KSB

Judge Nugent

09-05303 ReVest, LLC v. Long (Doc. # 86) - Document Text

SO ORDERED.
SIGNED this 22 day of February, 2011.


________________________________________
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ON - LINE PUBLICATION
BUT NOT PRINT PUBLICATION

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS

IN RE:
)

)
FREDDIE WAYNE LONG, ) Case No. 09-12827

) Chapter 13

)

Debtor. )
________________________________________________)

REVEST, LLC )
)
Plaintiff, )
)
vs. ) Adversary No. 09-5303
)

FREDDIE WAYNE LONG,
)
)
)

Defendant. )
________________________________________________)

ORDER ON MOTION TO ADD PARTIES

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 AND TO AMEND COUNTERCLAIM


Among the pending actions in this heavily-lawyered adversary proceeding are ReVest’s two
motions for summary judgment and Freddie Wayne Long’s motion to amend his counterclaim to add

(1) ReVest Rentals, LLC, and William Brent Hurst as defendants, (2) Southwest National Bank
(“SWNB”) and the Merlin G. Troutman Trust (the “Troutman Trust”) as necessary parties, (3) a
claim for deceptive acts and practices under the Kansas Consumer Protection Act (“KCPA”), and
(4) a claim for slander of title.1 ReVest, LLC (“ReVest”) objects to Long’s Motion to Amend on
grounds that it is untimely, prejudicial, futile, and brought in bad faith.2 As will be detailed below,
the parties’ conduct of this case has created a procedural morass which this Court will undertake to
drain in its ruling on this motion as well as the two summary judgment motions.3
Background Facts

This is, despite counsels’ best efforts to befog it, a pretty simple case. In 2005, Freddy Long
needed money to deal with a tax debt. Apparently unable to borrow from conventional sources, he
turned to ReVest. ReVest offered to acquire his rental real estate and his homestead (“Real Estate”)
for cash and to lease the properties back to Long, granting him an option to repurchase them for
what ReVest paid him plus interest and a fee. The parties executed an agreement that provided for
as much and Long deeded over his properties. When the original option expired, ReVest issued
several subsequent extensions, all for additional cash payments made by Long. Long claims these
transactions were loans secured by his real estate while ReVest claims they are what they nominally

1 Dkt. 75, Motion to Add Parties and to Amend Counterclaim (“Motion to Amend”).

2 Dkt. 78, Objection to Motion to Amend.

3 The Court is not without blame here. As will be detailed below, several unexplained

internal delays have injected an inappropriate amount of delay into these proceedings.
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appear to be, sales. In addition, Long also claims that ReVest took advantage of his health and
depression following his wife’s death and used its dominant economic position to defraud him,
committing not only common law fraud, but also violating the KCPA. At issue here, then, is: (1)
whether these transactions are what they seem or whether Long is entitled to have them re-
characterized as debts that he can modify in his pending chapter 11 case; and (2) whether Long is
entitled to reconveyance of the properties plus damages.

On August 31, 2009, Long filed for Chapter 13 relief. He converted his case to Chapter 11
on March 4, 2010. ReVest filed this adversary proceeding on December 11, 2009, seeking a
declaratory judgment that it, and not Long, owned the Real Estate. This action was likely triggered
by Long’s listing the Real Estate as his on his bankruptcy schedules. Long filed an Answer and
Counterclaim on January 13, 2010 in which he set up a series of claims. He asserted that ReVest’s
actions violated the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act
(RESPA). He also claimed that ReVest had acted unconscionably and therefore violated the Kansas
Consumer Protection Act, Kan. Stat. Ann. § 50-627.4 He further claimed that ReVest had committed
fraud, that the deeds he made to ReVest should be set aside, and that title should be quieted in him.

Rather than file an answer, ReVest filed a motion to dismiss Long’s Counterclaim on January
27, 2010 pursuant to Federal Rule of Civil Procedure 12(b)(6) and Federal Rule of Bankruptcy
Procedure 7012.5 The briefing on this motion was completed on February 23, 2010, but the motion
was not referred to chambers for review until April 13, 2010. On May 26, 2010, this Court granted

4 All future references to “K.S.A.” refers to the Kansas Statutes Annotated.
5 All future references to “Rule” shall refer to the Federal Rules of Civil Procedure,
unless otherwise noted.
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ReVest’s motion, dismissing Long’s TILA and RESPA claims with prejudice and dismissing his
KCPA, fraud and quiet title claims but “with leave to amend to plead with specificity his allegations
of misrepresentations alleged to have occurred within the applicable statutes of limitation.”6

