Opinion
Case No. 00-CV-10153-BC.
February 16, 2005
MEMORANDUM OPINION AND ORDER
I. Introduction
"Marriage and hanging go by destiny; matches are made in heaven." Robert Burton, Anatomy of Melancholy, Part iii. Sect. 2, Memb. 2, Subsect. 5.
Some cases are the stuff of John Grisham. Some cases are the stuff of Greek tragedies, or possibly Norse sagas. As will no doubt become painfully obvious, this case is without question a full-fledged member in good standing of the latter category.
On December 2, 2004, pursuant to consent jurisdiction under 28 U.S.C. § 636(c), (Dkt. 274), oral argument was heard on ten pending motions. After giving all parties the opportunity to supplement their arguments, the remaining motions are ready for decision.
Of the ten motions set for hearing, four were decided either from the bench at the close of the hearing or by orders issued shortly thereafter:
• Plaintiff's Amended Mot. to Strike Answer and Counterclaim (Dkt. 190)
• Defendant Tina Gehres's Mot. to Strike Plaintiff's Mot. to File Fourth Am. Compl. (Dkt. 232)
• Defendant Tina Gehres's Mot. to Grant Motion for Summary Judgment (Dkt. 262)
• Plaintiff's Renewed Mot. to Dismiss All Counterclaims of Def. Tina Gehres (Dkt. 266)
The following six motions therefore remain for decision, and will be considered in the order listed:
• Defendant Tina Gehres's Mot. for Summary Judgment on All Counts (Dkt. 240)
• Plaintiff's Mot. to File 4th Am. Compl. Supersede the Previous 4th Am. Compl. (Dkt. 251)
• Plaintiff's Renewed Mot. for Summary Judgment on the 7th 8th Counterclaims (Dkt. 192)
• Gehres Family Defendants' Mot. to Cancel Lis Pendens (Dkt. 245)
• Gehres Family Defendants' Mot. for Summary Judgment (Dkt. 258)
• Defendant Magnevu's Mot. for Summary Judgment (Dkt. 243)
II. Factual Background Procedural History
Plaintiff Larry Bagsby and Defendant Tina Gehres are attorneys and at one time were married to each other. This case, and its seemingly incessant host of procedural digressions, is but one part of an apparently endless onslaught of litigation that comprises the detritus of their divorce and subsequent failed attempts at reconciliation. At the time this diversity case was originally filed, Defendant Tina Gehres resided in California, but she has since moved to Michigan where much of her family lives. Plaintiff continues to reside in Missouri.
From my review of the documents on file, it appears that I am at least the eleventh judge, either federal or state, to have had some contact with this truly "Serbonian bog." THE POETICAL WORKS OF JOHN MILTON 215 (W. Skeat ed., Oxford Univ. Press 1938). Parenthetically, I harbor no pretense that this experience qualifies me as a "Bog Master." See Parker B. Potter, Jr., Essay, Surveying the Serbonian Bog: A Brief History of a Judicial Metaphor, 28 TUL. MAR. L.J. 519 (2004).
In this opinion, "Defendant Gehres" refers to Tina Gehres, and the "Gehres Family Defendants" refers to Dennis Gehres, Lois Gehres, Russell Hale, Katherine Hale, and Sylvia Gehres.
This case centers around the alleged conversion of funds by Defendant Gehres while both the funds and Gehres were in California. The case was originally filed in the United States District Court for the Southern District of California and assigned to Judge Judith N. Keep. In Judge Keep's opinion denying Plaintiff Bagsby's request for a preliminary injunction, the court concisely summarized the facts giving rise to the litigation between these parties as follows:
The original complaint named Tina Gehres, Sylvia Gehres, Katherine Hale, Russell Hale, and "Does 1 through 100" as defendants. It alleged claims of breach of contract, breach of fiduciary duty, conversion, money had and received, unjust enrichment, and violation of the Uniform Partnership Act, and sought injunctive as well as declaratory relief, the imposition of a constructive trust, and an accounting. (Dkt. 1, Compl. filed 9-9-99.)
Larry Bagsby ("Bagsby") and Tina Gehres ("Gehres") were married in February 1995 and separated in February 1998 when Gehres moved from Missouri to San Diego, California. Bagsby filed for divorce in Missouri in December 1998, and a judgment and decree of dissolution was entered by consent of the parties on April 28, 1999, by the Circuit Court of St. Charles County, Missouri. The separation agreement, which the judgment and decree incorporated, provided for the division of property and debts and provided general provisions for enforcing and construing the agreement.
Between May and August 1999, Bagsby and Gehres reconciled their personal relationship and began planning to move to San Diego. There is some dispute about whether the parties planned to eventually practice law together. Between July 27 and August 6, 1999, Bagsby and Gehres were seeking to purchase a home; the amount of the estimated down payment is disputed. On August 6, 1999, Bagsby transferred via wire the sum of $83,000.00 from his law firm partnership account to Gehres' personal checking account. Bagsby took an additional partnership draw on August 6, 1999, in the amount of $354,000.00. That sum was in the form of a check made payable to Gehres; the memo line on the check says "Kilbury Fees." Plaintiff's Notice of Lodgment, Exh. I. On August 9, 1999, Gehres deposited the $354,000.00 check into a Smith Barney joint account. Bagsby subsequently wired additional sums exceeding $300,000.00 into the joint account. Bagsby alleges that the purpose of the transfers was to purchase a residence for Bagsby and Gehres and to fund a new partnership account in San Diego, California, and that he did not consent to use of the funds for any other purpose. Gehres claims that the Smith Barney account is not a partnership account, but a tenants in common account. In addition, Gehres claims that Bagsby consented to her use of $83,000 to pay her debts.
Bagsby also alleges that between July and August 1999, Bagsby and Gehres further agreed to begin a partnership to practice law and that Gehres began taking steps to establish the partnership. Gehres disputes these allegations. Gehres admits that she located law firms for Bagsby and her to associate with, obtained office lease estimates, researched advertising expenses, and purchased a new computer, facsimile, and scanner. Gehres informed Bagsby that their monthly expenses for office lease and advertising would be $2,000.00. On August 17, 1999, Bagsby and Gehres entered into a residential purchase agreement and deposited $11,650.00 as earnest money. The $11,650.00 was jointly transferred by Bagsby and Gehres via written instructions to Smith Barney. The funds were transferred into Gehres's personal account and then paid to the real estate agent.
The parties do not dispute that on August 25 and 27, 1999, Gehres removed a total of $354,000.00 from the Smith Barney account and transferred it into her personal account without advising Bagsby. On August 28, 1999, Gehres left California. By August 30, 1999, Gehres had spent the $83,000.00 transferred to her personal account by paying her personal debts. From her personal account, Gehres transferred the total amount to three different jointly held accounts in Michigan. Gehres instructed others to open accounts in order to "protect" the funds from Bagsby reaching them. Defendant Sylvia Gehres, Tina Gehres' grandmother, opened the first account, listing herself and Gehres on the account. Defendant Kathy Hale, Tina Gehres' sister, opened a second account jointly with Gehres. The third account was an existing account in the name of Kathy and Russell Hale, Tina Gehres' brother-in-law. Kathy Hale then transferred these funds into another joint account in the name of Kathy Hale and Michael Torz, her fourteen year old son. Once in Michigan, Gehres used the funds to pay the Internal Revenue Service and the Franchise Tax Board in California. A total of $93,000.00 from the joint accounts was then commingled into cashier checks in the names of Defendant Kathy Hale and Defendant Dennis Gehres, which were then used to purchase a home for Gehres in the amount of $120,000.00.
