Summary
recognizing that fraudulent transfer claims brought against individuals who have not filed proofs of claim are Stern claims
Summary of this case from Dzierzawski v. Vulpina, LLC (In re Dzierzawski)Opinion
Case No. 10-63481 Adv. Pro. No. 12-2226
12-22-2014
In re: VICKY RENEA FISHER, Debtor. Vicky Renea Fisher, Plaintiff, v. Brian R. Knoppe, et al., Defendants.
Copies to: Marshall Cohen, Attorney for Debtor/Plaintiff and Third-Party Defendant Calvin D. Fisher, Sr. Trina N. Goethals, Attorney for Defendants Autumnwood Homes, Inc., Kim R. Knoppe, MTK Investments, LLC, Needle, LLC and Brad E. Halley Brian R. Knoppe, Defendant, pro se
NOT INTENDED FOR PUBLICATION
Chapter 13
MEMORANDUM OPINION AND ORDER (A) DENYING PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT , (B) GRANTING MOTION OF AUTUMNWOOD HOMES, INC. FOR JUDGMENT ON THE PLEADINGS AND (C) DENYING AS MOOT AUTUMNWOOD'S MOTION TO STRIKE
This adversary proceeding is before the Court on three related motions revolving around two questions: (1) Does the first amended complaint filed by Plaintiff Vicky R. Fisher ("Debtor") state a claim upon which relief can be granted against Defendant Autumnwood Homes, Inc. ("Autumnwood")? (2) If not, should the Debtor be permitted to file a second amended complaint in an attempt to cure the deficiencies in the first amended complaint? The answer to both questions is no.
The adversary proceeding relates to two agreements the Debtor allegedly entered into with respect to property located at 2396 Edmonton Road, Columbus, Ohio ("Property"). The Debtor contends that she entered into a real estate purchase contract and a real estate lease agreement with Defendant Brian Knoppe on April 16, 2010 (collectively, "Real Estate Purchase Contract and Lease Agreement") and that she entered into a land installment contract with Defendants MTK Investments, LLC ("MTK") and Needle, LLC ("Needle") on June 15, 2010 ("Land Installment Contract"). The Debtor also alleges that she tendered a cashier's check in the amount of $6,500 to Brian Knoppe on or about August 27, 2010 and that the check was deposited into an account in the name of Defendant Kim Knoppe (Brian Knoppe's father). The relief that the Debtor seeks is threefold: (1) rescission of the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract; (2) turnover of the $6,500 she paid to Brian Knoppe and of all monies she paid under the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract; and (3) treble damages and attorneys' fees.
After the Debtor filed the complaint initiating this adversary proceeding ("Original Complaint") (Adv. Doc. 1) and her first amended complaint ("First Amended Complaint") (Adv. Doc. 44), seeking turnover, avoidance of an alleged fraudulent transfer and other relief, Autumnwood filed the first in a raft of documents that have been submitted by the parties—a motion for judgment on the pleadings ("Judgment Motion") (Adv. Doc. 50). That motion was met with a memorandum in opposition (Adv. Doc. 53) filed by the Debtor and her husband, third-party Defendant Calvin Fisher, Sr., and was followed by Autumnwood's reply (Adv. Doc. 55).
References to documents filed in the Debtor's bankruptcy case will be designated as "Doc.—" and references to documents filed in this adversary proceeding will be designated as "Adv. Doc.—."
Following the completion of the briefing on the Judgment Motion, the Debtor filed a supplemental response ("Supplemental Response") (Adv. Doc. 67), which included a request for leave to file a second amended complaint ("Proposed Second Amended Complaint"). The Supplemental Response triggered several filings by Autumnwood—a motion to strike the Supplemental Response ("Motion to Strike") (Adv. Doc. 68), a response to the Supplemental Response (Adv. Doc. 71) and an additional response in opposition to the Debtor's request set forth in the Supplemental Response to file the Proposed Second Amended Complaint (Adv. Doc. 73). The Debtor filed a response to the Motion to Strike ("Strike Response") (Adv. Doc. 72) and a motion for leave to file the Proposed Second Amended Complaint instanter ("Leave Motion") (Adv. Doc. 74). Autumnwood filed a reply to the Strike Response (Adv. Doc. 76) and an objection to the Leave Motion (Adv. Doc. 79).
The Court will deny the Leave Motion for two reasons. First, granting the motion would cause Autumnwood prejudice in that it was filed more than two months after the discovery cutoff and while the Judgment Motion was pending. Second, taking all of the allegations of the Proposed Second Amended Complaint as true, the Debtor has not asserted against Autumnwood any claim upon which relief can be granted. As explained in more detail below, the Debtor has not alleged that Autumnwood was a party to the Real Estate Purchase Contract and Lease Agreement or the Land Installment Contract that she seeks to rescind. Nor has she alleged that the funds that she seeks to recover were received either directly or indirectly by Autumnwood, that the funds were paid for the benefit of Autumnwood or that Autumnwood has possession, custody or control of the funds. The failure to make those allegations means that the Proposed Second Amended Complaint would not survive a motion to dismiss and that its filing would be futile. The First Amended Complaint cannot survive a motion to dismiss for the same reasons, and the Court therefore also will grant the Judgment Motion.
In other words, despite three attempts, the Debtor has failed to state a claim upon which relief can be granted against Autumnwood. The Court therefore DENIES the Leave Motion as well as the request for leave to file the Proposed Second Amended Complaint that is contained within the Supplemental Response, GRANTS the Judgment Motion and DENIES the Motion to Strike as moot.
I. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(E) and (H).
