Court Opinion

ID: 2660935
Source: CourtListenerOpinion
Date Created: 2014-04-03 05:27:19.413368+00
Date Added: 2024-06-11T09:17:32.585096
License: Public Domain

UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF COLUMBIA
_______________________________
                                )
SODEXO OPERATIONS, LLC,         )
                                )
     Plaintiff,                 )
                                )
     v.                         )   Civil Action No. 12-108 (RWR)
                                )
NOT-FOR-PROFIT HOSPITAL         )
CORPORATION,                    )
                                )
     Defendant.                 )
_______________________________)

                        MEMORANDUM OPINION

     Plaintiff Sodexo Operations, LLC (“Sodexo”) brings this

breach of contract action against Not-for-Profit Hospital

Corporation (“NFP”) seeking damages arising from an alleged

breach of contract between Sodexo and Capital Medical Center, LLC

(“CMC”).   NFP moves to dismiss the plaintiff’s breach of contract

claim under Federal Rule of Civil Procedure 12(b)(6) for failure

to state a breach of contract claim against NFP and under Rule

8(a) for insufficient pleading.   Because the complaint does not

provide sufficient factual allegations to state a breach of

contract claim against NFP, the defendant’s motion to dismiss

will be granted.1

     1
       Sodexo also moves to strike portions of NFP’s reply   brief,
arguing that NFP improperly raised new arguments. Because    the
motion to dismiss will be granted without consideration of   the
assertedly new arguments, the plaintiff’s motion to strike   will
be denied as moot.
                                  -2-

                             BACKGROUND
     In 2008, CMC and Sodexo entered into an agreement for CMC to

pay Sodexo “to manage and operate [nutrition] Services for

[CMC’s] patients, residents, employees, visitors and guests at

[CMC’s United Medical Center].”    Compl. ¶¶ 13, 16, 17, Ex. A.   In

January 2010, Sodexo notified CMC that CMC owed $349,333.81 for

Sodexo’s work performed under that management agreement.    Id.

¶ 38, Ex. D.    That same year, the District of Columbia (the

“District”) foreclosed on CMC and transferred the assets of its

hospital, United Medical Center (“UMC”), to NFP by statute and

mayoral order.   Thus, NFP took over ownership and operation of

the hospital.    Id. ¶¶ 10, 12, 53; Def.’s Mot. to Dismiss (“Def.’s

Mot.”), Mem. of P. & A. in Supp. of its Motion to Dismiss

(“Def.’s Mem.”) at 1, 4-5; Pl.’s Statement of P. & A. in Opp’n to

Def.’s Mot. to Dismiss (“Pl.’s Opp’n”) at 4-5.   Sodexo brings a

breach of contract claim against NFP arguing that NFP took over

CMC’s contractual obligations and is liable for CMC’s breach of

contract for failure to pay.   Compl. ¶¶ 55-56, 65.

                             DISCUSSION
     “‘A complaint can be dismissed under Rule 12(b)(6) when a

plaintiff fails to state a claim upon which relief can be

granted.’”   Howard Univ. v. Watkins, 857 F. Supp. 2d 67, 71

(D.D.C. 2012) (quoting Peavey v. Holder, 657 F. Supp. 2d 180, 185

(D.D.C. 2009) (citing Fed. R. Civ. P. 12(b)(6))).

     To survive a motion to dismiss, a complaint must
     contain sufficient factual matter, acceptable as true,
     to “state a claim to relief that is plausible on its
                                -3-

     face.” . . . A claim has facial plausibility when the
     plaintiff pleads factual content that allows the court
     to draw the reasonable inference that the defendant is
     liable for the misconduct alleged.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007)).   In considering

a motion to dismiss under Rule 12(b)(6), a court accepts well-

pleaded factual allegations in the complaint as true and

interprets them in the light most favorable to the plaintiff.

Howard Univ., 857 F. Supp. 2d at 71 (citing Warren v. District of
Columbia, 353 F.3d 36, 39 (D.C. Cir. 2004)).   “‘In determining

whether a complaint states a claim, the court may consider the

facts alleged in the complaint, documents attached thereto or

incorporated therein, and matters of which it may take judicial

notice.’”   Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059

(D.C. Cir. 2007) (quoting Stewart v. Nat’l Educ. Ass’n, 471 F.3d

169, 173 (D.C. Cir. 2006)).   “[A] complaint attacked by a Rule

12(b)(6) motion to dismiss does not need detailed factual

allegations . . ., [but] [w]here a complaint pleads facts that

are merely consistent with a defendant’s liability, it stops

short of the line between possibility and plausibility of

entitlement to relief.”   Howard Univ., 857 F. Supp. 2d at 71
(internal citations and quotation marks omitted).

