Gilmore v. Northgard (In re Gilmore)

IN RE: GERALD TERRILL GILMORE, Debtor

GERALD TERRILL GILMORE, Debtor/Plaintiff v. BOB NORTHGARD d/b/a NGD ENTERPRISES, Defendant

Case Number 20-10781

Adversary Proceeding Number 20-01011

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF GEORGIA Augusta Division

March 30, 2021

IT IS ORDERED as set forth below:

Chapter 13

OPINION AND ORDER

Before the Court is a Motion for Judgment on the Pleadings by Gerald Terrill Gilmore ("Debtor") and a Motion to Amend Pleadings by Bob Northgard d/b/a NGD Enterprises ("Defendant"). This is a core proceeding under 28 U.S.C. §157(b)(2)(A) and (G) and the Court has jurisdiction pursuant to 28 U.S.C. §1334. For the following reasons, Defendant's Motion to Amend Pleadings is ORDERED GRANTED; and Debtor's Motion for Judgment on the Pleadings is ORDERED DENIED.

FINDINGS OF FACT

Prior to this bankruptcy case, Debtor and Defendant entered into a "Rent to Own - Mobile Home" agreement ("Agreement") concerning a mobile home and realty located in Georgia.¹ See Dckt. No. 1, Ex. A. The Agreement provides:

This Agreement shall remain in effect from July 17, 2014 until July 1, 2026 at 12 o'clock midnight.

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The Rent for the Mobile Home is $758.37 and shall be paid Monthly beginning August 1, 2014.

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The total purchase price for the Mobile Home pursuant to this Option to Purchase Agreement is $52, 971. Less a fee of $6, 500 cash paid as option fee and down payment to cover initial costs related to the title search, commissions and other misc. fees is acknowledged and accepted at the time of this agreement. It is understood that this down payment is nonrefundable in the event of default of this agreement. If Tenant/Buyer timely exercises this option, is not in default of the Lease Agreement and actually closes the conveyance of the Property, the Tenant/Buyer shall be credited, at closing, theprinciple [sic] payments as determined by the amortization schedule attached and made a part of this lease agreement from each lease payment if every lease payment was timely remitted to Landlord/Seller pursuant to the Lease Agreement. Nocredit shall be given at closing if the Landlord/Seller received any lease payment after the due date established in the Lease Agreement.

Id. (emphasis in original).

At the time the Agreement was executed, Debtor paid the $6,500.00 option fee.² Thereafter Debtor fell behind on payments and Defendant filed a dispossessory affidavit with the Magistrate Court of Richmond County, Georgia ("Magistrate Court"). See Dckt. No. 1, Ex. B. According to Defendant, after proper service, Debtor failed to respond to the dispossessory proceedings and the Magistrate Court issued a judgment and writ of possession on August 28, 2020. See Dckt. No. 15, Ex. B.

On September 10, 2020, Debtor filed a chapter 13 bankruptcy petition, listing Defendant as a secured creditor on Schedule D. See Chapter 13 Case Number 20-10781, Dckt. No. 1, p. 19. The next day, the Marshal's Office executed the writ of possession.³ According to Defendant, on the same day atapproximately 10:44 a.m., and after the dispossession, Debtor's counsel notified Defendant's counsel of Debtor's bankruptcy filing. See Dckt. No. 15, Ex. C.

Debtor filed this current adversary proceeding: alleging Defendant's actions violated the §362⁴ automatic stay; seeking an injunction for turnover of the property and cessation of any further eviction/foreclosure proceedings; seeking an award of damages; and seeking a determination that the nature of the debt owed to Defendant is a secured mortgage claim in the amount of $0.00. See Dckt. No. 1.

Debtor filed the instant Motion for Judgment on the Pleadings ("Motion") asserting two basic arguments. Dckt. No. 22. First, he contends Defendant procedurally admitted the Agreement created a security interest, rather than a leasehold. Second, Debtor contends the Agreement creates a security interest under §365 because it is not an executory contract nor an unexpired lease, and therefore, it is a security instrument as a matter of law. Alternatively, he contends the Agreement is a disguised security agreement as a matter of law.

Defendant denies that his response admits the existence of a security interest and also asks to be allowed to file an amended response. Dckt. Nos. 30 and 31. In addition, Defendant contends Debtor's challenge to the nature of his interest was a compulsory counterclaim required to be raised in the Magistrate Court's dispossessory proceeding.

