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Doran Law Office v. Stonehouse Rentals, Inc.

United States District Court, D. Kansas

March 23, 2018

DORAN LAW OFFICE, Plaintiff,
v.
STONEHOUSE RENTALS, INC., Defendant.

          MEMORANDUM AND ORDER

          JULIE A. ROBINSON CHIEF UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiff's Motion for Order Confirming United States Marshal's Sale of Real Estate (Doc. 46). Defendant objected to confirmation of the sale, and the Court held an evidentiary hearing. After considering the arguments, evidence, and testimony presented by the parties, the Court is prepared to rule. For the reasons set forth below, the Court denies confirmation of the sale.

         I. Factual and Procedural Background

         Patrick Doran, d/b/a Doran Law Office (“Doran”), filed this lawsuit against Stonehouse Rentals, Inc. (“Stonehouse”) for unpaid legal fees. In June 2014, this Court granted Doran default judgment in the amount of $133, 024.30, plus post-judgment interest.[1] In April 2014, Stonehouse moved to set aside the entry of default judgment and after an evidentiary hearing, this Court denied Stonehouse's motion.[2] The Tenth Circuit Court of Appeals affirmed this Court's findings.[3]

         After Doran obtained judgment against Stonehouse, he registered the judgment in various state courts, including Douglas County, Kansas District Court.[4] Doran proceeded to file a request for Writ of Specific Execution for a sale of three parcels of real estate in Lawrence, Kansas owned by Stonehouse, and a U.S. Marshal sale was set for May 22, 2017, at the Douglas County Courthouse, Lawrence, Kansas.[5] Stonehouse filed an Emergency Motion to Stay the sale on behalf of the interests of non-party T & A Rentals, who is purchasing the property on a contract for deed.[6] Magistrate Judge Gerald L. Rushfelt heard the motion by telephone conference, and denied Stonehouse's motion for lack of standing.[7]

         The Marshal published a Notice of Sale in the Lawrence Journal-World once a week for four consecutive weeks prior to the date of sale, as provided by law, offering the property for sale at the front door of the Douglas County Courthouse, Lawrence, Kansas, on May 22, 2017.[8]The sale was held as scheduled. There were no bidders for two of the three properties; the second property, Unit 15-B on North Michigan Street in Lawrence, sold for the only bid of $10, 000.00.[9] Stonehouse objected to confirmation of the sale.[10] At the evidentiary hearing, Stonehouse offered the testimony of two witnesses.

         Cheri Hayes

         Hayes is the contract property manager for Stonehouse Rentals. Her responsibilities include showing and leasing properties, maintenance issues, and interaction with tenants. Hayes testified that Stonehouse Rentals owns properties in sixteen counties in Kansas, including Douglas County. Hayes has a general knowledge of the real estate market in the areas where Stonehouse owns properties. In her role with Stonehouse Rentals, she has been involved in the sheriff's sale process, and was present at the marshal's sale in this case.

         Hayes testified that in Douglas County, there is an “old” courthouse and a newer judicial center that are adjacent to each other in Lawrence, Kansas. She testified that in her experience with sheriff's sales, the sales take place in the basement of the Judicial and Law Enforcement Center (the “Judicial Center”), which faces 11th Street. By contrast, the marshal's sale was noticed for and took place on the front steps of the old Douglas County Courthouse, which faces Massachusetts Street. Hayes testified she arrived thirty minutes early for the sale, and went to the clerk's office in the Judicial Center to clarify where the sale would be held; no one in the district court clerk's office was aware of the sale, however, which had been ordered by the federal district court. Hayes then met up with counsel and Ash and Nancy Ahmmed, owners of T & A Rentals, and they proceeded to the courthouse, where they found a marshal waiting on the front steps. The marshal identified himself to Hayes and the others, but did not have on a uniform and wore a jacket that covered his badge. There was one other person at the sale, who ultimately was the only bidder on the Michigan Street property at issue; the other two properties for sale did not receive any bids. No representatives of Stonehouse Rentals or Doran made any bids or credit bids at the sale.