(J. Keep's Order dated Feb. 14, 2000, Dkt. 1.) In addition to denying Plaintiff's motion for preliminary injunction, Judge Keep also denied an initial motion for summary judgment filed by Plaintiff Bagsby. Judge Keep did, however, issue notices of lis pendens encumbering various Michigan properties owned by Defendant Gehres and the Gehres Family Defendants. (Dkt. 245, Ex. E; Dkt. 255, Ex. A, B-1, C-1, C-2, D-1; Dkt. 263, Ex. 5-8.) In December 1999, Plaintiff filed a First Amended Complaint, adding several defendants as well as claims. On March 28, 2000, Judge Keep transferred the case to this district pursuant to 28 U.S.C. § 1404(a). The case was then transferred to this division on May 23, 2000, and assigned to U.S. District Judge Victoria Roberts. (Dkt. 8.)
These lis pendens are the subject of separate motions, considered infra.
The First Amended Complaint added as defendants Dennis Gehres, Louis Gehres, William Byce Jr., and the Internal Revenue Service. It also added claims of defalcation, violation of the Uniform Fraudulent Transfer Act, and civil conspiracy. (First Am. Compl., Dkt. 17 at Ex. 9.)
In addition to the instant federal case, Bagsby also commenced an action in the Superior Court of San Diego County, California, where he obtained a temporary restraining order against Tina Gehres. (Dkt. 190, Ex. 14). He also filed a petition in the Circuit Court of St. Charles County, Missouri, seeking dissolution of the partnership said to exist between himself and Defendant Tina Gehres, along with restitution and an accounting. (Dkt. 240, Ex. 13.) Finally, he also initiated contempt proceedings against Defendant Gehres in the Family Division of the St. Charles County Circuit Court. (Dkt. 190, Ex. 11.)
While those actions were proceeding elsewhere, Judge Roberts granted Plaintiff leave to file a Second Amended Complaint in this case. In December 2000, Judge Roberts ordered all parties to engage in facilitative mediation and stayed proceedings pending the outcome of the mediation. (Dkt. 97.) Efforts at a mediated settlement failed. In fact, the facilitation itself became a separate source of litigation as various parties refused to pay the facilitator's fees. ( See Dkts. 170 174.) On February 2, 2001, the attorneys representing Defendants withdrew, and a new attorney was substituted. (Dkt. 104.) Less than two months later, the substituted attorney moved to withdraw. (Dkt. 112.)
The Second Amended Complaint was filed on August 25, 2000, and added the following defendants: William Byce, Sr.; Betty Byce; Marlene Byce; Teresa Blasberg; Magnevu Corporation; the California Franchise Tax Board; and the United States of America (Internal Revenue Service). The claims of breach of fiduciary duty, violation of the Uniform Partnership Act, and defalcation that were alleged in the First Amended Complaint were no longer asserted. However, claims for fraud and violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") were added. (Second Am. Compl., Dkt. 43.)
Meanwhile, the disputes raging between Bagsby and Gehres festered on in the courts of Missouri. A bench trial was held in the Family Court Division of the St. Charles County Circuit Court on Bagsby's claim that Gehres was in contempt of court for violating the terms of the April 1999 divorce decree. The court found for Gehres, holding that although the Kilbury fees became Bagsby's separate property pursuant to the divorce decree, after the divorce he was free to do with the money as he saw fit, including transferring a portion of it to his ex-wife. (Dkt. 281 at Ex. 1.)
A two-day trial on Plaintiff Bagsby's petition for dissolution of partnership was also held in the St. Charles County Circuit Court. Circuit Judge Nancy Schneider issued Findings of Fact and Conclusions of Law in favor of Bagsby on July 24, 2001. (Missouri Court Op., Dkt. 190 at Ex. 15). Gehres filed an appeal. Bagsby responded by seeking leave to file a Third Amended Complaint in this Court, arguing that in light of the Missouri Circuit Court findings, the complaint in this case could be substantially simplified. (Dkt. 154.) The motion to amend was granted, and the Third Amended Complaint was filed in late April 2002. (Dkt. 182.) It remains to date the controlling pleading in this case. The defendants named in the Third Amended Complaint are: Tina Gehres, three members of the Gehres family, two members of the Hale family, Magnevu Corporation, and the California law firm of Schnelz, Wells, Monaghan and Wells, P.C., for which Defendant Gehres worked. The complaint contains only three counts: declaratory relief (all defendants except Magnevu), conversion (same), and negligent misrepresentation (Defendant Magnevu only).
In late May 2002, Defendant Tina Gehres notified the court that she had filed for bankruptcy in California. (Dkt. 188.) U.S. District Judge David Lawson, to whom the case had been transferred, stayed the case and closed it for administrative purposes. (Dkt. 195.) The defendant law firm nonetheless filed a motion for summary judgment, and Judge Lawson reopened the case and lifted the stay for the limited purpose of considering that motion. (Dkt. 205.) Plaintiff also sought the Court's consideration of a motion for summary judgment as to Counts I and II of the Third Amended Complaint so far as it applied to the law firm. Judge Lawson granted that request as well. (Dkt. 209.) These cross-motions for summary judgment with regard to the law firm were referred to this judicial officer, and on September 9, 2003, I recommended that the law firm's motion for summary judgment be granted and that Defendant's cross-motion for summary judgment be denied as to the law firm. (Dkt. 219.) Judge Lawson adopted the Report and Recommendation over the objections of Plaintiff Bagsby. (Dkt. 225.)
On June 22, 2004, Judge Lawson lifted the stay as to all parties and reopened the case, noting that Tina Gehres had been granted a discharge in her bankruptcy case by the United States Bankruptcy Court for the Northern District of California. (Dkt. 236.) Approximately one month later, the Missouri Court of Appeals ruled on Gehres's appeal of the St. Charles Circuit Court's findings which had been in favor of Bagsby. The appellate court concluded that Bagsby had improperly split his causes of action between the Missouri Circuit Court and this Court, and therefore ruled in favor of Gehres, vacating the circuit court judgment and remanding the case to the county circuit court with directions to dismiss. Bagsby v. Gehres, 139 S.W.3d 611 (Mo.Ct.App. July 27, 2004). As a result, on September 7, 2004, Bagsby filed a motion in the instant case seeking leave to file a Fourth Amended Complaint. (Dkt. 251.) Plaintiff Bagsby cites the Missouri appellate court decision and requests leave to file a new amended complaint reinstating all claims and all defendants previously named.
I note that the Missouri Court of Appeals subsequently granted Tina Gehres a writ of prohibition against St. Charles County Circuit Court Judge Nancy Schneider, prohibiting the enforcement of a judgment, entered while Gehres's appeal was pending, wherein Judge Schneider found Gehres in contempt and ordered her to pay Bagsby $197,975.30 in attorney's fees. The appeals court held that Judge Schneider lacked jurisdiction to take such action. Ex rel. Gehres v. Schneider, 144 S.W.3d 903 (Mo.Ct.App. Sept. 28, 2004).
