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Basham v. Jenks

United States District Court, W.D. Virginia, Roanoke Division

January 3, 2018

TIMOTHY BASHAM, Plaintiff,
v.
TIMOTHY L. JENKS Defendant.

          REPORT AND RECOMMENDATION

          ROBERT S. BALLOU UNITED STATES MAGISTRATE JUDGE

         Currently before me are plaintiff Timothy Basham's motion for leave to amend his complaint (Dkt. No. 13) and defendant Timothy Jenks's motion for judgment on the pleadings (Dkt. No. 16). I heard oral argument on these motions on December 6, 2017, and took them under advisement. I consider these motions pursuant to 28 U.S.C. § 636(b)(1)(B) and recommend that Basham's motion for leave to amend his complaint be denied as futile, and that Jenks's motion for judgment on the pleadings be granted, and the complaint be dismissed with prejudice.

         I. Background

         Basham and Jenks became business partners in 2007 when they formed Waterstone Development Company, LLC (“Waterstone, LLC”) for the development of residential homes. Compl. ¶ 4, Dkt. No. 1-2. Basham and Jenks each owned 50% of Waterstone, LLC. Id. Thereafter, Waterstone, LLC obtained a loan from Franklin Community Bank for the construction and development of a residential neighborhood. In December 2013, Waterstone became insolvent. Compl. ¶ 8. Basham alleges in his brief that the bank seized personal collateral of both Jenks and Basham in partial satisfaction of the outstanding loan balance. Pl.'s Br. in Supp. of Mot. to Amend at 2, Dkt. 14. The value of the personal collateral is unclear; however, even after the seizure of the personal collateral, Waterstone, LLC remained in debt “to Franklin Community Bank and other creditors . . . in excess of $280, 000.” Compl. ¶ 9. Basham alleges that Jenks “contributed only $6, 000 towards the debt of [Waterstone, LLC]” and that the amount “paid by [Basham] without contribution from [Jenks] was $274, 000.” Compl. ¶ 9. Thus, Basham asserts that he paid “approximately $134, 000 owed by [Jenks] when [Jenks] failed to live up to his obligation as required under the parties Operating Agreement” and that he has suffered damages in the amount of $134, 000. Compl. ¶¶10, 16.

         Basham's only cause of action alleged in the original complaint is for breach of contract. Compl. ¶¶ 11-16. However, Basham seeks to amend the complaint to assert a claim for common law contribution between co-sureties. Am. Compl. ¶¶32-40, Dkt. No. 13-1. In support of his motion to amend and his contribution action, Basham alleges that the parties signed multiple promissory notes personally guaranteeing the repayment of Franklin Community Bank's loan to Waterstone, LLC. Am. Compl. ¶¶ 9-17. The amended complaint asserts that “for most promissory notes executed by the parties, both the plaintiff and the defendant executed a personal guarantee for the repayment of any outstanding amounts if the LLC failed to pay.” Am. Compl. ¶17. Basham further alleges that the “debt to [Franklin Community Bank] has not been repaid in full and remains an open debt to the bank.” Am. Compl. ¶24.

         II. Motion for Leave to Amend the Complaint

         Federal Rule of Civil Procedure 15(a) allows parties to amend pleadings either within 21 days after service, or at any time with either written consent from the opposing party or leave of the court. Fed.R.Civ.P. 15(a). Courts are instructed to “freely give leave when justice so requires.” Id. As the Fourth Circuit has explained, “[t]his directive gives effect to the federal policy in favor of resolving cases on the merits instead of disposing of them on technicalities.” Mayfield v. NASCAR, 674 F.3d 369, 379 (4th Cir. 2012) (quoting Matrix Capital Mgm't Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 192 (4th Cir. 2009)). In the Fourth Circuit, “The law is well settled ‘that leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile.'” Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999)(emphasis in original) (citation omitted).

         I recommend that Basham's motion to amend the complaint be denied because the proposed amendment, adding the claim of contribution, would be futile.[1] See Johnson v. Oroweat Foods Co., 785 F.2d 503, 510 (4th Cir.1986) (finding that leave to amend should only be denied as futile “when the proposed amendment is clearly insufficient or frivolous on its face”). Neither the complaint nor the amended complaint, allege that the parties' debt has been satisfied, which I find is a required element to allege a cause of action for contribution under the common law of Virginia. In fact, the amended complaint specifically alleges that the debt to Franklin Community Bank “remains partially outstanding.” Am. Compl. ¶ 39.

