GARDINER v. KOCHER

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

WILLIAM GARDINER, . )

Plaintiff, .

v. 1:21CV971

KAREN KOCHER,

Defendant.

ORDER, MEMORANDUM OPINION AND RECOMMENDATION

OF UNITED STATES MAGISTRATE JUDGE

Plaintiff William Gardiner moves for leave to amend the Complaint and to amend the

scheduling order, if necessary. (Docket Entry 19.) Also before the Court is Defendant Karen

Kochet’s motion to compel Plaintiff to respond to discovery requests served upon him.

(Docket Entty 27.) Both matters are opposed (see Docket Entries 22, 29) and are ripe for

disposition. For the following reasons, the undersigned recommends that Plaintiffs motion _

be granted. Further, the Court will deny Defendant’s motion to compel.

I. BACKGROUND

Plaintiffs original Complaint raises eight causes of action against Defendant, including

claims for breach of contract, quasi-contract and unjust enrichment, implied-in-fact contract,

consttuctive trust, and purchase money resulting trust. (See Compl., Docket Entry 1.) These

claims arise after the termination of Plaintiff and Defendant’s romantic relationship, upon

which Plaintiff demands the return or repayment of funds he claims to have advanced for the

benefit of Defendant for (1) the purchase of a membership interest in Performitiv, LLC, a

privately-held company that Plaintiff and Defendant invested in and which Defendant still □

owns; and (2) the purchase of a home in Pinehurst, North Carolina (the “Pinehurst Home”),

which Defendant received sole legal title to and currently resides in. (See zd.) In response to

the original Complaint, Defendant asserted several defenses, including the doctrine of unclean

hands, and assetted four counterclaims against Plaintiff including claims for breach of

conttact, quasi-conttact/unjust enrichment, and implied-in-fact contract for the Pinehurst

Home, and unjust enrichment for a condominium which Plaintiff purchased in Seattle,

Washington (“Seattle Condominium”) although Defendant expected that the patties would

share in the appreciation of the property. (See Docket Entry 8.) In his reply to Defendant’s

counterclaims, Plaintiff asserted several affirmative defenses. (Docket Entry 9.) Discovery

commenced in this action in April 2022 with a deadline of June 1, 2022, for the patties to seek

leave to join additional patties. ‘(See Docket Entries 13, 14.) Plaintiff filed the pending motion

for leave to amend the Complaint and scheduling order on July 27, 2022. (Docket Entry 19.)

Then on September 27, 2022, Defendant filed the pending motion to compel. (Docket Entry

27.)

II. DISCUSSION

A. Plaintiffs Motion for Leave to Amend the Complaint and Scheduling Order

In Plaintiffs motion, he seeks leave to amend his Complaint “to add [Defendant’s]

capacity as ttustee to afford complete relief on Plaintiffs claims for imposition of an equitable

trust on the [Pinehurst] home” (Docket Entry 20 at 2),! which Defendant conveyed to herself

“as trustee of the Karen Kochet Revocable Trust dated Feb: 17, 2021” (2d; see also Proposed

' Unless otherwise noted, all citations in this order and recommendation to documents filed

with the Court refer to the page numbers located at the bottom right-hand cornet of the documents

as they appeat on CM/ECF.

First Am. Complaint, Docket Entry 19-2). While Plaintiffs original Complaint seeks recovery

of the funds he advanced to Defendant, Plaintiffs Complaint also seeks alternative relief

through the imposition of a purchase money resulting trust or a constructive trust on the

Pinehurst Home. (See Compl. ff] 49-57.) Therefore, Plaintiff argues that including

Defendant’s capacity as trustee is necessaty to afford complete relief. (Docket Entey 20 at 2.)