CONCLUSIONS OF LAW

Federal Rule of Civil Procedure 12(c)⁵ provides "[a]fter the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). Pleadings are closed "upon the filing of a complaint and an answer (absent a court-ordered reply), unless a counterclaim, cross-claim, or third-party claim is interposed, in which event the filing of a reply to a counterclaim, cross-claim answer, or third-party answer normally will mark the close of the pleadings." 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §1367 (3d ed. 2020).

"Judgment on the pleadings is appropriate where there are no material facts in dispute and the moving party is entitled to judgment as a matter of law . . . . [w]e must accept the factsalleged in the complaint as true and view them in the light most favorable to the nonmoving party." Cannon v. City of West Palm Beach, 250 F.3d 1299, 1301 (11th Cir. 2001). "To prevail, the plaintiff must show on the face of the pleadings that no material issue of fact remains and that she is entitled to judgment as a matter of law." Vann v. Inst. of Nuclear Power Operations, Inc., 2010 WL 11601718, at *2 (N.D. Ga. July 15, 2010); 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §1368 (3d ed. 2020)("The trial court is required to view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party."); Id. at §1370 ("[T]hese implied admissions are effective only for purposes of the motion and do not in any way bind the moving party in other contexts of the litigation or constitute a waiver of any of the material facts that will be at issue if the motion addressed to the pleadings is denied."). As part of the analysis, the Court may consider the exhibits attached to the complaint and responses thereto. See Fed. R. Civ. P. 10(c)⁶; Horsley v. Feldt, 304 F.3d 1125, 1134-35 (11th Cir. 2002).

Rules 8 and 15.

Debtor argues Defendant admitted the Agreement creates a security interest as a matter of law in his response to paragraph nine of the adversary complaint. Paragraph nine states: "[o]n September 10, 2020 Plaintiff filed for relief under Chapter 13 of Title 11 of the United States Bankruptcy Code and listed Defendant as a secured creditor." Dckt. No. 1, ¶9. Defendant's response states "[m]oreover, throughout the Agreement the terms rent, and residential lease are utilized." Dckt. No. 15, ¶9. Debtor argues this response is not a denial, as required by Federal Rule of Civil Procedure 8, and therefore, it is treated as an admission that the Agreement creates a security interest. Conversely, Defendant argues his response as a whole serves as a general denial and provides notice there is a material dispute over the parties' interpretation of the Agreement. Defendant also filed a motion to amend his response.

Federal Rule of Civil Procedure 8(b)⁷ requires parties to state their defenses to each claim asserted against them and admit or deny the allegations asserted against them by an opposing party. See Fed. R. Civ. P. 8(b)(1). Rule 8(b)(6) provides "[a]n allegation— other than one relating to the amount of damages — is admitted if a responsive pleading is required and the allegation is not denied. If a responsive pleading is not required, an allegation is considered denied or avoided." Fed. R. Civ. P. 8(b)(6). This provision also must be read in conjunction with Rule 8(e), which requires pleadings to be construed as "to do justice." See Fed. R. Civ. P. 8(e).

Paragraph nine is a recitation of facts, not a claim asserted against Defendant. Debtor did file bankruptcy on September 10, 2020 and did list Defendant as a secured creditor. Even if Defendant admitted these facts, it does not equate to an admission that the Agreement creates a security interest. In fact, in the proposed amended response, Defendant admits the allegations of paragraph nine. See Dckt. No. 31, Ex. A, ¶9.

Furthermore, even if Debtor's paragraph nine was considered as a claim against Defendant, when Defendant's response is read as a whole, it clearly informs the Court and Debtor that Defendant denies the allegation that Debtor holds a security interest in the property. In addition, based on the expedited nature of Debtor's request for a preliminary injunction in the complaint, the Court finds justice requires construing Defendant's response as a general denial.

Defendant also has filed a Motion to Amend Pleadings. Dckt. No. 31. Federal Rule of Civil Procedure 15(a)(2)⁸ provides a party may amend its pleadings "only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). "A trial court has considerable discretion when determining whether to grant leave to amend a pleading." In re Allied Holdings, Inc., 2007 WL 7143418, at *2 (Bankr. N.D. Ga. Oct. 29, 2007). "A district court may deny such leave only where there is a substantial ground for doing so such as undue delay, bad faith, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, or futility of the amendment." Muhammad v. Sapp, 494 Fed. App'x. 953, 958 (11th Cir. 2012). "Moreover, the Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the...