Gulf Coast Visuals Management Company LLC v. Wedelstedt et al

Filing 44

MEMORANDUM OPINION AND ORDER- The motion to strike the amended complaint is GRANTED without prejudice to the right of the pltf to file a proper Rule 15(a) motion for leave to amend the complaint; If pltf elects to file a motion for leave to amend, th e motion, with the proposed amended complaint attached as an exhibit, is due by March 26, 2018; The defts response is due by April 6, 2018; The alternative motion to dismiss is DENIED as MOOT; The defts' motion to stay deadlines (Doc 31 ) is DENIED as MOOT. Signed by Magistrate Judge T Michael Putnam on 3/9/18. (MRR, )

FILED
2018 Mar-09 PM 04:44
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
GULF COAST VISUALS
MANAGEMENT COMPANY, LLC,
Plaintiff,
vs.
EDWARD J. WEDELSTEDT,
individually; EDWARD J.
WEDELSTEDT, as Personal
Representative of THE ESTATE OF
LYNDA ENTRATTER, deceased;
SOUTHERN STAR, LLC,
Defendants.

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Case No. 2:17-cv-121-TMP

MEMORANDUM OPINION and ORDER
This action is before the court on the motion (doc. 19) filed by the
defendants on August 14, 2017, seeking either to strike or dismiss the amended
complaint (doc. 16) filed by the plaintiff on July 31, 2017. Defendants also have
filed a motion to stay the scheduled deadlines in the case (doc. 31). 1
On the same day, January 23, 2017, this action was removed to this court by
the defendants and they filed their answer to the complaint originally filed in state
court. The original complaint, filed in the Circuit Court of Jefferson County,

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A motion for summary judgment filed by the plaintiff is not discussed in this Memorandum
Opinion.

Alabama, on December 22, 2016, alleged that a dispute existed between the
plaintiff and one or more of the defendants as to the purported ownership of a
parcel of real property located in Jefferson County, Alabama. Alleging that it had
a contract to purchase the disputed real estate, toward which it was paying
$1,500.00 per month to consummate the purchase, plaintiff Gulf Coast Visuals
Management Company, LLC (“Gulf Coast Visuals”) pleaded claims for equitable
relief in the form of quiet title, specific performance, and an equitable lien against
the real property. (Doc. 1-1). Several months after the removal and filing of the
answer by the defendants, the plaintiff filed, without prior leave of court, an
amended complaint greatly expanding the nature of the controversy and the claims
being alleged. It is this amended complaint that the defendants move to strike or
dismiss.
In the amended complaint, the plaintiff alleges not just a contract to purchase
real property in Jefferson County, Alabama, but a separate and much broader
contract to purchase the stock in several companies owned purportedly by the
Estate of Lynda Entratter (“the Estate”). Defendant Wedelstedt is the personal
representative of the Estate, which was formed in Georgia, where the decedent
lived prior to her death. The plaintiff alleges that in 2010, it entered into a series of
contracts with the Estate to manage several businesses owned by the Estate under a
“Management Contract.” At the same time, the plaintiff and the Estate (through
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Wedelstedt) entered into a separate “Purchase Contract” that gave Gulf Coast
Visuals the option to purchase the stock of several companies owned by the Estate.
On May 2, 2011, the plaintiff exercised its option, and on October 7, 2011, the sale
of stock was closed. 2 At the closing, Gulf Coast executed a promissory note in the
amount of $1,593,662.72, calling for monthly payments of $20,000. The note was
secured by a pledge of stock in various companies owned by Gulf Coast Visuals.
Filed on July 31, 2017, the amended complaint goes on to allege:

11. Contemporaneously with the Stock Sale, Wedelstedt agreed to sell
the Birmingham store (as alleged by Gulf Coast in this action), in a
transaction calling for payments of $1,500 per month under the real
estate note at issue in the Alabama Suit. The amortization schedule
for the Real Estate Sale ends at the same time as amortization
schedule for the Stock Sale. Gulf Coast has made all the $1,500
payments.
12. Thus, each month, Gulf Coast pays the Estate (the checks are sent
to Mr. Wedelstedt) Payments of $21,500 per month.