     Further, the notice pleading standard in Rule 8(a)(2)

requires a complaint to contain “a short and plain statement of

the claim showing that the pleader is entitled to relief[,]” Fed.

R. Civ. P. 8(a)(2), and to “give the defendant fair notice of
                                 -4-

what the . . . claim is and the grounds upon which it rests,”

Twombly, 550 U.S. at 555 (internal quotation marks omitted).

      Here, Sodexo brings a breach of contract claim against NFP

although the contract at issue was between Sodexo and CMC.

Compl. ¶ 13, 65.2    “Ordinarily, a business entity which acquires

the assets of another business is not liable for its

predecessor’s liabilities and debts.”     Bingham v. Goldberg,
Marchesano, Kholman, Inc., 637 A.2d 81, 89 (D.C. 1994).      However,

Bingham recognized four exceptions to this general rule where:

      (1) the buyer expressly or impliedly agrees to assume
      such debts; or (2) the transaction amounts to a de
      facto merger of the buyer and seller; or (3) the buying
      corporation is a “mere continuation” of the selling
      corporation; or (4) the transaction is entered into
      fraudulently in order to escape liability for such
      debts.

Id. at 89-90 (quoting Bud Antle, Inc. v. Eastern Foods, Inc., 758

F.2d 1451, 1456 (11th Cir. 1985)).

      NFP moves to dismiss the complaint arguing that the

complaint does not state a breach of contract claim because the

plaintiffs have not alleged sufficient facts to show that CMC’s

obligations and debts were transferred to NFP.     Def.’s Mem. at 7-

10.   In response, Sodexo states that the complaint sufficiently

pleads the breach of contract claim based upon successor

liability.   Pl.’s Opp’n at 6, 9-15.    Sodexo argues that NFP

“expressly or impliedly assumed the debts of CMC” under the first

Bingham exception.    Id. at 13-15.    Sodexo also argues that the

      2
       The parties do not dispute that D.C. law governs this
breach of contract action.
                                  -5-

complaint’s allegation that CMC’s liabilities were transferred to

or assumed by NFP is sufficient to state a claim under the third

Bingham exception, the mere continuation theory.    Id. at 9-11.

Sodexo alleges additional facts “in the public record” which

support the mere continuation theory for the breach of contract

claim.   Id. at 12-13.   The central issue, then, is whether the

complaint’s allegations regarding successor liability are

sufficient to satisfy the pleading standards of Rule 8 and to

state a breach of contract claim under Rule 12(b)(6) based on

either of the Bingham exceptions asserted by the plaintiff.

I.   EXPRESS OR IMPLIED ASSUMPTION OF DEBTS

     Under D.C. law, a buyer may be held liable for its

predecessor’s debts where “the buyer expressly or impliedly

agrees to assume such debts[.]”    Bingham, 637 A.2d at 89.   To

assert this exception, the plaintiff must either allege that

there was an express agreement to assume the predecessor’s

liabilities, or, under an implied agreement theory, the

plaintiff’s allegations must “do more than show that [the
successor] serves [the original entity’s] former customers.”

Material Supply Int’l, Inc. v. Sunmatch Indus. Co., Ltd., 62 F.

Supp. 2d 13, 23 (D.D.C. 1999).    One court analyzing this

exception has identified three factors to determine whether there

was an implied assumption of debt: “‘(1) whether the successor’s

conduct indicated its intention to assume the debt; (2) whether

the creditor relied on the conduct and the effect of any

reliance; and (3) whether the successor’s representatives
                                 -6-

admitted liability.’”   Direct Supply, Inc. v. Specialty Hosps. of
Am., LLC, 878 F. Supp. 2d 13, 21 (D.D.C. 2012) (quoting Portfolio

Fin. Servicing Co. ex rel. Jacom Computer Servs., Inc. v.

Sharemax.com, Inc., 334 F. Supp. 2d 620, 625 (D.N.J. 2004)).      In

this case, Sodexo argues that NFP expressly or impliedly assumed

CMC’s debts because it is plausible that the mayoral order and

the substitute trustee’s deed intended to transfer to NFP CMC’s

contractual debts.   Pl.’s Opp’n 13-14.
     Sodexo has not alleged sufficient facts in its complaint or

its opposition brief to support the claim that NFP expressly

assumed CMC’s debts.    Instead, Sodexo argues, and NFP disputes,

that the District transferred CMC’s contractual liabilities to

NFP through the mayoral order and substitute trustee deed which

effected the foreclosure.3   Mayoral Order 2010-117 states that

“[t]he Hospital Property and all other existing rights and

obligations transferred to the District of Columbia under the
said Substitute Trustee’s Deed are hereby transferred to the