Several more motions followed Plaintiff's request for leave to amend. After an in-person status conference, a hearing date was set for all pending motions. Shortly before the scheduled hearing date, the Court was informed by Defendant Gehres's doctor that she would be unable to attend the hearing for medical reasons. Court staff asked the doctor when he expected Defendant Gehres to be able to attend a hearing, and he stated in three weeks. As a result, the originally-scheduled hearing date was adjourned and a new date set. (Dkt. 270.) In the notice that issued, all parties were informed that in the event any party failed to appear for the rescheduled hearing, any motions filed by that party would be decided on the documents. ( Id.) In order to allow the Court and the parties to prepare for oral argument on the numerous pending motions, a stay of proceedings was imposed prohibiting the parties from filing additional motions without leave of Court. (Dkt. 271.) Less than two weeks before the rescheduled hearing date, all parties consented to the jurisdiction of this Magistrate Judge under 28 U.S.C. § 636(c). (Dkt. 274.)
The rescheduled hearing was held on December 2, 2004. Plaintiff Larry Bagsby appeared with counsel, and counsel appeared for all defendants except Tina Gehres. Tina herself did not appear. At the close of the hearing, the Court granted a request by Plaintiff Bagsby's counsel for the opportunity to supplement the record, and all parties were given until January 5, 2005, to file supplemental briefs on any or all of six pending motions. (Dkt. 275.) Having received supplemental briefs from Plaintiff Bagsby, Defendant Gehres, and Defendant Magnevu (Dkts. 2802-82), the motions are now ready for decision.
III. Defendant Tina Gehres's Motion for Summary Judgment on All Counts
During oral argument, counsel for Plaintiff conceded that the liability of all defendants other than Tina Gehres is, for all practical purposes, derivative to that of Tina. Counsel for Plaintiff also conceded that Tina Gehres's liability rests on the allegations of conversion. Thus, if Defendant Gehres did not convert the funds at issue, she is not liable, and if she is not liable, neither are any of the other defendants. Therefore, her motion for summary judgment will be addressed first.
A. Arguments of the Parties
Defendant Gehres moves for summary judgment on both counts brought against her (declaratory judgment and conversion), asserting that the undisputed facts show that she acquired legal title to the $83,000.00 transferred directly to her personal checking account and the $354,500.00 which was paid to her by check, because "there were no conditions or restrictions whatsoever on [her] ownership or legal entitlement to these funds." (Def. Gehres's Br. in Supp. of Mot., Dkt. 240 at 11.) She contends that "the documentary evidence supports the conclusion that [she] alone was the owner of the monies Plaintiff voluntarily paid to her. When [she] received these funds, they were hers to do with as she chose[,]" and her act of depositing the check made payable to her into a joint account with Plaintiff "did not transmute or otherwise change the nature of her ownership [of] the funds." ( Id. at 12.) In her supplemental brief, Defendant Gehres contends that Plaintiff's contrary arguments have already been rejected by Missouri courts in litigation surrounding the earlier contempt proceedings, and that the doctrine of res judicata thus bars Plaintiff's assertions. (Dkt. 281 at 1-3.) Citing inconsistencies in Plaintiff's previous sworn statements, Defendant Gehres further argues that Plaintiff's supporting affidavits in this case are barred by the "sham affidavit" doctrine. ( Id. at 3-8.)
Plaintiff asserts that all claims in this case are dispositively controlled by the divorce decree which was entered in the Circuit Court of St. Charles County, Missouri, on April 28, 1999. (Pl.'s Br. in Supp. of Consol. Resp. to Mots. for Summ. Judg., Dkt. 265 at 17.) Plaintiff bases this assertion on a clause in the Separation Agreement (which was incorporated into the Judgment and Decree of Dissolution) that specifically awarded to each party "as his or her separate property any and all interest in any private law practice or case whether pending or concluded, in which he or she has been involved at any time during the marriage." (Separation Agreement ¶ 2.10, Dkt. 265 at Ex. 1.) Plaintiff thus argues that, because the source of the $83,000 he wired to Defendant Gehres's personal checking account as well as the $354,500 check from his law firm made payable to Tina Gehres was his attorney fee from a "case pending during the marriage," Defendant Gehres is precluded from claiming any "entitlement" to these funds. (Pl.'s Br., Dkt. 265 at 16-18.) Alternatively, Plaintiff claims that even if Gehres could make a colorable claim of ownership of the funds, "the facts clearly support that she had made fraudulent representations to Plaintiff which induced Plaintiff to transfer the funds from Missouri to California." ( Id. at 18.) Specifically, Plaintiff claims that Gehres fraudulently represented that she would use the funds to purchase a residence and open a law practice with Plaintiff in California.
B. Motion Standards
Motions for summary judgment are governed by Rule 56(c) of the Federal Rules of Civil Procedure, and will be granted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). All facts and inferences must be viewed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The moving party has the initial burden of showing the absence of a genuine issue of material fact as to an essential element of the non-movant's case. Street v. J.C. Bradford Co., 886 F.2d 1472, 1479 (6th Cir. 1989) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L.Ed. 2d 265 (1986)). In determining whether the moving party has met its considerable burden, a court may consider the plausibility of the moving party's evidence. Matsushita, 475 U.S. at 587-88. Summary judgment is also proper where the moving party shows that the non-moving party is unable to meet its burden of proof. Celotex, 477 U.S. at 326.
In responding to a motion for summary judgment, the non-moving party cannot rest merely on the pleadings alone. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 191 L.Ed. 2d 202 (1986). Instead, the non-moving party has an obligation to present "significant probative evidence" to show that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Philip Morris Cos., 8 F.3d 335, 339-40 (6th Cir. 1993). Regarding evidence submitted for summary judgment consideration, the Sixth Circuit has explained that
Federal Rule of Civil Procedure 56 requires the plaintiff to present evidence of evidentiary quality that demonstrates the existence of a genuine issue of material fact. Examples of such evidence include admissible documents or attested testimony, such as that found in affidavits or depositions. The proffered evidence need not be in admissible form, but its content must be admissible. Bailey v. Floyd County Bd. of Educ., 106 F.3d 135, 145 (6th Cir. 1997).Perry v. Jaguar of Troy, 353 F.3d 510, 516 n. 3 (6th Cir. 2003).
When the non-moving party fails to adequately respond to a summary judgment motion, a district court is not required to search the record to determine whether genuine issues of material fact exist. Street, 886 F.2d at 1479-80. Instead, the court may rely upon the "facts presented and designated by the moving party." Guarino v. Brookfield Township Trustees, 980 F.2d 399, 404 (6th Cir. 1992).
After examining the evidence designated by the parties, the court then determines "`whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Booker v. Brown Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir. 1989) (quoting Anderson, 477 U.S. at 251-52). Summary judgment will not be granted "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248.
C. Count I: Declaratory Relief
Plaintiff's sole contention in Count I of the complaint is that he is entitled to declaratory relief against all defendants except Magnevu because his rights of ownership and possession of "all funds stolen by the Defendants" are dispositively controlled by the Findings of Facts, Conclusions of Law, Order and Judgment entered in the Circuit Court of St. Charles County, Missouri, on July 24, 2001. (Third Am. Compl., Dkt. 182 at 15.) As previously noted, however, on July 27, 2004, that judgment was reversed on appeal and the case was dismissed. See Bagsby v. Gehres, 139 S.W.3d 611, 616-17 (Miss.Ct.App. 2004). Because the judgment Plaintiff seeks to have enforced in Count I is no longer in force, this Court finds that Defendant Gehres is entitled to judgment as a matter of law on this Count. Accordingly, Defendant Gehres's motion for summary judgment with regard to the claim brought against her in Count I will be granted.
