Bahre v. Liberty

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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2000 ME 75
Docket:	Cum-99-542
Argued:	March 7, 2000	
Decided:	April 28, 2000

Panel:	CLIFFORD, RUDMAN,  SAUFLEY, ALEXANDER, and CALKINS, JJ.
Majority:	RUDMAN, SAUFLEY, ALEXANDER, and CALKINS, JJ.
Dissent:		CLIFFORD, J.

ROBERT P. BAHRE

v.

 LIBERTY GROUP, INC., LIBERTY MANAGEMENT, INC.,
and MICHAEL A. LIBERTY, individually

RUDMAN, J.

	[¶1]  Liberty Group, Inc., Liberty Management, Inc., and Michael A.
Liberty, individually, (collectively Liberty) appeal from a summary judgment
entered in the Superior Court (Cumberland County, Mills, J.) in favor of
Robert P. Bahre.  Liberty asserts that the court abused its discretion when it
(1) denied Liberty's motion to amend its answer and (2) granted Bahre's
motion to strike two affidavits, and that the court erred when it granted
Bahre a summary judgment.  Finding neither abuse of discretion nor error,
we affirm the judgment.

I.

	[¶2]  On July 31, 1996, Bahre and Liberty entered into a Forbearance
Agreement, Release and Guaranty.  Katahdin Corporation, Liberty Group,
Inc., Liberty Management Inc., and Michael A. Liberty, individually,
guaranteed payment of $1,000,000 by June 30, 1997, to Bahre to satisfy a
$1,127,368.85 judgment Bahre held against Katahdin Corporation.  The
agreement provided for three payments: $600,000 by December 31, 1996;
$100,000 by March 1, 1997; and $300,000 by June 30, 1997.  The contract
included a full integration clause that read:

This Agreement constitutes the entire agreement among the
parties, superseding any prior written or other
understandings and shall not be modified except by a written
amendment signed by each of the parties.

In return for Liberty's promise to pay $1,000,000, Bahre agreed to forbear
his right to seek the appointment of a receiver for Katahdin Corporation,
Liberty Group, Inc., and Liberty Management, Inc.  Michael Liberty was a
corporate officer and shareholder of Katahdin Corporation.  
	[¶3]  Bahre received the first $600,000, pursuant to the forbearance
agreement, but he has yet to receive the remaining $400,000.  Bahre filed a
complaint in Superior Court seeking the money owed on the contract. 
Liberty filed an answer in which Liberty admitted entering into the
forbearance agreement.  The answer did not deny that Liberty owed Bahre
$400,000. 
	[¶4]  After Liberty filed its answer admitting to the contract, Bahre
filed a motion for a summary judgment.  Liberty then filed a motion to
amend its answer to include a counterclaim-Liberty filed this motion to
amend four days after it could have done so as a matter of course.  Liberty's
motion did not provide a legal or factual basis for the counterclaim.  Liberty
was represented by the same attorney for the answer and motion to amend,
yet Liberty's only justification for the amendment of the unspecified omitted
counterclaim was that Liberty had retained new counsel who intended to
add a new counterclaim.{1}  
	[¶5]  In response to Bahre's motion for a summary judgment, Liberty
submitted two affidavits asserting that the contract was unenforceable
because it was induced by Bahre's fraudulent misrepresentations.  Liberty's
new attorney, Daniel G. Lilley, signed an affidavit stating that he was retained
by Michael Liberty; that he had reviewed the "entire facts" of the case; and
that the facts indicated that Liberty should file a counterclaim against Bahre
for fraud.  Michael Liberty also submitted an affidavit stating that Bahre's
promise to obtain NASCAR events for the Oxford Plains Speedway was the
only reason he entered into the forbearance agreement.  Liberty's affidavit
maintained that his attorney would, with leave of court, assert "the
affirmative defense of fraud" and the counterclaim of slander.  
	[¶6]  Liberty requested that the court deny the motion for summary
judgment pursuant to M.R. Civ. P. 56(f).  Bahre filed a motion to strike the
Lilley and Liberty affidavits.  The court denied Liberty's motion to amend its
answer; granted Bahre's motion to strike the Liberty and Lilley affidavits;
and granted Bahre's motion for a summary judgment.  This appeal followed.