         Under Virginia law, the right to contribution arises “on the broad principles of equity, ” instead of from any express contract or agreement between the parties. See Houston v. Bain, 196 S.E. 657 (Va. 1938) (“Where two persons are subject to a common burden it shall be borne equally between them. The law implies a contract between the parties to contribute ratably towards the discharge of the obligation.”) Before a party may seek contribution from his co- guarantor, the debt must be fully satisfied. This requirement is contained in the case law developing the common law right to contribution. See Van Winckel v. Carter, 95 S.E.2d 148, 152 (Va. 1956) (“The right to contribution becomes complete and enforceable upon the payment or discharge of the common obligation.”) (citations omitted); see also Gardner v. Bean, 677 P.2d 1116 (Utah 1984) (“Generally, common law contribution presumes the payment and extinguishment of the debt by one for the benefit of all.”); See also Carey v. McCaslin, 43 N.E.2d 519, 520 (Ohio Ct. App. 1942) (holding that “a co-obligor is entitled to contribution from another co-obligor when the former has completely satisfied the obligation, even though in so doing he has paid a sum of money less than his proportionate share of the face amount of the obligation”).

         In Sacks v. Tavss, the Supreme Court of Virginia discusses when “equity should intervene” and award contribution. 375 S.E.2d 719, 722 (Va. 1989). The court specifically noted that the “Tavsses did not make full satisfaction of the indebtedness due to the Bank and did not secure a release which covered the Sackses” and then held that to merit contribution one surety must (1) pay more than his proportionate share of the amount owed the creditor, or (2) pays less than his proportionate share and also secure a release for his cosurety. Id. Implicit in both these prongs is the requirement that the surety first extinguish the debt, either by full satisfaction of the debt, or by partial satisfaction, but obtaining a complete release. The Sacks court explains that “Comment d [to § 154 of the Restatement of Security] contemplates that the settlement by one surety for less than the amount of the debt will be in full satisfaction of the debt, meaning that the paying surety must secure a release not only for himself but also for his cosurety or cosureties before he can demand contribution based upon the amount of the settlement.” Sacks, 375 S.E.2d at 721 (emphasis in original); see also NationsBank of Virginia, N.A. v. Jordache Venture Assocs., No. CIV.A. 2:92CV494, 1993 WL 724806, at *8 (E.D. Va. Aug. 4, 1993), aff'd sub nom. NationsBank of Virginia, N.A. v. Mizrachi, 27 F.3d 563 (4th Cir. 1994) (noting that the court “ultimately decided to rely” on the case of Sacks v. Tavss, which “precludes a partner from seeking contribution or indemnification from a copartner until the entire amount of the debt has been paid” but finding that a party's arguments for an extension or modification of Sacks was made in good faith).

         Basham alleges in the proposed amended complaint that Waterstone's debt to Franklin Community Bank which Jenks and he guaranteed remains outstanding, and, therefore, he cannot allege that he has satisfied the amount due or otherwise secured a release of the debt. Accordingly, Basham cannot allege the necessary elements of a claim for contribution against Jenks, rendering the proposed amended complaint futile. As such, I recommend that Basham's motion to amend be denied.

         III. Motion for Judgment on the Pleadings

         Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, a party may move for judgment on the pleadings after the pleadings are closed.[2] Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is governed by the same standard as a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss. See Independence News, Inc. v. City of Charlotte, 568 F.3d 148, 154 (4th Cir. 2009); Pac. Ins. Co. v. Am. Nat'l Fire Ins. Co., 148 F.3d 396, 405 (4th Cir.1998)). However, the court may also consider the defendant's answer. See Massey v. Ojaniit, 759 F.3d 343, 347 (4th Cir. 2014); see also Void v. Orangeburg Cty. Disabilities & Special Needs Bd., Civil Action No. 5:14-cv-02157-JMC, 2015 WL 404247, at *2 n.1 (D.S.C. Jan. 29, 2015).

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) examines the legal sufficiency of the facts alleged on the face of the plaintiff's complaint. Edwards, 178 F.3d at 243; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (holding that to survive a Rule 12(b)(6) motion, “[f]actual allegations must be enough to raise a right to relief above the speculative level.”). When considering a motion to dismiss, the court must accept as true all of the factual allegations contained in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). The court “may also consider documents attached to the complaint, see Fed.R.Civ.P. 10(c), as well as those attached to the motion to dismiss, so long as they are ...


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