Court Opinion

ID: 4196101
Source: CourtListenerOpinion
Date Created: 2017-08-15 23:01:29.173188+00
Date Added: 2024-06-11T07:47:29.013077
License: Public Domain

UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA

_________________________________________
                                          )
STEPHEN KELLEHER,                         )
                                          )
      Plaintiff,                          )
                                          )
              v.                          )                Case No. 1:16-cv-02092 (APM)
                                          )
DREAM CATCHER, L.L.C., et al.,            )
                                          )
      Defendants.                         )
_________________________________________ )

                        MEMORANDUM OPINION AND ORDER

       Before the court are two separate Motions to Dismiss Plaintiff Stephen Kelleher’s

Amended Complaint.     In one, Defendants Cesar De Armas and Heidi Schultz move to dismiss all

claims brought against them. See Indiv. Defs.’ Mot. to Dismiss, ECF No. 15 [hereinafter Indiv.

Defs.’ Mot.]. In the other, Defendant Dream Catcher, L.L.C., moves to dismiss Counts III, VI,

and VII of the Amended Complaint.      See Def. Dream Catcher, L.L.C.’s Mot. to Dismiss Counts

III, VI, and VII, ECF No. 16 [hereinafter Dream Catcher Mot.]. For the reasons that follow, the

Motions are granted in part and denied in part.

       Background.       Defendant Dream Catcher, L.L.C., is a Washington,           D.C.-based

construction company wholly owned by Defendants Cesar De Armas and Heidi Schultz (the

“Individual Defendants”).     Am. Compl., ECF No. 13 [hereinafter Am. Compl.], ¶¶ 4, 8.

According to the Amended Complaint, Plaintiff hired Defendants to perform construction and

renovation work on a home owned by Plaintiff.     Id. ¶ 9. When the project went awry, Plaintiff

filed a Complaint, advancing contract, quasi-contract, and tort claims, as well as two putative

statutory claims under District of Columbia law. See Notice of Removal, ECF No. 1, Compl.,

ECF No. 1-1. On December 23, 2016, the court dismissed the original Complaint against the
Individual Defendants because it failed to allege sufficient facts to support holding Individua l

Defendants liable for Dream Catcher’s alleged misconduct on an alter ego, or veil-piercing, theory

of liability.     See Mem Op & Order, ECF No. 11.

         On January 10, 2017, Plaintiff filed an Amended Complaint alleging further facts in

support of his claims, with particular focus on buttressing his claims against the Individua l

Defendants. See Am. Compl. The Individual Defendants again moved to dismiss, arguing that

the Amended Complaint fares no better than the original Complaint in establishing alter ego

liability.      See Indiv. Defs.’ Mot. at 3–6. Separately, Dream Catcher filed a Motion to Dismiss

Counts III, VI, and VII of the Amended Complaint, asserting that: (1) Plaintiff cannot advance

quasi-contract claims because the Amended Complaint “concedes that a contract exists” (Count

III); (2) Plaintiff’s “statutory” claim under the District of Columbia municipal regulations

governing home improvement contractors fails because those regulations do not provide a private

right of action (Count VI); and (3) Plaintiff’s fraud claim is fatally flawed because he has not

pleaded any fraudulent conduct that is distinct from his breach of contract claims (Count VII).

See Dream Catcher Mot. The Individual Defendants joined in Dream Catcher’s motion to dismiss

Count VII. See Indiv. Defs.’ Mot. at 6–7.

         The court now turns to assess Defendants’ asserted grounds for dismissal under the

“plausibility standard” of Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009), and Bell Atlantic

Corporation v. Twombly, 550 U.S. 544, 556–57 (2007).

         Alter Ego Liability (All Counts). The court begins with the Individual Defendants’

argument that the Amended Complaint fails to allege facts sufficient to support an alter ego, or

veil-piercing, theory of liability.   The D.C. Circuit has found it appropriate to pierce the corporate

veil when “the corporation, rather than being a distinct, responsible entity, is in fact the alter ego

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or business conduit of the person in control.” Labadie Coal Co. v. Black , 672 F.2d 92, 97 (D.C.

Cir. 1982).   In making that determination, courts generally inquire as to “whether corporate

formalities have been observed; whether there has been commingling of corporate and shareholder

funds, staff and property; whether a single shareholder dominates the corporation; whether the

corporation is adequately capitalized; and, especially, whether the corporate form has been used

to effectuate a fraud.” Ruffin v. New Destination, LLC, 773 F. Supp. 2d 34, 40 (D.D.C. 2011).

“Although a plaintiff need not ‘show at the pleadings stage . . . [that which] he needs to show to

prevail at trial, the plaintiff must still allege sufficient facts regarding an alter ego relationship to

satisfy Rule 8(a)(2) and Iqbal.” Motir Servs., Inc. v. Ekwuno, 191 F. Supp. 3d 98, 109 (D.D.C.