(Doc. 16). Paragraph b. of the opening section of the amended complaint further
states that the sale of the real estate was “secured by payment by Gulf Coast of

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Although not clear, it appears that the negotiation and execution of the Management and stock
Purchase Agreements, as well as the closing of the sale of the stock, occurred somewhere other
than in Alabama, possibly in Michigan. In any event, the Estate appears to be in Georgia,
Wedelstedt is identified as a resident of Colorado, and the plaintiff is a Georgia limited liability
company. Only Southern Star LLC is said to be an Alabama limited liability company and at
least at one time the owner of the Alabama real estate that is the subject of the action as
originally filed.
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$1,500 per month pursuant to an unsigned promissory note made by Gulf Coast
(“RE Note”).” (Doc. 16, at 2) (italics added).
Gulf Coast Visuals alleges that it has made all payments due so far under
both promissory notes, totaling $21,500 per month, but it also alleges that it is
concerned that, in fact, the Estate does not own the stock it purported to sell to the
plaintiff. Due to that concern, on June 27, 2017, counsel for the plaintiff delivered
a letter to counsel for the defendants demanding certain specified assurances that
the Estate owns the stock that is the subject of the Purchase Agreement and that it
is capable of conveying the stock to Gulf Coast Visuals free of any liens or
encumbrances. Finally, the amended complaint alleges that when the defendants
failed to provide reasonably satisfactory assurances, the amended complaint was
filed to assert claims and causes of action arising out of the stock sale, not just the
sale of the Alabama real estate.
The amended complaint greatly expanded the scope of this action by adding
eleven new claims, as follows:

Count IV—Declaratory Judgment that the plaintiff is entitled to
reasonable assurances of the Estates ability to comply with the stock
Purchase Agreement;
Count V—Breach of Contract of the Purchase Agreement;
Count VI—Suppression of materials facts to induce plaintiff to enter
into the Purchase and Management Agreements;
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Count VII—Fraud and Fraudulent Suppression relating to required
disclosures under the Purchase Agreement;
Count VIII—Securities Fraud in that the defendants made material
misstatements and omissions relating to the sale of stock to the
plaintiff in violation of state and federal law;
Count IX—Civil Theft and Conversion in that the moneys paid by
the plaintiff for the purchase of the stock has been diverted to
Wedelstedt and that a conspirator with Wedelstedt has converted
money and assets from the plaintiff while employed by the plaintiff;
Count X—Fraudulent Transfer in that Wedelstedt has used moneys
paid to the Estate for purchase of the stock for the benefit of other
entities in order to avoid the IRS and others;
Count XI—Misappropriation of Funds in that the defendants have
taken the plaintiff’s money while refusing to honor the stock Purchase
Agreement;
Count XII—Civil Conspiracy that defendants conspired among
themselves and with other to defraud the plaintiff;
Count XIII--Wrongful appropriation of corporate opportunity,
constructive trust and accounting in that the defendants, together
with a conspirator (Olsafsky), have diverted plaintiff’s assets and
taken money without the intent to deliver the stock covered by the
Purchase Agreement; and
Count XIV—Conspiracy to misappropriate assets of corporation,
and for accounting and appointment of receiver in that the
defendants, together with a conspirator (Olsafsky), have diverted
plaintiff’s assets to its detriment.

The defendants filed their current motion to strike the amended complaint
or, alternatively, to dismiss it on August 14, 2017. Plaintiff filed its opposition to

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the motion on August 28 (Doc. 21), and the court heard oral arguments on
February 6, 2018.
I. Motion to Strike
The defendants argue that the amended complaint is due to be stricken
because it failed to comply with Rule 15 of the Federal Rules of Civil Procedure
and because it contains immaterial, impertinent, and scandalous allegations,
making it subject to the provisions of Rule 12(f). Plaintiff admits that it filed the
amended complaint without first seeking leave to do so, but argues that the court’s
Rule 16(b) scheduling order granted implicit leave to amend until the July 31
deadline stated in the scheduling order. Alternatively, the plaintiff contends that
the court may still treat the amended complaint as containing an implied motion for
leave and the court should address whether to allow the amendment under the
liberal standards of Rule 15(a). Finally, the plaintiff denies that the allegations of
the amended complaint are “immaterial, impertinent, and scandalous,” but instead
go to the heart of their claim of fraud and anticipatory breach of the stock Purchase
Agreement.
a. Rule 15(a) and Seeking Leave to Amend
Rule 15(a) of the Federal Rules of Civil Procedure establishes the procedure
through which pleadings in federal court may be amended. It states in part:

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(a) AMENDMENTS BEFORE TRIAL.
(1) Amending as a Matter of Course. A party may amend its
pleading once as a matter of course within:
(A) 21 days after serving it, or
(B) if the pleading is one to which a responsive pleading is
required, 21 days after service of a responsive pleading or 21
days after service of a motion under Rule 12(b), (e), or (f),
whichever is earlier.
(2) Other Amendments. In all other cases, a party may amend its
pleading only with the opposing party's written consent or the court's
leave. The court should freely give leave when justice so requires.