As the Court explained during a telephonic status conference held previously in the adversary proceeding, under Stern v. Marshall, 131 S. Ct. 2594 (2011), the Court's constitutional authority to enter final judgment on the fraudulent transfer claims brought by the Debtor against those defendants (including Autumnwood) that have not filed proofs of claim is in question. See, e.g., Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553, 562-63 (9th Cir. 2012), aff'd, 134 S. Ct. 2165 (2014). Furthermore, under Sixth Circuit case law, the consent of the parties would not provide the Court with the requisite constitutional authority. See Waldman v. Stone, 698 F.3d 910, 921 (6th Cir. 2012).
In light of the foregoing, rather than entering final judgment on the fraudulent transfer claims, the Court ultimately will be required to issue proposed findings of fact and conclusions of law to the district court. But in the words of Rule 54(b) of the Federal Rules of Civil Procedure ("Civil Rule(s)"), made applicable by Rule 7054 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rule(s)"), "multiple parties are involved" as defendants in this adversary proceeding, and the Court is not at this time "direct[ing] entry of a final judgment as to one or more, but fewer than all, claims or parties[.]" Civ. R. 54(b). Under those circumstances, this order "does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities." Civ. R. 54(b). Thus, this order is not a final order, and there is no constitutional impediment to its entry. See Bakst v. United States (In re Kane & Kane), 479 B.R. 617, 633-34 (Bankr. S.D. Fla. 2012) (holding that "[b]ecause this order is not dispositive with regard to all of the claims addressed in this adversary proceeding, and the Court will not enter partial judgment as a result of this ruling . . . even if the causes of action presented here would not be subject to entry of final judgment in this Court, the present order is not a 'final judgment' subject to the Article III concerns addressed by the Supreme Court in Stern"); O'Toole v. McTaggart (In re Trinsum Grp., Inc.), 467 B.R. 734, 738-39 (Bankr. S.D.N.Y. 2012) ("[B]oth before and after Stern v. Marshall, it is clear that the bankruptcy court may handle all pretrial proceedings, including the entry of an interlocutory order dismissing fewer than all of the claims in an adversary complaint, as occurred in this case. . . . This same result follows whether the interlocutory order relates to non-core claims, or to core claims as to which the bankruptcy court cannot enter final orders or judgments consistent with Article III of the U.S. Constitution . . . .").
During the telephonic status conference at which the Court discussed the issue of its constitutional authority to enter final judgment, the Court also encouraged the parties to engage in settlement discussions given that they had consumed a substantial amount of time, effort and money arguing over a $6,500 deposit and whether the Debtor owes other monies to the defendants, or vice versa.
II. Background Leading to the Commencement of the Adversary Proceeding
On November 15, 2010, the Debtor filed a voluntary Chapter 13 petition. On the same day, she filed a Chapter 13 plan (Doc. 2) in which, under Section C(4)—Executory Contracts and Vehicle Leases, she proposed to reject the Land Installment Contract. In addition, she proposed to assume the Real Estate Purchase Contract and Lease Agreement, stating that the purchase contract that is part of the Real Estate Purchase Contract and Lease Agreement called for a monthly payment of $0 and the lease agreement that is part of the Real Estate Purchase Contract and Lease Agreement called for a monthly payment of $950.
The address given on the Debtor's petition was the address for the Property. Her Schedule A - Real Property filed with the petition listed no interest in the Property, and Schedule A has not been amended at any time to reflect an interest in the Property.
Although the Real Estate Purchase Contract and Lease Agreement is made up of two documents (a purchase contract and a lease agreement), in the pleadings that are the subject of the Leave Motion and the Judgment Motion—the First Amended Complaint and the Proposed Second Amended Complaint—the Debtor discusses the documents as though they are one integrated agreement, a convention the Court therefore adopts for purposes of this opinion and order.
The Chapter 13 trustee ("Trustee") filed an objection to confirmation of the Debtor's plan (Doc. 17) on a number of bases, including that the Debtor had not filed a complete list of creditors, statement of financial affairs, schedules or other documents. Specifically, the Trustee asserted that, despite a statement in response to Question 3 of the Statement of Financial Affairs that the Debtor had made payments of $2,850 to Autumnwood on a land contract, and that the amount still owing to Autumnwood was $131,900, the Debtor's schedules did not list Autumnwood as a creditor. The Trustee also required clarification of Section C(4) of the plan "as to $0 monthly payment for Brian Knoppe."
A month after the Trustee's objection was filed, the Debtor filed an amendment to her Statement of Financial Affairs (Doc. 24). By way of the amendment, she changed her response to Question 3 to replace the name Autumnwood Homes with the name Brian Knoppe. Her response to Question 10 on both the original and the amended Statement of Financial Affairs lists a $6,700 down payment on the Land Installment Contract as a transfer to "Needle LLC & MTK Investments, LLC [&] Brad Halley." The Debtor's schedules have never been amended to include Autumnwood as a creditor.
The Debtor then filed an amended plan (Doc. 18), which was identical to the original plan with respect to Section C(4) as it pertained to the treatment of the Land Installment Contract and the Real Estate Purchase Contract and Lease Agreement. She filed three subsequent amended plans (Docs. 22, 31 and 34), each of which retained the portion that provided for the assumption of the lease agreement that is part of the Real Estate Purchase Contract and Lease Agreement but deleted the portion of Section C(4) that dealt with the treatment of the purchase contract that is part of the Real Estate Purchase Contract and Lease Agreement. The rejection of the Land Installment Contract remained the same in every iteration of the Debtor's plan. There was no reference to Autumnwood in any of the plans. The Debtor's Fourth Amended plan was confirmed on April 28, 2011 (Doc. 36).
