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Eleanora J. Dietlein Trust v. American Home Mortgage Investment Corp.

United States District Court, D. Nevada

July 31, 2014



VALERIE P. COOKE, Magistrate Judge.


This case concerns the family trust of Eleanora Dietlein (the "trust") and disputes among her three surviving children, Eric Dietlein ("Eric"), William Dietlein ("Bill"), and Nora Dietlein Christensen ("Nora"). On October 5, 2011, a lawsuit involving the trust was removed to this court (#1). The plaintiffs are identified as the trust, Derek Neumann, and Gina Neumann, and they sued American Home Servicing, Inc. ("AHMSI") for wrongful foreclosure and various state law claims related to the alleged wrongful foreclosure of real property belonging to the trust, which is located 5600 Grass Valley Road, Washoe County, Nevada (the "Grass Valley property") (#1). The trust owned the Grass Valley property, and the Neumanns were lessors. Id. Karlon Kidder, Esq. ("Mr. Kidder") represented all of the plaintiffs.

Eric was not a named plaintiff, nor was he a trustee of the trust at the time the complaint was filed; nevertheless, he appeared before this court as the "trust representative" in court hearings and at a settlement conference.[1] At the January 10, 2013 settlement conference, the parties settled the case, and they agreed to an April 2013 deadline to submit their stipulation to dismiss with prejudice (#29). It was not until January 2014 - one year after the settlement conference - that Bill's attorney contacted the court to inquire about the status of the case. The court set a status conference (#31), Bill and Nora, as co-trustees of the trust, filed notices of appearance (#s 33 & 34), and they jointly filed an objection to the proposed settlement and stipulated dismissal (#35). Plaintiffs and AHMSI also filed status reports (#s 32 & 36).

At the January 27, 2014 hearing, the court learned that after the settlement conference, AHMSI requested documentation required to complete the settlement, but despite repeated efforts, plaintiffs did not provide the documents to AHMSI until December 20, 2013 (#32). AHMSI then learned that litigation involving the trust had been pending for years, and that the state court had recently issued an order appointing co-trustees. Id. AHMSI also learned that Eric - who had attended the settlement conference on behalf of the trust - was not the trustee of the trust either at the time the complaint was filed or at the time of the settlement conference. Id.

Nora and Bill's joint status report revealed more details. From September 2011 through the January 2013 settlement conference, Mark Chase ("Mr. Chase") served as trustee for the trust and was represented by Scott Brooke, Esq. ("Mr. Brooke") (#35). According to Bill and Nora, neither they nor Messrs. Chase and Brooke knew about this lawsuit. Id. In November 2012, Bill and Nora filed a first amended joint petition in Douglas County state court against Eric and alleged claims of breach of fiduciary, conversion, fraud, negligence, alter ego, unjust enrichment, and statutory claims. Id. During the pendency of that proceeding, Bill and Nora alleged that Eric failed to disclose either the Grass Valley property or this action. Id. Mr. Chase resigned as trustee in October 2013, and in December 2013, the state court appointed Eric, Bill, and Nora as co-trustees of each trust of which they are beneficiaries. Id. The state court further ordered that unanimous consent is required by all co-trustees for the trust to take any action. Id.; Exhibit C.

Having heard from AHMSI, Bill, Nora, as well as Mr. Kidder, Eric, and Mr. Neumann, the court found that there was no settlement of this case in January 2013, and it stayed any motion to enforce the settlement agreement pending further order of the court (#40). The court also ordered Mr. Kidder to produce his complete client file to counsel for Bill and Nora, "including all notes, correspondence, emails, pleadings, [and] any paper whatsoever that deals with [Mr. Kidder's] representation of the trust." Id.

Shortly after this hearing, Bill and Nora requested and received permission to file an expedited motion to compel, for sanctions and order to show cause (#45). Mr. Kidder filed a motion to withdraw as counsel for plaintiffs (#43), a motion for recusal of magistrate judge (#44), and the Neumanns filed a motion to enforce settlement agreement (#42).[2]

On March 25, 2014, this court issued an order to show cause as follows:

