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Wellin v. Wellin

United States District Court, D. South Carolina, Charleston Division

December 26, 2019

WENDY C.H. WELLIN, as Special Administrator of the Estate of Keith S. Wellin and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2001, Plaintiff,
v.
PETER J. WELLIN, CYNTHIA W. PLUM AND MARJORIE W. KING, individually and as co-Trustees and beneficiaries of the Wellin Family 2009 Irrevocable Trust, u/a/d November 2, 2009, and FRIENDSHIP MANAGEMENT, LLC, Defendants.

          ORDER

          DAVID C. NORTON UNITED STATES DISTRICT JUDGE.

         This matter is before the court on three motions for summary judgment. First, Wendy C.H. Wellin (“Wendy”), as the Special Administrator of the Estate of Keith S. Wellin and as Trustee of the Keith S. Wellin (“Keith”) Florida Revocable Living Trust u/a/d December 11, 2001 (“2001 Revocable Trust”) (collectively, the “Estate”) has filed a motion for partial summary judgment as to the validity of the substitution of assets transaction of November 20, 2013 (“2013 asset substitution”). ECF No. 881 at 1 (“Motion I” for the purposes of Background section only). Second, Peter J. Wellin (“Peter”), Cynthia Wellin Plum (“Ceth”), Marjorie Wellin King (“Marjorie”)- in their individual capacities, their capacities as co-Trustees, and their capacities as beneficiaries Wellin Family 2009 Irrevocable Trust (“2009 Irrevocable Trust”) - and Friendship Management, LLC (collectively, the “Wellin children”) have filed a motion for summary judgment as to the invalidity of the 2013 asset substitution. ECF No. 888 at 1 ("Motion II" for the purposes of Background section only). Third, the Estate has filed a motion for partial summary judgment on the issue of the identity of the Limited Partner(s) of Friendship Partners, LP. ECF No. 879 at 1 ("Motion III" for the purposes of Background section only).

         For the reasons stated below, the court denies the Estate's motion for partial summary judgment as to the validity of the 2013 asset substitution; grants the Wellin Children's motion for summary judgment as to the invalidity of the 2013 asset substitution, and grants in part and denies in part the Estate's motion for partial summary judgment on the issue of the identity of the Limited Partner(s) of Friendship Partners, LP.

         I. BACKGROUND

         Because the nature of this case[1], the court will dispense with a recitation of facts and include only a procedural history of the matters at hand.

         Motion I was filed by the Estate on April 16, 2019. ECF No. 881. The Wellin children responded to Motion I on July 8, 2019, ECF No. 928, to which the Estate replied on August 28, 2019, ECF No. 949. Motion II was filed by the Wellin children on April 16, 2019. ECF No. 888. The Estate responded to Motion II on July 1, 2019, ECF No. 914, to which the Wellin children replied on August 28, 2019, ECF No. 950. Motion III was filed by the Estate on April 16, 2019. ECF No. 879. The Wellin children responded to Motion III on July 8, 2019, ECF No. 929, to which the Estate replied on August 28, 2019, ECF No. 948. The motions are now ripe for the court's review.

         II. STANDARD

         Summary judgment shall be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248. "[S]ummary judgment will not lie if the dispute about a material fact is 'genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249. The court should view the evidence in the light most favorable to the non-moving party and draw all inferences in its favor. Id. at 255.

         III. DISCUSSION

         A. Identity of Limited Partner in Friendship Partnership

         The Estate argues the court should grant summary judgment as to Keith's status as a Limited Partner of Friendship Partners, LP ("Friendship Partnership") and to the 2009 Irrevocable Trust's status as having an assignee interest in Friendship Partnership because Friendship Partnership failed to properly admit a Substituted Limited Partner pursuant to Section 9.2(d) of the Friendship Partnership operating agreement ("Friendship Partnership agreement").[2] ECF No. 879 at 17; ECF No. 879-3 at 14. The Wellin children contend the court should deny summary judgment as to Keith's status as a Limited Partner of Friendship Partnership and to the 2009 Irrevocable Trust's status as having an assignee interest because the revisions to Annex A of the Friendship Partnership agreement ("Annex A") sufficiently admitted a Substituted Limited Partner pursuant to Section 9.2(d) of the Friendship Partnership agreement, and accordingly the 2001 Revocable Trust, and then subsequently, the 2009 Irrevocable Trust became a Substituted Limited Partner and Keith was no longer a Limited Partner. ECF No. 888 at 20; ECF No. 879-3 at 14.

