Court Opinion

ID: 9841116
Source: CourtListenerOpinion
Date Created: 2023-09-21 13:03:34.863018+00
Date Added: 2024-06-11T08:39:46.135964
License: Public Domain

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             DISTRICT OF COLUMBIA COURT OF APPEALS

                                 No. 22-CV-0548

             CAPITAL RIVER ENTERPRISES, LLC, et al., APPELLANTS,

                                        V.

                      CHRISTOPHER ABOD, et al., APPELLEES.

                         Appeal from the Superior Court
                          of the District of Columbia
                           (2022-CA-000258-R(RP))

                     (Hon. Hiram E. Puig-Lugo, Trial Judge)

(Argued March 7, 2023                               Decided September 21, 2023)

       Brian West, with whom Benjamin G. Chew and Andrew C. Crawford were on
the brief, for appellants.

      Nathan J. Bresee, David S. Panzer, and Joseph M. Creed, with whom Michael
J. Bramnick and David H. Cox were on the brief, for appellees Christopher Abod,
Harry Roupas, and BCJCL, LLC.

      Spencer B. Ritchie, with whom Richard W. Luchs and Gwynne L. Booth were
on the brief, for appellee Premium Title & Escrow, LLC.

      Before DEAHL and HOWARD, Associate Judges, and THOMPSON, Senior Judge.

      DEAHL, Associate Judge: Capital River was a three-member LLC formed to

buy and sell properties for profit. One of its members, Kuei-Yin Chang Liu, alleges
                                           2

that the other two members defrauded Capital River. Specifically, Liu alleges that

the other two members encumbered Capital River’s property with two loans—after

they forged Capital River’s operating agreement to omit Liu’s ownership interest—

and then kept the money for themselves. In an important twist, Capital River’s true

operating agreement granted those two members the authority to take out the loans

on Capital River’s behalf anyhow, meaning any forgery was immaterial to their

ability to do so. Capital River and Liu sued the grantors of those loans for quiet title

and sued the escrow agent that facilitated them for negligence. The trial court found

that each of their claims failed because the two members who took out the loans

against the properties had the actual authority to enter into those transactions. The

court therefore granted the grantor-defendants’ motion to dismiss and granted the

escrow agent’s motion for summary judgment.

      Capital River and Liu now appeal, arguing that the trial court erred in

dismissing their quiet title claim because deeds entered into on the basis of a forged

operating agreement are rendered void ab initio. For that proposition, they rely on

Smith v. Wells Fargo Bank, in which we held that a forged power of attorney renders

a deed void. 991 A.2d 20, 26 (D.C. 2010). We have never extended that rule beyond

powers of attorney, however, and it does not make sense to extend the rule to the

scenario we confront here, so we detect no error.
                                           3

         Capital River and Liu also challenge the trial court’s grant of summary

judgment to the escrow agent regarding their negligence claim. They argue that the

escrow agent had a fiduciary duty to inform Capital River of certain information—

namely, that two of its members were attempting to defraud it—and that the escrow

agent failed to do so. Though the trial court technically granted pre-discovery

summary judgment on this claim, the order was effectively a dismissal for failure to

state a claim: the court concluded that Capital River and Liu would not have a viable

claim, regardless of whether they could substantiate all of their factual allegations.

We conclude that this order was erroneous and reverse it.

         We affirm the trial court’s grant of the motion to dismiss, and we reverse in

part its grant of the motion for summary judgment as it relates to the negligence

claim.

                                           I.

         Kuei-Yin Chang Liu, Napoleon Ibiezugbe, and Kevin Falkner together

formed Capital River Enterprises, LLC, to “purchase, develop and sell” for profit

two parcels of property located at 2318-2322 Nicholson Street Southeast. The terms

governing the LLC were laid out in two documents: an operating agreement and a

memorandum of understanding (MOU), which was incorporated into the operating
                                          4

agreement. These documents stated that, together, they constituted the “entire

agreement among the Members.”