D. Count II: Conversion
1. Plaintiff's Transfers to Defendant Gehres
As previously determined, California's conflict of laws rules apply in this case ( see Dkt. 219 at 10-11; Dkt. 225), and pursuant to those rules, a "governmental interests" analysis must be used to determine whether a state other than California has a sufficiently significant interest to rebut the presumption that California law applies to a case that was originally filed in California. Lewelling v. Farmers Ins. of Columbus, Inc., 879 F.2d 212, 216 (6th Cir. 1989). Here, where the central issue is the right to funds withdrawn from a joint account opened in California, where all of the alleged "wrongful" withdrawals occurred while the defendant was in California, and where Plaintiff chose to file suit in the U.S. District Court for the Southern District of California, the Court finds that the State of California has a predominant interest in seeing its laws regarding conversion and multi-party financial accounts govern this dispute.
California law provides that "[c]onversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages." Burlesci v. Petersen, 68 Ca. App. 4 th 1062, 80 Cal. Rptr. 2d 704 (Cal.Ct.App. 1998). The question the Court must focus upon is therefore whether Defendant Gehres committed a "wrongful act" which violated any ownership right Plaintiff may have had over the funds at issue.
As already stated, the dispute between these two previously-married attorneys has generated enough court filings to have denuded a large forest. Nevertheless, buried in the pulp are copies of the documents which represent the undisputed facts. The documents show that on August 6, 1999, a check from Plaintiff's Missouri law firm was prepared in the amount of $354,500.00, made payable to "Tina Gehres." (Dkt. 258, Ex. A.) No one disputes that Gehres was the sole payee of the check or that the check contained no conditional language. Gehres did not cash the check, but rather endorsed it and deposited it in a Solomon Smith Barney account she opened on August 9, 1999, in Carlsbad, California. (Dkt. 190 at Ex. 5.) The account documents show that the account was held jointly by Defendant Gehres and Plaintiff Bagsby as tenants in common, and that, in the event of the death of either, the decedent's estate would be entitled to 50% of the funds on deposit. Bagsby also made deposits to the account, including wire transfers from St. Louis, Missouri, on August 13, 1999, in the amount of $350,000.00, and on August 23, 1999, in the amount of $5,000.00, bringing the account balance to approximately $700,000. On August 25 and 26, 1999, Tina Gehres made three withdrawals by automatic funds transfers which totaled $354,500.00, the same amount that she had deposited to the account. Bagsby is suing Gehres for the "return" of this money based upon the legal theory of conversion. (Third Am. Compl., Dkt. 182 at 15-16.) He also claims that Defendant Gehres wrongfully converted the $83,000 which he wired to her personal account because she used it to pay off her debts instead of using it for "a down-payment on [a] residence, the purchase of [a] computer, facsimile and scanner, and to allow her to begin working part-time." ( Id. at 7.)
In Plaintiff Bagsby's response to Defendant Gehres's motion for summary judgment, he asserts that the divorce decree dispositively establishes his conversion claims. The divorce was final in April of 1999. It is undisputed that shortly after that time, Plaintiff and Defendant rekindled their relationship and began to consider the possibility of a future together. In June 1999, Plaintiff received approximately $800,000 in legal fees from the settlement of the Kilbury case. There is no allegation that Defendant Gehres asserted a legal right to a portion of these funds based upon the divorce decree. Instead, two months later, as the relationship continued to develop, Plaintiffvoluntarily wire-transferred $83,000 of his funds to Gehres's personal checking account and directed his law firm to draft a check payable to Gehres in the amount of $354,500. Despite these undisputed facts, Plaintiff asserts that "[t]he Kilbury case which is the source of the disputed funds is the separate marital property of Plaintiff because it was pending litigation at the time the divorce decree was entered," and no court "can modify the provisions of the divorce decree." (Pl.'s Br. in Opp., Dkt. 265 at 8.) Defendant Gehres, however, does not assert that she is entitled to the funds pursuant to the divorce decree, and this Court therefore fails to see the legal relevance of the "source" of the funds that Plaintiff chose to transfer to her. Plaintiff's argument misses the crucial point that his own voluntary actions placed the funds in the hands of Defendant Gehres, andnot the action of any court of law or divorce decree.
The Missouri court agreed. When Bagsby brought a motion in the St. Charles County Family Court alleging that Tina Gehres had committed civil contempt by violating the terms of the divorce decree, the court found as follows after conducting a bench trial:
There is no question, then, that, after the entry of the Judgment and Decree of Dissolution of April 28, 1999, the Kilbury fees became the separate property of Husband. . . . Husband is, of course, free to do whatever he wishes with his own property. He can give it away, or he can invest it, as he sees fit. Here, Husband's own testimony is that he transferred his separate property to his ex-wife in contemplation of forming a new law partnership with Wife. . . . [I]t is clear that neither party's claim to the funds is rooted in the Judgment of April 28, 1999. Whatever other remedies may be available to Husband to recover the funds transferred to Wife, civil contempt is not one of them.
(Amended Findings, Recommendations and Judgment on Petitioner's Mot. for Civil Contempt, Circuit Court of St. Charles County, Missouri, Family Court Division, In re: the Marriage of Bagsby Gehres, Case No. CV198-7256DR, June 22, 2000; Dkt. 281 at Ex. 1.)
Defendant Gehres thus moves for summary judgment on the conversion claim, asserting that she acquired legal title when the $83,000.00 was transferred directly to her personal checking account and the $354,500.00 was transferred to her via check because "there were no conditions or restrictions whatsoever on [her] ownership or legal entitlement to these funds." (Def. Gehres's Br. in Supp. of Mot., Dkt. 240 at 11.) During oral argument, counsel for Plaintiff did not comment on the nature of the two transfers from Plaintiff to Defendant Gehres, but rather focused on Gehres's subsequent withdrawals from the Smith Barney joint account. The central question with regard to a conversion claim, however, is whether the defendant committed a "wrongful act." Here, the records clearly show that Defendant Gehres acquired the funds through the transfers from Plaintiff Bagsby. The Court finds that her subsequent withdrawals from the Smith Barney account of the funds she herself deposited are irrelevant to the question of whether she acquired the funds through a wrongful act.
Defendant Gehres points out that the evidence unambiguously shows that the $354,500.00 check did not contain any conditional language. Under California negotiable instruments law, a "check is nothing more than a unconditional promise to pay the payee, upon presentation, the amount specified." Union Rescue Mission v. Richley, No. B153624, 2002 WL 1935226 (Cal.Ct.App. Sept. 23, 2002) (unpublished) (citing CAL. COM. CODE § 3104(a)). Williston's treatise explains that
On the "memo" line of the check are the typewritten words "Kilbury Fees," which Plaintiff Bagsby explains were most likely placed there by his law partner to keep track, for accounting purposes, of the source of Plaintiff's partnership draw, and did not in any way indicate that the firm was compensating Tina Gehres for work she performed on the Kilbury case.