The primary terms and plan treatment of the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract are as follows:
| Real Estate PurchaseContract and Lease Agreement | Land Installment Contract |
|---|---|
| Date: April 16, 2010 | Date: June 15, 2010 |
| Parties: The Debtor and her husband; BrianKnoppe | Parties: The Debtor; MTK and Needle |
| Primary Terms: $2,000 down payment;$139,900 purchase price; initial monthly rentpayment of $950, with a $125 deduction fromthe final purchase price for each rent paymenttimely received. Final purchase date of May13, 2013. | Primary Terms: $6,000 additional downpayment; $137,900 purchase price; initialmonthly rent payment of $950, made up of$707 interest-only payment, $202 forestimated property tax and $41 for estimatedhazard insurance. Final purchase date of June14, 2013. |
| Proposed Plan Treatment: Assumption of thelease component of the Real Estate PurchaseContract and Lease Agreement; no treatmentspecified with respect to the purchasecontract portion of the Real Estate Purchaseand Lease Agreement | Proposed Plan Treatment: Rejection |
As explained below, disputes between the Debtor and Autumnwood and the other defendants with respect to the Property began in the bankruptcy case even before the Debtor commenced the adversary proceeding. In early December 2011, Brian Knoppe filed a motion for relief from the automatic stay in order to evict the Debtor from the Property (Doc. 47). In the motion, Brian Knoppe identified himself as a party to a lease with the Debtor. The motion alleged that six months after signing the lease and moving into the Property, the Debtor filed for bankruptcy protection, and that as of the date the motion was filed, she owed $3,105 in back rent and associated fees. The Debtor filed a response (Doc. 50) stating that she was currently residing at the Property, and that
[t]he Debtor's Chapter 13 Plan—confirmed on April 28, 2011—included a provision requiring the Debtor to pay $950 per month in rent directly to Brian Knoppe. This lease was part of a real estate purchase contract and lease agreement the Debtor signed with Mr. Knoppe on April 16, 2010. The Plan also rejected a second contract—purported to [be] a land installment contract—to purchase
the same property executed by the Debtor, Needle, LLC and MTK Investments, LLC on June 15, 2010.(Doc. 50 at 1.) Again, there was no mention of Autumnwood in either the motion for relief from stay or in the Debtor's response. The matter was set for hearing.
Shortly after the hearing was scheduled, on January 10, 2012, the Debtor filed a motion for turnover ("Turnover Motion") (Doc. 54), alleging that a payment of $6,500 made by her on August 27, 2010 to Brian Knoppe was a constructively fraudulent transfer. She alleged that she received less than equivalent value in return for the transfer, and that she was insolvent at the time of the transfer.
The Turnover Motion attached as exhibits both the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract, as well as numerous other documents. The Turnover Motion did not reference Autumnwood, nor did any of the documents attached to it. It stated, among other things, that the Debtor and her husband took possession of the Property in May 2010 and that she gave Brian Knoppe a cashier's check in the amount of $6,500 on or about August 27, 2010. The endorsement on the check reflects that it was deposited into the bank account of Kim Knoppe.
In addition to the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract, the other documents attached to the Turnover Motion were as follows: a Fee Schedule Agreement, a Residential Property Disclosure Form, an Alternative Dispute Resolution Private Court Trial Agreement Pertaining to Real Estate Lease, an Alternative Dispute Resolution Private Court Trial Agreement Pertaining to Real Estate Purchase Contract, as well as other documents entitled Affordibility [sic] Disclosure; Refinance Procedure; Late Fee Agreement; Lease/Purchase Price Acknowledgment; Real Estate Maintenance Agreement; Utility Service Initiation Agreement; Addendum to Real Estate Lease Agreement as to Utility Charges; Acknowledgment as to Notice Requirement of Intent to Vacate; Eviction Procedure; and Resolution Regarding Authority to Sign. While none of these documents references Autumnwood, they do reveal both the convoluted nature of the parties' deal and the sloppiness with which it was papered. Examples of the apparent carelessness with which the documents were prepared include paragraph 16 of the purchase contract that is part of the Real Estate Purchase Contract and Lease Agreement, which provides that all disputes arising under the terms of the agreement "shall be handled in accordance with the attached Private court Trail [sic] Agreement" and paragraph 22(a), which states that "Seller also discloses that they [sic] are in the buy sale [sic] business and this property may be a property that is being purchased and sold for a large profit." Similarly, paragraph 8 of the lease that is part of the Real Estate Purchase Contract and Lease Agreement discloses that "Brian R. Knoppe is subleasing the premises from the title holder[,]" but the title holder is not identified. The Residential Property Disclosure Form identifies Brian Knoppe as owner of the Property and is signed by him as "Owner[,]" while the form entitled Resolution Regarding Authority to Sign states that "MTK Investments, LLC and Needle LLC is [sic] currently in title to the property being leased or purchased."