Plaintiff also contends that an amendment of the scheduling order is not necessary but

argues that, to the extent that his motion is considered as a motion to join a new party, “the

Court should amend the scheduling order in the interests of justice, to afford complete relief

and to eliminate the need for an additional action against [Defendant] in her capacity as

trustee.” (See Docket Entry 20 at 3.) Plaintiff claims that the amendment does not require

any additional discovery, nor will it cause prejudice to Defendant. (Id. at 9.) Defendant

opposes Plaintiffs motion, arguing the proposed amended complaint “serves no meaningful

putpose,” and that the additional time and expense associated with amending the Complaint

would be prejudicial to her. (See Docket Entry 22.) Specifically, Defendant claims that

amending the Complaint would result in new and costly issues concerning the trust’s

beneficiaries including “whether the trust’s beneficiaries must be joined as necessaty parties

under Rule 19” and whether the added beneficiary parties would raise jurisdictional concerns,

as “the trust at issue has seven primary beneficiaries that reside in different states.” (Id. at 4-

5.) In addition, Defendant argues that the motion should be denied because Plaintiff already

has an adequate remedy at law: monetary relief. (/d. at 6-7.)

When deciding on a motion to amend, the Court engages in a Federal Rule of Civil

Procedute 15(a) analysis, which provides that leave to amend should be “freely given when

justice so requires.” Franks v. Ross, 313 F.3d 184, 192 4th Cir. 2002) (quoting Fed. R. Civ. P.

15(a)). While the Fourth Circuit liberally allows amendments, “a court may deny leave to

amend if amendment is prejudicial to the opposing patty, the moving party has acted in bad

faith, ot amendment would be futile.” Sciacca v. Durham Cnty. Bd. of Educ., 509 F. Supp. 3d 505,

515 (M.D.N.C. 2020) (citing Abdul-Mumit v. Alexandria Hyundai, LLC, 896 F.3d 278, 293 (4th

Cir. 2018).

Here, the undersigned concludes that the amendment should be allowed. The

amendment adds Defendant’s capacity as trustee to the trust in which the Pinehurst Home

was ttansferred to. This adds no new claims but relates to claims for the imposition of a

resulting trust and constructive trust already in the original Complaint. Defendant’s argument

against the proposed amendment focuses on the prejudicial effect it would have on her.

(Docket Entry 22.) However, this argument is unpersuasive. First, the proposed amendment

would not implicate the trust’s beneficiaries. Defendant points to the general rule under North

Carolina law that all beneficiaties are necessaty patties in “suits, respecting the trust property,

brought either by or against the trustees.” Dwnn v. Cook, 204 N.C. App. 332, 337, 693 S.E.2d

752, 756 (2010) (citation omitted). However, the relevant challenge here to the Pinehurst

Home involves Plaintiff as a third-party to the trust property. In S/aughter v. Swicegood, the

Notth Catolina Court of Appeals summarized the general rule in regard to disputes with third

patties:

The trustee has a title (generally legal title) to the trust property,

usually has its possession and a right to continue in possession,

and almost always has all the powers of management and control

which ate necessaty to make the trust property productive and

safe. Any wrongful interference with these interests of the normal

trustee is therefore a wrong to the trustee and gives him a cause

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of action for redress or to prevent a continuance of the improper

conduct. Although the beneficiary is adversely affected by such

acts of a third person, no cause of action inures to him on that

account. The tight to sue in the ordinary case vests in the trustee

as a representative.

In the absence of special circumstances, the beneficiary is not

eligible to bring or enforce these causes of action which run to

his trustee. Thus in the usual case he cannot sue a third person to

tecovet possession of the trust property for himself or the

trustee, or for damages for conversion of or injury to the trust

property, or for recovery of its income or to compel an agent of

the trustee to account, or to enjoin a threatened injury to trust

ptoperty by a third person.

162 N.C. App. 457, 464, 591 S.E.2d 577, 582 (2004) (citation omitted). See a/so Restatement

(Second) of Trusts § 280 (“In an action at law brought by the trustee against a third person,

the beneficiary is not a necessaty or proper patty. In a suit in equity brought by the trustee

against a third person, the beneficiary is ordinarily not a necessary party although he is a proper

patty.”).