      The operating agreement stated that Liu would have a 50% ownership interest,

while Ibiezugbe and Falkner would have 25% each. The parties agreed that Liu

would finance the project, while Ibiezugbe and Falkner would conduct the day-to-

day work of improving the properties. To that end, the MOU stated that Liu would

contribute $1.6 million to the LLC. Around $1.4 million would be used to buy the

property, and the remaining money would be used to pay for costs associated with

development of the property.       Meanwhile, Ibiezugbe and Falkner would be

“responsible for . . . all maintenance costs of the property,” “all expenses, costs and

fees incurred after the exhaustion of the Planning and Permitting Funds,” and “all

actions necessary to hire, and fire, architects, engineers, lawyers and related

professionals of their choosing to advance and complete the Project.” Importantly,

the MOU provided that “[a]ll major decisions and choices . . . shall be made by a

two-third[s] majority vote of the Members, each of whom shall have one vote for

each major decision required.”

      With the money Liu had invested, Capital River bought the Nicholson Street

properties in October 2017, with Premium Title & Escrow, LLC, acting as its escrow
                                          5

agent. About two years later, Ibiezugbe and Falkner took out two loans on behalf of

Capital River, using the properties as security. In April 2019, Ibiezugbe and Falkner

entered into a deed of trust (encumbering the properties) on behalf of Capital River

with Christopher Abod and Harry Roupas, in exchange for a loan of $499,000. In

November 2019, they entered into a second deed of trust on behalf of Capital River

with BCJCL, LLC, in exchange for a loan of $375,000. Premium Title again acted

as the escrow agent for both transactions.

      Capital River and Liu 1 now allege that these loans were entered into for

Ibiezugbe and Falkner’s personal gain, that Liu was not aware of the transactions,

and that Capital River did not profit from them. Specifically, Capital River alleges

that Ibiezugbe and Falkner gave the lenders a forged operating agreement that named

Ibiezugbe and Falkner as the sole members of the LLC, omitting any mention of Liu.

Capital River further alleges that Ibiezugbe and Falkner deposited the loan funds

into their personal accounts and that Capital River never received any money from

the loans. According to Capital River, Liu did not find out about the loans until over

a year later. At that time, the three members amended the operating agreement and

MOU. The amendment stated that “the Parties acknowledge that [Ibiezugbe and

      1
        This opinion refers to Liu and Capital River collectively as “Capital River”
unless otherwise specified.
                                            6

Falkner] have breached the [operating agreement] and MOU” and amended the

MOU to give Liu sole decisionmaking power.

      Capital River and Liu sued the loan grantors, Abod, Roupas, and BCJCL, and

the escrow agent, Premium Title. Capital River sought quiet title against the grantor-

defendants, asking the court to declare the two deeds void. It brought a claim of

negligence against Premium Title, arguing that Premium Title breached its fiduciary

duty, as an agent of the LLC, to inform the LLC of the alleged forgery. And it

brought claims against all defendants for tortious interference with business

relations, slander of title, and civil conspiracy.

      The grantor-defendants filed a motion to dismiss under Rule 12(b)(6). The

Superior Court granted the motion, dismissing all counts against those defendants

on the basis that the plain language of the MOU granted Ibiezugbe and Falkner the

actual authority to enter into the deeds. The court reasoned that this actual authority

meant that “Capital River [wa]s responsible for Ibiezugbe and Falkner’s

agreements,” so even a forged operating agreement would not render the deeds void

ab initio—negating Capital River’s quiet title claim. The court further reasoned that

Ibiezugbe and Falkner’s actual authority to enter into the deeds negated Capital

River’s claims of tortious interference, slander of title, and civil conspiracy, a ruling
                                          7

Capital River does not directly challenge on appeal. See Drake v. McNair, 993 A.2d

607, 615 n.12 (D.C. 2010) (deeming an issue waived where party failed to include

in her brief any substantive argument related to the issue).

