Opinion ID: 1119905
Heading Depth: 1
Heading Rank: 1

Heading: Amendment of Pleadings to Conform to the Evidence

Text: Appellants' first issue is whether the trial court erred in granting Johnson's motion to amend the pleadings to conform to the evidence. The trial court granted Johnson's motion, at the close of the evidence, as to six new issues. Appellants now claim unfair prejudice from this amendment. Wyoming Rules of Civil Procedure 15(b), which governs amendment of the pleadings to conform to the evidence presented, states as follows: (b) Amendments to conform to the evidence.  When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such amendment. Appellants argue that the trial court was bound by its pretrial order which set forth the issues to be tried and which therefore superseded the issues raised in the pleadings. Appellants rely on W.R.C.P. 16, which states in pertinent part: [The pretrial] order when entered controls the subsequent course of the action, unless modified at the trial to prevent manifest injustice. See also Salveson v. Cubin, 791 P.2d 581, 582 (Wyo. 1990); Clouser v. Spaniol Ford, Inc., 522 P.2d 1360, 1364 (Wyo. 1974) (pretrial order supersedes pleadings and controls subsequent course of action in a civil case). We do not agree that Rule 16 controls the amendment issue in this case. A pretrial order is not set in stone but may be amended within the trial court's discretion to avoid manifest injustice. W.R.C.P. 16. Furthermore, we agree that in some circumstances the policy of liberal amendment under Rule 15 should moderate the manifest injustice standard of Rule 16. Wallin v. Fuller, 476 F.2d 1204, 1209 (5th Cir.1973). Therefore, we apply a Rule 15(b) standard to the trial court's actions, rather than Rule 16's stricter standard, to assess the trial court's exercise of its discretion. Under Rule 15(b), where there is consent to try an issue, the decision to allow amendment of the pleadings lies within the scope of the court's sound discretion. Our review of the trial court's exercise of discretion is guided by whether or not the objecting party was prejudiced by allowance of the amendment. Hernandez v. Gilveli, 626 P.2d 74, 77 (Wyo. 1981); Elder v. Jones, 608 P.2d 654, 657 (Wyo. 1980), citing Rose v. Rose, 576 P.2d 458, 459 (Wyo. 1978). Consent to trial of an issue may be either express or implied. It is relatively simple to determine whether a party has given express consent to the trial of an issue. In this case, for example, the parties expressly consented to trial of the issues raised in the pleadings, as modified by the pretrial order. The pretrial order shows the issues litigated by express consent were the following: (1) Hargers listed the issues as whether Johnson owed a fiduciary duty to J Bar H and whether she was liable to plaintiffs for damages for her breach of fiduciary duty. (2) Johnson listed three issues: (a) whether Johnson's fiduciary duty ceased to exist once Harger shut her out of corporate management; (b) whether J Bar H, as a close corporation, could maintain a suit against Johnson without sanction of the board of directors; and (c) whether the parties in interest were de facto partners and whether that partnership terminated when the corporation became deadlocked. The existence of implied consent is a more complex issue, however. Wright, Miller and Kane discuss this issue in their treatise on the Federal Rules of Evidence: Implied consent [under Fed.R.Civ.P. 15(b)], however, is much more difficult to establish and seems to depend on whether the parties recognized that an issue not presented by the pleadings entered the case at trial. If they do not, there is no consent and the amendment cannot be allowed. A party who knowingly acquiesces in the introduction of evidence relating to issues that are beyond the pleadings is in no position to contest a motion to conform. Thus, consent generally is found when evidence is introduced without objection, or when the party opposing the motion to amend actually produced evidence bearing on the new issue. 6A C. Wright, A. Miller and M. Kane, Federal Practice and Procedure: Civil 2d § 1493 at 19-20 (1990) (footnotes omitted). We consider first the amendment which allowed the trial court to consider whether the Hargers' loan was a valid debt of the corporation. By the explicit terms of the pretrial issues, the corporation's indebtedness is not mentioned. Therefore, there was no express consent to trial of this issue. We must next search for evidence of implied consent. In Johnson's pretrial summary, which was incorporated into the pretrial order, she stated the following: It is apparent, that the situation giving rise to Plaintiff's causes of action are matters which are deadlocked and which require arbitration. It is Defendant Johnson's intention to immediately file a request with the court that the [sic] all issues herein involving the conduct of the corporation[']s affairs be submitted to arbitration so that a final resolution of this problem can be achieved.  The number of issues disputed by the parties in interest    far exceed the issues presently before the Court. Resolution of these few issues will only prolong the unsettled and unresolvable partnership of these parties. Therefore, it is imperative that the remedy for settling differences, as agreed to in the Shareholders Agreement, be immediately pursued. (emphasis added) Arbitration was not pursued and, as discussed previously, the case went to trial. Donald Harger, when asked on direct examination at the very beginning of the trial why he had brought the lawsuit, broached the issue of corporate debt when he answered as follows: Joanna Johnson is an officer of the corporation, vice president and secretary, she is a director, and has continued to act as such. She's a 50 percent shareholder, and stands to gain or lose by the success of the corporation whether she knows it or not. We both own 50 percent of something that has a considerable amount of debt. She has competed against the corporation and taken funds away that would have remained with the corporation and I'm specifically talking about the game processing business, none of the other aspects. On the other hand, I've worked since November of '83, no shareholder distributions. JoAnna has received $16,379 in shareholder distributions. My wife and I have lent the company on numerous, dozens of occasions, working capital.    