II.

	[¶7]  Liberty asserts that the court exceeded the bounds of its
discretion by denying its motion to amend pursuant to M.R. Civ. P. 13(f) and
15(a).{2} Bahre maintains, inter alia, that the court properly denied the
motion to amend because Liberty did not comply with M.R. Civ. P. 7(b)(3). 
We review the denial of a motion to amend for abuse of discretion.  See
Thibodeau v. Cole, 1999 ME 150, ¶ 5, 740 A.2d 40, 42.  A party seeking to
overturn the denial of a motion to amend must demonstrate (1) that the
court clearly and manifestly abused its discretion and (2) that the
amendment is necessary to prevent injustice.  See id.  
	[¶8]  Because we review for abuse of discretion, we must examine
the record before the court at the time the motion was filed.  The Superior
Court had before it a complaint that alleged contract liability and an answer
that admitted entering into the contract and did not deny liability on that
contract.  In its answer, Liberty only asserted the defenses of laches and
failure to state a claim upon which relief can be granted; moreover, Liberty
did not assert any counterclaims.  
	[¶9]  The court next received Bahre's motion for summary judgment
which included a statement of material facts and accompanying affidavits
attesting to Liberty's liability under the contract.  Liberty then submitted a
motion to amend its answer to include a counterclaim.  The motion, and the
incorporated memorandum of law supporting the motion, did not provide a
legal or factual basis for the counterclaim.  The motion merely asserted that
Liberty should be allowed to include a permissive counterclaim because
"leave to amend should be freely given" and the case was only six weeks old. 
Although Liberty cited to M.R. Civ. P. 13(f) which allows omitted
counterclaims to be added upon a showing of "oversight, inadvertence, or
excusable neglect, or when justice so requires," Liberty never argued that
any of those enumerated circumstances existed.  
	[¶10]  Next, Liberty filed-in response to Bahre's motion for
summary judgment-two affidavits asserting that the contract was
unenforceable due to the affirmative defense of fraud.  Fraud must be
pleaded with particularity and is waived if not pleaded in the answer.  See
M.R. Civ. P. 8(c) & 9(b).  The court, however, first became aware that Liberty
wanted to plead the "affirmative defense of fraud" and raise the
counterclaim of slander when Liberty filed affidavits in opposition to Bahre's
motion for a summary judgment.  Liberty's affidavits referred to the
affirmative defense of fraud while Liberty's motion to amend only asked to
assert a permissive counterclaim-not an affirmative defense. 
	[¶11]  Rule 7(b)(3) requires a moving party to include a draft order
granting the motion and a specific statement of the relief to be granted with
the motion to amend.  See M.R. Civ. P. 7(b)(3).  Contrary to Liberty's
contention at oral argument, Liberty did not submit a draft order or a
specific statement informing the court of its desire to plead fraud with its
motion to amend.  To comply with Rule 7(b)(3), Liberty should have (1)
described its fraud defense in its motion to amend; and (2) included a draft
order granting it permission to include the fraud defense.  Although not
required by Rule 7(b)(3), Liberty would have been wise to include a draft
pleading outlining the fraud defense.  As we stated in Thibodeau, when the
court is presented with a motion to amend with no facts indicating what the
amendment would entail, the court has no choice but to deny the motion to
amend.  See Thibodeau, ¶ 5, 740 A.2d at 42.  Because Liberty's motion to
amend did not comply with Rule 7(b)(3), we cannot say that the court
exceeded the bounds of its discretion when it denied the motion.  

III.