1. A hearing is set for May 22 and 23, 2014 to show cause:

(a) why Karlon J. Kidder, Esq. should not be sanctioned pursuant to (1) the motion to compel and for sanctions (#45), (2) this court's inherent power, (3) 28 U.S.C. ยง 1927, (4) Local Rule iA 4-1, (5) Local Rule iA 10-7, and (6) Rule 5.5 of the Nevada Rules of Professional Conduct; and
(b) why Eric Dietlein should not be sanctioned pursuant to this court's inherent power, or referred to the State Bar of Nevada pursuant to NRS 7.285(1) & (3).
2. Eric Dietlein and Karlon Kidder shall appear in person at the show cause hearing to present evidence and to testify as to their authority to file this action on behalf of the trust, their written and oral representations to this court, and all matters raised and/or summarized in Section I of this order.
3. Derek Neumann and Gina Neumann shall appear in person at the show cause hearing.
4. William Dietlein and Nora Dietlein Christensen shall appear in person with their counsel at the show cause hearing.
5. If Mr. Kidder or Eric Dietlein wishes to retain counsel to represent them in this proceeding, such counsel shall file a notice of appearance no later than April 1, 2014.
6. Mr. Kidder, Eric Dietlein, William Dietlein, and Nora Dietlein Christensen shal file pre-hearing briefs, either in pro se or through counsel, no later than 5:00 p.m. Pacific Time on Friday, May 2, 2014, which will include the following:
A. List of witnesses to be called;
B. List of exhibits to be introduced;
C. Issues of law and issues of fact to be considered at the show cause hearing;
D. Stipulation as to witnesses and exhibits; and
E. Any additional information that will assist the court [in] its preparation for the show cause hearing.

The court held an evidentiary hearing on May 22 and May 23, 2014 (#88 & 89). At the conclusion of the hearing, the court ordered the parties to submit post-hearing briefs and/or proposed findings of fact and conclusions of law (#89). Bill and Nora filed a post-hearing brief and proposed findings of fact (#s 91 & 92), and Mr. Kidder and Eric filed post-hearing briefs (#s 93 & 94).[3]

This order follows.


The following facts are established by clear and convincing evidence:

I. Introduction

1. The Court held a Show Cause Hearing on May 22-23, 2014. In attendance were Mr. Kidder, Eric Dietlein and his counsel, Michael Sullivan, Esq., plaintiffs Derek and Gina Neumann and their counsel, Kevin Van Ry, Esq., co-trustee Bill Dietlein and his counsel, Gregory F. Wilson, Esq. and Jeffrey S. Einsohn, Esq., and co-trustee Nora Dietlein Christensen and her counsel, Robert C. Herman, Esq. (#s 88 & 89).

2. The Court conducted examinations of Mr. Kidder, Eric, and Mr. Neumann. Thereafter, the parties conducted further examinations of those witnesses and of the following additional witnesses:

a. Bill Dietlein, currently a co-trustee;
b. Nora Dietlein Christensen, currently a co-trustee;
c. Scott Brooke, Esq., former attorney for Eric Dietlein and subsequently attorney for independent trustee Mark Chase; and
d. Mark Wray, Esq., Eric Dietlein's current state court counsel.

3. Karlon Kidder, Esq. was counsel of record for plaintiffs in this case. Hearing Transcript ("HT") 47:6-11.

4. Mr. Kidder has been a member of the Nevada State Bar since 2010. He is currently a solo practitioner. He is not licensed to practice in any other jurisdiction. He has had multiple bar complaints filed against him. HT 4:15-5:12.

5. Eric, Bill, and Nora are siblings and beneficiaries of the trust. Eric was a trustee for many years and was made the sole manager of numerous limited liability companies owned by the trust. HT 72:23-73:6; 94:2-9; XXX-X-XXX:7; 163:10-13; 332:10-15; 349:1-15.

6. Administration of the trust is being overseen by Judge Michael Gibbons in the Ninth Judicial District Court for the State of Nevada. In February 2011, Judge Gibbons issued a temporary restraining order and preliminary injunction enjoining Eric from taking unilateral or unapproved actions. Exhibit 51.

7. In April 2011, Eric resigned as trustee and Judge Gibbons appointed Mark Chase as the independent trustee. Exhibit 52.

II. Trust Acquisition of the Property

8. Prior to working for Mr. Kidder, Eric started a lending business. The first loan was made with money obtained from Bill. Thereafter, Eric funded his loan business with trust money. HT 129:8-12.

9. For this first loan of $50, 000, Eric approached Bill to acquire the necessary capital. At that point, Bill had no reason to distrust his brother. Eric told Bill that Bill's participation would be short term. Bill was paid back his $50, 000 within a few months. HT 215:9-13; 220:19-25; 221:1-14.

10. Bill never visited the property. He did not know where the property was located. He thought the property was somewhere in California. The property was never identified to him as the "Palomino Property." Bill never met the borrowers, Max and Gail Anne Lopez-Gonzalez (the "Lopez-Gonzalezes"). HT 221:15-222:4.

11. Eric paid himself $2, 000 for making this first loan. This loan to the Lopez-Gonzalezes was secured by a second deed of trust on this Grass Valley property, which is the subject of this lawsuit. That same year, 2006, Eric paid himself an additional $56, 194 for loaning out trust money. HT 130:19-131:1

12. Eric refinanced his loan to the Lopez-Gonzalezes, and in the spring of 2008, Eric foreclosed on the property on behalf of the trust. HT 116:22-117:13. The property was taken subject to a preexisting mortgage. Bill did not know the trust owned the property or that it was being rented out to Derek and Gina Neumann (the "Neumanns"). Bill never met the Neumanns. HT 222:5-222:20.

13. Bill only became aware the trust owned the property in late 2013 or early 2014. HT 215:6-8. Prior to 2014, Bill had never seen any pleading filed in this action. HT 226:9-12.