      Premium Title then filed a pre-discovery motion for summary judgment,

which the court also granted. The court dismissed the tortious interference, slander

of title, and civil conspiracy claims for the same reasons given in its previous order.

And it dismissed the negligence claim, reasoning that because Ibiezugbe and Falkner

had actual authority to enter into the deeds, “Premium Title’s actions were consistent

with Capital River’s MOU and there was no ‘fraud’ perpetrated against Capital River

that Premium Title had a duty to notify Plaintiffs of.” Capital River now appeals.

                                          II.

      Capital River makes three arguments. It argues that the trial court erred in

(1) finding that Ibiezugbe and Falkner had actual authority to enter into the deeds;

(2) dismissing its quiet title claim based on a finding that the forged operating

agreement did not automatically void the deeds; and (3) granting Premium Title’s

motion for summary judgment as to the negligence claim. We disagree with the first

two arguments but agree with the third. We address each argument in turn.
                                          8

                                         A.

       The trial court found that the MOU granted Ibiezugbe and Falkner the actual

authority to enter into the deeds. Capital River disputes that finding. We agree with

the trial court.

       We adhere to the objective law of contracts. 2301 M St. Coop. Ass’n v.

Chromium LLC, 209 A.3d 82, 86 (D.C. 2019). This means that “the contracting

parties’ unexpressed intent at the time the contract was entered into is irrelevant if

the contractual terms are otherwise unambiguous, or unless there is fraud, duress, or

mutual mistake.” Id. (quotations omitted). Likewise, the parol evidence rule

“excludes extrinsic evidence to assist in contract interpretation and limits our

analysis to the plain meaning of the contractual terms if they are otherwise

unambiguous.” Id. at 87. A document is ambiguous only if “the provisions in

controversy are[] reasonably or fairly susceptible of different constructions or

interpretations, or of two or more different meanings.” Sahrapour v. LesRon, LLC,

119 A.3d 704, 708 (D.C. 2015) (quoting Joyner v. Estate of Johnson, 36 A.3d 851,

856 (D.C. 2012)). 2

       2
        The operating agreement states that Capital River “will be governed under
the laws of the Commonwealth of Virginia,” so there is at least an argument that we
                                           9

      The plain language of the MOU, incorporated into the operating agreement,

unambiguously grants Ibiezugbe and Falkner the ability to take out loans against

Capital River’s assets. The MOU provides that “[a]ll major decisions and choices

. . . shall be made by a two-third majority vote of the Members, each of whom shall

have one vote for each major decision required.” Ibiezugbe and Falkner are two of

the three members of Capital River, comprising a two-thirds majority. Encumbering

the property with a loan is undoubtedly a “major decision.” While Capital River

counters that the LLC’s members did not contemplate taking out loans against the

property, the plain terms of the MOU do not preclude them from doing so.

      Capital River appeals to unwritten understandings between the members and

the amendment that post-dates the loans to support its interpretation, but it may not

look to either source to introduce ambiguity into an unambiguous contract. D.C.

contract law prohibits the use of extrinsic evidence to contradict unambiguous

language. See 2301 M St. Coop., 209 A.3d at 87. And, in any case, the MOU itself

rejects the use of any external sources of interpretation, by stating that it constitutes

should be applying Virginia law when interpreting it. No party makes that argument,
however, and only one brief addresses Virginia’s contract law, asserting that it is in
accord with the District’s on the above points. See Westmoreland LG&E Partners
v. Virginia Elec. & Power Co., 486 S.E.2d 289, 294 (Va. 1997). Because the parties
seemingly agree that District law applies, and no party argues Virginia law would
point to any different result, we apply the District’s law.
                                         10

“the full and complete terms of agreement by and between the Members.” See Adler

v. Abramson, 728 A.2d 86, 90 (D.C. 1999) (“The absence . . . of a limitation on

which the parties had explicitly bargained, in a final agreement containing an

integration clause (as this one did), is strong indication that the parties reasonably

meant to bind themselves only by the words they employed.”). As the trial court

found, the MOU gave Ibiezugbe and Falkner the actual authority to take out loans

against the properties.

