impose upon a party any sanction other than contempt" and was authorized to recommend to Judge Asphaug a contempt sanction against any party. Id. Judge Asphaug subsequently appointed Lighthouse as receiver "to protect [the Bergs'] marital estate and to function in the manner of a neutral financial expert." Compl. ¶ 7; Sigelman Aff., Exs. B, C at 4 [ECF Nos. 26-2, 26-3]. In addition to its primary responsibility to "review all marital and non-marital assets to determine and identify funds available to meet [Mr. Berg's] obligations . . . and ensure these obligations are timely paid," Lighthouse also was authorized to "identify receivership property to be liquidated in order to raise funds to satisfy [Mr. Berg's obligations]" and "investigate and analyze any claim, controversy or allegation either party makes against the other with respect to the control, preservation, depreciation, diversion, disposition,distribution, misappropriation, or management of marital assets or resources . . . and [] make written findings thereof to be made available to counsel for the parties." Sigelman Aff., Ex. C at 8.

Mr. Berg's conduct during the dissolution proceedings eventually prompted Judge Asphaug to find Mr. Berg in contempt and order him to serve 90 days in the Dakota County Jail, and the proceedings leading to Mr. Berg's confinement were extensive. To summarize, in an order dated June 24, 2019, Judge Gearin recommended that Mr. Berg "be found in contempt of court for his refusal to adequately answer . . . interrogatories and requests for production of documents." Feldhaus Decl., Ex. 2 at 3 [ECF No. 22-2]. In her order, Judge Gearin observed that Mr. Berg "ha[d] consistently refused to participate in the discovery process in good faith." Id. at 1-2. Judge Gearin explained that she had "noted [Mr. Berg's] lack of cooperation in prior orders," and "[d]espite past warnings, [Mr. Berg] continue[d] to drag his feet and ignore past orders[.]" Id. at 2. On July 19, after conducting an evidentiary hearing, Judge Asphaug found Mr. Berg in constructive civil contempt. Feldhaus Decl., Ex. 3 at 9-10 [ECF No. 22-3]. Judge Asphaug sentenced Mr. Berg "to the Dakota County Jail for a period not to exceed 30 days," but stayed the sentence for 30 days to allow Mr. Berg the chance to purge his contempt by meeting a number of conditions including complying with outstanding discovery requests and orders, cooperating with Lighthouse, taking steps to preserve marital assets, and paying attorneys' fees in compliance with previous orders. Id. at 11-14. Judge Asphaug warned that failure to comply would "result in [Mr. Berg's] inability to introduce or use any documents or exhibits at trial, . . . adverse inferences drawn against [Mr. Berg] with regards to all mattersfor which discovery ha[d] theretofore been ordered but not completed . . . [and Ms. Berg's] right to proceed by default in" the remainder of the dissolution proceeding. Id. at 15. On August 7, Judge Asphaug held a hearing to determine whether Mr. Berg had complied with the terms of her July 19 order. See id., Ex. 4 ¶ 2 [ECF No. 22-4]. Judge Asphaug assigned Judge Gearin the task of reviewing the record to assist in determining whether Mr. Berg had complied. Id. Judge Gearin found that Mr. Berg had not complied. Id., Ex. 5 [ECF No. 22-5]. On September 6, 2019, Judge Asphaug granted Ms. Berg's motion to proceed by default but stayed the execution of Mr. Berg's jail sentence to permit him more time to purge the constructive contempt finding. Id., Ex. 6 [ECF No. 22-6]. One week later, on September 13, Mr. Berg filed a petition for writ of prohibition with the Minnesota Court of Appeals seeking to restrain Judge Asphaug from enforcing her orders appointing Lighthouse as receiver and granting Ms. Berg's motion to proceed by default. Id., Ex. 8 [ECF No. 22-8]. The Court of Appeals promptly denied the petition in an order dated October 1. Id., Ex. 9 [ECF No. 22-9]. Meanwhile, at a hearing on September 25, Judge Asphaug ordered the Bergs to sign documents to enable the sale of real property held in receivership. Id., Ex. 7 at 2 [ECF No. 22-7]. Mr. Berg signed some documents as ordered, but he refused to sign others related to the sale of one parcel of real property. Id. Judge Asphaug afforded Mr. Berg the opportunity to sell other items of personal property to cover the anticipated amount that would have been available had he signed the sale documents for the one parcel of real property, but Mr. Berg refused. Id. After giving both Mr. Berg and his counsel opportunities to speak, after giving Mr. Berg additional opportunities to sign the real-property sale documents, and after making certain that Mr. Berg was awareof the possible consequences of his actions, Judge Asphaug found Mr. Berg in direct civil contempt and sentenced him to serve 90 days in the Dakota County Jail. Id. at 2-4. Judge Asphaug's contempt order permitted Mr. Berg to purge the contempt and gain his release and freedom "immediately" if he signed the real-property sale documents, id., but Mr. Berg did not do so and apparently served the entire 90-day jail sentence.

During the dissolution proceeding, Mr. Berg claimed repeatedly that Ms. Berg was misappropriating funds belonging to Majestic, but his claims were considered and rejected. See generally, Ms. Berg's Index of Exhibits, Exs. 5-7 [ECF Nos. 15-5-15-7]. Pursuant to its court-ordered authority, Lighthouse investigated these claims and submitted three separate reports describing its conclusions. Id. In its first report, Lighthouse described its investigation of Mr. Berg's "suggest[ion] that Ms. Berg ha[d] misappropriated assets or diverted revenues from [Mr. and Ms. Berg's] properties" in an amount that may have been "as high as $1 million." Id., Ex. 5 at 7. Lighthouse concluded that although Ms....