On June 17, 2010, Long filed an Amended Answer and Counterclaim which re-pleaded with
more specificity his former KCPA unconscionability and fraud-based claims, but also included a
new claim under the KCPA for deceptive acts and practices under K.S.A. 60-626.7 Again, ReVest
opted not to answer, instead filing a combined motion to dismiss and for summary judgment on July
7, 2010. In this motion, ReVest asserted that Long had failed to re-plead his fraud claims with
specificity as required by Rule 9. ReVest also sought summary judgment on its original quiet title
claim. Long immediately moved for additional time to respond to this second motion, setting the
hearing on that application to August 12, 2010, two weeks after Long’s initial response date. On
August 12, 2010, the Court granted Long an additional 14 days to respond and on August 24, he did
so. ReVest filed its Reply on September 2, 2010. Long filed what appears to be a duplicate
response on September 16. Again, the matter was not referred to chambers until November 3,
adding some 6 weeks to the case.

On January 10, 2011, ReVest filed a second summary judgment motion that focused entirely
on the KCPA claims. After Long requested an extension of time filed on January 28, eighteen days
into the 21-day response period, he filed his response to this second motion on February 14. ReVest
replied on February 16 and the second motion was promptly referred to chambers for decision. Both
motions are under review and the Court will rule upon them shortly.

6 Dkt. 28.

7 The deceptive acts claim was added without leave of the Court as required by Rule 15.

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Pretrial Process and Discovery Issues

The Court accepted the parties’ initial Report of Parties’ Planning Meeting (“Report”) filed
on February 23, 2010.8 That report contained the following schedule: (1) exchange initial
disclosures on or before March 5, 2010, (2) complete discovery by May 26, 2010, (3) submit the
Pretrial Order by June 30, 2010, (4) file dispositive motions by June 16, 2010, and (5) be ready for
trial not later than July 14, 2010.9 No pleading amendment deadline was prescribed, though Rule
16(b)(3)(A) specifically requires the Court to issue a Scheduling Order that contains one.10

On May 12, 2010, Long filed a Motion to Extend Time for Discovery and to Amend
Scheduling Order, requesting that discovery be extended from May 26, 2010 to September 23, 2010
and to adjust other deadlines accordingly.11 On May 13, 2010, Long filed a motion to compel
ReVest to respond to certain discovery.12 On September 7, 2010, the Court ruled on the motion to
compel and rolled the discovery deadline forward to December 23, 2010, the dispositive motion
deadline to January 10, 2011, and the pretrial order deadline to January 24, 2011.13

On December 16, 2010, Long filed a motion requesting this Court abstain from ruling on this
matter as he had filed an identical case in state court.14 ReVest objected to Long’s motion to abstain

8 Dkt 13, Order Adopting Report.
9 Dkt. 12, Report of Parties’ Planning Meeting.
10 Partially as a result of this matter, the Court’s Planning Report form has been revised


to include this mandatory deadline.
11 Dkt. 23.
12 Dkt. 25.
13 Dkt. 67.
14 Dkt. 58.

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and requested this Court enjoin Long from prosecuting the parallel action.15 On January 3, 2011,
the Court denied Long’s motion to abstain and set ReVest’s motion to enjoin for a status conference
on March 17, 2011. At the hearing on the motion to abstain, Long advised he had added additional
parties to his state court proceeding and would need to amend his counterclaim here. The Court
noted that Long had added a new claim under the KCPA for deceptive acts and practices in the
Amended Counterclaim without first seeking court approval and ordered Long to address that new
claim in his anticipated motion to amend.

As of the filing of Long’s motion to amend, the discovery and dispositive motion deadlines
had expired. So far, the parties have not submitted a pretrial order.

Analysis of the Motion to Amend

Rule 15(a) provides that, after a responsive pleading has been filed, “a party may amend

its pleading only with the opposing party’s written consent or the court’s leave.” Leave to amend

is to be “freely given when justice so requires.”16 Granting leave to amend rests in the sound

discretion of the court.17 Although Rule 15 should be interpreted with extreme liberality, leave to

amend is not to be granted automatically. In Foman v. Davis,18 the Supreme Court held:

If the underlying facts or circumstances relied upon by a plaintiff may be a proper
subject of relief, he ought to be afforded an opportunity to test his claim on the
merits. In the absence of any apparent or declared reason-such as undue delay, bad
faith or dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, futility of amendment, etc.-the leave

15 Dkt. 66.
16 Fed. R. Civ. P. 15(a)(2).
17 Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330 (1971).
18 371 U.S. 178 (1962).


