Gulf Coast Visuals Management Company LLC v. Wedelstedt et al
Filing
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MEMORANDUM OPINION and ORDER- Pltf's motion for leave to amend the complaint (Doc 47 ) is DENIED; Pltf's motion to make payments into the Registry of the court (Doc 38 ) in lieu of the monthly payments made to the defts as alleged in the proposed amended complaint is DENIED; Further instructions within. Signed by Magistrate Judge T Michael Putnam on 8/28/18. (MRR, )
FILED
2018 Aug-28 PM 01:39
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
Before the court is the motion for leave to amend the complaint by the
plaintiff, Gulf Coast Visuals Management Company, LLC, (“Gulf Coast”).
(Doc. 47).
The defendants, Edward J. Wedelstedt, both individually and as
personal representative of the Estate of Lynda Entratter (“the Estate”), and
Southern Star, LLC, have filed their opposition to the motion (doc. 50), to which
Gulf Coast has filed a reply (doc. 51). Additionally, the defendants were given
leave to and have filed a sur-reply. (Doc. 56). The motion for leave and the
various responses to it raise a number of issues the court will attempt to address in
logical order.
I. Procedural Background
The original complaint removed to this court named as defendants Edward J.
Wedelstedt, individually, Edward J. Wedelstedt as the personal representative of
the Estate of Lynda Entratter, deceased (“the Estate”), and Southern Star LLC, an
Alabama limited liability company. 1 It alleged that either Southern Star or the
Estate was the owner of a certain described piece of real property in Jefferson
County, Alabama, and that the plaintiff “and Southern Star entered into a verbal
agreement, pursuant to which Southern Star agreed to sell and [plaintiff] agreed to
purchase the property (real estate from which the [plaintiff’s] business was
operated) for the amount of $115,000.” (Doc. 1-1, ¶ 5). Pursuant to the verbal
agreement, the plaintiff made a down payment and “agreed to make monthly
payments thereafter until the purchase price was paid, and the parties shared an
amortization schedule and related closing documents.” Oddly, the complaint then
alleges that “[t]he Estate executed a deed conveying the property to Owner…
which deed through inadvertence, oversight or confusion, has not been delivered to
[the plaintiff], or if delivered, has been lost.” (Italics added for emphasis). The
complaint goes on to allege that “[t]he Estate claims, or is reputed to claim, some
right to or interest in the property, namely, that the Estate is the owner of the same
1
According to the defendants’ First Amended Answer and Affirmative Defenses, the sole
member of Southern Star, LLC, was Lynda Entratter, a deceased citizen of Georgia. See
Doc. 15, ¶ 4.
2
and [the plaintiff] [is] the tenant.” (Id. at ¶ 10). Thus, as originally filed, the
controversy in this case was whether the agreement between the plaintiff and one
or more of the defendants was purchase agreement, under which the plaintiff was
buying the real property, or merely a lease. The complaint pleaded three claims for
relief: quiet title in Count I, specific performance in Count II, and an equitable lien
for the value of improvements in the property in Count III. Attached as an exhibit
to the complaint is what appears to be a statutory warranty deed from Edward J.
Wedelstedt, as personal representative of the Estate of Lynda Entratter, to the
plaintiff, Gulf Coast Visuals Management Company, LLC, date December 21,
2011.
On March 26, 2018,2 the plaintiff filed its Motion for Leave to File Amended
Complaint and Add Third-Party Defendant (doc. 47), to which was attached a copy
of the Amended and Third-Party Complaint proposed to be filed. The proposed
amended complaint greatly expands the factual and legal scope of this action,
adding twelve new counts, including a purported interpleader count against the
United States and a securities fraud count under the Alabama Securities Act,
Alabama Code § 8-6-1 et seq., the Michigan Uniform Securities Act, the Securities
Act of 1933, and Section 10b of the Securities Exchange Act of 1934.
2
The plaintiff has filed an amended complaint earlier, without leave, on July 31, 2017, which
was stricken by the court on March 9, 2018, because the plaintiff did not seek leave to file the
amended complaint. (Doc. 44). At this point, the original complaint filed in state court and
removed to this court remains the operative pleading in the case.