This Court recently cited Swicegood stating that, absent exceptions, the general rule is

that the trustee is the necessary patty for redressing claims regarding injury to a trust property.

See Fraim v. Chilly Dil Consulting, Inc, No. 1:20CV1011, 2022 WL 2916863, at *12 (M.D.N.C.

July 25, 2022) (unpublished) (citing Swicegood, 162 N.C. App. at 465, 591 S.E.2d at 582-83

(“Under the general common law tule, injury to the property:placed in a trust may only be

redtessed by the trustee.”), report and recommendation adopted, No. 1:20-CV-1011, 2022 WL

3572848 (M.D.N.C. Aug. 19, 2022) (unpublished). Another jurisdiction citing Swicegood, also

applied the same rule. See Rudd v. Branch Banking e& Tr. Co., No. 2:13-CV-02016-JEO, 2016

WL 7177538, at *8 (N.D. Ala. Aug. 8, 2016) (unpublished) (applying Alabama law and holding

that “[t]he court agrees with [the defendant] that the Amended Complaint is due to be

dismissed to the extent that Plaintiffs assert claims in their individual capacities as beneficiaries

to recover for harm suffered by any of the four Goodwin Family Trusts, including for the lost

value of theit respective assets.”) (emphasis added).?

In the context of suits brought by third parties related to actions against a trust

property, some other jurisdictions have applied the same rule to the defense of such actions.

See ¢.g., United States v. Sullivan, No. 10 CR 821-1, 2016 WL 1626622, at *5 (N.D. Ill. Apr. 21,

2016) (unpublished) (“Courts have repeatedly held that in suits by third parties brought against

the trust property, where there is no conflict of interest between the trustee and the beneficiary,

a suit against the trustee is proper and the beneficiary is not a necessary patty.”) (citing George

G. Bogert et al., The Law of Trust and Trustees § 593 (2015) (“The earlier equity rule was that the

beneficiary was always a necessaty patty, but the present position of the courts is that the

ttustee may represent the beneficiaty in all actions relating to the trust, if rights of the

beneficiaty as against the trustee, or the rights of the beneficiaries among themselves, are not

brought into question.”); see also Sullivan v. Kodsi, 373 F. Supp. 2d 302, 310 (S.D.N.Y. 2005)

(“[T]he beneficiaries’ interest is sufficiently protected by the present trustee .. . who has been

named as a defendant in his representative capacity .. . and, who is not alleged to have any

interest which conflicts with those of the Trust’s beneficiaries.”). Defendant has not asserted

any conflict of interest between her and any beneficiaries. Moreover, allowing Defendant as

the trustee to defend against the instant action pertaining to the trust property is also consistent

with both the duties and discretionary powets of a trustee under the North Carolina Uniform

* The defendant in Rvdd was a previous institutional co-trustee.

□

Trust Code. See N.C. Gen. Stat. § 36C-8-811 (“A trustee shall take reasonable steps to enforce

claims of the trust and to defend claims against the trust.”);3 N.C. Gen. Stat. § 36C-8-816(14)

(a trustee may “[p]ay or contest any claim, compromise, adjust or otherwise settle a claim by

or against the trust, and release, in whole or in part, a claim belonging to the trust.”). Thus,

considering such, the undersigned concludes that the proposed amendment does not implicate

the beneficiaries of the trust at issue.*

Defendant also argues that amending the Complaint serves no meaningful purpose

because Plaintiff has an adequate remedy at law. (Docket Entty 22 at 6-7.) This argument too

is unpersuasive. Interestingly, the claims for a constructive trust and resulting trust are already

alleged in the original Complaint and Defendant made no motion to dismiss them. As Plaintiff

states, the amendment seeks only to add Defendant’s capacity as the trustee of the trust

ptoperty that Plaintiff is alleged to have paid for in part. (See Proposed First Am. Compl.,

Docket Entry 19-2.) Beyond that, Defendant’s argument presumes that one cannot allege a

claim for both monetary relief and an alternative claim for a resulting or constructive trust.5

However, “[a]s a general matter, . . . an equitable claim can be alleged as an alternative to a

legal claim.” Ernst v. N. Am. Co. for Life Health Ins., 245 F. Supp. 3d 680, 687 (M.D.N.C.