[t]o be a negotiable instrument, an instrument must contain an unconditional promise or order to pay a fixed amount of money. . . .
A promise or order is unconditional unless it either states that there is an express condition to payment, that the promise or order is subject to another writing, or that rights or obligations with respect to the promise or order are stated in another writing.
22 SAMUEL WILLISTON RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 60:5 (4th ed. 1993 Supp. 2004). Furthermore, "if the rules necessary for the creation of a negotiable instrument are observed, the document itself is the contract, embodying fully the agreement of the parties, and not merely evidence of the contract." Id. § 60:1.
Accordingly, the Court finds that Defendant Tina Gehres is entitled to summary judgment on Plaintiff's claim of conversion because the undisputed factual evidence demonstrates that Plaintiff unconditionally transferred the amounts of $83,000.00 and $354,500.00 directly to Defendant Gehres. Plaintiff Bagsby has failed to proffer sufficient evidence that Defendant Gehres obtained the funds by "wrongfully exercis[ing] dominion over the property of another" to require submission of the conversion claim to a jury, and the impartial documentary evidence is so one-sided that one party must prevail as a matter of law.
2. Alternative Analysis Regarding the Smith Barney Withdrawals
Alternatively, with regard to the $354,500.00 withdrawn from the joint account by Defendant Gehres, the Court finds that even if Plaintiff Bagsby had deposited those funds into the joint account instead of Defendant Gehres, under California law, Gehres had the right to withdraw the funds, and, at the moment of withdrawal, ownership of the funds transferred to her by way of gift. In the case of Lee v. Yang, 111 Cal. App. 4th 481, 3 Cal. Rptr. 3d 819 (Cal.Ct.App. 2003), an engaged couple living in San Francisco, California, had a three-part joint bank account at the Bank of America ("B of A") which consisted of an interest bearing checking account, a regular savings account, and an investment certificate of deposit. ( Id. at 485.) The account originally belonged solely to Holden Lee, but prior to his wedding to Janet Yang, he added his fiancé's name to the account. She began having her paychecks deposited directly into the account, and she also made a $60,000 deposit by wire transfer. Several weeks before the wedding was to take place, Janet learned certain facts about Holden's past and the relationship came to an abrupt end. Janet then made three withdrawals from the B of A account which totaled $346,850.50. She first transferred the funds to a new local account and then to an account in Maryland that she held jointly with her parents. ( Id.) Holden filed suit against Janet, alleging conversion, imposition of constructive trust, and money had and received.
The California Court of Appeals first held that the California Multiple-Party Accounts Law ("CAMPAL"), CAL. PROB. CODE § 5100 et seq., applied to the three-part B of A joint account. The court recognized that
The court noted that section 5205 broadly provides that CAMPAL "applies to accounts in existence on July 1, 1990, and accounts thereafter established" and that section 5130 defines "joint account" to mean "an account payable on request to one or more of two or more parties whether or not mention is made of any right of survivorship." CAL. PROB. CODE §§ 5130, 5205. Thus, although the account in Lee was held as joint tenants and the account in the case sub judice was held as tenants in common, that distinction is of no significance under CAMPAL.
CAMPAL provides that "[a]n account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent." (§ 5301, subd. (a).) However, "the provisions [of section 5301 et seq.] concerning beneficial ownership as between parties . . . are relevant only to controversies between these persons and their creditors and other successors, and have no bearing on the power of withdrawal of these persons as determined by the terms of account contracts." (§ 5201, italics added.)Id. at 487 (footnote omitted). The court explained that the "rule of proportional ownership is not relevant to the power of a party to withdraw funds from an account; rather, that issue is determined by the terms of the account in question." Id. at 489. The B of A account agreement provided as follows:
"If more than one person signs below, all accounts are held in joint tenancy with right of survivorship unless you specify another type of ownership under account names below: [¶] . . . [¶] We may pay out funds on any one of the signatures below (unless you specify another number here _______________)."Id. Both Holden and Janet had signed the master agreement, and they had not inserted another type of ownership or made a modification to the number of signatures required. Id. The court therefore found that, under the unambiguous terms of the account agreement, Janet "had a right to withdraw the funds that she did, no questions asked." Id. at 490.
The next issue discussed by the California Court of Appeals was Holden's argument that he had a "right of reimbursement" based upon the fact that he had been the predominant contributor to the B of A account. The court reasoned that although California statutory law provides that "at any point in time the sums on deposit in an account belong to a party in proportion to his or her net contribution," this rule "does not articulate a rule of ownership as to funds withdrawn by a party, irrespective of that party's net contribution," because funds that have been withdrawn are, by definition, not "sums on deposit." Thus, the court held that
ownership of withdrawn funds which exceed the withdrawing party's net contribution passes to that party by way of gift to the extent, but only to the extent, there is no independent legal obligation requiring the party to account for the proceeds. Whether such an obligation exists depends on the objective facts and circumstances of the transaction rather than on the transferor's subjective intent. ( 26 C.F.R. § 25.2511-1(g)(1) and (h) (4).)
A duty to account could arise under various scenarios. For example, the parties could enter into an agreement restricting the lesser contributing party's right to withdraw and/or use and apply funds. As well, CAMPAL authorizes a special power of attorney applicable to CAMPAL account. (See § 5204.) The attorney-in-fact acting under this power is (1) required to maintain records that would permit an accounting of his or her acts if requested by the grantor's legal representative; and (2) liable for disbursements other than those to or for the grantor's benefit, unless made pursuant to the grantor's written authorization. ( Id. at subds. (I), (j).) So, too, a withdrawing party may have fiduciary responsibilities with respect to trust funds deposited in the joint account.Id. at 491-92. The court found that Janet had no "independent legal obligation" which required her to account for the amounts withdrawn, and therefore the funds passed to her by way of gift.
Finally, the court addressed the "gift" issue, noting that the lower court had made a factual finding that Holden did not make a gift to Janet of the funds in the B of A account. The appeals court clarified that the type of "gift" which occurs in a case such as this is of a different nature than the usual "gift":
We are mindful that the trial court concluded that Holden did not make a gift to Janet of funds in the B of A account. However, the court was operating under ordinary notions of gifting and gifting in contemplation of marriage, which require subjective donative intent. . . . In contrast, under the gift tax concept, the party making the greater net contribution to an account need not subjectively intend to make a gift of funds whenever the other account holder withdraws funds. Rather, it is the nature of the transaction that is determinative — namely, the withdrawal of funds under the terms of a joint account by one possessing a present right of withdrawal, coupled with the absence of an agreement between the parties or other legal obligation restricting a party's right to withdraw or use the funds or otherwise account for the proceeds.Id. at 493.
Applying this analysis to the instant case, even if Plaintiff Bagsby did not subjectively intend to make a "gift" of the withdrawn funds from the joint account to Defendant Gehres, Defendant is entitled to summary judgment on the claim of conversion if (1) she had a right of withdrawal under the terms of the joint account and (2) the evidence fails to present a sufficient disagreement on the question of whether Defendant Gehres was under a separate legal obligation which restricted her right to withdraw or use the funds to require submission of the case to a jury.
a. Right of Withdrawal
The Smith Barney Joint Account Agreement signed by both Plaintiff Bagsby and Defendant Gehres on August 17, 1999, provided that
[a]ny of us has full power and authority to make purchases and sales, including short sales, to withdraw monies and securities from, or to do anything else with reference to our account, either individually or in our joint name, and you and your successors are authorized and directed to act upon instructs received from any of us and to accept payment and securities from any of us for the credit of this account.