         Both parties agree that Keith's status as a Limited Partner of Friendship Partnership is governed by Delaware law because of the governing law provision in the Friendship Partnership agreement. ECF No. 879 at 17; ECF No. 879-3 at 23; see generally ECF No. 929 at 11, 13, 18 (arguing application of Delaware law). "A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits, including the state's choice-of-law rules." Volvo Constr. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599-600 (4th Cir. 2004) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79 (1938). Under South Carolina choice of law rules, "if the parties to a contract specify the law under which the contract shall be governed, the court will honor this choice of law." Russell v. Wachovia Bank, N.A., 578 S.E.2d 329, 336 (S.C. 2003). Because Keith's status as a Limited Partner of the Friendship Partnership must be determined by the court performing a contract interpretation of the Friendship Partnership agreement, the court agrees with the parties and shall perform its analysis under Delaware law, pursuant to the governing law provision in the Friendship Partnership agreement. Prior to examining the merits of this motion, the court will first examine the affirmative defenses raised by the Wellin children. ECF No. 929 at 3.

         1. Affirmative Defenses

         The Wellin children argue that the Estate should be barred from making the argument that Keith remained a Limited Partner based on the affirmative defenses of equitable estoppel and acquiescence. ECF No. 929 at 3. The Wellin children contend that either equitable estoppel or acquiescence are appropriate in this instance, in part, because the Estate alleged that Keith was not a Limited Partner in prior complaints. ECF No. 929 at 12. The Estate, in response, argues the Wellin children's equitable estoppel should fail because they cannot meet their burden of proof, in part, because they are improperly relying on prior complaints as evidence, and because the Wellin children failed to plead acquiescence as an affirmative defense, the court should determine that the Wellin children have waived their right to argue the issue of acquiescence. ECF No. 948 at 3. "When a federal court sits in diversity jurisdiction, it applies federal procedural law and state substantive law." Carolina Cargo Inc. of Rock Hill v. Countrywide Payroll & HR Solutions, Inc., 2018 WL 1443947, at *1 (D.S.C. Mar. 23, 2018); see Gasperini v. Center For Humanities, Inc., 518 U.S. 415, 427 (1996). Issues related to complaints and pleadings are governing by the Federal Rules of Civil Procedure. Fed.R.Civ.P. 3, 8, 12, 15. Therefore, this court must apply Delaware substantive law when examining the Wellin children's affirmative defenses and Fourth Circuit procedural law when examining all issues related to complaints and pleadings. See generally Cantu v. John Hancock Mut. Life Ins. Co., 991 F.2d 787 (4th Cir. 1993) (holding that when "the district court's subject matter jurisdiction [i]s based on diversity of citizenship," procedural matters are governed by federal law and affirmative defenses are controlled by the same governing law as the underlying claim); see also Arismendez v. Nightingale Home Health Care, Inc., 493 F.3d 602, 610 (5th Cir. 2007) ("In a diversity action such as this, substantive state law determines what constitutes an affirmative defense . . . [and] the Federal Rules of Civil Procedure provide the manner and time in which defenses are raised and when waiver occurs.).

         a. Equitable Estoppel

         "The doctrine of equitable estoppel is invoked when a party by his conduct intentionally or unintentionally leads another, in reliance upon that conduct, to change position to his detriment." Nevins v. Bryan, 885 A.2d 233, 249 (Del. Ch.), aff d, 884 A.2d 512 (Del. 2005). The party claiming estoppel must demonstrate that:

(i) they lacked knowledge or the means of obtaining knowledge of the truth of the facts in question; (ii) they reasonably relied on the conduct of the party against whom estoppel is claimed; and (iii) they suffered a prejudicial change of position as a result of their reliance.

Id. "Regardless of the form of the action, the burden of proof of estoppel rests upon the party asserting it." Id. "Furthermore, equitable estoppel must be proven by clear and convincing evidence; an estoppel may not rest upon an inference that is merely one of several possible inferences." Id.

