Gotcher v. Duffie (In re Duffie), Case No. 13-61593-13

In re MARY KAY DUFFIE, Debtor.

STEVE and SHARON GOTCHER, Plaintiffs. v. MARY KAY DUFFIE, Defendant.

Case No. 13-61593-13

Adv No. 14-00013

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

November 13, 2014

MEMORANDUM of DECISION

At Butte in said District this 13^th day of November, 2014.

In this Adversary Proceeding, after due notice, a hearing was held November 3, 2014, in Butte on the Debtor/Defendant Mary Kay Duffie's Motion to Amend filed September 17, 2014, and on Debtor's Motion to Dismiss filed September 19, 2014. Both motions are opposed by the Plaintiffs, Steve and Sharon Gotcher. The Debtor was represented at the hearing by James C. White of Durham, North Carolina and Mark S. Hilario of Billings, Montana. The Plaintiffs were represented at the hearing by Kevin E. Vainio of Butte, Montana. The Court heard attorney argument on both matters. No exhibits or witness testimony were offered.

The Court would note that this Adversary Proceeding was commenced on May 7, 2014,Debtor answered the complaint on July 7, 2014, and a pretrial scheduling conference was held September 2, 2014. The deadline to file pretrial motions is December 15, 2014, and trial is scheduled to commence on January 26, 2015. The instant motion to amend and motion to dismiss were filed after Debtor filed her answer and after the pretrial scheduling conference. "A Rule 12(c) motion for judgment on the pleadings is the functional equivalent of a Rule 12(b)(6) motion to dismiss for failure to state a claim, except it is filed after the answer." Forsman v. United Fin. Cas. Co., 966 F.Supp.2d 1091, 1096 (D.Mont. 2013), citing Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 n. 4 (9^th Cir. 2011). Because an answer has been filed in this matter, the Court deems it appropriate to treat Debtor's motion to amend as a request for judgment on the pleadings under Rule 12(c).

In addressing a Rule 12(c) challenge, as with a Rule 12(b)(6) challenge, the Court accepts all nonconclusory factual allegations in the complaint as true (Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-556 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949-50 (2009)), and construes the pleading in the light most favorable to the nonmoving party. Tanner v. Heise, 879 F.2d 572, 576 (9^th Cir. 1989). "[D]ismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment." Schneider v. Cal. Dep't of Corr., 151 F.3d 1194, 1196 (9^th Cir. 1998) (quoting Chang v. Chen, 80 F.3d 1293, 1296 (9^th Cir. 1996)); Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1061 (9^thCir. 2004). To survive a motion to dismiss under Fed.R.Civ.P. 12(c), the pleadings "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570.) "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonableinference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Under Rule 12(c), "[j]udgment on the pleadings is properly granted when there is no material fact in dispute, and the moving party is entitled to judgment as a matter of law." Forsman v. United Fin. Cas. Co., 966 F.Supp.2d at 1096.

BACKGROUND

On November 10, 2010, Debtor, d/b/a SRO Live¹ and as buyer, signed an Agreement for the Sale of Real Estate, seeking to purchase from Bozeman Rialto Redevelopment, L.P., as seller, property located at 10 W. Main St., Bozeman, Montana and referred to as the Rialto Theater. The purchase price Debtor agreed to pay for the Rialto Theater was $1,107,946.14.

On December 10, 2010, Debtor, with an address of 8050 Lupine Lane, Bozeman, Montana, and Stephen Michael², d/b/a SRO Live of 1346 The Alameda, Suite 7-205, San Jose, California, entered into a Commercial Lease Agreement whereby Debtor, as Landlord, leased the Rialto Theater to Stephen Michael, as Tenant, from December 10, 2010, to November 1, 2013.

On May 31, 2011, the Debtor allegedly sought to purchase by Contract for Deed, from The Dead Cat, LLC, for $250,000.00 a piece of property located at 215 W. Broadway St, Butte, Montana referred to as the Covellite Theater. Debtor's address in the Contract for Deed is listed as 1346 The Alameda, Suite 7-205, San Jose, CA 95126.³ The Contract for Deed filed by thePlaintiffs at docket no. 27-11 is signed by a member of The Dead Cat, LLC, but not the Debtor.

On June 1, 2011, Debtor, with an address of 8050 Lupine Lane, Bozeman, Montana, and Stephen Michael, d/b/a SRO Live of 1346 The Alameda, Suite 7-205, San Jose, California, entered into a Commercial Lease Agreement whereby Debtor, as Landlord, leased the Covellite Theater to Stephen, as Tenant, from June 1, 2011, to June 1, 2014.