The Debtor asked that the Turnover Motion be consolidated for hearing with the hearing on Brian Knoppe's motion for relief from stay. Brian Knoppe filed a response to the turnover motion ("Turnover Response") (Doc. 62) arguing that the Debtor did in fact receive reasonably equivalent value for the $6,500 transfer made by the Debtor. He asserted that the Land Installment Contract was entered into at the Debtor's request so that she might take advantage of the first time home-buyer tax credit program. According to Brian Knoppe, he advanced $8,000 to the Debtor and her husband under a promissory note dated June 15, 2010, that the $6,500 check represented a repayment to him of the funds, and that it, along with the original $2,000 down payment, was credited against the purchase price of the Property, reducing the price to $131,900. In addition, he asserted that, by entering into the Land Installment Contract, the Debtor was able to receive the tax benefit associated with deducting property taxes and mortgage interest. The Land Installment Contract was never intended to be an actual contract and was not intended to be recorded, Brian Knoppe argued, because doing so would trigger the due on sale clause of the mortgage already encumbering the Property. Attached as an exhibit to the Turnover Response is a document entitled "Disclosure," which was signed by "Calvin D. Fisher, Buyer"; "Vicky R. Fisher, Buyer"; "Kim Knoppe, Seller"; and "Brad E. Halley, Seller." The Disclosure specifically states:
The first-time homebuyer tax credit was a government program that provided a credit up to $8,000 for individuals or couples who purchased a new home after April 8, 2008, and before May 1, 2010, with a closing date no later than July 1, 2010. Homebuyers were not eligible for the credit if they owned another principal residence at any time during the three years prior to the date of purchase. There were also income limits for eligibility and various other restrictions on participation. See http://www.irs.gov/uac/First-Time-Homebuyer-Credit-Questions-and-Answers:-Basic-Information.
The promissory note attached as an exhibit to the Turnover Response reflects that the Debtor and her husband agreed to pay $8,000 to Needle and MTK. Brian Knoppe was not named as a promisee in the promissory note. The promissory note states that its purpose "is to secure funds used in the purchase [of] the above said property & was credited on the HUD (or was deducted from the purchase price of said property) for this property by virtue of this note. . . . Borrowers intend to use an IRS tax refund/credit to repay this loan[.]" While it references "the above-said property," no property is identified in the promissory note. There is a property address contained in the note, but it is the address of Needle and MTK.
While it is not entirely clear from the documents filed in the bankruptcy case, it appears that $6,000 of the $6,500 check was applied as a down payment, and the additional $500 was applied toward "closing costs." See Turnover Resp. at 2. The HUD Settlement Statement attached as an exhibit to the Turnover Response was signed by the Debtor, her husband and Brad Halley. It contains a line item for $941 in closing costs. Based on the parties' representations that the Land Installment Contract was never intended to be operable, it is unclear what possible closing costs could have been incurred.
The undersigned parties acknowledge and agree that the attached Land Installment Contract is being entered into between the parties only at the request of the undersigned Buyer, who has requested this instrument to accommodate buyer's tax planning needs. It is further acknowledged that Seller give [sic] no guarantee that the interest and property taxes are deductible for tax purposes, or that this transaction qualifies for any government tax credits or subsidies.Turnover Resp. at 8.
It is further acknowledged and agreed that the operative instrument between the parties pertaining to the Subject Premises is, for all purposes, the Real Estate Lease Agreement that was executed between the parties on April 16, 2010 and NOT the land installment contract.
In addition, the parties agree that in view of the forgoing and the "due on sale" provision of Seller's mortgage instrument concerning the Premises, that the Land Installment Contract will not be recorded. If such were recorded, Seller's mortgagee may call Seller's Mortgage Note due in full.
Like the Turnover Motion, the Turnover Response did not reference Autumnwood. In response to the Turnover Motion, both Brad Halley and Kim Knoppe filed affidavits (Docs. 63 and 64) stating that they had no financial interest in the Property or claim in the Debtor's case. Neither affidavit referenced Autumnwood.
Prior to the hearing on Brian Knoppe's motion for relief from stay, the Debtor withdrew both her response to the motion and her motion to consolidate the hearing with a hearing on the Turnover Motion. The Debtor instead asked, by way of a motion for leave to refile (Doc. 70), that she be permitted to file an adversary proceeding and be allowed to perfect service of a complaint and summons on Brian Knoppe, MTK, Needle, Kim Knoppe and Brad Halley. Autumnwood was not mentioned as a potential defendant in her request. Brian Knoppe opposed the motion for leave to refile, and the Court held a hearing on the matter. During the hearing, the Court advised the Debtor's counsel that the requests for turnover and avoidance of an allegedly fraudulent transfer set forth in the Turnover Motion were improperly asserted by way of motion. On April 6, 2012, the Court entered an order (Doc. 79) granting the Debtor leave to file the Turnover Motion as an adversary proceeding no later than May 3, 2012.
The response to the motion for relief from stay having been withdrawn, stay relief was granted to Brian Knoppe on February 23, 2012 (Doc. 71).
Although the background set forth above suggests that this dispute is, in essence, an argument over who is most at fault in what appears to be a clumsy joint effort to construct a real estate transaction in a manner that would allow all parties to reap the benefit of the first time homebuyer tax credit, the Court need not and does not decide whether this is so in the context of deciding the motions currently before it. Instead, for purposes of deciding those motions, the Court has not accepted or considered any evidence outside of the pleadings and decides this matter in the context of a motion for judgment on the pleadings rather than as a motion for summary judgment. See Wilson v. Karnes, No. 2:06-cv-392, 2007 WL 4207154, at *2 (S.D. Ohio Nov. 26, 2007) ("The Sixth Circuit has adopted a strict test to determine whether a Rule 12(c) motion has been converted to a Rule 56 motion. [T]he mere presentation of evidence outside of the pleadings, absent the district court's rejection of such evidence, is sufficient to trigger the conversion of a Rule 12(c) motion to a motion for summary judgment. [C]ourts have broad discretion to accept or reject matters outside the pleadings that are presented on Rule 12(c) motions, and will be reversed only for an abuse of that discretion.") (citations and internal quotation marks omitted). Absent a consensual resolution, the Court leaves for the trial on the merits (of the claims against the other defendants) the issue of why the parties structured these transactions in the odd manner they did (and why they used the convoluted—if not incomprehensible—set of documents to memorialize the transactions) as well as all other issues raised by the factual background set forth above and not placed in issue by the Leave Motion, the Judgment Motion and the Motion to Strike.