Plaintiff does not dispute that its amended complaint does not fit either
Rule 15(a)(1)(A) or (B). The amended complaint was filed well more than 21 days
after service of the original complaint and, indeed, after the defendants filed their
responsive answer. The amendment to the complaint is allowable, therefore, only
under Rule 15(a)(2). Because there is no indication that the defendants have
consented to the amendment, leave of court is necessary.
The deadline for amending pleadings provided in the court’s Rule 16(b)
scheduling order does not dispense with the need to seek leave to amend.
Although a deadline for amending pleadings in the scheduling order establishes an
outside limit for seeking leave to amend without a showing of good cause,
amendments sought within the deadline still must meet the requirements of
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Rule 15(a).3 The court of appeals consistently points to the language of Rule
15(a), even when a scheduling order has established a deadline for amendments.
For example, the court has written:

District courts are required to enter a scheduling order that limits the
time to join other parties and to amend the pleadings. Fed.R.Civ.P.
16(b). When a party’s motion to amend is filed after the scheduling
order’s deadline for such motions, the party must show good cause for
why leave to amend should be granted. See Sosa, 133 F.3d at 1419.
A district court may deny a motion to amend on “numerous grounds,
such as undue delay, undue prejudice to the defendants, and futility of
the amendment.” Maynard v. Bd. of Regents of the Div. of Univs. of
the Fla. Dep't of Educ., 342 F.3d 1281, 1287 (11th Cir.2003) (citation
and quotations omitted).

Kendall v. Thaxton Road. LLC, 443 F. App'x 388, 393 (11th Cir. 2011) (internal
emphasis added). Thus, the entry of a scheduling order setting an outside deadline

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See the Eleventh Circuit’s discussion in Sosa v. Airprint Sys., Inc., 133 F.3d 1417 (11th Cir.
1998), concerning the different standards applicable to amendments offered before and after the
expiration of deadlines to amend in a scheduling order. “If Sosa’s motion for leave to amend had
been filed within the time prescribed by the scheduling order, Rule 15(a) would be our primary
focus, as well. However, because Sosa’s motion to amend was filed after the scheduling order’s
deadline, she must first demonstrate good cause under Rule 16(b) before we will consider
whether amendment is proper under Rule 15(a).” Id. at 1419. It is clear, however, that under
either scenario, a motion for leave to amend under Rule 15(a) is required to amend the
complaint. See also Smith v. Sch. Bd. of Orange Cty., 487 F.3d 1361, 1366 (11th Cir. 2007)
(“Pursuant to Fed.R.Civ.P. 15(a), a party seeking to amend its complaint… after a responsive
pleading has been filed, may amend the complaint ‘only by leave of court or by written consent
of the adverse party; and leave shall be freely given when justice so requires.’ Fed.R.Civ.P.
15(a). However, where a party’s motion to amend is filed after the deadline for such motions, as
delineated in the court’s scheduling order, the party must show good cause why leave to amend
the complaint should be granted.”);

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for the filing of motions for leave to amend the pleadings does not provide
authority for an amendment. A motion for leave to amend pursuant to Rule 15(a)
must still be filed.
Although a motion for leave to amend should be freely granted when justice
requires, Fed.R.Civ.P. 15(a), there are many reasons for refusing a motion for
leave to amend. “‘Although “[l]eave to amend shall be freely given when justice
so requires,” a motion to amend may be denied on “numerous grounds” such as
“undue delay, undue prejudice to the defendants, and futility of the amendment.”’
Brewer–Giorgio v. Producers Video, Inc., 216 F.3d 1281, 1284 (11th Cir. 2000)
(quoting Abramson v. Gonzalez, 949 F.2d 1567, 1581 (11th Cir.1992)).” Maynard
v. Bd. of Regents of Div. of Universities of Fla. Dep't of Educ. ex rel. Univ. of S.
Fla., 342 F.3d 1281, 1287 (11th Cir. 2003). The reason for requiring the filing of a
motion for leave to amend a complaint is to enable the court to review whether
allowing the amendment will disturb the subject-matter jurisdiction of the court or
otherwise create undue delay, undue prejudice, or simply be futile because the
amendment fails to state a claim.
b. Effect of Failing to Seek Leave to Amend
Given that the plaintiff did not seek leave to file the amended complaint, it is
without legal effect and may be stricken. Quoting Wright and Miller, 6 FEDERAL