By August of 2013, Debtor had fallen behind on her payments on the Rialto Theater. On August 26, 2013, Debtor, d/b/a SRO Live, executed a Forbearance Agreement wherein Debtor agreed to, among other things, make a payment of $18,519.00 within one day of the mutual execution of the Forbearance Agreement. On August 26, 2013, a check drawn on the Wittich Law Firm Iolta account was made payable to First Security Bank in the amount of $18,519.00. The memo line of the check indicates it is for the benefit of "Duffie for Rialto." According to Debtor, Stephen was the one who deposited the $18,519.00 in the Wittich Law Firm's trust account for the $18,519.00 payment.

In 2011 Stephen approached the Gotchers about investing in the Theaters. On September 8, 2011, the Gotchers and Stephen executed a "Co-Ownership Agreement between Stephen Gotcher and Sharon L. Westrom and Stephen Michael and Mary Kay Duffie." Stephen Gotcher, Sharon L. Westrom and Stephen Michael signed the Co-Ownership Agreement; Debtor did not. However, Debtor typed the Co-Ownership Agreement and admitted that "[a]lmost all actions are done by Stephen for or on behalf of Mary Kay, who is a passive owner of the theater properties." Pursuant to the Co-Ownership Agreement, in return for an investment of $140,000.00, StephenGotcher and Sharon L. Westrom were going to purchase a 10% ownership interest in the Covellite and Rialto Theaters. The Co-Ownership Agreement provides that the combined price of the Theaters was $1,400,000.00, and that Stephen Michael and Debtor together would have a 5% ownership interest in the Theaters and that the remaining 85% of the Theaters would be owned by Stephen Michael's company, SRO Live. Plaintiffs maintain that Debtor and Stephen are husband and wife and that Debtor is affiliated with SRO Live. Debtor disagrees.

Debtor's relationship with Stephen began in 2002. Debtor contends she was never married to Stephen, but has admitted that she is in the possession of a picture in which she is wearing a wedding dress riding in a carriage with Stephen. Debtor explains that the picture was taken at a non-legal ceremony between Debtor and Stephen to signify their "significant otherness to each other." The two also never "resided" together, but Stephen, who Debtor refers to as her "lover" and "boyfriend," compensates Debtor for his room and board during his stays and visits.

Debtor also typed a Christmas letter in late 2011 or early 2012 that she sent to the Gotchers. Debtor and Stephen both signed the Christmas letter. The letter is addressed to Debtor and Stephen's "Family and Friends" and referring to the Covellite and Rialto Theaters, states "[Stephen] purchased two historic theaters on I-90 in Montana, and he's currently finishing a deal for a third." Debtor refers to Stephen later in the letter as her husband.

Sometime in 2012, the Gotchers filed an action against Debtor and Stephen in Gallatin County. That action stems from the Co-Ownership Agreement regarding the Theaters. Default judgment was entered in that matter against both Debtor and Stephen, but Debtor's default was later set aside. Debtor eventually filed on February 20, 2013, an answer in that action. In connection with that action, Debtor signed and filed in January of 2013, an affidavit in whichDebtor states that Plaintiffs "suddenly, and without warning or explanation, stopped making payments as agreed according to the terms of both verbal and written agreements." Debtor continues, in that same affidavit, to state that the discontinuance of regular payments by the Plaintiffs to Debtor and Stephen "while remaining in our properties without legal permission, resulted in temporary financial hardship for my husband and me starting in the spring of 2012." When questioned about referring to Stephen as her husband in the affidavit, Debtor explained at her April 9, 2014, deposition that "husband" is a shorthand term she uses when she is "wanting protection."

In her answer to Plaintiffs' state court complaint, Debtor also characterizes the relationship between herself, Stephen and the Plaintiffs as a "cooperative relationship stemming from the [Co-Ownership Agreement]" and proceeds to assert several counterclaims, including a breach of contract claim in which Debtor claimed that the Gotchers' failure to fully perform under the Co-Ownership Agreement harmed Debtor's ability to proceed with "the theater venture[.]" Debtor then asserts in her answer that "Plaintiffs are liable to Mary Kay for damages caused by their failure to fulfill their obligations under the cited agreement in an amount to be proven at trial." Debtor incurred legal fees in connection with the state court litigation and on October 22, 2013, signed an attorney's lien granting the Wittich Law Firm, P.C. a $35,000 attorney's lien against the Rialto Theater. The attorney's lien identifies Debtor as d/b/a SRO Live, but Debtor explained that she is a "financial ingenue" and stated...