(Joint Account Agreement, Dkt. 240 at Ex. 10, emphasis added.) Plaintiff Bagsby points not to this agreement, however, but rather to the Account Application and Client Agreement which was completed by Defendant Gehres. (Also attached at Ex. 10 to Dkt. 240.) This form is divided into several sections where the applicants select from many service options which are available with a Salomon Smith Barney Financial Management Account (FMA). The four sections of the form set out in bold headings include: FMA Checking; FMA Sweep; FMA Card; and FMA Online Services. Plaintiff Bagsby points to the FMA Checking section, which states: "Multiple Owner Accounts: Please tell us if one or two signatures are required to authorize checks," and the box marked "Two signatures are always required" is clearly checked.
Plaintiff argues that this checkmark converts the account into a "restricted account" from which funds could only be withdrawn with the express consent of both joint owners. However, Plaintiff's assertion overlooks the other sections of the form. In both the FMA Card and FMA Online Services sections, the Client Agreement provides for other methods of withdrawal that are accessible by only one of the account owners. The FMA Card section explains that an FMA Card is a Gold MasterCard that acts as a "debit card" and "gives you easy access to cash at over 315,000 ATM machines and purchasing power at over 13 million locations." The boxes are checked which instruct Smith Barney to send two FMA Cards, one to Tina Gehres and one to Larry Bagsby. Furthermore, under the FMA Online Services section, the box is checked which instructs the financial institution to "[p]lease enroll my FMA in . . . Online Account Access." These sections of the form clearly allow withdrawals from the account by either of the account owners, because, as counsel for the Gehres Family Defendants stated at oral argument, there is no such thing as a "two-person ATM withdrawal" or a "two-person online transfer."
There is no dispute in this case that Defendant Gehres did not withdraw any funds by using an account check. Rather, the withdrawals were effected through internet transfers. These withdrawals were clearly allowed pursuant to the terms of the account, and therefore the Court finds that Defendant Gehres had a right of withdrawal under the unambiguous terms of the joint account. To the extent that Plaintiff Bagsby contends that the "two signatures required" language under the FMA Checking section served to "restrict" a joint owner's withdrawal of funds through other methods, the argument fails under the clear terms of the controlling document.
b. Agreement or Other Legal Obligation Restricting Gehres's Right to Withdraw or Use the Funds
The remaining question is whether the evidence presents a sufficient disagreement on the question of whether Defendant Gehres was under a legal obligation, separate from the account documents, which restricted her right to withdraw or use the funds, to require submission of the case to a jury. In Lee v. Yang, supra, the California court held a bench trial on the issue and after "[c]utting through the evasive, self-serving testimony . . ., the court concentrated on the documentary evidence" and found that "Holden failed to establish that there was a different, enforceable agreement restricting Janet's right to withdraw funds from the accounts or rebutting the presumption of equal ownership." Lee, 111 Cal. App. 4th at 484, 486. The appeals court upheld the trial court's ruling, noting that it was supported by substantial evidence.
In this case, Plaintiff has pointed to no record evidence of an agreement that created a legal obligation separate from the account documents which restricted Defendant Gehres's right to withdraw or use the funds. Plaintiff Bagsby's response to the motion for summary judgment argues that the provisions of the divorce decree vested "all future possession of the Kilbury fee's [sic] with Plaintiff unless a written modification exists." (Br. in Opp. to Summ. Judg., Dkt. 265 at 5-7; 16-18). As discussed, however, the Court finds this argument unavailing as the funds were voluntarily transferred to Defendant Gehres long after the divorce was final, and Gehres has never argued that the divorce decree gives her a legal right to the funds.
Plaintiff also points to past court proceedings where Defendant Gehres has expressly stated that she is not claiming entitlement to the funds on the basis of a "gift" theory, and therefore he argues that she has waived such a claim to the funds. ( Id. at 7-8). As explained in Lee, however, under California law, legal title to funds withdrawn by a joint account owner passes to the person making the withdrawal regardless of whether the other account owner had a subjective intent to make a gift. Lee, 111 Cal. App. 4th at 493. Therefore, the Court finds that Defendant Gehres's prior statements regarding "ordinary notions of gifting" do not preclude a finding for Defendant pursuant to Lee.
In Plaintiff's response, the only reference to an agreement is found in his statement of facts where he alleges that "Plaintiff and Defendant Tina Gehres agreed to begin a law practice which would be in the States of California, Missouri and Colorado" and that they "further agreed to purchase a residence, with a down payment of $80,000." (Pl.'s Br., Dkt. 256 at 9-10.) As support for these assertions, he cites Defendant Gehres's own affidavit and exhibits which she submitted in support of her motion for summary judgment. These documents demonstrate nothing more than that Plaintiff and Defendant were planning a future together, and, considering them in the light most favorable to Plaintiff, the Court finds that there is nothing contained therein from which a jury could find that Defendant Gehres was under a legal obligation which restricted her right to withdraw or use the money in their joint account.
In her affidavit, Defendant Gehres states that "Plaintiff and I agreed that I would start working part-time at my employment, rather than full-time so that I could devote time to: first, locating a home to purchase; spend more time with my children; and explore our options for practicing law in California." (Dkt. 240, Ex. 3 ¶ 8.) The exhibit Plaintiff refers to consists of five pages Defendant Gehres prepared and faxed to Plaintiff in July 1999 when they were planning their future together which projected that, from the Kilbury money, they would net $680,054 which could be used to: pay off $78,300 of Plaintiff's debt; pay off $78,500 of Defendant Gehres's debt; purchase a home ("$80k down/$5k closing/$5k other including lease buy-out"); fund investments ($250,000); and provide for 18 months of living expenses ($183,254). (Dkt. 240 at Ex. 5.)
Setting aside the searing animosity between the parties and focusing on the documents they actually executed, the Court's task is to determine "`whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Booker v. Brown Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir. 1989) (quoting Anderson, 477 U.S. at 251-52). Considering the evidence under the framework of Lee, the Court finds that Defendant Gehres is entitled to summary judgment on Plaintiff's conversion claim because, even if Plaintiff had deposited all of the money in the Smith Barney account, Defendant Gehres nevertheless had a right to withdraw funds under the terms of the account agreement, and Plaintiff has presented no evidence that such right was restricted by any separate legal obligation.
IV. Plaintiff's Motion for Leave to File Fourth Amended Complaint Supersede the Previous Fourth Amended Complaint
Plaintiff seeks leave to file a Fourth Amended Complaint, arguing that in light of the Missouri Court of Appeals' finding that he improperly split his cause of action, he is now obligated to combine all of his claims in this action. Thus, the proposed Fourth Amended Complaint contains 15 counts: declaratory relief (Defendant Tina Gehres); defalcation/breach of fiduciary duty (same); detrimental reliance/promissory estoppel (same); breach of oral and written contracts (same); restitution (Gehres and Hale Defendants); unjust enrichment (same); conversion (all Defendants except Magnevu); civil conspiracy (Gehres and Hale Defendants); fraud (all Defendants except Schnelz); money had and received (Gehres and Hale Defendants); violation of Uniform Fraudulent Conveyances Act (same); constructive trust (same); accounting (same); negligent misrepresentation (Magnevu); and quantum meruit (same). The proposed complaint also includes the Schnelz law firm as a defendant, despite the fact that the firm was already granted summary judgment and dismissed from the case. (Dkt. 225.) All Defendants have responded in opposition to the motion. (Dkts. 253, 257, 259.)