III. The Adversary Proceeding
A. The Original Complaint
The Original Complaint listed six defendants: Brian Knoppe, Kim Knoppe, Brad Halley, MTK, Needle and Autumnwood (collectively, "Defendants"). It contained two claims for relief: one for the rescission of the Land Installment Contract pursuant to § 544(a)(3) of the Bankruptcy Code and for the restitution of all monies paid by the Debtor in relation to the Land Installment Contract pursuant to § 542(a), Original Compl. at 4-6, 8; and a second for the so-called turnover of an allegedly constructively fraudulent transfer under §§ 542 and 548(a). Original Compl. at 7-8. The Original Complaint alleged that the Defendants who were the parties to the Land Installment Contract were MTK and Needle. Original Compl. ¶ 27. It also alleged that the Debtor transferred $6,500 to Brian Knoppe and that the funds were deposited into an account of Kim Knoppe. Original Compl. ¶¶ 33, 35. To be clear, only two of the Defendants—MTK and Needle—were alleged to have been parties to the Land Installment Contract, and only two others—the Knoppes—were alleged to have received, either directly or indirectly, funds from the Debtor.
As for Autumnwood, the Original Complaint described it as a domestic, for-profit corporation conducting business in Ohio and identified its incorporator (J. Anthony Kington) and statutory agent (Brad E. Halley). Original Compl. ¶¶ 14-16. Paragraph 44 of the Original Complaint contained allegations that Autumnwood "failed to sign the Land Installment Contract even though Kim R. Knoppe and Brad E. Halley considered Autumnwood Homes to be the seller of the property." It further alleged that Autumnwood granted Huntington Mortgage Company a mortgage on the Property in 2002, that the county auditor continued to mail tax bills for the Property to Autumnwood, and that Autumnwood was liable on "the note," although no note was identified or described in the Original Complaint. Those were the only references to Autumnwood in the Original Complaint. The Original Complaint did not allege that Autumnwood was a party to the Land Installment Contract. Nor did it allege that Autumnwood received funds from the Debtor, was a party for whose benefit the funds were transferred, or had possession, custody or control of such funds.
B. The First Amended Complaint
The First Amended Complaint also fails to make any of those allegations. In the First Amended Complaint, the Debtor alleges that she was a party to the Real Estate Purchase Contract and Lease Agreement with Brian Knoppe and the Land Installment Contract with MTK and Needle, First Am. Compl. ¶¶ 22, 27—not Autumnwood—and that the challenged transfer of funds was made by cashier's check to Brian Knoppe and deposited into an account of Kim Knoppe. First. Am. Compl. ¶¶ 33, 35.
The First Amended Complaint names the same defendants as the Original Complaint, and also asserts two claims for relief. In the first claim for relief, the Debtor requests an order rescinding the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract, restitution of monies the Debtor paid (estimated to be $25,290), payment of attorneys' fees and treble damages. First. Am. Compl. at 5-9. The Debtor does not cite a section of the Bankruptcy Code as authority for this requested relief, although she does include citations to the Ohio statute governing land installment contracts. Likewise, there is no statutory basis provided for the damages requested, nor is there any explanation of how the damages were calculated. The second claim for relief is, as in the Original Complaint, a request made under §§ 542 and 548 of the Bankruptcy Code for turnover of an allegedly constructively fraudulent transfer of the $6,500 paid by the Debtor to Brian Knoppe on or about August 27, 2010, and for payment of attorneys' fees. First Am. Compl. at 8-9.
The Original Complaint and the First Amended Complaint both allege that "Brian R. Knoppe instructed the Plaintiff how to file an amended tax return in order to claim the First Time Home-Buyer's Tax Credit of $8,000.00." Original Compl. ¶ 32; First Am. Compl. ¶ 32.
The First Amended Complaint contains the same allegations set forth in the Original Complaint regarding the corporate status of Autumnwood and the identity of its incorporator and statutory agent. The only other mention of Autumnwood in the First Amended Complaint is found in paragraph 42: "Plaintiff first met Defendants after responding to a property advertisement listed by Defendant Autumnwood Homes." The Debtor does not allege that Autumnwood is a party to the Real Estate Purchase Contract and Lease Agreement or the Land Installment Contract. Nor does she allege that Autumnwood was either a direct or indirect transferee of funds from the Debtor, a party for whose benefit the funds were transferred, or a party in possession, custody or control of such funds.
The Debtor does allege that the transfer of the $6,500 to Brian Knoppe was "was done solely to enrich the Defendants[,]" First Am. Compl. ¶ 34, and that she "transferred more than $25,290.00—including $6,500.00 transferred on or about August 27, 2010—to the Defendants in reasonable reliance upon both the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract." First Am. Compl. ¶ 55. See also Second Am. Compl. ¶¶ 52, 91. As explained below, such allegations as to the conduct of all the Defendants generically are not sufficient to survive the Judgment Motion.
C. The Judgment Motion and the Motion to Strike
In addition to filing an answer (Adv. Doc. 46) to the First Amended Complaint, Autumnwood filed the Judgment Motion, in which it sought dismissal of all claims against it on the basis that the First Amended Complaint contains no allegation of any specific act or omission that would provide a basis to impose liability on Autumnwood on either claim for relief. The Debtor responded that it was too early in the discovery process for the Court to make a determination on the Judgment Motion, and that the First Amended Complaint stated sufficient allegations to state a plausible claim against Autumnwood. The Debtor further argued that Autumnwood failed to address the claims in the First Amended Complaint that state that all Defendants acted in an intentionally coordinated manner from the same business address.