jurisdiction and control of the Not-For-Profit Hospital

Corporation.”   Def.’s Mot., Ex. D, Transfer of Jurisdiction of

     3
       Although not included in the complaint, these documents
are appropriate to consider at the motion to dismiss stage
because they are public records of which a court may take
judicial notice. See Direct Supply, 878 F. Supp. 2d at 20 n.10
(“[M]ayoral orders are public records setting out a public
office’s activities. . . . Public records are matters subject to
judicial notice and may be considered when deciding motions to
dismiss.”); George v. Bank of America N.A., 821 F. Supp. 2d 299,
301 n.5 (D.D.C. 2011) (“[T]he court may take judicial notice of
the Deed of Trust because it is a public document recorded with
D.C. Land Records.”)
                                 -7-

Real Property and Other Assets Under the Jurisdiction of the
Mayor to the Not-For-Profit Hospital Corporation (“Mayoral Order

2010-117”) ¶ 2(2).    The Substitute Trustee’s Deed conveys the

hospital’s “land and premises, together with the improvements,

easements, and appurtenances . . . and all furniture,

furnishings, fixtures, goods, equipment, inventory or personal
property owned, leased or licensed by Borrower, all cash, funds,

deposit accounts and other rights and evidence of rights to case,

all leases, licenses and such other goods and chattels and

personal property owned by [CMC][.]”    Id., Ex. E, Substitute

Trustee’s Deed ¶ G.   The complaint implies that the transfer of

“rights and obligations” in the mayoral order means that “[NFP]

may be held liable for the debts (i.e. obligations) of the

hospital.”   Compl. ¶¶ 52-56.   But the mayoral order explicitly

limits the “obligations” to those transferred by the Substitute

Trustee’s Deed.   See Def.’s Mot., Ex. D, Mayoral Order 2010-117

¶ 2.   The only such obligations reflected in the deed are that

the conveyance of the property is made “subject to such liens,

leases, encumbrances, reservations, covenants, conditions,

easements and restrictions, if any, lawfully affecting the said

premises, appurtenances, fixtures, furnishings, and other

personal property.”    Id., Ex. E, Substitute Trustee’s Deed ¶ G.

This provision does not reflect that NFP expressly assumed the

contractual debts of CMC at issue here.   In any event, Sodexo has

not alleged any action by NFP itself, a separate entity from the
                                  -8-

District, see D.C. Code § 44-951.02, to expressly assume CMC’s
debt.

        Sodexo also does not allege any facts which show that NFP

impliedly assumed NFP’s contractual debts.      Sodexo has not

alleged that NFP’s conduct has shown an intention to assume CMC’s

debt, that Sodexo relied on such conduct, or that NFP has
admitted liability.    Thus, Sodexo’s allegation that NFP assumed

CMC’s liabilities is insufficient to state a breach of contract

claim based on an express or implied assumption theory.

II.     MERE CONTINUATION OF A PREDECESSOR

        Under the third Bingham exception, the factors which show

that an entity is a “mere continuation of a predecessor” include

(1) whether there is a “common identity of officers, directors,

and stockholders in the purchasing and selling corporations[,]”

(2) “the sufficiency of the consideration passing from one entity

for the sale of its interest in another[,]” (3) whether the old

entity “failed to arrange to meet its contractual obligations[,]”

and (4) “whether there is a continuation of the corporate entity

of the seller.”    Bingham, 637 A.2d at 91-92.
        Here, Sodexo argues that NFP is a “mere continuation” of

CMC.    Pl.’s Opp’n at 9.   Sodexo relies on Reese Bros., Inc. v.

U.S. Postal Serv., 477 F. Supp. 2d 31 (D.D.C. 2007), in

contending that the factual allegations in the complaint

sufficiently reflect this theory.       There, the plaintiff asserted

successor liability under this exception by alleging that the

defendant “continues the operations of [the original entity]
                                   -9-

including its telemarketing fundraising for nonprofit

organizations in the United States.”      Id. at 41.   This

allegation, along with the “similarity in the names” between the

entities, the entities’ “common mailing address” and the fact

that the entities “engaged in an identical business[,]” was

sufficient to state a claim for relief under the mere

continuation exception.4   Id.