         First, the Wellin children argue that equitable estoppel is appropriate in this instance because of the Estate's prior complaints alleged Keith was not a Limited Partner. It is well settled federal law that an amended pleading supersedes the original pleading, renders the original pleading of no effect, and the original pleadings perform no function in deciding the amended pleading. Brown v. Sikora and Associates, Inc., 311 Fed.Appx. 568, 572 (4th Cir. 2008) ("Once an amended pleading is interposed, the original pleading no longer performs any function in the case.); Freckleton v. Target Corp., 81 F.Supp.3d 473, 479-80 (D. Md. 2015) ("It is well settled that a timely-filed amended pleading supersedes the original pleading, and that motions directed at superseded pleadings may be denied as moot."); Davis v. Liberty Mut. Ins. Co., 2015 WL 6163243, at *3 (D.S.C. Oct. 19, 2015) (citing Young v. City of Mount Ranier, 238 F.3d 567, 573 (4th Cir. 2001) ("The general rule ... is that an amended pleading supersedes the original pleading, rendering the original pleading of no effect."). Therefore, the court finds that the statements made by Keith or the Estate in prior complaints have "no effect" and the court will not consider those statements when determining if the Wellin children have established equitable estoppel by clear and convincing evidence.

         Next, the Wellin children argue that equitable estoppel is appropriate in this instance because Ceth did not have knowledge of the fact that Keith was not a Limited Partner because the books and records of the Friendship Partnership were withheld from the Wellin children. ECF No. 929 at 12. Section 6.1 of the Friendship Partnership agreement states that "proper and complete records and books of account shall be kept by the General Partners" and "shall be maintained at the principal office of the Partnership." ECF No. 879-3 at 12. The principal office of Friendship Partnership is listed as 10 Waterman Ave, Philadelphia, Pennsylvania 19118. ECF No. 879-3 at 5. This address is the home of Ceth, who is the manager of Friendship Management LLC, the General Partner of the Friendship Partnership. ECF No. 879-4 at 2-5. The Wellin children provide no evidence that Ceth was in violation of Section 6.1 of the Friendship Partnership agreement. Therefore, the court finds that the Wellin children fail to prove that they did not at least have the means to obtain the knowledge of Keith's status as a Limited Partner by clear and convincing evidence, regardless of allegedly being denied the books and records of Friendship Partnership by the Estate. Additionally, the Wellin children argument of reasonable reliance is based on the Estate's statements made in the prior complaint. ECF No. 929 at 14. Because the prior complaint has "no effect", the court finds that the Wellin children failed to prove that they reasonably relied on the Estate by clear and convincing evidence.

         Because the Wellin children failed to prove the elements of equitable estoppel by clear and convincing evidence, as is required by Delaware law, the court finds that equitable estoppel is not appropriate.

         b. Acquiescence

         The Wellin children state that the affirmative defense of acquiescence is appropriate in this instance because the Estate's prior claims alleged that Keith was not a Limited Partner in prior complaints and because Ceth did not have knowledge of the fact that Keith was not a Limited Partner and because books and records of the Friendship Partnership were withheld from the Wellin children. ECF No. 929 at 14. The Estate argues that the court should find that Wellin children's failure to plead acquiescence as an affirmative defense waived their right to make that argument in their answer to a motion for summary judgment. ECF No. 948 at 3. For the same reasons as stated above, the court finds that the statements made by Keith or the Estate in prior complaints have "no effect" and the court will not consider those statements when determining if the Wellin children have established the affirmative defense of acquiescence.

         i. Waiver of Affirmative Defense

         A defendant bears the burden of affirmatively pleading an affirmative defense. See Fed.R.Civ.P. 8(c)(1); Eriline Co. SA. v. Johnson,440 F.3d 648, 653 (4th Cir. 2006). Generally, the "failure to plead an affirmative defense as required by Federal Rule 8(c) results in the waiver of that defense and its exclusion from the case . . . ." SunTrust Mortgage, Inc. v. United Guar. Residential Ins. Co. of N.C., 508 F. App'x. 243, 252 (4th Cir. 2013) (quoting 5 Charles Alan Wright and Arthur R. Miller, Fed. Prac. & Proc. Civ. ยง 1278 (3d ed. 2012)). "Such waiver, however, should not be effective unless the failure ...


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