Opinion ID: 1938270
Heading Depth: 1
Heading Rank: 4

Heading: national produce's cross-appeal

Text: Since we vacate the judgment on Rosenthal's appeal, we must now address the merits of National Produce's cross-appeal. The cross-appellant has two strings to its bow, each relating to its attempt to persuade the court to disregard R & R's corporate status as a sham designed to protect Rosenthal from liability for debts fairly chargeable to him. Seizing on R & R's apparently unrepaid loans to Rosenthal, National Produce contends that the trial judge committed reversible error by refusing to permit it to amend its complaint at the conclusion of the trial to embrace its request to pierce the corporate veil, and by declining to grant relief on that theory. National Produce further claims that the motions judge abused his discretion by denying in part its motion to compel discovery, and argues that if the motions judge had ruled correctly, it could have filed a more timely motion to amend its complaint. We are of the opinion that, given the situation that confronted him, the trial judge correctly declined to permit a belated amendment and to consider the veil-piercing theory. We conclude, however, that the motions judge abused his discretion in denying National Produce's motion to compel discovery as to documents whose discoverability was undisputed, that this denial inhibited timely amendment, and that National Produce should be permitted to amend its complaint to include a request to pierce the corporate veil if the court reaches that issue on remand.
National Produce discovered the existence of R & R's loans to Rosenthal only after appellants introduced R & R's 1980 and 1981 corporate tax returns into evidence. It contended in the trial court, and now argues to us, that its opponents' failure to object to its cross-examination of Rosenthal regarding the loans demonstrates that he gave his implied consent to the trial of the piercing issue. See Moore v. Moore, 391 A.2d 762, 768-69 (D.C.1978). National Produce insists that under the liberal provisions of the Superior Court's Civil Rules relating to amendment of pleadings, it was entitled to amend its pleadings to conform to the evidence. See Johnson v. Ridgeway, 354 A.2d 851, 852 (D.C.1976) (per curiam) (citing authority, omitted here, for the proposition that the purpose of these rules is to avoid the tyranny of formalism); Super.Ct.Civ.R. 15(b). We cannot agree. Rule 15(b) requires the court to treat issues which have been tried with the implied consent of the parties as if they had been raised in the pleadings. This court has held that [t]he clearest indications of a party's implied consent to try an issue lie in the failure to object to evidence, or in the introduction of evidence which is clearly apposite to the new issue but not to other matters in the pleadings. Moore, supra, 391 A.2d at 768. To justify a finding of implied consent, it must appear that the parties understood [that] the evidence was aimed at the unpleaded issue. State v. Peterson, 104 Wis.2d 616, 630, 312 N.W.2d 784, 791 (1981) (relying on interpretations of the federal rule to interpret the parellel Wisconsin rule); 6A C.A. WRIGHT, A. MILLER & M. KANE, FEDERAL PRACTICE AND PROCEDURE § 1493, at 40 (2d ed. 1990) (stating the same with regard to the federal rule); see also Moore, supra, 391 A.2d at 768 (stating that the interpretation of Rule 15(b) of the Civil Rules of Procedure is aided by interpretations of the analogous federal rule). In Moore, this court considered the propriety of an award of separate maintenance in favor of a wife at the conclusion of a husband's suit for custody of their son. On appeal by the husband, the court rejected the wife's argument that the parties had tried the issue of her separate maintenance by implied consent after the husband had failed to object to evidence of her financial needs. Id. 391 A.2d at 770. The court held that this evidence was not so uniquely pertinent to her support alone, in contrast with the custody or the child support issues,[ [16] ] that it justifies our concluding that [the plaintiff] had adequate, timely notice of, and an opportunity to contest, a claim by his wife for her own support. Id. The amended complaint in this case contained an averment that Rosenthal defrauded National Produce by failing to inform it that his business was incorporated. National Produce also alleged that the transfer in 1984 of many of R & R's assets to Rosenthal constituted a fraudulent conveyance. With the exception of the testimony regarding the 1980 and 1981 loans, National Produce points to nothing in the transcript or record to support its argument that the piercing issue was tried by implied consent. In light of the claims of fraud and fraudulent conveyance, we cannot conclude that the evidence of the loans was uniquely pertinent to the piercing issue. Moore, supra, 391 A.2d at 770. Moreover, the evidence of the loans was presented immediately before the conclusion of the trial. If the judge had permitted so belated an amendment, this would not have given Rosenthal timely notice of the piercing issue or a reasonable opportunity to contest it. National Produce cites Rule 15(b) for the proposition that the trial court could have granted a brief continuance to allow Rosenthal and R & R time to prepare to respond to the newly enunciated theory. The provision of Rule 15(b) authorizing such a continuance, however, applies to the situation which arises when, after a party has objected to evidence as not conforming to the pleadings, the offering party responds by moving to amend his pleadings and the court grants the motion to amend. Super.Ct. Civ.R. 15(b). That is not what occurred here. [17] We conclude that, on the basis of the record as it existed when he ruled, the trial judge correctly denied National Produce's motion to amend. Accordingly, his refusal to pierce the corporate veil was not erroneous.
