Millennium Square Residential Association v. 2200 M Street LLC , 952 F. Supp. 2d 234 ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
MILLENNIUM SQUARE RESIDENTIAL )
ASSOCIATION, )
)
Plaintiff, )
)
v. ) Civil Action No. 11-1632 (BJR)
)
2200 M STREET LLC, )
et al., )
)
Defendants. )
___________________________________ )
I. INTRODUCTION
Plaintiff Millennium Square Residential Association (“MSRA”) filed this action over
problems with the maintenance and repair of the Millennium Square Condominium’s parking
garage. The Complaint sets forth claims against 2200 M Street LLC, the developer of the
condominium; Millennium Washington Commercial Trust (“Millennium Trust”), Millennium
CAF II (“Millennium CAF”) (collectively the “Millennium Defendants”), the Millennium
Square Commercial Association (“MSCA”), and seven individuals who are either on the
condominium’s Board of Directors or the Board’s Executive Committee (“Individual
Defendants”). All of the defendants have brought motions seeking to dismiss the claims brought
against them. The plaintiff, MSRA, moves to dismiss the defendants’ counterclaims. Having
reviewed the parties’ briefs, arguments, relevant case law and the entire record, the court grants
the motions to dismiss brought by Millennium Trust and MSCA and denies the motions brought
by the other defendants. The court grants the plaintiff’s motion to dismiss the counterclaim
count of unjust enrichment, and denies the remainder of the plaintiff’s motion to dismiss the
Millennium Defendants’ counterclaims.
1
II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The Millennium Square Condominium is a mixed-use condominium containing 161
residential units, four commercial units, a Ritz-Carlton hotel, a fitness facility, a retail unit, and a
parking facility (“Parking Unit”), located in Washington D.C.1 The Parking Unit provides
parking for both commercial unit owners and residential unit owners. The Millennium Square
Condominium was created under the District of Columbia’s Condominium Act when the
Condominium’s Declaration, Bylaws and Plat (“governing documents”) were recorded. Compl.
¶¶ 2-4. The governing documents created MSRA, a residents’ association for residents of
Millennium Square Condominium. The MSRA is governed by the Residential Executive
Committee. Id. ¶¶ 2-3, 8. Each owner of a residential unit is a member of the MSRA and each
owner enters into a 98-year lease for the exclusive use of at least one parking space located
within the Parking Unit. Section 1 of the parking leases states that the residential unit owners are
obligated to pay the Millennium Defendants fees to cover part of the Millennium Defendants’
operating expenses, including maintenance, for the Parking Unit.2 According to the Complaint,
the defendants have represented that Millennium Trust owns the Parking Unit through a trustee
named Millennium CAF II, LLC, for the benefit of and at the direction of 2200 M Street LLC,
and that 2200 M Street LLC designed and developed Millennium Square. Id. ¶¶ 4, 6-10, 45.
The Complaint alleges that Millennium Trust is a real estate investment trust. Id. ¶ 9. The
owners of the commercial units are members of the MSCA, which is governed by a Commercial
Executive Committee. The Complaint defines the MSCA as an “unincorporated association”
1
The Complaint alleges that the parking facility itself is a commercial unit. Compl. § 42.
2
According to the Complaint, between 2001 and August 2011, the Millennium Defendants
charged, and MSRA has paid, $1,842,934.08 for the alleged operating expenses of the Parking
Unit. Compl. ¶¶ 46-47.
2
that was created under the District of Columbia Condominium Act. Id. ¶ 2, 19. All of the
Individual Defendants except Craig Mooney are members of the Board of Directors of the
Condominium Unit Owners Association,3 and all of the Individual Defendants are members of
the Commercial Executive Committee. Id. ¶¶ 6, 11-18.