2016) (alteration in original) (internal quotation marks omitted).

        The Amended Complaint alleges the following relevant facts: (1) although Plaintiff had

advanced Dream Catcher “tens of thousands of dollars” to purchase and install a skylight and to

buy appliances and cabinets, Dream Catcher did not purchase the skylight or pay its suppliers in

full for the appliances and cabinets, Am. Compl. ¶¶ 19–20; (2) Dream Catcher admitted that it was

“strapped for cash” and could not make payments to vendors on Plaintiff’s project until it received

a check from another job, id. ¶ 20; (3) on another project unrelated to Plaintiff’s, Dream Catcher

had to rely on a cash advance from a different client to fund the project, id. ¶ 21; (4) Dream Catcher

and the Individual Defendants shared the same address, id. ¶ 25; (4) the Individual Defendants

borrowed money in their individual capacities from one of Dream Catcher’s clients to fund another

client’s project, and Defendant de Armas repaid that debt with his personal funds only after the

client filed suit, id. ¶ 26; (5) the Individual Defendants used funds from the sale of their house to

satisfy Dream Catcher’s financial obligations, id. ¶ 28; and (6) “upon information and belief,” the

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Individual Defendants deposited funds payable to Dream Catcher “into a college fund, savings

account, or similar bank account in the name of their daughter,” id. ¶ 27.

         The court finds that the foregoing allegations support a plausible alter ego theory of

liability.   The Amended Complaint contains sufficient factual matter, taken as true, which

establishes that: (1) the Individual Defendants commingled corporate and personal funds, id.

¶¶ 26–28; (2) Dream Catcher was undercapitalized, id. ¶¶ 19–21, 26; (3) Dream Catcher and the

Individual Defendants shared a common address, id. ¶ 25; and (4) the Individual Defendants did

not observe corporate formalities, id. ¶¶ 26–28.        See Ruffin, 773 F. Supp. 2d at 41.       Taken

together, those facts paint a plausible picture of a closely held corporation that “is in fact the alter

ego or business conduit” of the Individual Defendants. Labadie Coal Co., 672 F.2d at 97.

         The Individual Defendants’ arguments to the contrary are unconvincing.       First, they insist

that the Amended Complaint establishes, at most, “a financially independent entity with multiple

revenue streams,” rather than an undercapitalized corporation.       Indiv. Defs.’ Mot. at 5. Not so.

The Amended Complaint depicts a corporation that: (1) is unable to pay vendors in full or

complete projects despite advance payments from clients; (2) requires financing from some clients

to perform projects for other clients; and (3) lacks sufficient operating capital to fund existing

obligations without first receiving outstanding payments. And then, of course, there is Dream

Catcher’s admission that it was “strapped for cash.” These allegations easily give rise to a

plausible inference that Dream Catcher was undercapitalized.         See Iqbal, 556 U.S. at 678–79;

Twombly, 550 U.S. at 556–57.

         Next, the Individual Defendants contend that Iqbal and Twombly require the court to

disregard the allegation that they deposited funds payable to Dream Catcher into an account in

their daughter’s name because that allegation is made on “information and belief.” Indiv. Defs.’

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Mot. at 5. Iqbal and Twombly did not, however, eliminate pleading in that manner. A plaintiff

still may plead on “information and belief” “where the facts are peculiarly within the possession

and control of the defendant.” Evangelou v. District of Columbia, 901 F. Supp. 2d 159, 170

(D.D.C. 2012) (internal quotation marks omitted). Here, Plaintiff simply has no way to access,

without the benefit of discovery, the financial records necessary to confirm the Individua l

Defendants’ alleged improper diversion of corporate funds for personal use, and thus that

particular allegation is appropriately advanced on “information and belief” to support Plaintiff’s

theory of alter ego liability.

        Finally, the Individual Defendants maintain that no inference of alter ego liability can arise

from their alleged use of personal assets to satisfy Dream Catcher’s debts and obligations.    Indiv.

Defs.’ Mot. at 5. That bald assertion, however, flies in the face of the well-settled proposition

that a key factor in deciding whether to pierce the corporate veil is “whether corporate funds and

assets have been extensively intermingled with personal assets.” Estate of Raleigh v. Mitchell,

947 A.2d 464, 470–71 (D.C. 2008). Plaintiff’s averment that the Individual Defendants routinely

used their personal assets to pay off Dream Catcher’s debts thus supports Plaintiff’s alter ego

theory of liability.

        In summary, the court finds that the Amended Complaint alleges sufficient facts which,

taken as true, make out a plausible claim of alter ego liability.