 	[¶12]  Next, we must consider whether the court abused its
discretion when it struck the Liberty and Lilley affidavits.  We review
judgments on motions to strike for abuse of discretion.  See McNutt v.
Johansen, 477 A.2d 738, 740 (Me. 1984).  Liberty argues that the affidavits
should not have been stricken because the requirements for an affidavit
under Rule 56(f) are less stringent than the requirements of Rule 56(e) and
"need not be based on personal knowledge."  Liberty is mistaken.  Rule
56(e) mandates that all supporting or opposing affidavits be based upon
personal knowledge.  See M.R. Civ. P. 56(e);{3} Spickler v. Greenberg, 586
A.2d 1232, 1234 (Me. 1991) (holding that affidavit must "show affirmatively
that the affiant has personal knowledge of the matters asserted").  Rule 56(f)
does not abrogate the personal knowledge requirement for affidavits.  See
M.R. Civ. P. 56(f).{4}  Rule 56(f) merely allows the court to deny the summary
judgment motion or to order a continuance for further discovery before
ruling on the motion.  See M.R. Civ. P. 56(f).  Affidavits submitted pursuant to
Rule 56(f) must also meet the requirements of Rule 56(e).  See Charles A.
Wright and Arthur R. Miller, 10B Federal Practice and Procedure § 2740
(1998) (stating that requirements of Rule 56(e) affidavits apply to Rule 56(f)
affidavits).  
	[¶13]  Although offered pursuant to Rule 56(f), Liberty's affidavit is a
Rule 56(e) affidavit.  The affidavit attests to specific facts which would create
a genuine issue of material fact regarding Bahre's fraud, if Liberty were
allowed to plead fraud in the inducement.  Liberty explains that Bahre's
NASCAR promise was the only reason he entered into the agreement.  His
affidavit complies with Rule 56(e) requirements because he has personal
knowledge of the facts to which he attests; the affidavit sets forth
information that would be admissible in evidence if the fraud defense was
allowed; and it manifests that he is competent to testify.  See  M.R. Civ. P.
56(e).  Nevertheless, we cannot say that the court exceeded the bounds of
its discretion here because even if the court erred in striking Liberty's
affidavit, the consideration of the affidavit would not have affected the
court's disposition of the summary judgment motion.  Liberty's affidavit did
not create a genuine issue of material fact regarding Liberty's liability on the
contract.{5}  
	[¶14]  The Superior Court properly struck Lilley's affidavit.  Lilley's
affidavit did not comply with the requirements of a Rule 56(f) affidavit.  In
his affidavit, Lilley attests to facts in the case to which he has no personal
knowledge and makes impermissible conclusory statements.  See Spickler,
586 A.2d at 1234 (noting that conclusory statements are inappropriate in
affidavits).  Paragraph five of Lilley's affidavit read as follows:

5. Mr. Bahre would not permit Mr. Liberty to evidence that quid pro
quo because of the probable implications of illegality on the part of
Mr. Bahre's part [sic] including potentially restraint of trade, unfair
trade practices, and violations of federal anti-trust law.

Lilley could not have had personal knowledge of why reference to NASCAR
was not in the forbearance agreement as he was not present during the
negotiations and did not represent Liberty at that time. 

	IV.

	[¶15]  We review the grant of a summary judgment for errors of law
and independently examine the record to determine if a genuine issue of
material fact exists.  See Nevin v. Union Trust Company, 1999 ME 47, ¶ 5,
726 A.2d 694, 696.  We view the evidence in "a light most favorable to the
party against whom the judgment has been granted." Id.  Liberty's answer
admitted that it entered into the forbearance agreement and that the
document speaks for itself concerning liability.  See Schott Motorcycle
Supply, Inc. v. American Honda Motor, 976 F.2d 58, 61 (1st Cir. 1992)
(stating that "a party's assertion of fact in a pleading is a judicial admission
by which it normally is bound throughout the course of the proceeding").  In
its statement of material facts, Liberty did not controvert that it still owed
Bahre $400,000 under the agreement.  Summary judgment was appropriate
because there is no genuine issue of material fact and as a matter of law,
Liberty still owes Bahre $400,000 under the agreement. 
	The entry is:
Judgment affirmed.