A. The Complaint
According to the Complaint, Section 3.4 of the Condominium Declaration states that “the
Bylaws shall govern the division of maintenance and repair responsibilities between the Unit
Owners, the Unit Owners Association, the Residential Association and the Commercial
Association.” Compl. ¶ 41. Section 15(b)(1) of the Condominium’s Bylaws states that “each
Commercial Unit Owner shall keep the Commercial Unit and its equipment, appliances and
appurtenances in good order, condition and repair and in a clean and sanitary condition.”
Section 13.1(c) of the Bylaws states that “the Commercial Executive Committee shall, on behalf
of the Commercial Association . . . [p]rovide for the operation, care, upkeep and maintenance of
the Commercial Sections, additions, alterations, renovations or improvements to the Commercial
Section[.] Id. ¶ 42, 50. Section 18.1 of the Bylaws states that the “Bylaws may not be modified
or amended except as provided in . . . the Condominium Act[,]” which MSRA alleges requires
amendments to condominium instruments to be in writing. Pl.’s Stmt. of P. & A. in Supp. of
Mot. to Dismiss the Counterclaims (“Pl.’s Mem.”) Ex. A.
The Complaint states that the Parking Unit has “numerous structural problems” that have
deleteriously affected the residents’ ability to use their parking spaces and created safety hazards
such as conditions that cause residents to slip and fall, conditions that cause vehicles parked
3
According to the Complaint, the Condominium Unit Owners Association administers and
manages the Condominium, and is responsible for the maintenance, repair and replacement of
common elements of the Condominium. Compl. ¶ 5.
3
inside the Parking Unit to corrode, and conditions that cause mold to accumulate. The failure of
the defendants to fix the Parking Unit has allegedly deleteriously affected the marketability and
value of the residential units. The Complaint alleges that the structural problems would cost at
least $600,000 to fix. Co mpl. ¶¶ 29-30, 39. MSRA has asked the defendants to fix the
structural problems with the Parking Unit, but the defendants have not done so. MSRA asserts
that 2200 M Street LLC knew or should have known about the structural defects in the Parking
Unit, but did not inform prospective purchasers of them. Id. ¶ 35.
The nine-count Complaint seeks repair of the Parking Unit. The Complaint alleges one
count of negligence against all defendants (Count Six) and one count of breach of contract
against all defendants for breaching the condominium governing documents (Count Eight);
counts of breach of contract, breach of express warranty, and breach of implied warranty against
the Millennium Defendants and MSCA seeking specific performance (Counts One through
Four); one count of strict liability against the Millennium Defendants (Count Five), one count
alleging a violation of the D.C. Consumer Protection Act against the Millennium Defendants
(Count Seven); and one count of breach of fiduciary duty against the seven Individual
Defendants (Count Nine). 2200 M Street LLC and Millennium Caf II filed a three-count
counterclaim against the plaintiff, alleging that MSRA breached the operating agreement and the
parking lease (Counts One and Two), and one count of unjust enrichment (Count Three).
B. Pending Motions
The defendants have filed dispositive motions. The Individual Defendants have moved
under Federal Rule of Civil Procedure 12(b)(6) to dismiss Counts Six, Eight, and Nine, arguing
that the Complaint fails to state plausible claims of individual liability. The Millennium
Defendants have moved under Rule 12(b)(6) to dismiss Counts Five and Six as barred by the
4
economic loss doctrine. Millennium Washington Commercial Trust and MSCA have also
moved under Rule 12(b)(6) to dismiss, arguing that they cannot be sued, and that the Complaint
fails to state plausible causes of action against them. MSRA has moved to dismiss the
counterclaims.
III. ANALYSIS
A. LEGAL STANDARD FOR A MOTION TO DISMISS
“‘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, Civil Action No. 07-492 (RWR),
2012 WL 1454487, at *2 (D.D.C. April 27, 2012) (quoting Peavey v. Holder, 657 F. Supp. 2d
180, 185 (D.D.C. 2009) (citing Fed. R. Civ. P. 12(b)(6))). Motions to dismiss under Rule
12(b)(6) test the legal sufficiency of a complaint. Smith-Thompson v. Dist. of Columbia, 657 F.