                                         B.

      Capital River argues that, even if Ibiezugbe and Falkner had the authority to

enter into the deeds and thereby encumber the properties, the deeds are nonetheless

void ab initio because Ibiezugbe and Falkner relied on an allegedly forged operating

agreement to enter into them. Capital River argues that acquiring property “by

means of a forged instrument relating to the property” renders the deed void—and

that an operating agreement is one such instrument. To support this argument,

Capital River relies on Smith v. Wells Fargo Bank, in which we stated that a forged

power of attorney would render void a deed of trust entered into using that power of

attorney. 991 A.2d at 26. Capital River cites our statement in Smith that “even a

bona fide purchaser cannot acquire a property right by means of a forged instrument
                                          11

relating to the property.” Id. at 31. Appellees counter that for a deed to be void ab

initio, the deed itself must be forged, and Smith broadened that rule only to include

forged powers of attorney—not to any other class of documents. We agree with

them and conclude that the trial court’s dismissal of the quiet title claim was proper.

      We review a dismissal for failure to state a claim de novo. See Johnson-El v.

District of Columbia, 579 A.2d 163, 166 (D.C. 1990). “All that is required for a

complaint to be sufficient is ‘a short and plain statement of the claim showing that

the pleader is entitled to relief.’” Scott v. FedChoice Fed. Credit Union, 274 A.3d

318, 322 (D.C. 2022) (quoting Super. Ct. Civ. R. 8(a)(2)).

      Declaring a deed void ab initio is a drastic result. The deed is void not only

against the parties to the deed, but also against any subsequent purchasers—even

bona fide purchasers, who are completely innocent as to any wrongdoing that

occurred. Smith, 991 A.2d at 26. As such, the situations that render a deed void ab

initio are narrow: courts typically “have been circumspect at common law in finding

a deed void ab initio and have limited [their] rulings regarding voidness to

circumstances that go to the face of the deed, e.g., forgery.” Julian v. Buonassissi,

997 A.2d 104, 120 (Md. 2010) (footnote omitted); see Smith, 991 A.2d at 26 n.10

(citing cases).
                                         12

      This rule has been slightly expanded to include forged powers of attorney.

Smith, 941 A.2d at 26. A power of attorney is a unique document that confers special

powers on its holder and is subject to special regulations. See generally Uniform

Power of Attorney Act, D.C. Code §§ 21-2601.01 to -2604.03. “If . . . the Power of

Attorney was forged, [the] execution of the deed of trust pursuant to the Power of

Attorney is no better than if [the deed of trust] had been directly forged.” In re

Baxter, 320 B.R. 30, 31 (Bankr. D.D.C. 2004).

      The rule that forged powers of attorney render deeds void has long been

recognized. See Unity Banking & Saving Co. v. Bettman, 217 U.S. 127, 135 (1910).

Smith is simply the latest in that long line of cases. Indeed, Smith’s language

regarding “a forged instrument relating to the property” stems from the 1910

Supreme Court case of Unity Banking & Saving Co. v. Bettman, which held that a

forged power of attorney rendered a deed void. See id. at 135 (“As against the true

owner, a right of property cannot be acquired by means of a forged written

instrument relating to such property.”). That language, in context, referred to powers

of attorney only. See id.; see also In re Baxter, 320 B.R. at 39 (using same language

to discuss power of attorney); Scotch Bonnett Realty Corp. v. Matthews, 11 A.3d

801, 805 (Md. 2011) (same); Shvartser v. Lekser, 308 F. Supp. 3d 260, 265 (D.D.C.
                                            13

2018) (same). We are not aware of any case to have interpreted that language to

apply beyond powers of attorney.