3
Factually, the proposed amended complaint shifts its focus from a contract
dispute over the alleged sale of a piece of Alabama real estate to a dispute over the
sale of ownership of five closely-held corporations. In sum, the proposed amended
complaint alleges that, on April 20, 2011, 3 a “Stock Purchase Agreement” 4 was
executed between the plaintiff and defendant Wedelstedt as the personal
representative of the Estate under which the Estate (through Wedelstedt as the
personal representative) conveyed to the plaintiff 100% of the stock in five closelyheld corporations owned by the Estate.5 In return, the plaintiff signed a promissory
note in favor the Estate in the amount of $1,593,662.72, which called for payments
to the Estate in the amount $20,000.00 per month. To secure payment of the
promissory note, the plaintiff pledged the stock in these five companies, and
Robert DePiano was named the “Pledgee” to hold the stocks until the promissory
3
The proposed amended complaint gives different dates for this agreement. At paragraph “a.,”
the date of the “Purchase Agreement” is given as April 20, 2011, but at paragraph 5, it is alleged
that the parties entered into the Purchase Agreement in 2010. Then, in paragraph 8, the plaintiff
alleges that it “exercised its option to purchase stock” in five closely-held companies on May 2,
2011, and that the stock sale closed on October 7, 2011.
4
Doc. 41-1.
5
The five companies are identified in the complaint as Anwar Enterprises, Inc.; Lagrange
Trading, Co.; Business Financial Services of Knoxville, Inc.; Richland Book Mart, Inc.; and
Western Adult Enterprises, Inc. All five companies are in the business of operating “adult
bookstores,” and although the states of incorporation for each are not identified in the proposed
amended complaint, two of the corporations (Anwar and Western Adult) operate adult
bookstores in Birmingham, Alabama. The other three operate stores in Kenner, Louisiana, and
Knoxville, Tennessee. Only Western Adult Enterprises, Inc., is identified consistently as being
incorporated in Alabama. (Doc. 41-1). At various places within the documents, Anwar
Enterprises, Inc., is identified variously as a Missouri corporation and as an Alabama
corporation. It is not clear which is true.
4
note was paid. (Doc. 41-1, p. 93). At the same time this Purchase Agreement was
entered into, the parties also reached the separate verbal agreement for the plaintiff
to purchase the real property at issue in the original complaint.
According to the proposed amended complaint, events since the formation of
the Stock Purchase Agreement have caused the plaintiff to question whether, in
fact, Wedelstedt, as the personal representative of the Estate, is capable of
conveying good and clear title to the stock. The proposed complaint points to
Wedelstedt’s criminal history, his refusal to honor the Real Estate contract, his
alleged use of shell charitable organizations to avoid federal income taxes, and his
testimony in the Michigan lawsuit (doc. 47-1, ¶ 23) as evidence that Wedelstedt
either has repudiated the Stock Purchase Agreement or was never able to perform
under it to convey the stocks with clear title. Due to concerns about the stock sale,
“Gulf Coast sent the demand letter to defendants, seeking assurances that, when
Gulf Coast paid the remainder of the amounts due under the Stock Sale, the Stock
would be released from escrow. When the defendants failed to provide such
assurances, Gulf Coast filed this amended complaint.” (Doc. 47-1, ¶ 17).
On
June 30, 2017, the plaintiff sent a letter to Wedelstedt, demanding assurances that
the Estate will comply with the Stock Purchase Agreement and convey good and
clear title to the stock once all payments are made by the plaintiff and that the
stock is not subject to tax liens. Although some assurances were provided, the
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plaintiff alleges that they did not address the fundamental concerns about whether
the Estate owned the stocks at issue and whether they are subject to tax liens.
Based on these allegations, the proposed amended complaint seeks to add
the following new claims not pleaded in the original complaint:
Count Four—Declaratory Judgment to require the defendants to
give reasonable assurances of compliance with the stock sale
agreement or to allow the plaintiff to suspend its payments or pay
them into court.
Count Five—Breach of Contract with respect to the Stock Purchase
Agreement.
Count Six—Suppression of material facts related to the formation of
the Stock Purchase Agreement.
Count Seven—Fraud and Fraudulent Suppression related to the
ownership of the stocks at issue.
Count Eight—Securities Fraud under federal and state law, related to
“material misstatements [made] to Gulf Coast and the investing public
which were contained in the Purchase Agreement and related
documents….”
Count Nine—Civil Theft and Conversion, alleging that the
defendants have stolen and converted the moneys paid by the plaintiff
under the Stock Purchase Agreement by diverting the moneys through
shell charitable organizations controlled by Wedelstedt.
Count Ten—Fraudulent Transfers in that “Wedelstedt accepted
monies as personal representative of the estate and set up charitable
entities like Eddie’s kids in order to pay debts and avoid debts from
the IRS and others.”
Count Eleven—Misappropriation of Money in that “Defendants
misappropriated Gulf Coast’s money, refused to honor the Real estate
Sale or Purchase Agreement, and Wedelstedt is using Gulf Coast’s
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money for his own personal gain.”