Supp. 2d 123, 129 (D.D.C. 2009).
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 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 Atlantic Corp. v. Twombly, 550 U.S.
544, 556, 570 (2007)). “The complaint must be construed in the light most favorable to the
plaintiff and ‘the court must assume the truth of all well-pleaded allegations.’” Watkins, 2012
WL 1454487, at *2 (quoting Warren v. Dist. of Columbia, 353 F.3d 36, 39 (D.C. Cir. 2004)).
“[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations[.]” Twombly, 550 U.S. at 555. However, “[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.’” Iqbal, 556 U.S. at 662 (quoting Twombly, 550 U.S. at 557.
5
When assessing a motion brought under Rule 12(b)(6), a court avoids consideration of
matters outside the pleadings, but may consider “the facts alleged in the complaint, documents
attached as exhibits or incorporated by reference in the complaint,” Gustave-Schmidt v. Chao,
226 F. Supp. 2d 191, 196 (D.D.C. 2002), public records, and “documents ‘upon which the
plaintiff’s complaint necessarily relies’ even if the document is produced not by the plaintiff in
the complaint but by the defendant in a motion to dismiss[.]” Hinton v. Corr. Corp. of Am., 624
F. Supp. 2d 45, 46 (D.D.C. 2009) (quoting Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir.
1998)); Hartline v. Sheet Metal Workers’ Nat’l Pension Fund, 134 F. Supp. 2d 1, 8 (D.D.C.
2000).
B. MOTION BY MILLENNIUM TRUST TO DISMISS
Millennium Trust moves to dismiss the claims against it, arguing that as a trust, it is not a
legal entity that can sue or be sued in the District of Columbia. Millennium Trust’s Stmt. of Law
in Supp. of Mot. to Dismiss (“Millennium Trust’s Mem.”) at 6. MSRA disagrees, and argues
without citing any support in either case law or statute, that under District of Columbia law, Real
Estate Investment Trusts ("REIT") have the capacity to sue and be sued, and that the Complaint
alleges that Millennium Trust is a REIT. Pl.'s Stmt. of P. & A. in Opp'n to Millennium Trust's
Mot. to Dismiss ("Pl.'s Opp'n to Millennium Trust") at 2-3. Millennium Trust points out in its
reply that it denied in its answer that it was a REIT, and argues that its Declaration of Trust,
attached to the reply, demonstrates that Millennium Trust is not a REIT because there are not
100 or more persons who hold a beneficial ownership in it. Millennium Trust’s Reply, at 3-4.
As required when deciding a motion to dismiss under Rule 12(b)(6), this court will assume,
without deciding, that Millennium Trust is a REIT. However, that does not resolve the inquiry.
For entities that are not incorporated, the capacity to sue or be sued is determined by the law of
6
the District where the court is located, here the law of the District of Columbia. Fed. R. Civ. P.
17(b)(3). As indicated above, the parties offer no authorities as to whether trusts, organized in
the manner that Millennium Trust is organized, have the capacity to be sued in the District of
Columbia.4
In general, “the common law of the District of Columbia is that an unincorporated
association may not be sued in its own name.” Plan Committee v. Pricewaterhousecoopers,
LLP, Civil Action No. 02-1487 (TFH), 2007 WL 1191917, at *3-4 (D.D.C. April 20, 2007)
(citing Catalyst & Chem. Servs., Inc. v. Global Ground Support, 350 F. Supp. 2d 1, 22 n. 19
(D.D.C.2004) (stating that “D.C. law is even less obliging” than Maryland law to unincorporated
entities attempting to sue); Pritchett v. Stillwell, 604 A.2d 886, 889 (D.C. 1992)(stating that “the
common law of this jurisdiction is that neither a partnership nor an unincorporated association
may be sued in its own name”). In addition, the general rule is that “[a] trust is not an entity
distinct from its trustees and capable of legal action on its own behalf, but merely a fiduciary
relationship with respect to property.” 76 Am Jur 2d Trusts § 3 (2005); see also Corcoran v.