> The North Carolina Supreme Court held that a duty to defend under N.C. Gen. Stat. § 36C-

8-811 “arises when the action may result in a loss to the trust estate.” IV 2ng ». Goldman Sachs Tr. Co.,

382 N.C. 288, 311-12, 876 S.E.2d 390, 406 (2022).

* For the same reasons, Defendant’s argument that the proposed amendment would “require

the parties to litigate additional issues” (Docket Entry 22 at 3) also fails.

> As Plaintiff points out, the North Carolina Court of Appeals was presented with a case which

alleged many similat claims as those here related to the Pinehurst Home. See Cury v. Mitchell, 202 N.C.

App. 558, 688 S.E.2d 825 (2010) (reversing dismissal of claims for constructive trust and resulting

trust); Curvy Complaint, Docket Entry 26-2 (asserting claims for constructive trust/unjust enrichment,

resulting trust, and breach of contract).

-

2017) (citation omitted). While “equitable remedies ate generally only available in the absence

of legal remedies,” zd. (citation omitted), and the creation of a constructive trust may be

unwarranted if remedies at law are sufficient, see Sec. Nat. Bank of Greensboro v. Educators Mut.

Life Ins. Co., 265 N.C. 86, 95, 143 S.E.2d 270, 276 (1965) (citation omitted) (“A constructive

trust does not atise where thete is no fiduciary relationship and there is an adequate remedy at

law.”’), Defendant has pointed to no case law where seeking monetary and equitable remedies

is improper when a patty had paid a portion of the purchase price for the teal property, but

had received neither an interest in the real property nor a refund of the money. □

Ultimately, “[w]hether monetary damages will provide a claimant an adequate remedy

at law depends upon the facts of the case and the injuty in question.” In re Se. Eye Cir.-Pending

Matters, No. 15 CVS 1648, 2019 WL 2051336, at *61 (N.C. Super. May 7, 2019) (unpublished)

(citation omitted). As in other instances, such determination here is most appropriately made

upon development of the record. See e.g, Alkemal Singapore Priv. Ltd. v. DEW Glob, Fin., LLC,

No. 15 CVS 1406, 2018 WL 1942174, at *18 (N.C. Super. Apr. 19, 2018) (after a bench trial

and finding that the plaintiff was entitled to compensatory damages for the defendant finance

company’ s breach of contract and conversion of funds, the North Carolina Business Court

concluded that “the creation of a constructive trust is unwarranted because Plaintiff's successful

contract claim provides an adequate remedy at law.”) (emphasis added); see also Brown v. Secor,

No. 16 CVS 608, 2020 WL 6696101, at *12 (N.C. Super. Nov. 13, 2020) (unpublished)

(“Depending on the circumstances, a plaintiff may be entitled to a constructive trust even

when money is the object and even when a juty awards damages .... If the facts show that an

adequate remedy at law exists, that may counsel against imposing a consttuctive trust... . This

decision is better made with a more complete record... .”). For these reasons, Defendant’s

arguments against allowing the amendment are unpersuasive. Thus, in the interests of justice,

Plaintiff's motion should be granted.° □

B. Defendant’s Motion to Compel

Defendant moves for an order compelling Plaintiff to respond to discovery requests

served upon him. (Docket Entry 27.) Specifically, Defendant seeks a response to Numbers

8, 11, and 17 of her First Set of Interrogatories and Number 5 of her First Set of Requests for

Production of Documents, narrowing the scope of her original requests. ([d.; see also Docket

Entry 28-5.) These discovery requests relate to PlaintifPs general finances (including

information about assets, gifts, loans, and investments) duting the five-year period at issue in

the Complaint. Defendant contends that such discovery is needed to establish facts that

support her unclean hands defense to Plaintiffs equitable claims and to support Defendant’s

counterclaims. (Docket Entry 28.) Plaintiff objects to the discovery requests on grounds that

the “broad, general, personal financial information” sought is “irrelevant to any patty’s claim

ot defense and thus outside the scope of discovery” and also “utterly disproportionate to the

needs of the case.” (Docket Entry 29 at 1.)