CLIFFORD, J., dissenting

	[¶16] I respectfully dissent.  M.R. Civ. P. 15(a) provides that leave to
amend a pleading shall be freely given when justice so requires.  In Kelly v.
Michaud's Ins. Agency, Inc., 651 A.2d 345 (Me. 1994), we said that "'[t]his
mandate means that if the moving party is not acting in bad faith or for
delay, the motion will be granted in the absence of undue prejudice.'"  Id. at
347 (quoting John W. Goodwin, Inc. v. Fox, 642 A.2d 1339, 1340 (Me.
1994)).{6}
	[¶17]  The complaint was filed on March 10, 1999.  The motion to
amend the answer and to assert a counterclaim was filed on April 23, 1999. 
In denying the motion to amend, the court made no finding of bad faith, nor
did it find that the motion was filed for purposes of delay.  Moreover, there
has been no showing of undue prejudice to the plaintiff if the motion to
amend were granted.
	[¶18]  As the Court correctly concludes, the trial court
impermissibly struck the affidavit of Michael Liberty.  In that affidavit Liberty
alleges that he was fraudulently induced into signing the forbearance
agreement on which this lawsuit is based.  Such evidence would be
admissible at trial and creates a genuine issue of material fact that should
have precluded the entry of a summary judgment.  See LeClair v. Wells, 395
A.2d 452, 453 (Me. 1978).
	[¶19]  The law favors cases being decided on their merits.  See
Espey v. Wainwright, 734 F.2d 748, 750 (11th Cir. 1984).  "'The philosophy
of the rules is that pleadings are not an end in themselves, but only a means
of bringing into focus the area of actual controversy.  Leave to amend should
be freely granted when justice so requires.  A party should not be precluded
by the technicalities of pleading from presenting his claim or defense on its
merits unless the pleadings have misled the opposing party to his
prejudice.'"  Bangor Motor Co. v. Chapman, 452 A.2d 389, 392 (Me. 1982)
(quoting 1 Field, McKusick & Wroth, Maine Civil Practice § 15.1 at 301-02
(2d ed. 1970)).  Because the motion to amend was filed so soon after the
complaint was entered, in the absence of an explicit finding by the court
that the motion to amend was filed in bad faith or for purposes of delay, I
would vacate the summary judgment and remand to allow the filing of an
amendment to the answer.
                                         
Attorneys for plaintiff:

Louis H. Kornreich, Esq., (orally)
George Z. Singal, Esq.
Gross, Minsky, Mogul & Singal, P.A.
P O Box 917
Bangor, ME 04402-0917

Attorneys for defendants:

Michael J. Gartland, Esq., (orally)
George J. Marcus, Esq.
Marcus, Grygiel & Clegg, P.A.
100 Middle Street, East Tower
Portland, ME 04101

FOOTNOTES******************************** {1} . At oral argument, Liberty's counsel clarified that Liberty's new counsel, Daniel G. Lilley, agreed only to take Liberty's case if the old counsel obtained the court's permission to amend. {2} . Rule 13(f) states in relevant part: (f) Omitted Counterclaim. When a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, the pleader may by leave of court set up the counterclaim by amendment. M.R. Civ. P. 13(f). Rule 15 states in pertinent part: (a) Amendments. A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. A party shall plead in response to an amended pleading within the time remaining for response to the original pleading or within 10 days after service of the amended pleading, whichever period may be the longer, unless the court otherwise orders. M.R. Civ. P. 15(a). {3} . Rule 56(e) reads in relevant part: Supporting and opposing affidavits shall be made on personal knowledge, shall set forth facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. M.R. Civ. P. 56(e). {4} . Rule 56(f) states: When Affidavits Are Unavailable. Should it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just. M.R. Civ. P. 56(f). {5} . We stress that the fatal flaw of Liberty's case is its failure to comply with Rule 7(b)(3). The grant of a summary judgment would not have been appropriate had Liberty described the fraud defense in its motion to amend. {6} . Although the decision whether to grant leave to amend is committed to the trial court's discretion, "'[d]iscretion may be a misleading term, for rule 15(a) severely restricts the judge's freedom, directing that leave to amend 'shall be freely given when justice so requires.'" Espey v. Wainwright, 734 F.2d 748, 750 (11th Cir. 1984) (quoting Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597 (5th Cir. 1981)).