Rockwell, 410 A.2d 202, 204 (D.C. 1979) (citing Am. Jur. 2d Trusts while interpreting District of
Columbia law regarding trusts). MSRA has not shown that the Millennium Trust is anything
other than an unincorporated association that lacks the capacity to be sued. MSRA cites the
opinions in Nat’l Cmty. Reinvestment Coalition v. Accredited Home Lenders Holding Co., 573 F.
Supp. 2d 70 (D.D.C. 2008) and Lemon v. Geren, 514 F.3d 1312, 1315 (D.C. Cir. 2008), as
support for the argument that organizations like the Millennium Trust have the capacity to be
sued. However, neither case analyzed whether REITs were proper parties under District of
Columbia law, and MSRA has not shown that the entities involved in those cases were the same
4
The parties do not full analyze or define the corporate form of Millennium Trust, other than
apparently agreeing that it is not an incorporated entity.
7
type of entity as the Millennium Trust. The REIT defendant in Nat’l Cmty. Reinvestment
Coalition was a “wholly-owned subsidiary of Accredited, Inc.[,]” a corporation incorporated in
the state of Florida, see Nat’l Cmty. Reinvestment Coalition, 573 F. Supp. 2d at 73, and the REIT
defendant in Lemon was a publicly traded REIT incorporated in Maryland. Lemon, 514 F.3d at
1314. Further, while MSRA argues that this Court can keep an unincorporated entity as a party
where it would be inequitable not to, MSRA has not explained why it is necessary to keep
Millennium Trust in the case when the trustees and the beneficiaries of that trust remain as
parties in the case. Millennium Trust’s motion will be granted.
C. MOTION BY MSCA TO DISMISS
MSCA moves to dismiss the claims against it, arguing that it is not a legal entity that can
sue or be sued in the District of Columbia. MSCA’s Stmt. of P. &. A. in Supp. of Mot. to
Dismiss (“MSCA’s Mem.”) at 7-8. The parties agree that MSCA is unincorporated. They also
agree that under D.C. Code § 29-1109(a) that “[a]n unincorporated nonprofit association shall
have the capacity to sue and be sued in its own name.” What the parties dispute is whether
MSCA is a “non-profit” association. MSRA argues that MSCA is a non-profit association
because its bylaws define it as an “incorporated non-profit association,” and because MSCA’s
bylaws state that the Commercial Executive Committee, on behalf of the MSCA, has the
authority to enforce “by legal means the provisions” of the governing documents. Pl.’s Opp’n to
MSCA at 4-5. MSCA argues in its reply that it is not an unincorporated non-profit association
under District of Columbia law. MSCA's reply at 2-6. MSCA additionally points out that the
D.C. Code expressly precludes organizations formed under a statute (in this case the District of
Columbia Condominium Act) from being considered an unincorporated non-profit association.
MSCA’s Reply at 2-3; D.C. Code § 29-1102(5)(c). As an unincorporated association that,
8
because it was formed under the District of Columbia Condominium Act, does not meet the D.C.
Code’s definition for unincorporated non-profit associations that can sue or be sued, MSCA is
not a proper party and the claims against it will be dismissed.
D. MOTION BY ALL DEFENDANTS TO DISMISS COUNTS 5 & 6
Count Five of the Complaint alleges a claim of strict liability against all the Millennium
Defendants. The Complaint alleges that the Millennium Defendants were an integral part of the
marketing scheme that put the parking spaces in the Parking Unit into the stream of commerce,
and that the spaces in the Parking Unit were leased to MSRA and the public in a defective and
unreasonably dangerous condition. Compl. ¶¶ 80-85. Count Six of the Complaint alleges a
claim of negligence against all defendants. According to the Complaint, the defendants’
negligence put the health and safety of MSRA unit owners “at risk,” and damaged MSRA
members’ vehicles. Id. ¶¶ 92-96.