Federal Rule 26 provides general rules regarding the scope of discovery:

Parties may obtain discovery regarding any nonprivileged matter that is relevant

to any patty’s claim or defense and proportional to the needs of the case,

° As to the issue of amending the scheduling order, Defendant states that “[t]he deadline to

add additional parties expired on June 1, 2022, further weighing in favor of denying the motion.”

(Docket Entry 22 at 3 n.1 (citation omitted).) For the reasons already discussed herein, the

undersigned concludes that there is good cause warranting leave to amend the scheduling order to

allow Plaintiff to add Defendant’s capacity as a trustee. See Vall Recycling, LLC v. 3TEK Glob., LLC,

No. 1:20CV371, 2022 WL 594290, at *2 (M.D.N.C. Feb. 28, 2022) (unpublished) (finding good cause

for an amendment where “there is no evidence that doing so would result in unfair prejudice to [the

non-movant]”).

considering the importance of the issues at stake in the action, the amount in

controversy, the parties’ relative access to relevant information, the patties’

tesoutces, the importance of the discovery in resolving the issues, and whethet

the burden ot expense of the proposed discovery outweighs its likely benefit.

Information within this scope of discovery need not be admissible in evidence

to be discoverable.

Fed. R. Civ. P. 26(b)(1). District courts generally have broad discretion in managing discovery,

including whether to grant or deny a motion to compel. Lone Star Steakhouse ¢» Saloon, Inc. v.

Alpha of Virginia, Ine, 43 F.3d 922, 929 (4th Cir. 1995); Erdmann v. Preferred Research, Inc. of

Georgia, 852 F.2d 788, 792 (4th Cir. 1988). “[T]he party or person resisting discovery, not the

patty moving to compel discovery, beats the burden of persuasion.” Carter Elughes v. Research

Triangle Inst., No. 1:11CV546, 2014 WL 4384078, at *2 (M.D.N.C. Sept. 3, 2014) (unpublished)

(citation omitted).

Relevancy “essentially involves a determination of how substantively the information

requested beats on the issues to be tried.” Mids v. East Gulf Coal Preparation Co., LILC, 259

F.R.D. 118, 131 (S.D. W. Va. 2009) (internal quotation marks omitted) (collecting cases).

Indeed, relevance has been “broadly construed to encompass any possibility that the

information sought may be relevant to the claim or defense of any party.” Shackdeford v. Vivint

Solar Dev. LLC, No. CV ELH-19-954, 2020 WL 3488913, at *5 (D. Md. June 25, 2020)

(internal quotation marks and citation omitted). However, “[e]ven assuming that □□□□□

information is relevant (in the broadest sense), the simple fact that requested information is

discovetable ... does not mean that discovery must be had. On its own initiative . .., a district

may limit [discovety] ....” Nicholas v. Wyndham Int'l, Inc, 373 F.3d 537, 543 (4th Cir.

2004).

