Opinion ID: 197463
Heading Depth: 2
Heading Rank: 2

Heading: Amendments to Complaint

Text: 19 After the bankruptcy court entered final judgment in February 1994, see supra p. 49, the Trustee moved to amend the complaint to conform to the evidence at trial, and to amend the judgment, to set aside, inter alia, a $15,000 cash transfer Mrs. Rauh received in the Stahelski Settlement, and transfers to Mrs. Rauh of several checks from the Debtor's customers. 10 20 Rule 7015(b) of the Federal Rules of Bankruptcy Procedure (applying Fed.R.Civ.P. 15(b) to adversary proceedings) states that 21 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.... 22 Fed. R. Bankr.P. 7015(b). Under Rule 7015(b), motions to amend a complaint to conform to the evidence admitted at trial are liberally allowed. See, e.g., Brandon v. Holt, 469 U.S. 464, 471 & n. 19, 105 S.Ct. 873, 878, 83 L.Ed.2d 878 (1985) (permitting amendment to pleadings pursuant to Federal Rule of Civil Procedure 15(b) even after Supreme Court mandated remand). 23 A post-trial motion to conform the judgment to the evidence should not be allowed, however, unless the opposing party expressly or impliedly agreed to try the matter in question. See Luria Bros. & Co. v. Alliance Assurance Co., 780 F.2d 1082, 1089 (2d Cir.1986). Even so, amendment should not be allowed if the opposing party demonstrates unfair prejudice. See DCPB, Inc. v. City of Lebanon, 957 F.2d 913, 917 (1st Cir.1992); Lynch v. Dukakis, 719 F.2d 504, 509 (1st Cir.1983); Scully Signal Co. v. Electronics Corp. of Amer., 570 F.2d 355, 362 (1st Cir.1977) (Although Rule 15(b) by its terms requires amendment of the pleadings whenever an issue has been tried by express or implied consent, courts have refused to grant such motions if amendment would prejudice one of the parties, such as by requiring the presentation of additional evidence.), cert. denied, 436 U.S. 945, 98 S.Ct. 2848, 56 L.Ed.2d 787 (1978); see also Morgan and Culpepper, Inc. v. Occupational Safety & Health Review Comm'n, 676 F.2d 1065, 1066 (5th Cir.1982). The term unfair prejudice refers to whether a party had a fair opportunity to defend and whether he could offer any additional evidence if the case were to be retried on a different theory. See Browning Debenture Holders' Comm. v. DASA Corp., 560 F.2d 1078, 1086 (2d Cir.1977) (quoting 3 James Wm. Moore et al., Moore's Federal Practice p 15.13, at 993 (2d ed.1966)).
24 The stated basis for denying the Trustee's motion to amend the judgment to conform with the evidence introduced at trial, in relation to certain cash transfers from Stahelski to Mrs. Rauh, was the mistaken understanding by the bankruptcy judge that the Trustee had never filed such a motion and that any amendment therefore would have been unfair because Mrs. Rauh had not had an opportunity to present a defense. The bankruptcy court docket sheet reveals, however, that the Trustee did file such a motion on April 19, 1994, and that Mrs. Rauh later filed a reply. As the denial therefore constituted an abuse of discretion, the judgment must be amended provided the motion was meritorious. See Webb v. Hiykel, 713 F.2d 405, 407-08 (8th Cir.1983) (appellate court reverses trial court and orders judgment where plaintiff was entitled to relief on unpled theory and defendants would not experience undue prejudice). 