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PRACTICE & PROCEDURE, the Eleventh Circuit has explained that unauthorized
amendments are nullities, with no legal effect. The court wrote:
Given the district court’s apparent view that [the plaintiff’s] delay in
asserting the additional claims was without excuse, its resolution of
this issue was consistent with general principles applicable to Rule 15.
As Wright and Miller explain,
In general, if an amendment that cannot be made as of right is
served without obtaining the court's leave or the opposing
party's consent, it is without legal effect and any new matter it
contains will not be considered unless the amendment is
resubmitted for the court's approval. However, some courts
have held that an untimely amended pleading served without
judicial permission may be considered as properly introduced
when leave to amend would have been granted had it been
sought and when it does not appear that any of the parties will
be prejudiced by allowing the change. Permitting an
amendment without formal application to the court under
these circumstances is in keeping with the overall liberal
amendment policy of rule 15(a) and the general desirability of
minimizing needless formalities.
6 FEDERAL PRACTICE & PROCEDURE § 1485 at 421 (1971) (emphasis
added) (footnotes omitted). Here, the district court acted properly in
treating [the plaintiff’s] supplemental pleading as a nullity,
particularly since it was inclined to deny any motion for leave to
amend that [the plaintiff] might have filed.

Hoover v. Blue Cross & Blue Shield of Alabama, 855 F.2d 1538, 1544 (11th Cir.
1988) (footnote omitted and italics in original). Thus, the amendment filed in this
case without leave of court can be treated by the court as a nullity, with no legal
effect or recognition by the court. See also 6 Charles Alan Wright, et al., FEDERAL

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PRACTICE & PROCEDURE, Civ. § 1484 (3d ed. 2015 Westlaw); Sibille v. Davis, No.
3:13-CV-566-WKW, 2016 WL 1171879, at *2 (M.D. Ala. Mar. 25, 2016).
Even so, as the court of appeals pointed out, some courts undertake to assess
whether leave to amend would have been granted had a proper motion for leave
been filed. In this case, the court has serious doubts that a motion for leave to
amend can be granted because doing so might be futile due to lack of personal
jurisdiction over the defendants. The court has concerns whether it can properly
exercise personal jurisdiction over the defendants with respect to the stock
Purchase Agreement claims set out in the amended complaint. That assessment,
however, must await the filing of a motion for leave to file an amendment to the
complaint and the defendants’ response to it.
Personal jurisdiction exists in two forms: specific personal jurisdiction and
general personal jurisdiction. As the Supreme Court has explained:

A court may assert general jurisdiction over foreign (sister-state or
foreign-country) corporations to hear any and all claims against them
when their affiliations with the State are so “continuous and
systematic” as to render them essentially at home in the forum State.
See International Shoe, 326 U.S., at 317, 66 S. Ct. 154. Specific
jurisdiction, on the other hand, depends on an “affiliatio[n] between
the forum and the underlying controversy,” principally, activity or an
occurrence that takes place in the forum State and is therefore subject
to the State’s regulation. von Mehren & Trautman, Jurisdiction to
Adjudicate: A Suggested Analysis, 79 HARV. L. REV. 1121, 1136
(1966) (hereinafter von Mehren & Trautman); see Brilmayer et al., A
General Look at General Jurisdiction, 66 TEXAS L. REV. 721, 782
(1988) (hereinafter Brilmayer). In contrast to general, all-purpose
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jurisdiction, specific jurisdiction is confined to adjudication of “issues
deriving from, or connected with, the very controversy that establishes
jurisdiction.” von Mehren & Trautman 1136.

Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919, 131 S. Ct.
2846, 2851, 180 L. Ed. 2d 796 (U.S. 2011); see Daimler AG v. Bauman, 571 U.S.
117, 134 S. Ct. 746, 751, 187 L. Ed. 2d 624 (2014) (discussing “the distinction
between general or all-purpose jurisdiction, and specific or conduct-linked
jurisdiction”).