At this point or the end of last year the company owed us $11,505. Since that time my wife and I have borrowed personally to put another fifteen thousand into the corporation to keep it alive.  (emphasis added) Appellee objected to this testimony as unresponsive to the question posed. The court allowed Harger to complete his explanation. Johnson later introduced the Note itself without objection. Brec Cooke, a director of J Bar H, read into the record the following statement from the minutes of a J Bar H board of directors' meeting: `Brec made a motion that the Board request all money paid to the Hargers on personal loans by the corporation be returned to the corporation and that no further amounts be paid on any personal loans of Don's or Fran Harger's by J Bar H, Inc.' Cooke then described how Donald Harger ruled this motion out of order. Donald Harger was called as an adverse witness for Johnson. During his testimony, he admitted that he had made the loan secured by the Note and that it was neither authorized by the board of directors nor by Joanna Johnson. After the motion to amend was granted, Harger did not ask for a continuance. Instead, he took the stand as a rebuttal witness and testified that he had called Joanna to ask for her cooperation in borrowing money on behalf of the corporation, and that when she refused her cooperation he had consulted his attorney about executing the authorization to borrow. These circumstances show implied consent of the parties to try the indebtedness issue. Johnson's pretrial memorandum stated that there were issues to be resolved in addition to those before the court. At trial, Johnson presented considerable testimony concerning the indebtedness incurred by the Hargers, including testimony of Mr. Harger himself. Harger put the corporate debt at issue with his answer to the very first question posed by his counsel. All of these factors show that the issue of the corporate indebtedness assumed by the Hargers was actually litigated at trial with their implied consent. Hargers argue, nevertheless, that they did not object to some of Johnson's evidence because they did not know it would be used against them on the indebtedness issue. Given the evidence in this case, however, and the way in which it was presented by the parties, we think that there was indication that the loan issue was being litigated as a separate issue. Appellants also argue that had they known that indebtedness was at issue, they could have prepared to meet the issue with evidence of their own. Specifically, appellants state that they could and would have introduced evidence regarding the underlying debt which that loan was intended to replace, the circumstances in which that underlying debt was assumed, and the extent to which the Appellee had known of, consented to, or ratified that underlying debt. Appellants do not state whether information as to these claims was available to them at trial or has been acquired since then. In either case, after Johnson made her motion to amend, Donald Harger did not ask for a continuance, but instead took the stand himself and presented rebuttal testimony. Any prejudice in presenting their case thus comes from appellants' failure to request a continuance. We now consider the remainder of the amended issues. One of these was whether the corporation should be dissolved. At oral argument before us, the Hargers conceded that the trial court acted properly in dissolving the corporation. We will treat this admission as evidence of implied consent to trial of the dissolution issue. See Purofied Down Products Corp. v. Travelers Fire Ins. Co., 278 F.2d 439, 444 (2nd Cir.1960); W.R.C.P. 15(b). The trial court's amendment of the pleadings to include a request for dissolution is therefore affirmed. Johnson also requested that the action be treated as a shareholder action by herself to enjoin the corporation from bringing this suit. Although it amended the pleadings to consider this issue, the trial court did not grant the injunctive relief Johnson requested. Instead, it ruled that no damages were due the corporation because Johnson was deprived of her earnings from the corporation by the Hargers' misconduct. Since no injunctive relief was awarded, the question of whether the complaint was properly amended to request injunctive relief is moot. The issue of removal of the directors is also moot, since the corporation has been ordered dissolved and placed in receivership. As to costs, the propriety of amending the complaint to include them is not ripe for review at this time, because the court has entered no order relating to costs. It is still possible for the court to hold an evidentiary hearing at which both appellants and appellee may present further evidence and argument bearing on the costs issue. Appellants will have sufficient time to prepare to meet these issues, and therefore, will not be unfairly prejudiced by the amendment of the pleadings to add issues relating to costs. See Haught v. Maceluch, 681 F.2d 291, 306 (5th Cir.1982) (no prejudice where party has ample opportunity to prepare to meet unpleaded issue). Under all the circumstances presented, we hold that the pleadings were properly amended to include a request that indebtedness incurred by the Hargers during the shut-out be disregarded. The remainder of the amended issues are either moot or have not yet been decided by the trial court. The trial court has made a finding that the $247,000 loan was not a valid debt of the corporation. It has further instructed the receiver not to pay the Hargers' debts as secured or priority debt. However, no final order has been entered stating that the debt will not be recognized. On remand the trial court should conduct further proceedings and issue an appropriate order on this question in accordance with this opinion.