The Individual Defendants5 and the Millennium Defendants move to dismiss Counts Five
and Six of the Complaint, arguing6 that the economic loss doctrine precludes MSRA’s claim for
strict liability against the Millennium Defendants (Count Five), and claim of negligence against
the Millennium Defendants and Individual Defendants (Count Six). See Individual Defs.’ Stmt.
of P. & A. in Supp. of Mot. to Dismiss (“Individual Defs.’ Mem.”) at 18-20; Millennium Defs.’
Stmt. of P. & A. in Supp. of Mot. to Dismiss (“Millennium Defs.’ Mem.”) at 6-7.
5
David Cvijic, David Goben, Edward Wierzel, Joe Gulitti, Amy Press, Craig Mooney, and Tim
O’Brien.
6
In their reply brief, the Millennium Defendants also argue for the first time that MSRA lacks
standing to bring suit for personal injury or property damages, and that the parking leases entered
into by the unit owners bar claims for personal injury and property damage. Because these
arguments were raised for the first time in their reply brief, they will not be considered. See
Presbyterian Med. Ctr. of the Univ. of Pa. Health Sys. v. Shalala, 170 F.3d 1146, 1152 (D.C. Cir.
1999) (stating that a court need not consider an argument first raised in a reply brief); D.L. v.
Dist. of Columbia, 450 F. Supp. 2d 11, 20 n.6 (D.D.C. 2006) (“Defendants should have included
this argument in their motion to dismiss, rather than waiting to raise it in their Reply.”).
9
The economic loss doctrine is a rule that prevents a party from alleging a tort claim, such
as negligence or strict products liability, “‘where the only damage is to the product itself.’”
Capital Motor Lines v. Detroit Diesel Corp., 799 F. Supp. 2d 11, 16 (D.D.C. 2011) (quoting
Liberty Mut. Ins. Co. v. Equipment Corp. of America, 646 F. Supp. 2d 51, 56 (D.D.C. 2009)
(internal citation omitted)). “Under the economic loss doctrine, a plaintiff [suing in tort] may not
recover the ‘loss of value or use of the product itself, cost to repair or replace the product, or the
lost profits resulting from the loss or use of the product.’” Capital Motor Lines, 799 F. Supp. 2d
at 16 (quoting Potomac Plaza Terraces, Inc. v. QSC Products, Inc., 868 F. Supp. 346, 354
(D.D.C. 1994)(internal citations omitted)).
The defendants argue that the only damage alleged in the Complaint was damage to the
Parking Unit itself, and that the claims in Counts Five and Six are truly contract claims shoe-
horned into a tort framework, and as such should be dismissed. While defendants’ arguments are
well taken regarding the bulk of the damages alleged in the Complaint, the Complaint does
allege damage - - corrosion to vehicles, personal injuries that occurred in the Parking Unit, and
reduced marketability of the residential units - - that occurred to property that cannot be said to
be part of the same “product” as the Parking Unit. See Council of Co-Owners Atlantis
Condominium, Inc. v. Whiting-Turner Contracting Co., 517 A.2d 336, 338 (Md. 1986) (denying
a motion to dismiss a condominium owners’ association suit against a general contractor where
the alleged construction default created “a threat to the safety and welfare of the owners and
occupants” of the condominium). Counts Five and Six will not be dismissed as barred by the
economic loss doctrine.