14. Bill was unaware that the references made to an "AHMSI lawsuit" in a status conference before Judge Gibbons had anything to do with the $50, 000 loan to the Lopez-Gonzalezes or the Grass Valley property. HT 216:20-218:7.

III. Eric Dietlein's Relationship with Derek Neumann

15. The Neumanns are tenants on the Grass Valley property. Mr. Neumann was unaware that Eric had resigned as trustee in April 2011. Mr. Neumann continued to believe Eric was a trustee throughout the pendency of this lawsuit. HT 102:17-103:2.

16. At all relevant times, Eric acted as the landlord for the Grass Valley property. Mr. Neumann never communicated with the actual trustee, Mr. Chase, or the trustee's attorney, Mr. Brooke. HT 102:3-6.

17. In addition to their landlord-tenant relationship, Eric also employed Mr. Neumann to perform services on other properties owned by the trust and by Eric personally. Mr. Neumann was paid for work on Eric's personal properties with trust money. HT 132:2-134:25.

18. Exhibit 35 is the NRCP 16.1 disclosure for a case in (26 Stokes Drive, LLC v. NAFCO Industries, Inc. et al.). Eric was manager of the plaintiff and Bill was president of the first named defendant. Mark Wray, Esq. prepared Exhibit 35. Mr. Neumann was identified in Exhibit 35 as a witness, but his address was stated incorrectly. Mr. Wray's source for the incorrect address was Eric. HT 331:3-332:15. Eric knew that Mr. Neumann's correct address was 5600 Grass Valley Road. The plain inference from these facts is that Eric did not want Bill to be able to locate and depose Mr. Neumann. This is because Bill would then discover that (1) the trust owned the Grass Valley property Mr. Neumann was living on, (2) Mr. Neumann was not paying any rent to the trust, and (3) Eric was paying Mr. Neumann with trust money to perform work on Eric's personal investment properties.

19. The Neumanns were granted an option to purchase the Grass Valley property in late 2009. Exhibit 4. Under the option agreement the Neumanns could obtain ownership of an eleven-acre parcel including the existing house, out of a total of forty acres. The Neumanns would also be entitled to a second parcel of at least 2.5 acres. To exercise the option, the Neumanns would have to pay off the current mortgage balance. At the time the option agreement was made, the mortgage balance was about $278, 000. Alternatively, the parties to the option agreement contemplated transferring all forty acres of the property to the Neumanns with the trust retaining the right to five out of seven possible parcels. Exhibit 4; 137:12-138:15.

20. Mr. Neumann testified that even after this lawsuit was over, he intended to keep his deal with Eric and give Eric, whom he believed was still the trustee, five out of seven possible parcels. HT 386:11-13. Mr. Neumann's attempt to recant this testimony was not credible. Mr. Neumann's testimony explains Eric's motivation to proceed with this lawsuit without full disclosure to Judge Gibbons, Bill, and Nora.

21. Eric prepared the option to purchase, Exhibit 4, that was signed by the Neumanns. HT 74:7-10. The Neumanns did not record the option until two years later, after the complaint in this action had been filed in state court. Exhibit 16.

22. The Neumanns' lease with Eric for the Grass Valley property required the Neumanns to pay the senior mortgage holder approximately $1, 500 a month. The Neumanns paid nothing to the trust, the actual owner of the property. HT 370:18-371:8.

23. When the mortgage servicer gave notice that it was going to foreclose on the property, the Neumanns stopped making payments. Eric allowed the Neumanns to continue to live on the property for the last three years without paying any rent whatsoever. HT 373:4-7.

IV. Karlon Kidder and Eric Dietlein's Relationship

24. Mr. Kidder and Eric met when Mr. Kidder became a "contract employee" of the Law Offices of Paul Freitag in April 2011. Eric was already working for Mr. Freitag. In November 2011, Mr. Kidder opened up his own law office and Eric went with him. HT 13:14-14:5.

25. Mr. Kidder and Eric signed an "Employment Agreement with Independent Contractor." Eric Dietlein signed on behalf a limited liability company, EC Real Solutions. Exhibit 31. The purpose of the employment agreement with EC Real Solutions, instead of Eric Dietlein personally, was so that Eric could deduct certain expenses. HT 6:23-7:6.

26. Mr. Kidder had direct supervisory authority over the work Eric performed on Mr. Kidder's behalf. HT 53:15-19. Mr. Kidder testified that Eric took orders from him and that Eric worked for him. HT 240:20-25.

27. Eric generally worked for Mr. Kidder from 10:00 A.M. to 6:00 P.M. every day as well as some weekends. HT 8:23-9:3.

28. Mr. Kidder paid Eric a salary of $7, 000 a month, regardless of hours actually worked. HT 9:21-10:2.

29. Mr. Kidder did not provide health insurance or pension benefits to Eric. Mr. Kidder did provide Eric with disability ...

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