     By contrast, the Direct Supply court granted NFP’s motion to

dismiss for failure to state a breach of contract claim and

rejected the application of the mere continuation theory to this

same asset transfer.    In particular, the court stated “[a]n

acquiring entity is a mere continuation of its predecessor when

‘there is a continuation of the corporate entity of the seller’

–- it’s not enough that ‘there is a continuation of the seller’s

business operation.’”   Direct Supply, 878 F. Supp. 2d at 21

(quoting Bingham, 637 A.2d at 92).       Direct Supply emphasized that

there was no sale of UMC to NFP; instead, “the District of

Columbia took the hospital from Specialty Hospitals and gave it

to NFP.”   Id.   Direct Supply noted that NFP was not a “corporate

continuation” of Specialty Hospitals in light of their differing

corporate forms.   Id. at 21-22.

     4
       The Reese decision applied the standard for dismissing
motions to dismiss for failure to state a claim where the
plaintiff could “prove no set of facts in support of its claim
that would entitle it to relief.” Reese, 477 F. Supp. 2d at 41
(citing Warren, 353 F.3d at 37). The “no set of facts”
formulation has been rejected by the Supreme Court’s decision in
Twombly.
                                 -10-

      In this case, the complaint does not allege sufficient facts

to sustain its breach of contract claim based on the mere

continuation exception.   The complaint states that the hospital

assets were foreclosed upon and “the District of Columbia created

[NFP] to run the foreclosed upon hospital assets.”   Compl. ¶¶ 52-

54.   The complaint also states that “all rights and obligations”

were transferred to NFP and “[b]ecause [NFP] has taken over the

obligations of CMC, [NFP] should be held liable for the debts

incurred by these entities.”   Id. ¶¶ 55, 65.   But these

assertions, without more, provide insufficient facts to support

the legal conclusion that NFP is responsible for the contractual

liabilities of CMC under the mere continuation exception based on

the four factors listed above.

      Sodexo does allege in its opposition brief additional facts

to support the mere continuation theory.   It alleges that UMC

continues to operate under the same trade name and remains at the

same physical address; CMC and NFP have many of the same

employees and maintain the same CEO; and UMC has substantially

the same owner after the foreclosure as it had before, namely,

the District of Columbia.   Pl.’s Opp’n at 12-13.   However, “‘a

complaint may not be amended by the briefs in opposition to a

motion to dismiss.’”   Konah v. District of Columbia, 815 F. Supp.
2d 61, 71 (D.D.C. 2011) (quoting Arbitraje Casa de Cambio v. U.S.

Postal Serv., 297 F. Supp. 2d 165, 170 (D.D.C. 2003)).

Therefore, the court may “disregard[] any additional factual

allegations contained within the plaintiff’s opposition to the
                                 -11-

defendants’ motion.”   Id.    By contrast, courts may consider

“matters of which the court may take judicial notice, and matters

of public record.”   McManus v. District of Columbia, 530 F. Supp.

2d 46, 64 (D.D.C. 2007).     Even if the plaintiff’s additional

factual allegations were accepted as facts within the public

record, they are insufficient to allege that the mere

continuation theory applies in this case.    Here, like the

transaction in Direct Supply, there was no underlying sale of the
hospital from CMC to NFP; instead, the District of Columbia

foreclosed the hospital’s assets, created NFP and authorized the

Mayor to transfer the assets of the hospital to NFP.     Compl.

¶¶ 52-54; Pl.’s Opp’n at 4-5; see also D.C. Code § 44-951.07

(stating that after foreclosure, “the Mayor is authorized to

transfer all of the assets, including cash, accounts receivable,

and real and personal property, of United Medical Center to the

Corporation”). The mayor did so by mayoral order which resulted

in the change of UMC’s ownership from CMC to NFP.     Def.’s Mot.,

Exs. D, E.   In this case, there is no continuation of the

corporate entity of the seller because CMC was a privately owned

corporation, Compl. ¶¶ 8-9, while NFP is a non-profit corporation

created by and separate from the District, see D.C. Code § 44-

951.02 (“There is established as an instrumentality of the

District government the Not-for-Profit Hospital Corporation,

which shall have a separate legal existence within the District

government.”).   NFP is an instrumentality which manages UMC and

even if UMC remained unchanged in the ways identified by Sodexo,
                               -12-

these factual allegations are insufficient to show that CMC’s

corporate entity has continued as NFP.     As Sodexo has also failed

to sufficiently allege facts showing that NFP is a mere

continuation of CMC, Sodexo’s breach of contract claim will be

dismissed.

                              CONCLUSION

     Sodexo has not alleged sufficient facts to state a claim for

breach of contract on either the express or implied assumption of

debt theory or the mere continuation theory.    Therefore, the

defendant’s motion to dismiss will be granted and the complaint

will be dismissed.   The plaintiff’s motion to strike will be

denied as moot.   An appropriate Order accompanies this memorandum

opinion.

     SIGNED this 19th day of March, 2013.

                                        /s/
                                RICHARD W. ROBERTS
                                United States District Judge