25 At trial, without objection, the Trustee introduced competent evidence of the $15,000 cash payment Mrs. Rauh received from Stahelski. See Conjugal Partnership of Jones v. Conjugal Partnership of Pineda, 22 F.3d 391, 400-01 (1st Cir.1994) (One sign of implied consent is that issues not raised by the pleadings are presented and argued without proper objection by opposing counsel.... Under Rule 15(b), lack of consent is manifested by an objection on the ground that the evidence is not within the issues raised by the pleadings.) (citation and internal quotation marks omitted). Mrs. Rauh contends on appeal, however, that she did not object at trial because the Trustee introduced the $15,000 cash payment only to prove that her receipt of the promissory note had been fraudulent. See DCPB, Inc., 957 F.2d at 917 (Consent to the trial of an issue may be implied if, during the trial, a party acquiesces in the introduction of evidence which is relevant only to that issue.) (emphasis added); Luria Bros. & Co., 780 F.2d at 1089 (That such evidence, relevant to both pled and unpled issues, was introduced without objection does not imply consent to trial of the unpled issues, absent some obvious attempt to raise them.); Ellis v. Arkansas Louisiana Gas Co., 609 F.2d 436, 440 (10th Cir.1979) (Implied consent may not be inferred merely because evidence relevant to a properly pleaded issue incidentally tends to prove a fact not within the pleadings.), cert. denied, 445 U.S. 964, 100 S.Ct. 1653, 64 L.Ed.2d 239 (1980). We disagree. 26 At trial, the Trustee maintained that the Stahelski Settlement proceeds received by Mrs. Rauh constituted fraudulent conveyances under ch. 109A because (1) the Debtor, with intent to keep assets from his creditors, diverted to Mrs. Rauh the bulk of the consideration he otherwise would have received in settlement of his claims against Stahelski; and (2) none of the settlement proceeds received by Mrs. Rauh were attributable to the settlement of her own tort claim for infliction of emotional distress. See supra p. 48. Accordingly, the only conceivable purpose of the Trustee's evidentiary proffer relating to the $15,000 cash payment was to establish the amount of the Stahelski Settlement transfer which was voidable. The evidence offered by the Trustee was not even remotely probative of whether the Debtor had conveyed the $40,000 promissory note with fraudulent intent, nor whether the transfer of the promissory note constituted consideration for Mrs. Rauh's relinquishment of her tort claim. 27 Furthermore, Mrs. Rauh has not demonstrated that any unfair prejudice would result from the postjudgment relief requested by the Trustee. See DCPB, Inc., 957 F.2d at 917; Scully Signal Co., 570 F.2d at 362. At trial, the bankruptcy court expressly rejected her contention that the Stahelski-Settlement payments were in satisfaction of her emotional distress claim. The court found instead that the Debtor thereby fraudulently transferred his interests in E.W.S. and Realty indirectly to Mrs. Rauh, see supra p. 48, a finding Mrs. Rauh does not challenge on appeal. Nor has Mrs. Rauh suggested that her contention in regard to the Trustee's $15,000 fraudulent-transfer claim differed significantly from her defense to the surrender of the $40,000 promissory note, see supra p. 48, which took place in the identical circumstances. See Modern Elec., Inc. v. Ideal Elec. Sec. Co., 81 F.3d 240, 247 (D.C.Cir.1996) (complaint amended to include unjust enrichment claim, after parties had tried similar quantum meruit claim); Morgan and Culpepper, Inc., 676 F.2d at 1068 (Federal Rule of Civil Procedure 15(b) contemplates amendments in cases where relevant issues have been litigated.); Cunningham v. Quaker Oats Co., 107 F.R.D. 66, 70-71 (W.D.N.Y.1985) (new plaintiff allowed to be named in complaint, where defense to original plaintiff's claim was primarily legal in nature, the defense had already been tried and it applied to both the original and new plaintiff). 28 As Mrs. Rauh implicitly consented to try the fraudulent-conveyance claim relating to the $15,000 cash transfer she received in the Stahelski Settlement, and she has not shown that any unfair prejudice would result from the postjudgment relief requested by the Trustee, the motion to conform the complaint and the judgment with the evidence should have been allowed.