Count Twelve—Civil Conspiracy in that “Defendants, Olsafsky, and
possibly others undertook concerted action to achieve an unlawful
purpose or a lawful purpose by unlawful means, including to defraud
Gulf Coast and obtain monies from Gulf Coast.”
Count Thirteen—Wrongful Appropriation of Corporate
Opportunity, Constructive Trust, and Accounting in that
“Defendants have wrongfully diverted assets of Gulf Coast to
defendants’ benefit, accepted Payments without intent to deliver the
Stock to Gulf Coast when the Payments are completed, and on
information and belief conspired with Olsafsky to divert Gulf Coast
assets to various defendants,” and thereby have unjustly enriched
themselves to the plaintiff’s detriment.
Count Fourteen—Conspiracy to Misappropriate Assets of
Corporation and for Accounting and Appointment of Receiver in
that “On information and belief, Wedelstedt, acting alone or in
conjunction with various other defendants, and being in control of the
other defendants, unlawfully and with fraudulent intent, conspired and
connived to, despoil Gulf Coast it of its assets and dispose of the same
to their individual benefit and profit, to the damage of Gulf Coast, its
stockholders and plaintiffs.”
Count Fifteen—Interpleader to allow the plaintiff to make its
payments under the stock Purchase Agreement to the Clerk of Court
because the United States may have tax liens against the Estate or the
stock and continuing to make payments to Wedelstedt as the personal
representative of the Estate may subject the plaintiff to double or
multiple payments. On this count, plaintiff seeks to add the United
States as “third-party defendant.”
The defendants oppose the motion for leave to amend on several different
grounds. They argue the motion should be denied because (1) the plaintiff has not
made the proper “good cause” showing necessary to allow the amendment; (2) the
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court lacks subject-matter jurisdiction over the claims sought to be added because
they are not yet ripe for Article III purposes; (3) the court lacks specific or general
personal jurisdiction over the defendants with respect to the claims sought to be
added; (4) the proposed amended complaint is rife with scandalous and impertinent
materials; (5) amendment would be futile because the proposed amended
complaint fails to state a claim for relief beyond those contained in the original
complaint.
II. Standard of Review for Amendments to Pleadings
As the court has explained in previous Orders, the standard by which a court
is to assess a motion for leave to amend a complaint depends upon whether the
motion is made before or after the expiration of a deadline for doing so established
in a Rule 16(b) scheduling order. In sum, if the motion is made before the deadline
expires, it is addressed under the liberal standards of Rule 15(a) of the Federal
Rules of Civil Procedure. If, however, the motion for leave is filed after the
expiration of such a deadline, the “good cause” standard of Rule 16 applies. See
Kendall v. Thaxton Road, LLC, 443 F. App'x 388, 393 (11th Cir. 2011).
In the instant case, it is clear that this proposed amendment comes well after
the July 31, 2017, deadline for the plaintiff to seek to amend the pleadings, as set in
the court’s Rule 16(b) scheduling order. (Doc. 14). That is the date suggested by
the parties in their Report of Parties Planning Meeting (doc. 12), which was
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adopted by the court. The plaintiff argues that it filed its first amended complaint
on July 31, 2017, but it did not seek leave to do so, and the court struck it. To the
extent the plaintiff argues it should be given the retroactive benefit of the July 31
filing date, that filing was a “nullity” and of no effect at all. See Hoover v. Blue
Cross & Blue Shield of Alabama, 855 F.2d 1538, 1544 (11th Cir. 1988) (“[I]f 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.” (Quoting 6 FEDERAL PRACTICE & PROCEDURE § 1485 at 421
(1971))); see also Continental Illinois Nat. Bank & Trust Co. of Chicago v. Four
Ambassadors, 599 F. Supp. 534, 536 (S.D. Fla. 1984) (an amended pleading filed
without leave of court or consent of the opposing parties is a “nullity”). It is true
that some courts consider whether such amendments would be allowed if leave had
been sought, but that did not occur here. Gulf Coast was required to resubmit its
proposed amendment with a motion for leave to do so, and by then the deadline
had passed.6 As a result, for leave to file the instant proposed amended complaint,
6
The court does not mean to imply that Gulf Coast waited an unreasonably long time to
resubmit its proposed amendment. It took the court until March 2018 to strike the proposed
amendment, and the plaintiff filed its motion for leave to submit the instant proposed amendment
only eleven days after the court’s ruling. The greatest part of the delay was the court’s fault, not
the plaintiff’s. In any event, however, because the first attempt to amend the complaint was filed
on the last day of the time allowed in the scheduling order, the court’s striking of the amendment
inevitably put any resubmission after the deadline. Even if the court had stricken the amended
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the standard of Rule 16, applicable to amending the scheduling order, is the
standard the court must consider. The plaintiff must show “good cause” to amend
the complaint.