General personal jurisdiction arises much less frequently than

specific jurisdiction because it is not anchored to the underlying events or
transactions giving rise of the litigation itself. As the Court put it, “As this Court
has increasingly trained on the ‘relationship among the defendant, the forum, and
the litigation,’ Shaffer [v. Heitner, 433 U.S. 186, 97 S. Ct. 2569, 53 L. Ed. 2d 683
(1977)], 433 U.S., at 204, 97 S. Ct. 2569, i.e., specific jurisdiction, general
jurisdiction has come to occupy a less dominant place in the contemporary
scheme.” Daimler AG v. Bauman, 571 U.S. 117, 134 S. Ct. 746, 758, 187 L. Ed.
2d 624 (2014) (internal footnotes omitted).
The court has little doubt that it can exercise specific personal jurisdiction
over the defendants with respect to the real estate sales contract and promissory
note precisely because the real property at issue is located here.

There is a

“relationship among the defendant[s], the forum, and the litigation” arising from
the disputes over the ownership of real property located in Alabama. In any event,
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as to the original complaint, none of the defendants 4 challenged personal
jurisdiction, thus waiving it. 5 The existence of specific personal jurisdiction (or the
waiver of challenges to it) does not extend jurisdiction to controversies unrelated to
the facts and events underlying the controversy on which specific personal
jurisdiction rests. Specific personal jurisdiction extends only to the events, facts,
and transactions that link the controversy to the forum State.

Controversies

unrelated to the forum nexus are not within the court’s specific personal
jurisdiction.
There is serious doubt whether the court can exercise personal jurisdiction
over the claims sought to be added by the unauthorized amended complaint.
Unlike the claims in the original complaint dealing with title to a piece of Alabama
real property, the amended complaint is concerned entirely with alleged fraud or
breach of a contract for the purchase of corporate stock in corporations not located
in or incorporated in Alabama. It appears that the contract was negotiated and
executed somewhere other than Alabama, among parties who have no connection

4

The defendants in the original complaint were Southern Star LLC, and Wedelstedt,
individually and as personal representative of the Estate of Lynda Entratter. The complaint
alleged that either Southern Star or the Estate claimed ownership of the real property at issue.
Thus, all defendants, except perhaps Wedelstedt individually, had a rational and factual link to
the litigation and the forum.
5

After the original complaint was filed in state circuit court, the defendants removed it to this
court on the basis of diversity subject matter jurisdiction and filed an answer. Failure to preserve
the defense of lack of personal jurisdiction as to the original complaint in either the answer or a
pre-answer Rule 12(b)(2) motion waived the defense as to the original claims in the case.
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to Alabama. The controversy over the sale of corporate stock appears to have no
nexus to Alabama, and for that reason specific personal jurisdiction likely does not
exist over that controversy. It is also unlikely that general personal jurisdiction
exists. As Goodyear and Daimler explained, for general personal jurisdiction to
exist, the defendants must have “affiliations with the State [that] are so ‘continuous
and systematic’ as to render them essentially at home in the forum State.” The
court has doubts that that is true here. It does not appear that any of the proposed
defendants conduct such “continuous and systematic” activities in Alabama as to
render them essentially at home here.
In any event, though, this determination must await the proper filing of a
motion for leave to amend the complaint and any response by the defendants.
Because lack of personal jurisdiction is a waivable defense, the defendants could
elect not to challenge the lack of personal jurisdiction, and even if they do
challenge it, the plaintiff should have a fair opportunity to be heard on the issue.
II. Order
Consistent with these considerations, the motion to strike the amended
complaint is GRANTED without prejudice to the right of the plaintiff to file a
proper Rule 15(a) motion for leave to amend the complaint. If the plaintiff elects
to file a motion for leave to amend, the motion, with the proposed amended
complaint attached as an exhibit, shall be filed by March 26, 2018. In the event a
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motion for leave to file an amended complaint is filed by the plaintiff, the
defendants in this action may file a response to it by April 6, 2018.
The alternative motion to dismiss is DENIED as MOOT.
The defendants’ motion to stay deadlines (Doc. 31) is DENIED as MOOT.
DONE this 9th day of March, 2018.

_______________________________
T. MICHAEL PUTNAM
UNITED STATES MAGISTRATE JUDGE

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