      We decline to extend that language to cover forged operating agreements. An

operating agreement, unlike a power of attorney, is not a necessary prerequisite for

entering into a deed; indeed, LLCs are not required to have written operating

agreements at all.       See D.C. Code § 29-801.02(10) (contemplating “oral” or

“implied” operating agreements). Moreover, the “strong public policy favoring bona

fide purchasers for value” supports limiting the circumstances in which deeds are

rendered void. See Scotch Bonnett, 11 A.3d at 810. If the forgery of any document

submitted during a real estate transaction could render that transaction void, then

real estate transactions would be significantly more uncertain—including for bona

fide purchasers far removed from the initial forgery. It would also open the system

up for gaming: for instance, a seller could forge a peripheral document in order to

give it the option to unilaterally void the transaction at a later date. For these reasons,

we decline to extend the forgery rule to documents other than powers of attorney

(and the deed itself).
                                         14

                                         C.

      Third, Capital River argues that the trial court erred in granting summary

judgment to Premium Title on Capital River’s negligence claim. We agree.

      We review a grant of summary judgment de novo. Onyeoziri v. Spivok, 44

A.3d 279, 283 (D.C. 2012). “Our role ‘is not to act as factfinder and to resolve

factual issues,’ but rather to review the record to determine if there is ‘a genuine

issue of material fact on which a jury could find for the non-moving party.’” Id.

(quoting Holland v. Hannan, 456 A.2d 807, 814-15 (D.C. 1983)). Whether the trial

court was correct to grant summary judgment in this case reduces to whether it was

correct to conclude, as a matter of law, that Premium Title had no duty to alert

Capital River of incipient loans that the MOU authorized Ibiezugbe and Falkner to

take out on the LLC’s behalf.

      Motions for summary judgment are typically filed after discovery has been

conducted, but they may be filed “at any time” beforehand. Super. Ct. Civ. R. 56.

Here, the trial court ruled pre-discovery because it concluded that Capital River’s

claims failed as a matter of law, even if they were factually substantiated. The trial

court reasoned that “there was no ‘fraud’ perpetrated against Capital River,” and that

“Premium Title could not have violated the applicable standard of care,” because the
                                           15

loans did not violate the terms of the MOU. On appeal, Premium Title defends that

reasoning, stating that “[n]o amount of expert testimony or discovery could rescue

[Capital River’s] deficient claims.” That leaves us to assess the legal basis for the

trial court’s grant of summary judgment, rather than assessing any evidentiary

support for Capital River’s allegations (which is typically at issue when reviewing

grants of summary judgment).

      With that background the trial court’s ruling was effectively no different from

a Rule 12(b)(6) dismissal, and we assess whether it was correct to rule—assuming

that Capital River could substantiate all of its factual allegations—that Capital

River’s claims failed as a matter of law. “[A] summary-judgment motion . . . made

on the basis of the pleadings alone . . . functionally is the same as a motion to dismiss

for failure to state a claim or for a judgment on the pleadings.” See 10A Charles A.

Wright & Arthur R. Miller, Federal Practice and Procedure § 2713 (4th ed. Apr.

2023 update) (footnotes omitted). We consider de novo whether, taking Capital

River’s allegations as true, it has “allege[d] the elements of a legally viable claim.”

Chamberlain v. Am. Honda Finance Corp., 931 A.2d 1018, 1022-23 (D.C. 2007).

      Escrow agents owe a fiduciary duty of care to both buyer and seller in a real

estate transaction. Wagman v. Lee, 457 A.2d 401, 405 (D.C. 1983). This includes
                                         16

“a duty of good faith and candor in affairs connected with the undertaking, including

the duty to disclose to the principal ‘all matters coming to [the agent’s] notice or

knowledge concerning the subject [] of the agency, which it is material for the

principal to know for his protection or guidance.’” Aronoff v. Lenkin Co., 618 A.2d

669, 687 (D.C. 1992). Thus, in Aronoff, we said that an escrow agent breached his

duty of care by failing to disclose to the buyer that the title was not in insurable

condition (something he knew because he was also the purchaser’s title insurer). Id.