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Here, the undersigned concludes that the discovery requests are irrelevant to both

Defendant’s unclean hands defense to Plaintiffs equitable claims, and Defendant’s

counterclaims. As to the former, the doctrine of unclean hands “denies equitable relief only

to litigants who have acted in bad faith, or whose conduct has been dishonest, deceitful,

fraudulent, unfair, ot overreaching in regard to the transaction in controversy.” Collins v. Daus,

68 N.C. App. 588, 592, 315 S.E.2d 759, 762, aff'd, 312 N.C. 324, 321 S.E.2d 892 (1984).

Defendant’s unclean hands defense states that:

[Plaintiffs] claims in equity are barred, in whole or in part,

by the doctrine of unclean hands. The purchase price of the

Pinehurst house was $1.6 million—far more’ than [Defendant]

was willing to pay for a large, rural house requiring substantial

upkeep and maintenance. [Plaintiff] was aware that [Defendant]

did not want to be responsible for the purchase price or the cost

and upkeep of the Pinehurst house alone. Yet, [Plaintiff] was

insistent that [Defendant] purchase the Pinehurst house over her

objections. □

[Plaintiff] induced [Defendant] to purchase the Pinehurst

house by promising to pay two-thirds of the purchase price and

two-thirds of the costs and expenses of ownership. Despite

agteeing to pay two-thirds of the purchase price ($1.067MM),

[Plaintiff] paid less than a quarter of it ($300,000). As a result of

[Plaintiffs] breach, [Defendant] was forced to take on—and

maintain—a mortgage for substantially more than she had agreed

to pay.

(Docket Entry 8 at 9-10.)

In her counterclaims, Defendant alleges that Plaintiff agreed to pay for two-thirds of

the expenses of owning and maintaining the Pinehurst home. (See Docket Entry 8.)

Defendant contends that the financial information sought from Plaintiff is relevant and “will

11

assist in determining the truthfulness of [Plaintiffs] statements to [Defendant] that he did not

have the liquidity necessary to pay for his two-thirds portion of the house and intended to pay

her back as soon as possible[.]” (Docket Entry 28 at 5.) The motion before the Court is not

to determine the merits of either patties’ claims nor the legal sufficiency of Defendant’s

affirmative unclean hands defense, however considering the pleadings, see Parsons v. Jefferson-

Pilot Corp, 141 F.R.D. 408, 412 (M.D.N.C. 1992) (“‘[T]he basic touchstone is

always relevance to the subject matter [and] “[t]he ‘subject matter’ of the litigation is defined

by the pleadings of the patties.”), the broad range of Plaintiffs financial information (including

information on assets, gifts, loans and investments) which Defendant seeks is irrelevant to this

matter. Regarding the Pinehurst Home, this is a matter in which Plaintiff seeks either legal or

equitable relief for the funds advanced on the purchase of the property, while Defendant’s

counterclaims seek relief for two-thirds of the expenses that Plaintiff allegedly agreed to own

and maintain said home in exchange for Defendant’s agreement to purchase the property.

Fittingly, Plaintiff represents to the Court that some of his financial information related to

both the Pinehurst Home and the Seattle Condominium have been provided to Defendant

(see Docket Entry 29 at 3 (Plaintiff “has produced voluminous financial records, including

dozens of bank statements and credit catd statements ovet a six-yeat period, reflecting the

thousands of dollars he spent on the Seattle and Pinehurst residences[.]’”)).’ However while

Defendant suggests otherwise, neither her counterclaims nor her unclean hands defense open

’ Plaintiff has also provided information regarding real property owned and sold from January

2015 until July 2022. (See Docket Entry 28-3 at 9.)

12

the door to discovery of Plaintiff's general financial status. Therefore, Defendant’s motion is

denied

III. CONCLUSION

For the reasons discussed herein, IT IS HEREBY RECOMMENDED that

Plaintiffs Motion for Leave to Amend the Complaint and for Amendment of the Scheduling

Order, if Necessary (Docket Entry 19) be GRANTED and Plaintiff be allowed to file his

Amended Complaint.

IT IS HEREBY ORDERED that Defendant’s Motion to Compel (Docket Entry

27) be DENIED.

Qu (WNebato=

Joe L. Webster

United States Magistrate Judge

December 8, 2022

Durham, North Carolina

’ Defendant’s request for attorneys’ fees associated with bringing this motion is also denied.

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