        Quasi-Contract Claims (Count III). Next, Dream Catcher argues that Plaintiff’s unjust

enrichment and quantum meruit claims (Count III) must be dismissed for failure to state a claim,

because quasi-contract claims are inappropriate in light of Plaintiff’s concession “that a contract

exists” in this case. Dream Catcher Mot. at 2. Defendants are correct that, under District of

Columbia law, a plaintiff cannot advance quasi-contract claims where there is an existing contract.

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See Plesha v. Ferguson, 725 F. Supp. 2d 106, 112 (D.D.C. 2010). Here, however, dismissal of

Plaintiff’s quasi-contract claims would be premature because Dream Catcher does not admit such

a contract existed.    See Def. Dream Catcher’s Answer, ECF No. 4 (generally denying all

allegations in the Complaint).   Thus, at this juncture, Plaintiff is well within his right to plead both

contract and quasi-contract claims as alternative theories of liability.    See id.; see also Nevius v.

Africa Inland Mission Int’l, 511 F. Supp. 2d 114, 122 n.6 (D.D.C. 2007). Accordingly, the court

declines to dismiss Count III of the Amended Complaint.

          District of Columbia Home Improvement Contractors Law (Count VI).                      Dream

Catcher’s challenge to Count VI fares much better. That count alleges as a stand-alone cause of

action that Dream Catcher is liable to Plaintiff for violating two provisions of the District of

Columbia Home Improvement Contractors Law (“D.C. Home Contractor Law”). Am. Compl. ¶¶

32, 61–65 (citing See D.C. MUN. REGS. tit. 16, §§ 808, 811). That claim fails, however, because,

as Dream Catcher contends, the D.C. Home Contractor Law does not provide a private right of

action.

          The municipal regulations that Dream Catcher allegedly violated do not, on their face,

provide a private right of enforcement. See D.C. MUN. REGS. tit. 16, §§ 808, 811. So, the burden

is on Plaintiff “to demonstrate that, in spite of the absence of any explicit authorization, the

D.C. Council intended to imply a right to sue for damages for violations of” the D.C. Home

Contractor Law. Coates v. Elzie, 768 A.2d 997, 1001 (D.C. 2001). Plaintiff, however, makes no

effort to satisfy his burden. See Pl.’s Opp’n to Dream Catcher Mot., ECF No. 18 [hereinafter Pl.’s

Opp’n], at 1.      All he does is assert—wrongly—that the defendant bears the burden of

demonstrating the absence of a private right of action. Id. Because Plaintiff has not shown that

                                                   6
the D.C. Council intended for there to be a private right of action under the D.C. Home Contractor

Law, the court dismisses Count VI of the Amended Complaint.1

         Fraud (Count VII). Finally, as to Count VII, the court agrees that Plaintiff has failed to

state a claim of common law fraud. “District of Columbia law requires that the factual basis for

a fraud claim be separate from any breach of contract claim that may be asserted.” Plesha, 725
F. Supp. 2d at 113; see also Choharis v. State Farm Fire & Cas. Co., 961 A.2d 1080, 1089 (D.C.

2008) (“[T]he tort must exist in its own right independent of the contract, and any duty upon which

the tort is based must flow from considerations other than the contractual relationship.”).                      Here,

however, Plaintiff’s fraud claim rests entirely on the same acts that form the basis of his breach of

contract claims.      Plaintiff’s fraud claim is premised on the allegation that Defendants falsely

represented that they would purchase and install a skylight, cabinetry, and appliances.                           Am.

Compl. ¶ 67. That allegation, however, is indistinct from Plaintiff’s contract claims. See id.

¶¶ 11–12 (describing as part of the scope of work Defendants’ failure to purchase and install a

skylight, cabinetry, and appliances). Defendants’ alleged unfulfilled promises to perform certain

work, therefore, do not constitute an actionable fraud claim. Plesha, 725 F. Supp. 2d at 113.

Accordingly, the court will dismiss Count VII of the Amended Complaint.

                                              *        *        *

1
  The court declines Plaintiff’s alternative request to “construe Count VI as a claim for negligence.” Pl.’s Opp’n at 1.
That request is precluded by the rule that “a plaintiff cannot amend his or her complaint by the briefs in opposition to
a motion to dismiss.” Park Civic Ass’n v. Gray, 27 F. Supp. 3d 142, 160 n.7 (D.D.C. 2014).
                                                           7
       For the foregoing reasons, the court grants in part and denies in part both Defendant Dream

Catcher’s and the Individual Defendants’ Motions to Dismiss. The court dismisses Counts VI

and VII as to all Defendants. As to all other counts, the Motions are denied.

                                                    ______________________
Dated: August 15, 2017                              Amit P. Mehta
                                                    United States District Judge

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