We cited the Restatement (Second) of Agency § 381, which states that “an agent is

subject to a duty to use reasonable efforts to give his principal information which is

relevant to affairs entrusted to him and which, as the agent has notice, the principal

would desire to have.” See id. The first comment to this section elaborates:

             An agent may have a duty to act upon, or to communicate
             to his principal or to another agent, information which he
             has received, although not specifically instructed to do so.
             The duty exists if he has notice of facts which, in view of
             his relations with the principal, he should know may affect
             the desires of his principal as to his own conduct or the
             conduct of the principal or of another agent.

Restatement (Second) of Agency § 381, cmt. a.

      In its complaint, Capital River alleged that Premium Title knew the operating

agreement submitted for the loan transactions was forged. The complaint further
                                         17

alleges the following: Premium Title was Capital River’s escrow agent for both its

initial purchase of the properties and for its entry into the deeds of trust one and a

half and two years later. Premium Title received a true copy of the operating

agreement when Capital River initially purchased the properties with the money Liu

had invested, and Premium Title was aware that Liu alone had funded the purchase.

When Premium Title received the forged operating agreements less than two years

later, it “would have, of course, run a check in its system on any prior dealings with

Capital River, and its system would have reflected the 2017 purchase of the Property

as well as the documents associated with that deal (including the real Operating

Agreement).” Indeed, the same person, Lola Shannon, served as the closing agent

for the initial purchase and both loan transactions. Thus, Premium Title “should

have known (and did know) that fraud was taking place,” and was negligent in not

informing Capital River of this fact.

      Taking all this as true, Capital River has alleged sufficient facts to make out a

claim of negligence.     Information that two LLC members are forging LLC

documents is information that is “relevant to affairs entrusted to [Premium Title],”

especially where Capital River alleged that Premium Title’s duties as escrow agent

included obtaining a copy of the operating agreement and an affidavit identifying
                                          18

the full membership of Capital River. See Restatement (Second) of Agency § 381.

And it is certainly information that Capital River “would desire to have.” See id.

      Premium Title makes two arguments in response. First, echoing the trial

court, it argues that it cannot have been negligent because Ibiezugbe and Falkner had

the actual authority to enter into the transaction. This is a non sequitur. The relevant

inquiry is whether Capital River would want to know that its agents were forging

documents.     A reasonable factfinder could certainly conclude that it would,

regardless of whether those agents had the authority to act on its behalf or not.

      Second, Premium Title argues that there is no reason to believe it knew the

operating agreement was forged because the deeds of trust were entered into years

after Capital River’s initial purchase of the properties (which is when Premium Title

received a true copy of the operating agreement). This might be true, but it is a

factual dispute inappropriate for resolution prior to discovery, and it was not the

basis for the trial court’s pre-discovery ruling. Discovery could uncover whether

Premium Title “ha[d] notice of facts which, in view of [its] relations with [Capital

River], [it] should [have] know[n] may affect [Capital River’s] desires.”

Restatement (Second) of Agency § 381 cmt. a. Capital River also alleged that

“Premium Title was required to obtain and submit an affidavit of members
                                           19

accurately identifying the current membership of the LLC” and that “it is basic

business practice for title companies, when dealing with an LLC party, to request a

unanimous consent of members to take any actions.” These are classic factual

disputes for the factfinder to resolve, perhaps with the aid of expert testimony

elucidating what steps a reasonable escrow agent would take in the present

circumstances. Cf. Beard v. Goodyear Tire & Rubber Co., 587 A.2d 195, 200 (D.C.

1991) (discussing the “requirement that a plaintiff introduce expert testimony to

prove the standard of care where the subject matter is too technical for the lay juror”).

In sum, the trial court erred in granting summary judgment to Premium Title at this

stage.

                                          III.

         For the foregoing reasons, we affirm the order granting Abod, Roupas, and

BCJCL’s motion to dismiss and we reverse in part the order granting Premium

Title’s motion for summary judgment as to the negligence claim. We remand for

further proceedings consistent with this opinion.

                                                                            So ordered.