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sought should, as the rules require, be “freely given.”19
The Tenth Circuit has held that denial of leave to amend is appropriate when the amending party:

(1) has no adequate explanation for the delay;20 (2) knows or should have known of the facts upon
which the proposed amendment is based but failed to include them in the original complaint;21 (3)
makes the complaint “a moving target;”22 (4) attempts to “salvage a lost case by untimely suggestion
of new theories of recovery;”23 or (5) “knowingly delay[] raising [an] issue until the eve of trial.”24
Keeping these principles in mind, and considering the essential nature of their claims, the Court
makes the following conclusions concerning which of the proposed amendments should be permitted
at this time.
ReVest Rentals may be added as a party

ReVest stipulated to the addition of ReVest Rentals at the hearing on Long’s motion to
abstain. Accordingly, Long’s request to add ReVest Rentals is GRANTED.

19 Id. at 182 quoting Fed. R. Civ. P. 15(a).

20 Minter v. Prime Equip. Co, 451 F.3d 1196, 1206 (10th Cir. 2006); Frank v. U.S. West,
3 F.3d 1357, 1365-66 (10th Cir. 1993); see also Durham v. Xerox Corp., 18 F.3d 836, 840 (10th
Cir. 1994) (“[U]nexplained delay alone justifies the district court's discretionary decision.”);
Fed. Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987) (“Courts have denied
leave to amend in situations where the moving party cannot demonstrate excusable neglect. For
example, courts have denied leave to amend where the moving party was aware of the facts on
which the amendment was based for some time prior to the filing of the motion to amend.”)

21 State Distribs., Inc. v. Glenmore Distilleries Co., 738 F.2d 405, 416 (10th Cir. 1984).

22 Viernow v. Euripides Dev. Corp., 157 F.3d 785, 800 (10th Cir. 1998).

23 Pallottino v. City of Rio Rancho, 31 F.3d 1023, 1027 (10th Cir. 1994).

24 Walters v. Monarch Life Ins. Co., 57 F.3d 899, 903 (10th Cir. 1995).

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Long may not add a KCPA claim for deceptive acts and practices pursuant to K.S.A. 50-626

Long asserted for the first time a KCPA deceptive acts claim in his Amended Counterclaim
on June 17, 2010, approximately five months after filing his initial counterclaim. Long claims he
added a KCPA deceptive claim in an attempt to address the Court’s concerns and in response to the
Court’s order permitting him to amend his counterclaim. This is somewhat disingenuous. The
Court granted Long leave to amend his KCPA unconscionability claim along with his fraud and
quiet title claims to allow him the opportunity to plead with specificity those allegations of
misrepresentations that could save those claims from being time-barred. Long did not plead a
deceptive acts claim in his initial counter-claim and the Court did not consider one in its order
granting dismissal of Long’s claims and granting leave to amend.

In any event, because the facts forming the basis for the deceptive KCPA claim are identical
to his original claims and were known long before he moved to amend his counterclaim, the Court
will deny Long’s request to add this claim. Long offers no valid explanation for the delay of
approximately five months in adding this claim. A deceptive KCPA claim under K.S.A. 50-626
differs from an unconscionable KCPA claim under K.S.A. 50-627, not only in the basis for the claim
and its allegations but in the type and measure of damages, and will add considerably to the burdens
of defending and trying this case. Thus, Long’s delay in requesting the addition of a KCPA claim
based on deceptive acts and practices is prejudicial to ReVest, who is effectively deprived of a
defense.25 The motion to amend in a new KCPA deceptive acts claim is DENIED.

25 Cf. Rufenacht, Bromagen, and Hertz, Inc. v. Russell, 69 B.R. 394 (D.Kan. 1987)
(delay in requesting an amendment to the complaint which constitute a new and different cause
of action is prejudicial in that it effectively deprives the party opposing the amendment of a
defense).

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Long may not add Hurst as a defendant

Long argues that “Hurst as the agent of ReVest LLC who perpetrated the consumer
violations and fraudulent practices should be added as [a party defendant].” Nothing in the proposed
pleading points to actionable conduct by Hurst in his own behalf as opposed to what he may have
done in his representative capacity as ReVest’s manager. Long dealt directly with Hurst and knew
of his involvement from the beginning, but waited approximately one year after filing his
counterclaim to add him as a defendant. Long offers no explanation for the delay in requesting to
add Hurst as a defendant. An individual claim against Hurst raises new issues and concerns which
would require reopening discovery so that Hurst could develop evidence to prepare a defense and
further delay this proceeding. The Court finds that Long has unduly delayed in bringing his request
to add Hurst as a party and that allowing that amendment at this time would result in undue
prejudice to Hurst and ReVest. Long’s request to add Hurst as a defendant is also DENIED.