The court is not convinced that good cause exists to deviate from the
scheduling order and grant leave to amend the complaint. The original complaint
alleging the dispute over title to a piece of real property was filed in the Jefferson
County Circuit Court on December 20, 2016, and removed to this court on
January 23, 2017. The essential facts of the plaintiff’s claims related to the Stock
Purchase Agreement were known to the plaintiff at least by October 26, 2016,
when Wedelstedt’s deposition was taken in the Michigan lawsuit that was already
underway. By that time—more than nine months before the attempted amendment
of the complaint on July 31, 2017—the plaintiff already knew of the dispute
concerning the Alabama real estate, either knew or should have known about
Wedelstedt’s questionable criminal history, knew or should have known of the
status of tax liens related to Wedelstedt, and knew or should have known of
Wedelstedt’s relationship to the alleged shell charities. Indeed, in the proposed
amended complaint, the defendant points to Wedelstedt’s October 2016 deposition
testimony as an alleged “repudiation” of the Stock Purchase Agreement. (Doc. 471, ¶ 15). Two months before the instant lawsuit was commenced in the Jefferson
complaint the very next day after its filing, any resubmission would have been after the July 31
deadline.
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County Circuit Court and three months before it was removed to this court, the
plaintiff possessed the essential facts necessary to plead the claims it did not
include in the original complaint and which it now seeks to add by amendment.
The plaintiff has offered no explanation, much less “good cause,” why these claims
could not have been included in the original complaint or soon after the removal of
the case to this court. While it is true that it was not until June 2017 that the
plaintiff wrote to counsel for Wedelstedt seeking assurances that the Stock
Purchase Agreement was not a fraud and would be fulfilled by Wedelstedt, there is
no reason why these assurances could not have been sought many months earlier.
Again, by no later than October 26, 2016, when Wedelstedt was deposed in the
Michigan lawsuit, the plaintiff was aware of his alleged “repudiation” of the Stock
Purchase Agreement. Likewise, all of the other evidence related to Wedelstedt’s
criminal past, his use of alleged shell charities, his tax liens, and concerns about the
legitimacy of the Estate in Georgia were all either known to the plaintiff or could
have been discovered with due diligence before the instant action was ever filed.
Given the dilatoriness,7 there simply is no “good cause” for allowing an
7
Although the court has reviewed the instant motion under Rule 16’s “good cause” standard,
the court likely would have denied the motion for leave to amend under Rule 15’s liberal
standard as well, if it were to apply instead. As noted above, the plaintiff was aware (or should
have been aware) of the facts set forth in the proposed amended complaint at the time of the
filing of the original complaint. Waiting to the last day for seeking leave to amend under the
scheduling order entered by the court was unduly dilatory. See National Service Industries, Inc.
v. Vafla Corp., 694 F.2d 246, 249 (11th Cir. 1982) (no abuse of discretion to deny leave to
amend pleading where party knew of facts supporting proposed amendment when it filed
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amendment to add facts and claims that could have been pleaded eighteen months
earlier when the lawsuit commenced.8
The motion for leave to amend the complaint (doc. 47) is DENIED.
Likewise, the plaintiff’s motion to make payments into the Registry of the
court (doc. 38) in lieu of the monthly payments made to the defendants as alleged
in the proposed amended complaint is DENIED. As the court has denied the
motion for leave to amend the complaint, the largest portion of the monthly
payments ($20,000.00 of the monthly $21,500.00) does not relate to any issue or
claim now before the court. As to the remaining $1,500.00 paid per month, that
sum either is payment toward purchase of a parcel of real estate or rental payments
(depending on whose perspective is correct) and can continue to be made. Any
remedy necessary to resolve the issues in this lawsuit can account for such
payments at that time.
DONE this 28th day of August, 2018.
_______________________________
T. MICHAEL PUTNAM
UNITED STATES MAGISTRATE JUDGE
original pleading); Ferrell v. Busbee, 91 F.R.D. 225, 231 (N.D.Ga.1981) (“Plaintiff had to know
of the facts upon which the amendment was based at the time the complaint was filed.”).
8
The court expresses no opinion on the other grounds argued by the defendants for denying
the motion for leave to amend. Whether the plaintiff’s claims may be ripe for adjudication and
whether there is personal jurisdiction over the defendants must be litigated at another time in
another action.
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