Opinion
Case No. 09-71053 Adversary No. 12-4058 Adversary No. 11-4175 Case No. 11-42424 Adversary No. 11-4175 Adversary No. 11-4177
09-06-2013
In re Lance E. Hart, Debtor. Beverly Karaeff, Plaintiff, v. Lance E. Hart, Defendant. Gary and Janette Drew, Plaintiffs, v. Lance E. Hart, Defendant. In re Debra A. Hart, Debtor. Gary and Janette Drew, Plaintiffs, v. Debra A. Hart, Defendant. Beverly Karaeff, Plaintiff, v. Debra A. Hart, Defendant.
The following constitutes
the order of the court. Signed September 6, 2013
______________________
U.S. Bankruptcy Judge
Chapter 7
MEMORANDUM OF DECISION REGARDING PLAINTIFFS' MOTION TO AMEND
COMPLAINT UNDER FEDERAL RULE OF CIVIL PROCEDURE 15(b)(2)
On August 8, 2013, during a hearing in open court and upon the closing of the Plaintiffs' case-in-chief in the consolidated trial of the above-captioned adversary proceedings, Plaintiffs moved to amend the two complaints to conform to proof under Federal Rule of Civil Procedure 15(b)(2). Defendants objected to the amendment. The Court indicated that it was inclined to allow the amendment pursuant to well-settled rules that permit liberal amendments of pleadings under most circumstances where necessary to reflect the case that was actually litigated. The Court's tentative ruling notwithstanding, the Court held the matter in abeyance so as to afford the Defendants adequate time to review the amended complaints and the opportunity to file a written objection. On August 12, 2013, Defendants filed an opposition to the Plaintiffs' Motion to Amend the Complaints. On August 21, 2013, Plaintiffs filed a response to the Defendants' opposition. The Court took the matter under the submission, and now confirms its tentative decision to allow the amendment.
Plaintiffs are proceeding under Rule 15(b)(2), "Amendments During and After Trial for Issues Tried by Consent." That Rule states "[w]hen an issue not raised by the pleadings is tried by the parties' express or implied consent, it must be treated in all respects as if raised in the pleadings." Thus, even in the absence of an amended pleading to conform to evidence, the Court is directed to consider any issue tried by consent. Rule 15(b)(2) goes on to describe amendment to conform to evidence. Since this amendment is not even technically necessary, as the Court must treat the issue tried by consent as if raised in the pleadings, it follows that amending to conform to evidence is freely allowed. See Stiles v. Gove, 345 F.2d 991 (9th Cir. 1965) (affirming the trial court's decision to grant leave to amend to conform to evidence). Defendants argue that there was no notice of certain theories set forth in the amendments and therefore could be no consent. The threshold question is whether the Defendants had notice of the theories underlying the proposed amendments. If there was notice of those theories newly pleaded to conform to proof, and the Court determines that the Defendants consented to their trial, the Court should allow the amendments. The Court determines that the Defendants had ample notice of the theories first pleaded in the amended complaints and that the Defendants consented to their trial.
The amendments concern two areas. The first is a claim that "[w]hen Debra Hart and/or Clyde Hart obtained the interest of Donn or Jeanne McKnight in GTP Properties, she became a partner and was at all times a partner of Plaintiffs." First Amended Complaint (Amended to Conform to Proof), Adversary No. 11-04175, at 19 (of similar substance to the language on page 15 of the amended complaint in Adversary No. 11-04177). Defendants do not address this particular amendment in their opposition. The Court therefore determines that Defendants consent to this amendment through their non-opposition and will allow the amendment under Rule 15(b)(2). The other substantive area of amendment is the pleading of an imputation of fraud claim under the analysis set forth in In re Tsurukawa, 287 B.R. 515 (9th Cir. B.A.P. 2002). Plaintiffs' amendments directly track Tsurukawa's language, describing partnership "inferred through [defendants'] acts and intentions to share in profits, losses, management and control of the de facto enterprise and their co-ownership of the entities which controlled or owned the properties." The Defendants' opposition focuses on this area of amendment.