Rule 15 of the Federal Rules of Civil Procedure governs amendments of pleadings. When a party wishes to amend a pleading after the opposing party's responsive pleading has been served, it may only do so by leave of court or by written consent of the adverse party. FED. R. CIV. P. 15(a). When a motion for leave to amend is before the court, Rule 15(a) provides that "leave shall be freely given when justice so requires." Id. "Although Rule 15(a) indicates that leave to amend shall be freely granted, a party must act with due diligence if it intends to take advantage of the Rule's liberality," United States v. Midwest Suspension Brake, 49 F.3d 1197, 1202 (6th Cir. 1995), because, despite the Rule's liberality, leave to amend "is by no means automatic." Little v. Liquid Air Corp., 952 F.2d 841, 845-46 (5th Cir. 1992). The decision to grant or deny a motion to amend pleadings is left to the sound discretion of the district court. Robinson v. Michigan Consol. Gas Co., Inc., 918 F.2d 579, 591 (6th Cir. 1990).
When determining whether to grant leave to amend, the court is to consider several factors:
Undue delay in filing, lack of notice to the opposing party, bad faith by the moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of amendment are all factors which may affect the decision. Delay by itself is not sufficient reason to deny a motion to amend. Notice and substantial prejudice to the opposing party are critical factors in determining whether an amendment should be granted.Head v. Jellico Housing Authority, 870 F.2d 1117, 1123 (6th Cir. 1989) (quoting Hageman v. Signal L.P. Gas, Inc., 486 F.2d 479, 484 (6th Cir. 1973)). In addition to these factors, courts must also take into account whether the moving party is seeking to add claims or to add parties, because amendments seeking to add claims are generally granted more freely than amendments adding parties. Union Pac. R.R. Co. v. Nevada Power Co., 950 F.2d 1429, 1432 (9th Cir. 1991).
In this case, Defendants argue that Plaintiff's requested amendments are futile. Futility of amendment may be found if defendants can show that the proposed amendments are incapable of surviving a motion to dismiss. Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000) ("A proposed amendment is futile if the amendment could not withstand a Rule 12(b)(6) motion to dismiss"); Hahn v. Star Bank, 190 F.3d 708, 715-16 (6th Cir. 1999) (affirming district court's denial of motion to amend on futility grounds where none of the proposed amendments would be able to withstand a motion to dismiss); Sinay v. Lamson Sessions Co., 948 F.2d 1037, 1041 (6th Cir. 1991). Motions to dismiss are governed by Rule 12(b)(6) of the Federal Rules of Civil Procedure. "The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true." Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993).
As discussed above, all of the counts and defendants Plaintiff seeks to add are derivative of the conversion count brought against Defendant Tina Gehres. In light of the Court's finding above that Defendant Gehres is entitled to summary judgment on the conversion count, the Court accordingly finds that the amendments are futile and, therefore, Plaintiff's motion for leave to file a Fourth Amended Complaint will be denied.
V. Plaintiff's Renewed Motion for Summary Judgment on the Seventh and Eighth Counterclaims
In this motion, Plaintiff seeks judgment in his favor on the seventh and eighth counterclaims brought by Defendant Tina Gehres and the Gehres Family Defendants. These counterclaims allege statutory slander of title and slander of title at common law respectively. They arise out of the earlier-described lis pendens issued by Judge Keep that encumbered parcels of property owned by these defendants. Plaintiff argues first that California law applies, and that under California law, a party who obtained a lis pendens during the course of litigation is absolutely immune from slander of title liability. The Gehres Family Defendants have responded in opposition to the summary judgment motion. (Dks. 253 255.) Defendant Tina Gehres argues that Plaintiff's lis pendens filings were abusive and "should be severely sanctioned," citing Hunting World, Inc. v. Superior Court of the City and County of San Francisco, 22 Cal. App. 4th 67, 68, 26 Cal. Rptr. 2d 93 (1994), as well as the California Code of Civil Procedure. The Gehres Family Defendants first take issue with Plaintiff's choice of law analysis, arguing that since the property encumbered by the lis pendens is in Michigan, Michigan law controls. On the immunity issue, all Defendants argue that Michigan law recognizes no immunity in the filing of lis pendens, and they point to subsequent changes in California law which have abrogated the concept of absolute immunity in lis pendens proceedings.
The Court finds that Plaintiff's assertions fail, and that any choice of law determination serves no purpose since there is, under the circumstances here presented, no immunity for the filing of lis pendens under either California or Michigan law. As to California law, Plaintiff's counsel's arguments entirely overlook amendments to the California Civil Code enacted 26 years after the primary case upon which he relies, Albertson v. Raboff, 295 P.2d 405 (Cal. 1956). As Defendants correctly point out, the California Civil Code now explicitly states:
A privileged publication or broadcast is one made:
. . . .
(b) In any . . . judicial proceeding, . . ., except as follows:
. . . .
(4) A recorded lis pendens is not a privileged publication unless it identified an action previously filed with a court of competent jurisdiction which affects the title or right of possession of real property, as authorized or required by law.
CAL. CIV. CODE § 47(b)(4) (West 2002) (emphasis added).
Plaintiff counsel's failure to cite this statutory provision, which is explicitly on point, could independently give rise to sanctions under Rule 11(b)(2) of the Federal Rules of Civil Procedure. However, the Court will not further complicate this labyrinth by transmographying it into sanctions litigation.
Plaintiff's assertions concerning the propriety and application of immunity doctrines to the lis pendens filed in this case are belied by the very wording of the lis pendens themselves. The final paragraph of each notice of lis pendens states: "Among other things, the object of Plaintiff's complaint is for recovery of damages resulting from Breach of Contract, Breach of Fiduciary Duty, conversion. . . ." (Dkt. 192, Exs. 5-8.) While there are multiple causes of action at issue here, none of them deal with the title to the parcels described in any of the lis pendens issued by Judge Keep. As a result, under the California Civil Code provision cited above, immunity cannot attach.
The same result obtains under Michigan law. All defendants correctly point out that this exact issue was considered and decided in the context of Michigan law in Patten Corp. v. Canadian Lakes Development Corp., 788 F. Supp. 975 (W.D. Mich. 1991). In that case, Chief Judge Gibson, in affirming the findings of a magistrate judge, concluded: "There is no statutory authority given plaintiff to file a notice of lis pendens in an action which does not affect land." Id. at 978. In a footnote, Judge Gibson went on to explain this holding:
The notice was collateral to the present action. It merely served to give constructive notice of the lawsuit to prospective purchasers. As such, it was similar to a lien on real property. It is well settled in Michigan that the filing of a lien is not entitled to absolute immunity from a slander of title action. See Michigan Nat. Bank-Oakland v. Wheeling, 165 Mich. App. 738, 745, 419 N.W.2d 746 (1988).Id. at 978 n. 4. A similar result obtains in the instant case. The notice of lis pendens obtained by Judge Keep did nothing more than "give constructive notice of the lawsuit to prospective purchasers" of the parcels. Plaintiff's filings therefore, as in Patten, are not entitled to absolute immunity from a slander of title action under Michigan law.
