In Re Donald Baker Leber and Shirley Jean Leber, Debtors.triangle Auto Auction, Inc., Party in Interest--appellant, v. Donald Baker Leber; Donald Hall, Parties in Interest--appellees.in Re Donald Baker Leber and Shirley Jean Leber, Debtors.donald Hall, Party in Interest--appellee,anddonald Baker Leber, Debtor--appellant, v. Triangle Auto Auction, Inc., Party in Interest--appellee, 816 F.2d 672 (4th Cir. 1987)

Appellant-appellee Triangle Auto Auction, Inc. ("Triangle") and appellant Donald Baker Leber ("Leber") appeal from portions of an order entered July 2, 1986 in the Western District of Virginia, James C. Turk, Chief Judge, which affirmed in part and reversed in part an order of the Bankruptcy Court, H. Clyde Pearson, Bankruptcy Judge, entered October 21, 1985. We affirm the order of the district court.

Leber operated and owned in Roanoke, Virginia, a used car lot known as Don's Auto Sales, Inc. Appellee Donald Hall ("Hall") worked for Leber part time. Beginning in May 1981, Leber permitted Hall to place automobiles owned by Hall on Leber's lot for sale. The sales proceeds were to be deposited in Leber's account. Any profits were to be divided equally between Leber and Hall. By July 1982, Leber owed Hall over $17,000 as a result of this arrangement.

In December 1982, Leber gave Hall a signed blank check and told him to purchase any automobiles he desired for personal use. Such purchases were to be made from Triangle--a used car auction lot with which Leber had done business in the past. Hall was to consider the purchase price as a partial offset against the $17,000 debt owed to him by Leber. Hall used the check to purchase two automobiles from Triangle for $8,527. Hall took possession of the automobiles, but Leber kept the certificates of title. The check later was returned to Triangle since Leber's account had insufficient funds to cover the check.

On April 12, 1983, Leber and his wife filed for Chapter 13 bankruptcy without listing debts to either Triangle or Leber. On January 23, 1984, Hall commenced an adversary proceeding against Leber in his Chapter 13 case. In a second amended complaint filed February 20, 1985, Hall sought either unencumbered title to the two automobiles or the full amount of the $17,000 debt.

In an adversary proceeding against Triangle commenced April 2, 1985, in the Chapter 13 bankruptcy case, Leber and his wife requested the court to "determine the ownership of the two ... automobiles". In its answer filed April 12, Triangle made a motion for return of the automobiles and their titles, for permission to sell the automobiles, and for "judgment against the Debtors [Leber and his wife] for whatever loss [Triangle] sustains as a result of the sale".

The two adversary proceedings were consolidated for trial before the bankruptcy court in September 1982. In an opinion and order entered October 21, 1985, the bankruptcy court, among other things not relevant to these appeals, ordered Hall to return the automobiles to Triangle and held that Leber and Hall would be jointly and severally liable to Triangle if resale of the automobiles resulted in any deficiency.

Hall appealed to the district court from the bankruptcy court order of October 21, 1985. The district court, in an opinion filed July 2, 1986 and in an order entered the same day, reversed that part of the bankruptcy court order which required Hall to return the automobiles to Triangle and which made Hall--jointly and severally with Leber--liable to Triangle for the deficiency. The district court held that Hall was not liable to Triangle since Triangle had not sued Hall. The district court ordered Leber to turn over the certificates of title to Hall and held that Leber was liable to Triangle for the entire $8,527 (the purchase price of the automobiles), plus interest and costs. The district court affirmed the order of the bankruptcy court in all other respects.

On the instant appeal, Triangle claims that the district court erred to the extent that it reversed the order of the bankruptcy court. Triangle bases its claim on Fed. R. Civ. P. 15(b), which provides in relevant part that " [w]hen issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings...."

Triangle concedes that its claims against Hall were not "raised by the pleadings". It argues, however, that Hall impliedly consented to trial of those claims by failing to object to Triangle's evidence against him admitted at the trial of the consolidated proceedings in the bankruptcy court referred to above. Under such circumstances, so Triangle's argument goes, the bankruptcy court had discretion to permit amendment of the pleadings to conform to the evidence. Ellis v. Arkansas Louisiana Gas Co., 609 F.2d 436, 438 (10th Cir. 1979), cert. denied, 445 U.S. 964 (1980).

Under well settled law in this Circuit, however, Triangle's argument is without merit. True, " [t]he admission of evidence without objection concerning an issue that is the subject of amendment is an indicium of implied consent." McLeod v. Stevens, 617 F.2d 1038, 1040 (4th Cir. 1980). "As we have held before," however, "a court will not imply consent to try a claim merely because evidence relevant to a properly pleaded issue incidentally tends to establish an unpleaded claim." Quillen v. International Playtex, Inc., 789 F.2d 1041, 1044 (4th Cir. 1986) (citing McLeod, supra, 617 F.2d 1038).

In the instant case, all of Triangle's evidence implicating Hall was relevant to Triangle's claim against Leber. The admission of that evidence without objection therefore cannot be treated as implied consent to trial of Triangle's claims against Hall. The case relied on by Triangle, Wasik v. Borg, 423 F.2d 44 (2d Cir. 1970), is not to the contrary. There, the plaintiff was permitted to recover from the third party defendant--Ford--even though the defendant, and not the plaintiff, had sued Ford. Both the pleaded and unpleaded claims involved the same issue--Ford's negligence in manufacturing an automobile. Since Ford's defense against both claims would have been identical, it could not have been prejudiced by allowing the plaintiff's recovery against it on the unpleaded claim. By contrast, in the instant case no party sued Hall. Triangle's evidence therefore would not have put Hall on notice that Triangle sought recovery against him.

Accordingly, we hold that the district court correctly reversed that part of the order of the bankruptcy court which required Hall to return the automobiles to Triangle and which held Hall jointly and severally liable to Triangle for any deficiency.

On his appeal, Leber claims that the district court erred both in affirming that part of the order of the bankruptcy court finding him liable to Triangle and in holding that Leber was liable to Triangle for the entire $8,527. Leber argues that he cannot be held liable to Triangle since Triangle did not sue him. This argument is without merit. As we have observed above, in its answer to Leber's complaint in the second adversary proceeding, Triangle made a motion in the bankruptcy court for judgment against Leber and his wife for any deficiency resulting from the sale of the automobiles. Although this prayer for relief was not labeled as a "counterclaim", it clearly put Leber on notice of Triangle's claim against him.

Accordingly, we hold that the district court correctly found Leber liable to Triangle.

We affirm the order of the district court affirming in part and reversing in part the order of the bankruptcy court.

AFFIRMED.