29 The bankruptcy court likewise denied the Trustee's motion to amend the judgment to set aside alleged fraudulent transfers of several checks from the Debtor's business customers made payable directly, or endorsed over, to Mrs. Rauh. See 11 U.S.C. § 548(a)(2) (transfers by insolvent within one year of bankruptcy petition); id. § 549 (postpetition transfers). Although the bankruptcy court once again acted on the mistaken belief that the Trustee had filed no postjudgment motion to amend the complaint, see supra Section II.B, we may affirm its ruling on any ground supported by the record. See Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1253 n. 9 (1st Cir.1991). As Mrs. Rauh did not agree to try this issue, we decline to disturb the bankruptcy court ruling. 30 The record discloses that Mrs. Rauh was never on fair notice of these claims. The checks in question were material to count VI of the complaint as amended prior to trial, see DCPB, Inc., 957 F.2d at 917; Luria Bros. & Co., 780 F.2d at 1089; Ellis, 609 F.2d at 440, wherein the Trustee alleged that funds presently in Mrs. Rauh's various bank and mutual fund accounts were property of the chapter 7 estate, either because Ms. Rauh had converted them from the Debtor, or the Debtor had fraudulently conveyed them to her. See supra pp. 48-49. Count VI focused on transfers from joint accounts to accounts held in Mrs. Rauh's name alone (e.g. between November, 1988 and November, 1989, the Defendant and/or the Debtor transferred funds ... at various times from jointly owned bank accounts to other bank accounts.). See supra Section II.A. In her answer Mrs. Rauh asserted that these accounts contain[ed] monies which were earned or derived solely by her efforts and were not monies earned or derived from any effort of the debtor. 31 The dispute at trial likewise concerned whether the monies in the joint accounts had derived solely from Mrs. Rauh's own efforts, or from the Debtor's. See supra note 3. Mrs. Rauh testified that she was the sole source of these monies. The Trustee, in turn, used the Debtor-customer checks made payable to Mrs. Rauh to impeach her credibility by way of demonstrating that the Debtor--not Mrs. Rauh--was the source of those particular deposits to their joint accounts. 32 Thus, neither the Trustee's introduction of these Debtor-customer checks into evidence, nor the Trustee's examination of the witnesses, fairly signaled an intention to establish that the Debtor had transferred these specific checks to Mrs. Rauh with fraudulent intent, within the meaning of 11 U.S.C. §§ 548(a)(2) and 549. Rather, it was not until after trial that the Trustee mentioned these specific transfers to Mrs. Rauh's accounts from the Debtor's business customers. As the Trustee thus failed to alert Mrs. Rauh to his intention, her failure to object at trial did not connote implicit consent to try the unpled issue. See Modern Elec., Inc., 81 F.3d at 247; United States v. 890 Noyac Road, 945 F.2d 1252, 1257 (2d Cir.1991); Luria Bros. & Co., 780 F.2d at 1089. 33 Although the Trustee's unpled claims may well have prevailed at trial, we cannot assume that Mrs. Rauh would not have been able to establish her present contention--that the checks were not property of the chapter 7 estate--had she been afforded fair notice and opportunity to resist the unpled claims at trial. 11 See 890 Noyac Road, 945 F.2d at 1259 (although opposing party already may have presented all the evidence she had, [g]iven the confused context in which this proof was presented, however, we decline to speculate about how [the defendant] might have dealt with the issue ... had it been squarely presented.); Morgan and Culpepper, Inc., 676 F.2d at 1068 (We deem improper the Commission's prejudgment of possible defenses which a company may assert.... Where amendment of pleadings is permitted on the basis of the second half of Fed.R.Civ.P. 15(b), the Commission may not deny the petitioner the opportunity to present new defenses by stating the ex parte conclusion that all possible defenses are meritless.). As Mrs. Rauh was not afforded fair notice that these newly minted Debtor-customer check claims were being interjected by the Trustee at trial, the Trustee was not entitled to amend either the complaint or the judgment. III