The ultimate findings in Patten apply equally to the instant case:
The Court finds as a matter of law that the filing of the notice of lis pendens was improper and amounts to a "false statement" by plaintiff. As such, it is not entitled to absolute immunity in a slander of title action. Questions of fact remain as to whether the notice was filed maliciously and whether and to what extent defendant was injured by the notice of lis pendens.Id. at 979. Accordingly, Plaintiff's Renewed Motion for Summary Judgment on the Seventh and Eighth Counterclaims will be denied.
VI. The Gehres Family Defendants' Motion to Cancel Notices of Lis Pendens
The Gehres Family Defendants have moved for an order cancelling the previously-issued notices of lis pendens, arguing that under Michigan Law, Plaintiff is precluded from obtaining lis pendens because none of the allegations of any of Plaintiff's complaints "affect" property located in Michigan. In the alternative, these defendants argue that the notices of lis pendens have lapsed, which independently justifies their cancellation.
In response, Plaintiff argues that equity principles compel the Court to preserve the assets which Plaintiff believe to be part of a "collaborative effort to conceal funds stolen from the State of California," which Plaintiff alleges have been secreted "in real property owned" by these defendants. (Pl.'s Reply, Dkt. 263 at 6.) As to Defendants' alternative argument, Plaintiff concedes that the lis pendens have lapsed, but "despite having lapsed in their three (3) year time limitation, [they] continued to prohibit [the defendants] from transferring or encumbering their real estate." (Def.'s Resp., Dkt. 263 at 8.) Significantly, Plaintiff goes on to argue that the lis pendens "continue to serve the purpose which Plaintiff desires — preserving the assets until the remaining $65,000.00 of the stolen funds are located." ( Id.)
Plaintiff's arguments again fail. The application of equity principles to preserve assets for a potential judgment is entirely inappropriate where the basis of that judgment fails to exist in the first place. For the reasons set forth earlier, since Plaintiff's conversion claim, upon which all his other claims rest, fails on its merits, there is no basis upon which to take action to preserve assets. The Court further concludes that Defendants' argument that lis pendens are improper in this case carries the day for the reasons set forth earlier with regard to Plaintiff's motion for summary judgment on the seventh and eighth counterclaims. Moreover, as pointed out in that analysis, Plaintiff's assertions concerning his motivations behind the lis pendens filed in this case are belied by the very language of the lis pendens themselves. Plaintiff, maybe unwittingly, strikes to the very heart of the issue when he concedes that the lis pendens, although lapsed, "continue to serve the purpose which Plaintiff desires — preserving the assets[.]" (Pl.'s Resp., Dkt. 263 at 8.) This admission alone serves as more than sufficient basis for the cancellation of the lis pendens. Moreover, the lapse of the lis pendens, a fact conceded by Plaintiff, serves as a separate and independent basis justifying this Court in taking those actions necessary to cancel them with finality.
Accordingly, the Motion to Cancel Lis Pendens will be granted.
VII. The Gehres Family Defendants' Motion for Summary Judgment
Counsel for these defendants argues that summary judgment is compelled by the analysis found in a Report and Recommendation filed in this case on September 9, 2003, (Dkt. 219), which was subsequently adopted by Judge Lawson. (Dkt. 225.) Defendants argue that the prior ruling found that the funds in the Smith Barney account were held by Plaintiff Bagsby and Defendant Tina Gehres as tenants-in-common, with each having an equal right of possession to the funds, and that that holding should similarly control as to the defendants alleged by Plaintiff to have been the direct recipients of the funds; namely, the Gehres Family Defendants. Plaintiff Bagsby opposes this motion, reiterating the arguments previously made in opposition to Defendant Tina Gehres's motion for summary judgment.
The Court concludes that the arguments presented by Defendants prevail and further concludes that the analysis set forth supra in consideration of Defendant Tina Gehres's motion for summary judgment provides further basis for the conclusion that no liability can attach to these Defendants resulting from the transactions between Plaintiff Bagsby and Defendant Tina Gehres. For the reasons set forth above, Plaintiff's arguments to the contrary are without merit. Accordingly, the motion for summary judgment filed by the Gehres Family Defendants will be granted.
VIII. Defendant Magnevu's Motion for Summary Judgment
Plaintiff's Third Amended Complaint states that Defendant Magnevu is a corporation registered and doing business in the State of California and that Defendant Tina Gehres "was at all times herein an agent and employee of Defendant Magnevu." (Third Am. Compl., Dkt. 182 ¶ 9.) The complaint asserts a single claim against Defendant Magnevu, that of negligent misrepresentation. ( Id., Count III, ¶¶ 105-109.) The claim rests on the allegation that Defendant Gehres, acting as an agent of Defendant Magnevu, performed legal services for Plaintiff Bagsby regarding the Kilbury case "at Magnevu during normal business hours," and did not inform Plaintiff that she would seek compensation from him for these legal services. He claims that he relied upon his belief that she would never seek payment for this legal work, and that he was damaged in the amount of $450,000.00 when she subsequently stated in response to the lawsuits he filed against her that one theory of her defense was that she was entitled to compensation for her work on the Kilbury case. Plaintiff alleges that, under these facts, he is entitled to a judgment against Magnevu in the amount of $450,913.86. ( Id. ¶ 109.)
Defendant Magnevu moves for summary judgment on this claim, asserting that Plaintiff "childishly and recklessly, if not maliciously, sued everyone with whom Gehres had a professional relationship, including her former attorneys and employer," regardless of whether the claims had any basis in fact or law. (Dkt. 243 at 9.) As did the Gehres Family Defendants, Defendant Magnevu cites the earlier Report and Recommendation adopted by Judge Lawson as support for its argument that it cannot be held liable for any of the funds said to have been "converted" by Defendant Tina Gehres since there was, in fact, no conversion, and since there has never even been an allegation that any of the disputed funds were transferred to Magnevu.
The Court agrees with Defendant Magnevu that the claim of negligent misrepresentation is not supported by the facts or by law. Accordingly, Magnevu's motion for summary judgment will also be granted.
IX. Order
Accordingly, for the reasons set forth above, IT IS ORDERED THAT:
Defendant Tina Gehres's Motion for Summary Judgment on All Counts (Dkt. 240) is GRANTED.
Plaintiff's Motion to File Fourth Amended Complaint and Supersede the Previous Fourth Amended Complaint (Dkt. 251) is DENIED.
Plaintiff's Renewed Motion for Summary Judgment on the Seventh and Eighth Counterclaims (Dkt. 192) is DENIED.
The Gehres Family Defendants' Motion to Cancel Lis Pendens (Dkt. 245) is GRANTED.
The Gehres Family Defendants' Motion for Summary Judgment (Dkt. 258) is GRANTED.
Defendant Magnevu's Motion for Summary Judgment (Dkt. 243) is GRANTED.
X. Review
Review of this Order is governed by 28 U.S.C. § 636(c)(3) and Rule 73(c) of the Federal Rules of Civil Procedure.
IT IS SO ORDERED.