Long may add SWNB and the Troutman Trust as defendants

Long claims that he cannot quiet title to the Real Estate without adding SWNB and the
Troutman Trust because each claims a mortgages on the Properties. According to the proposed
Second Amended Counterclaim, ReVest Rentals gave SWNB a mortgage on the Bonn and St. Clair
properties on July 14, 2009 and ReVest gave the Troutman Trust a mortgage on the Reno County
and the 167th Street properties on June 25, 2010. Long offers no explanation for the year delay in
adding SWNB as a party and no explanation for the six month delay in adding the Troutman Trust
as a party. As these mortgages were recorded, Long had constructive notice of them as a matter of
law and, upon diligent inquiry, he should have known of their existence.

If Long prevails in his effort to recharacterize his agreements with ReVest as loan

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transactions and the Court sets aside the deeds, Long will have quiet title claims against SWNB and
the Troutman Trust.26 Both lenders should be afforded an opportunity to defend those claims in the
context of this action, even though adding them now will only further delay this Court’s deciding
the fundamental questions posed by Long in his counter-claims. The Court can attenuate this harm
and avoid prejudice to the parties by strictly controlling the scope and time allotted for discovery
with respect to the claims against the lenders. The Motion to Amend with respect to SWNB and
Troutman Trust is GRANTED.

Long may not add a claim for slander of title

Long’s proposed fifth count seeks leave to add a slander of title claim against ReVest,
ReVest Rentals, and Hurst. Long claims that these three defendants have damaged him by granting
mortgages against the Properties to SWNB and Troutman Trust and by those mortgages being
recorded. Slander to title is a species of the intentional tort of slander whose definition is little
changed from that outlined by the Kansas Supreme Court in Stark v. Chitwood in 1869.27 There,
the court observed that an action for slander of title could only be sustained where the charging party
alleges that special damages have resulted from actions affecting the party’s title taken with malice
and probable cause. No malice has been pleaded here. The Court observes that even if Long
prevails on his recharacterization theories, the Properties will be subject to a lien, be it held by
ReVest or ReVest’s lenders, SWNB or the Troutman Trust. How ReVest could be Long’s grantee
and hold legal title, yet somehow slander Long’s title is mystifying to say the least.

26 No facts are pleaded in the proposed Amended counterclaim that suggest that either
SWNB or Troutman Trust have acted in bad faith.
27 5 Kan. 141.
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Long’s proposed slander of title claim is predicated on his characterization of the parties’
transaction as a mortgage and not a sale. The addition of this claim only contributes to making his
counterclaims “a moving target.” The addition of a brand-new tort claim against the original
defendant after the conclusion of discovery would be highly prejudicial to ReVest and ReVest
Properties. Long has failed to offer any explanation for the delay in seeking leave to add a slander
of title claim to his counterclaim. Leave to amend to add this claim is therefore DENIED.

Conclusion

The pleading and discovery phase of a lawsuit must be long enough to afford the parties an
opportunity to develop their cases while guarantying that timely justice is done. This matter has
been pending for over a year. Permitting Long to add parties and theories will serve to
unnecessarily and unfairly extend that time. Nevertheless, the nature of one of Long’s claims
warrants the addition of ReVest Rentals, LLC, Southwest National Bank and Troutman Trust as
parties defendant to Long’s claim to set aside the deeds and to quiet title in the Properties (Count
IV). Long’s motion is otherwise denied. There will be no further discovery or dispositive motion
practice between and among ReVest, Revest Rentals, and Long. At such time as service is
accomplished against SWNB and Troutman Trust and the pleadings are joined, the Court will issue
scheduling pertaining to the claims against those parties only. Further motions to amend are barred.

A status conference is this case has been set for March 17, 2011 at 10:30 a.m. to consider
ReVest’s Motion to Enjoin Prosecution of Parallel Action. The parties shall submit their portions
of the proposed pretrial order (contentions, issues, witnesses, exhibits, etc.) not later than March 10,
2011 so that they may be considered at the March 17, 2011 conference.

# # # #

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