The Debtor also maintained that, because the Judgment Motion included the sentence "Autumnwood had no ownership interest in this Subject Property, nor does Plaintiff allege the same," (J. Mot. at 3), this brought in matters outside the pleadings and that the Judgment Motion therefore should be converted to a motion for summary judgment. Adv. Doc. 53. Autumnwood replied that the First Amended Complaint already stated the identity of the title holder of the Property at Paragraph 5, and that therefore, no extraneous matters were pleaded, and that a determination by the Court under summary judgment standards would not be appropriate. Adv. Doc. 55.
Near the same time the parties were filing papers on the Judgment Motion, they entered into a stipulation extending the discovery period to September 17, 2013. (Adv. Doc. 54). At a telephonic status conference conducted on September 30, 2013, the Court permitted the parties to again extend the discovery cutoff date, this time to December 2, 2013. A follow-up telephonic status conference was held on December 16, 2013. The Debtor was permitted until January 16, 2014, or roughly six weeks after the completion of discovery, to file a supplemental response to the Judgment Motion, and Autumnwood was permitted until January 31, 2014 to file a reply to any supplemental response filed by the Debtor.
The Debtor filed the Supplemental Response, which not only set forth legal argument on the issue of whether Autumnwood was entitled to judgment on the pleadings, but also included a number of factual allegations regarding Autumnwood and its business practices that were apparently gleaned from various internet searches. Attached to the Supplemental Response were a number of printouts from web sites and a table, presumably prepared by the Debtor, listing addresses, parcel numbers, and current owner and tax information compiled, it appears, from information found on the county auditor's website. The relevance of the printouts and the table was not explained. The business practice allegations, together with the Debtor's argument that Autumnwood acted in concert with the other Defendants, are the basis for her position that Autumnwood is jointly and severally liable with the other Defendants. She sets forth three theories under which Autumnwood could bear responsibility for the Debtor's alleged damages: concerted action/civil conspiracy, joint venture/partnership and agency by estoppel/apparent authority. The Debtor included within her Supplemental Response a request for leave to file the Proposed Second Amended Complaint in order to more fully reflect her theories of joint and several liability.
Autumnwood responded with the Motion to Strike. It asserts that the Supplemental Response goes beyond the scope of the pleadings and that the documents attached as exhibits are irrelevant, unauthenticated and inadmissible. Autumnwood asks that the Supplemental Response be stricken and that the request to amend the complaint be denied. In addition to the Motion to Strike, Autumnwood also filed a response to the Supplemental Response in which it set forth essentially the same arguments that are contained in the Motion to Strike.
Not content to let the previous documents she filed state her case, the Debtor filed the Strike Response in which she asserted that she had pleaded sufficient facts to overcome the Judgment Motion and further argued that the basis of Autumnwood's joint liability should not be decided by way of a pre-trial motion, but "should include consideration of information uncovered through discovery." Strike Resp. at 2.
D. The Leave Motion and the Proposed Second Amended Complaint
Apparently aware that including a request for leave to file an amended complaint within her Supplemental Response was procedurally improper, the Debtor then filed the Leave Motion under Civil Rule 15(a), seeking permission to file the Proposed Second Amended Complaint. The Proposed Second Amended Complaint identifies the same defendants as the First Amended Complaint. The Proposed Second Amended Complaint asserts two claims for relief: one for an order rescinding the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract, restitution of monies the Debtor paid (estimated to be $25,290), payment of attorneys' fees, and treble damages, Proposed Second Am. Compl. at 7-12, 14; and a second, based on §§ 542 and 548 of the Bankruptcy Code, for recovery of an allegedly constructively fraudulent transfer (the $6,500 paid to Brian Knoppe). Proposed Second Am. Compl. at 12-14.
See Rostorfer v. Transland Fin. Servs., Inc. (In re Rostorfer), 497 B.R. 873, 876 (Bankr. S.D. Ohio 2013).
In the Leave Motion, the Debtor argues that the Proposed Second Amended Complaint, which is attached as an exhibit to the Leave Motion, sets forth with greater particularity the interplay and connections among all of the Defendants and explains the alleged significance of Autumnwood's advertisement of the Property. The Proposed Second Amended Complaint adds a number of sentences regarding Autumnwood's status based on its profile on record with the Better Business Bureau of Central Ohio, Inc. It contains an allegation that Brad Halley is Autumnwood's statutory agent, Proposed Second Am. Compl. ¶ 15, and that Kim Knoppe, Brad Halley and Brian Knoppe are agents or employees of Autumnwood. Proposed Second Am. Compl. ¶¶ 20, 22 and 24. The Proposed Second Amended Complaint also asserts that Autumnwood is vicariously liable for the conduct of its agents. Proposed Second Am. Compl. ¶ 25. It states that Autumnwood acquired the deed to the Property in February 2002, built a residential structure on the Property, granted a mortgage on the Property to Huntington Bank, and transferred ownership of the Property to Brad Halley and Besco LLC in 2003, and that Halley and Besco LLC transferred ownership of the Property to Needle and MTK in 2009. Proposed Second Am. Compl. ¶¶ 29-33. The Proposed Second Amended Complaint also contains a number of sentences regarding Autumnwood's website. Attached to the Proposed Second Amended Complaint are, among other things, a number of printouts from websites featuring advertisements for various parcels of real property, a table listing a number of properties, their parcel numbers, their current owners and tax information as set forth by the county auditor, Autumnwood's articles of incorporation and its consent for use of a similar name, and appointment of statutory agent. Once again, the Debtor fails to allege that Autumnwood is a party to the Real Estate Purchase Contract and Lease Agreement or the Land Installment Contract. Nor does she allege that Autumnwood itself was either a direct or indirect transferee of funds from the Debtor, a party for whose benefit the funds were transferred, or a party in possession, custody or control of such funds.