It is the Court's understanding that the language referencing husband and wife in the alternative is intended to reflect the principles of community property under California Law.
Examining California case law, Tsurukawa instructed, "[w]hether or not parties have entered into a partnership relationship...is a question of fact and depends on whether they intended to share in the profits, losses and the management and control of the enterprise." Id. at 521. In this way, partnerships can arise as a matter of fact, even without a formal partnership agreement. Once a de facto partnership has been established, Tsurukawa notes, "[a]ll partners are jointly and severally liable for any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of the copartners." Id. (internal citations omitted).
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The agency principles set forth in Tsurukawa have been established doctrine in the Ninth Circuit for over ten years - the pleading of such theories should not surprise Defendants on a broad doctrinal level. More particularly, the holding of and rationale for the decision in Tsurukawa were discussed at length during the litigation of these adversary proceedings, prior to the trial. The Court first mentioned the Tsurukawa case during the summary judgment hearing held on March 7, 2013. Defendants themselves cited and analyzed Tsurukawa in their trial brief filed on March 25, 2013. Adversary No. 11-04175, Docket No. 111, at 9-10. During the first day of the trial, on April 1, 2013, the Court again raised Tsurukawa in a question to Defendants' counsel. Transcript of Trial Proceedings for April 1, 2013, at 33, ln. 14-15. The Court recalls that Tsurukawa was further discussed during the trial hearings held in August of 2013, though these transcripts are currently in process and are not presently available for citation.
It therefore follows that the Defendants were on notice of the theory. Consent to its trial was clearly given, especially through the Defendants' analysis of Tsurukawa in their trial brief. With consent found, the Plaintiffs may amend to plead imputation of fraud theories under Rule 15(b)(2) without further inquiry.
Defendants further argue that Federal Rule of Civil Procedure 16(b) can operate to bar amendment after a scheduling order is issued by the Court. Defendants cite Ninth Circuit authority for this proposition, Coleman v. Quaker Oats, 232 F.3d 1271 (9th Cir. 2000). This decision is entirely inapposite to the situation at hand. In Coleman, the relevant scheduling order included a deadline for amendments. In this case, the scheduling order was silent on amendments. As this Court's scheduling order does not preclude amendments, proceeding under Rule 15(b)(2) is entirely appropriate.
Finally, though it has little bearing on the Court's finding well-taken amendment under Rule 15(b)(2), Defendants' opposition footnote number two must be addressed. It reads, in relevant part, "[t]he Court...did not allow testimony by the daughter or Ms. Moss who could have testified how the books were kept and organized by the corporation and that there was no partnership agreement implied or express between Lance Hart or Debra Hart or Clyde Hart."
When the Defendants attempted to call two rebuttal witnesses, Shelly Hart and Debbie Moss respectively, Plaintiffs objected to each witness' testimony on grounds that neither had filed a declaration as required under the Court's scheduling order, which would give Plaintiffs' counsel the opportunity to respond to the testimony and to prepare cross-examination. Plaintiffs further objected that irrelevant and potentially prejudicial testimony would arise out of either proposed witness' testimony. The Court heard oral argument regarding the issue and briefly recessed on two occasions, first after Ms. Hart was offered and later after Ms. Moss was offered. Upon returning to the bench after each recess, Defendants' counsel informed the Court that he was voluntarily withdrawing his offering of each witness. The Court did not rule on Plaintiffs' objections to either proposed witness' testimony. As reflected by the record, the Court certainly did not bar any witness from testifying.
Based on the foregoing, and good cause appearing therefor, the Court hereby GRANTS the Plaintiffs' motion to amend the complaints to conform to evidence under Rule 15(b)(2).
Court Service List
Steven J. Hassing Law Offices of Steven J. Hassing 425 Calabria Court Roseville, CA 95747 Baron J. Drexel Law Offices of Baron J. Drexel 212 9th St. #401 Penthouse Oakland, CA 94607