As part of its pretrial discovery in support of the various theories of recovery not including piercing of the corporate veilon which its amended complaint was based, National Produce served requests for production of documents upon both Rosenthal and R & R. It asked the defendants to produce, among other things, a broad array of documents relating to R & R's business and financial activities. Rosenthal and R & R never contested the discoverability of most of the requested documents. They declined to produce them, however, because National Produce had objected to certain discovery requests propounded by Rosenthal and R & R. [18] In response to National Produce's motion to compel discovery, counsel for Rosenthal and R & R invited the court to resolve all discovery disputes simultaneously by granting each side, (with the exception of two categories of documents relating to Rosenthal individually), full access to the information which it had sought from the other. [19] National Produce brought to the motions judge's attention Rosenthal's and R & R's concession that National Produce was entitled to almost all the discovery it sought. Nevertheless, the judge directed Rosenthal and R & R to bring to the trial certified financial statements and copies of their respective federal tax returns for the past three years, but in all other respects denied National Produce's motion to compel. This meant in effect that the court granted National Produce limited discovery as to the information to which Rosenthal and R & R objected, but denied pretrial access to documents as to which discoverability was not at issue. Undeterred, National Produce served subpoenas upon Rosenthal and R & R to obtain for use at trial the documents as to which appellants had not resisted discovery. These documents were produced without objection. Indeed, the defendants offered several of them into evidence as their own exhibits. It was through the production of these documents, and from testimony related to them, that National Produce first learned that Rosenthal had received substantial loans from R & R and that the corporate books did not reflect that any portion of these loans had been repaid. These revelations were, of course, the centerpiece of National Produce's eventual claim that R & R's corporate identity should be disregarded, and they led to the plaintiff's motion later in the trial to amend its complaint to conform to the evidence. The motions judge gave no reason for denying the undisputed portion of National Produce's discovery, and Rosenthal's sole argument in this court in favor of sustaining the judge's action is the conclusory statement in his brief that in light of the pertinent facts (which facts are not further identified), the trial court did not abuse its discretion. The trial court has wide latitude in resolving discovery problems, and its decision will not be disturbed on appeal unless that discretion has been abused. Mampe v. Ayerst Laboratories, 548 A.2d 798, 805 n. 15 (D.C.1988); White v. Washington Metropolitan Area Transit Auth., 432 A.2d 726, 728-29 (D.C.1981). A request for discovery is proper, even if the information sought would not be admissible at trial, so long as it appears reasonably calculated to lead to the discovery of admissible evidence. Super.Ct.Civ.R. 26(b)(1). As the Supreme Court explained in Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 2389, 57 L.Ed.2d 253 (1978), discovery is not limited to issues raised by the pleadings, for discovery itself is designed to help define and clarify the issues. Nor is discovery limited to the merits of a case, for a variety of fact-oriented issues may arise during litigation that are not related to the merits. Moreover, the discovery rules have been generously construed to provide a great deal of latitude for discovery. Harris v. Nelson, 394 U.S. 286, 297, 89 S.Ct. 1082, 1089, 22 L.Ed.2d 281 (1969); 8 C.A. WRIGHT & A.R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2007, at 37 (1970 & 1988 Supp.). Given the lack of any explanation by the motions judge of his refusal to permit the uncontested portion of the discovery and the failure of the parties who benefited from that decision meaningfully to defend it, we find persuasive National Produce's contention that the judge abused his discretion in this regard. Our conclusion is bolstered by Rosenthal's introduction at trial of some of the very documents to which the judge had denied National Produce pretrial access. If these documents had been made available during discovery, National Produce would have been apprised of R & R's apparently unrepaid loans to Rosenthal, and would have been in a position to request leave to amend its pleadings well in advance of trial. Accordingly, although we have concluded that the trial judge did not err in declining to permit amendment of the complaint at the conclusion of the trial, we are of the opinion that his decision on that issue resulted from an earlier abuse of discretion by the motions judge which effectively inhibited the timely filing of a motion to amend well in advance of trial. Moreover, since the case must be remanded to the trial court in connection with Rosenthal's appeal, Rosenthal will have adequate time to prepare to meet National Produce's contention that the corporate veil should be pierced, and will not be prejudiced if we permit the complaint to be amended accordingly. Siphoning of corporate funds by the dominant stockholder is an important factor in determining whether corporate formalities should be disregarded, especially where a closely held corporation is under-capitalized. DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 685 (4th Cir.1976). It would be premature for us to decide at this stage of the proceedings whether this occurred here, but there is at least plausible evidence of such diversion. Rule 15(a) provides that leave to amend shall be freely given when justice so requires. Any possibility of surprise or ambush can now be avoided. Accordingly, we think that this is an appropriate occasion for invoking the liberal spirit of the Rule and directing that amendment be permitted in the interests of justice.