Autumnwood filed the Leave Response, arguing that permitting the filing of the Proposed Second Amended Complaint after the close of discovery and within two months of the trial date would be prejudicial.
IV. Legal Analysis
A. Request for Leave to File the Proposed Second Amended Complaint
The Debtor brings the Leave Motion pursuant to Civil Rule 15(a)(2). Under that rule, where amendment as a matter of course is not available, which is the case here, "a party may amend its pleading only with the opposing party's written consent or the court's leave[,]" and "[t]he court should freely give leave when justice so requires." Civ. R. 15(a)(2).
Describing the law governing requests for leave to amend under Civil Rule 15(a)(2), the Sixth Circuit stated that:
a party may amend her complaint at any time before trial with the court's permission, and "[t]he court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). But the court may deny leave to amend based on "undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility," among other reasons. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). We have "required at least some significant showing of prejudice to deny a motion to amend based solely upon delay." Prater v. Ohio Educ. Ass'n, 505 F.3d 437, 445 (6th Cir.2007) (quotation marks omitted). When the district court denies a motion for a reason other than futility, we review that decision for abuse of discretion. See Crestwood Farm Bloodstock v. Everest Stables, Inc., 751 F.3d 434, 444 (6th Cir.2014).McCray v. Carter, 571 F. App'x 392, 399 (6th Cir. 2014). In McCray, the district court denied the plaintiff's motion for leave to amend a complaint where discovery had closed and motions for summary judgment were pending on the ground that the motion for leave to amend "was both untimely and would cause Defendants prejudice, as it came after the close of discovery[,]" and the Sixth Circuit held that "[t]he district court acted well within its discretion in denying Plaintiff's motion under these circumstances." Id. at 399-400.
Likewise, the Court denies the Leave Motion based on undue delay and undue prejudice to Autumnwood. While the Court is to freely grant leave to amend a pleading "when justice so requires," Fed. R. Civ. P. 15(a)(2), here justice would not be served by permitting the amendment. The Debtor brought this matter as an adversary proceeding on May 3, 2012. Following a pretrial conference held on February 6, 2013 at which the Court provided the Debtor 21 days (i.e., by February 27, 2013) in which to file an amended complaint, the Debtor filed the First Amended Complaint on February 28, 2013. Autumnwood filed the Judgment Motion on April 25, 2013. The discovery cutoff date was extended twice, for the final time to December 2, 2013. Adv. Doc. 60. The Debtor filed the Leave Motion, seeking leave to file the Proposed Second Amended Complaint on February 18, 2014. Not only was this over two months after the discovery cutoff, it was a year after the Debtor filed the First Amended Complaint. Furthermore, the Judgment Motion was pending at that time. Because the Leave Motion "was both untimely and would cause Defendants prejudice, as it came after the close of discovery" and while the Judgment Motion was pending, McCray, 571 F. at 399, the Court denies the Leave Motion.
The 21-day deadline was not memorialized in a scheduling order entered by the Court and thus Civil Rule 15(a)(2) applies here rather than Civil Rule 16(b), the rule providing that scheduling orders "may be modified only for good cause[.]" Fed. R. Civ. P. 16(b)(4). See McKinley v. Kaplan, 177 F.3d 1253, 1257 (11th Cir. 1999) (holding that the "scheduling order apparently never was entered and therefore never became binding as necessary to trigger the operation of Rule 16(b) of the Federal Rules of Civil Procedure" and that "[i]n the absence of a dispositive scheduling order, whether leave to amend should be granted is governed by the more liberal standard set forth in Rule 15(a)").
In addition, the Court denies the Leave Motion based on the futility of the amendment. An amendment is futile if the proposed amended complaint fails to state a claim upon which relief can be granted. See Shaughnessy v. Interpublic Grp. of Cos., Inc., 506 F. App'x 369, 377 (6th Cir. 2012) ("The district court denied Plaintiff leave to amend for futility; thereby, it essentially concluded that Plaintiff failed to state a claim under Rule 12(b)(6)."). The Court must decide whether the Proposed Second Amended Complaint states a claim upon which relief can be granted by "construing the complaint in the light most favorable to [the Debtor], accepting [her] well-pleaded allegations as true, and drawing all reasonable inferences in [her] favor." Saab Auto. AB v. Gen. Motors Co., No. 13-1899, 2014 WL 5394509, at *3 (6th Cir. Oct. 24, 2014 ). To survive dismissal under Civil Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
Applying these standards, the Court concludes that the Proposed Second Amended Complaint would not survive a motion to dismiss by Autumnwood and therefore would be futile. A careful reading of the Proposed Second Amended Complaint, even taking all allegations as true, demonstrates that there is no claim asserted against Autumnwood upon which relief can be granted.