         Hayes testified that the Ahmmeds, who own T & A Rentals, were the owners of the Michigan Street property, having purchased the property on a contract for deed in April 2012 for $65, 000.[11] On cross-examination, however, Hayes admitted that Stonehouse Rentals was correctly identified as the owner of the property in the Notice of Sale published in the Lawrence Journal-World.

         Hayes testified that she was familiar with the tax appraisal for the Michigan Street property, which she obtained from the Douglas County Appraiser's website, which was approximately $70, 000. Hayes is not a licensed realtor or appraiser.

         Nancy Ahmmed

         Nancy Ahmmed is the co-owner of T & A Rentals, Inc., which purchased the Michigan Street property from Stonehouse on a contract for deed in April 2012. She owns that company with her husband, Ashfaque Ahmmed. A portion of T & A Rentals, Inc.'s business is dedicated to residential rental properties, many of which the company purchased from Stonehouse Rentals starting in 2012. Ahmmed testified that T & A Rentals has purchased approximately ten properties from Stonehouse Rentals, that she was not aware of any lawsuits pending against Stonehouse, and that there was no mention that the properties were sold in relation to a lawsuit or legal proceedings. On cross-examination, Ahmmed admitted that she did not do any investigation prior to entering into the contract, and did not know when the instant lawsuit was filed against Stonehouse Rentals or when the judgment was entered in federal district court or registered in Douglas County.

         Ahmmed testified that the contract for deed on the Michigan Street property was executed on April 1, 2012, and contained a balloon payment provision on April 1, 2014, whereby T & A Rentals was to make a good faith effort to refinance the property and pay the balance in full.[12] Ahmmed testified that T & A Rentals makes regular monthly payments to Stonehouse Rentals instead of the balloon payment, but that the contract for deed had not been modified.

         Ahmmed testified that the $65, 000 purchase price for the property was the asking price, and that she believes the value of the property is around the same as the purchase price in 2012. There was no testimony about the amount of monthly payments or amount paid thus far by T & A Rentals toward the purchase price of the property.

         Ahmmed further testified that she found out about the marshal's sale the morning of the sale when she went to a meeting with Cheri Hayes. Ahmmed met Hayes at the sale in the parking lot between the courthouse and the Judicial Center, then attended the sale on the courthouse steps. She confirmed that the marshal announced the sale and that there was one bidder. Ahmmed also confirmed that Stonehouse Rentals was the owner of record for the Michigan Street property, as well as the other properties T & A Rentals purchased, and that she had not recorded any of the contracts for deed.

         Patrick Doran

         Doran did not call any witnesses. Instead, he asked the Court to take judicial notice of a number of returns from execution sales conducted by the Marshal in unrelated cases.[13] In each of these execution sales, the sale took place at the front door of the respective county courthouse. Doran also asked the Court to take notice of the low sale prices in the returns.

         II. Applicable Law

         Federal courts “have certain inherent authority to protect their proceedings and judgments in the course of discharging their traditional responsibilities.”[14] Generally, the first step in enforcing a money judgment is to obtain a writ of execution.[15] Doran properly sought, and this Court was within its authority to issue, a writ of execution allowing Doran to collect on his money judgment. Once a federal district court issues a writ of execution, a judgment creditor must follow the procedure on execution “established by the law of the state in which the district court sits.”[16] Thus, as required by Fed.R.Civ.P. 69(a)(1), Doran used the method of execution prescribed under Kansas law.

         K.S.A. 60-2202(a) provides that a judgment in a civil action becomes a lien on the debtor's property located within the county where the judgment is “rendered.” The statute provides a vehicle for the judgment creditor to “register” its judgment in the district court of another county, at which time the judgment becomes a lien on the debtor's real property in the registering county. The statute concludes that “[e]xecutions shall be issued only from the court in which the judgment is rendered.”[17] Here, Doran registered his judgment obtained in federal district court in Douglas County, Kansas; the writ of execution was issued by this Court, and directed the sale to be held in Douglas County, Kansas.

         As Doran notes, the issue here involves an execution sale as distinguished from a judicial sale. As ...


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