The Debtor seeks two primary forms of relief in the Proposed Second Amended Complaint. She first seeks a rescission of "all contracts[,]" Proposed Second Am. Compl. at 14, including the Land Installment Contract. Yet the Proposed Second Amended Complaint alleges that "[t]he Defendants and [the Debtor] signed a document declaring the parties did not intend for the Land Installment Contract to be the operative agreement among the parties[,]" Proposed Second Am. Compl. ¶ 88, not explaining why one would possibly need to rescind an agreement that the parties themselves agreed was not operative. And only MTK and Needle—not Autumnwood—was a party to the Land Installment Contract, making it implausible that relief against Autumnwood would be necessary in order to grant the Debtor's request for rescission. See Rorig v. Thiemann, No. 1:05CV801, 2007 WL 2071909, at *9 (S.D. Ohio July 17, 2007) ([T]he law does not support a claim for rescission of a contract as against one who is not a party to the contract."). Nor is Autumnwood a party to the Real Estate Purchase Contract and Lease Agreement. Thus, the Debtor cannot seek rescission of that agreement as against Autumnwood. In addition, it is difficult to see how the Debtor has any right to rescind the Real Estate Purchase Contract and Lease Agreement in its entirety. The documents that collectively make up that agreement provide for, among other things, payments of $950 per month to Brian Knoppe. Proposed Second Am. Compl. ¶ 42, and the Proposed Second Amended Complaint alleges that "Section C(4)(b) of the Plaintiff's Plan required the Plaintiff to pay $950.00 per month to Brian Knoppe as part of" the lease component of the Real Estate Purchase Contract and Lease Agreement. Proposed Second Am. Compl. ¶ 36. The Debtor does not explain how she can possibly seek to rescind an agreement that her confirmed Plan obligates her to perform.
It is unsurprising that Autumnwood is not a party to the Land Installment Contract or the Real Estate Purchase Contract and Lease Agreement given that the Debtor concedes that Autumnwood transferred its ownership interest in the Property in 2003 and that MTK and Needle are the owners of the Property. Proposed Second Am. Compl. ¶¶ 26, 32-33.
The Court confirmed the Plan on April 28, 2011, Proposed Second Am. Compl. ¶ 35, making it binding on the Debtor, Brian Knoppe, Autumnwood and the other Defendants. See Pees v. CitiMortgage, Inc. (In re Crum), 479 B.R. 734, 741 (Bankr. S.D. Ohio 2012). --------
The only other relief the Debtor seeks is to recover the $6,500 she paid to Brian Knoppe and all the funds she has paid under the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract. She does so based on a purported right of turnover under § 542 of the Bankruptcy Code and recovery of a fraudulent transfer under §§ 544 and 548—and presumably, ultimately, under § 550(a), although she does not mention that section of the Bankruptcy Code. As to recovery on a theory of turnover, she does not allege that Autumnwood is a party "in possession, custody, or control" of the funds, 11 U.S.C. § 542(a), making relief under the turnover section unavailable against Autumnwood. As to recovery on a theory of fraudulent transfer, she alleges that one or both of the Knoppes received funds from her, but does not allege that Autumnwood itself was a direct or indirect transferee of those funds or that it was a party for whose benefit such transfer was made, making recovery under § 550(a) unavailable as to Autumnwood.
As noted above, the Debtor does allege that the transfer of the $6,500 to Brian Knoppe was "was done solely to enrich the Defendants[,]" Proposed Second Am. Compl. ¶ 55, and that she "transferred more than $25,290.00—including $6,500.00 transferred on or about August 27, 2010—to the Defendants in reasonable reliance upon both the Real Estate Purchase Contract and Lease Agreement and the Land Installment Contract." Proposed Second Am. Compl. ¶ 91. But generic references purporting to cover all defendants are insufficient. See Bondex Int'l, Inc. v. Hartford Accident & Indem. Co., 667 F.3d 669, 681 (6th Cir. 2011) ("Appellants suggested at oral argument that the pleadings' generic references to the misconduct of 'all Defendants' encompassed this theory of coverage against Century, but we cannot accept such threadbare allegations as meeting the Federal Rules' notice-pleading standard."). That is all the more so here. Nothing in the Proposed Second Amended Complaint plausibly suggests that the funds the Debtor seeks to recover were transferred to Autumnwood, were placed into an account maintained in the name of Autumnwood or were paid pursuant to contracts to which Autumnwood was a party. For all these reasons, the Proposed Second Amended Complaint fails to state a claim upon which relief can be granted against Autumnwood and granting leave to file it would be futile.
B. Request for Judgment on the Pleadings
Civil Rule 12(c) provides that "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Civil Rule 12(c) is made applicable to adversary proceedings by Bankruptcy Rule 7012(b). A motion for judgment on the pleadings is reviewed under the same standards as a motion to dismiss for failure to state a claim under Civil Rule 12(b)(6). See Daily Servs., LLC v. Valentino, 756 F.3d 893, 898 (6th Cir. 2014) ("We evaluate a Rule 12(c) motion for judgment on the pleadings as we would a Rule 12(b)(6) motion to dismiss. . . . To survive the Rule 12(c) motion, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.") (internal quotation marks omitted).
Applying these standards, the Judgment Motion must be GRANTED for the reasons stated above. True, Autumnwood advertised the Property for sale, but doing so does not make it a proper defendant to a complaint to rescind a contract with other entities and to recover money paid to others. The Debtor therefore fails to state a claim upon which relief can be granted against Autumnwood.
V. Conclusion
For the reasons stated above, the Leave Motion and the request for leave to amend contained within the Supplemental Response are DENIED, the Judgment Motion is GRANTED and the Motion to Strike is DENIED as moot. A final pre-trial conference will be set by separate notice, and a trial date will be set at the final pre-trial conference.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/_________
John E. Hoffman, Jr.
United States Bankruptcy Judge Dated: December 22, 2014 Copies to: Marshall Cohen, Attorney for Debtor/Plaintiff and Third-Party Defendant Calvin D. Fisher, Sr.
Trina N. Goethals, Attorney for Defendants Autumnwood Homes, Inc., Kim R. Knoppe, MTK Investments, LLC, Needle, LLC and Brad E. Halley
Brian R. Knoppe, Defendant, pro se