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E. INDIVIDUAL DEFENDANTS’ MOTIONS TO DISMISS
The Individual Defendants move to dismiss the claims alleged against them, found in
Counts Six, Eight and Nine of the Complaint. The Individual Defendants argue that the
allegations in the Complaint fail to state a claim for negligence because the actions of the
Individual Defendants are protected under the business judgment rule and the economic loss
doctrine, and because the Complaint fails to plead essential elements of negligence (Count Six),
breach of fiduciary duty (Count Nine), or breach of contract (Count Eight) claims against the
Individual Defendants.7 MSRA disagrees, and argues that the economic loss doctrine and
business judgment rules are inapplicable, and that the Complaint generally pleads viable causes
of action for negligence, breach of contract, and breach of fiduciary duty. 8
I. NEGLIGENCE
The Individual Defendants argue that the Complaint fails to allege the essential elements
of a claim for negligence against them. Individual Defs.’ Stmt. of P. & A. in Supp. of Mot. to
Dismiss (“Individual Defs.’ Mem.”) at 12-14. According to the Individual Defendants, the
Complaint does not contain a plausible allegation that the Individual Defendants breached a duty
to MSRA. Id. To establish negligence under D.C. law, a plaintiff must allege “‘a duty of care
owed by the defendant to the plaintiff, a breach of that duty by the defendant, and damage to the
interests of the plaintiff, proximately caused by the breach.’” Sigmund v. Starwood Urban Retail
VI, LLC, 617 F.3d 512, 514 (D.C. Cir. 2010) (quoting Dist. of Columbia v. Beretta, 872 A.2d
633, 641 (D.C. 2005) (internal quotation omitted)). “The existence of a legal duty being an
essential element of a negligence claim under District of Columbia law, the plaintiffs ‘must
7
The Individual Defendants raise the Business Judgment Rule as a defense, but do not specify
the claim it is a defense to. A review of the relevant caselaw indicates that it is best analyzed as
a defense to the claim of breach of fiduciary duty in Count Nine.
8
The court has already ruled that the economic loss doctrine is not applicable, supra, pp. 9-10,
and will not repeat its reasoning here.
11
specify a negligent act and characterize the duty whose breach might have resulted in negligence
liability.’” Simms v. Dist. of Columbia, 699 F. Supp. 2d 217, 227 (D.D.C. 2010) (quoting Dist.
of Columbia v. White, 442 A.2d 159, 162 (D.C. 1982) (internal quotation omitted)). “[T]he
‘plaintiff must allege facts which show that the defendant breached some legally imposed duty
owed to the plaintiff.’” Simms, 699 F. Supp. 2d at 227 (quoting White, 442 A.2d at 162).
As mentioned above, Count Six of the Complaint alleges a claim of negligence against all
defendants. The Complaint alleges that the bylaws and the D.C. Condominium Act impose a
duty on behalf of the Individual Defendants, as members of the Condominium’s Board of
Directors, to maintain, repair and replace common elements of the condominium such as the
Parking Unit. Compl. ¶ 5. According to the Complaint, the bylaws imposed on each of the
Individual Defendants a duty of care to design, build, construct, market, promote, sell, lease,
maintain and repair the Parking Unit, and the defendants breached that duty by designing and
constructing a defective Parking Unit, by failing to maintain it, and by failing to notify the
MSRA of its defects in a timely manner. Id. ¶¶ 86-91. The Complaint also alleges that, despite
notices of defects in the Parking Unit, the Individual Defendants failed and refused to “timely
enforce the statutory and other warranties . . . failed and refused to timely enforce the repair and
maintenance obligations of the Millennium Defendants” regarding the Parking Unit, and failed to
“take appropriate action to timely perform repairs and maintenance to components of the
Condominium that are part of the” Parking Unit. Id. ¶ 52. The Complaint alleges that those
failures were in bad faith, and were the result of self-interest on behalf of the Individual
Defendants. Id. The Complaint further alleges that those failures damaged the health and safety
of MSRA unit owners, and damaged MSRA members’ vehicles. Id. ¶¶ 92-96. Therefore, the
Complaint specifies a negligent act and characterizes the duty whose breach might have resulted
12
in negligence liability. The Individual Defendants reliance on the opinion in Simms is misplaced.
In Simms, while the plaintiff alleged that the defendant owed a duty to the plaintiff, the plaintiff
failed to cite in its Complaint “any facts” supporting that the duty was breached. Simms, 699 F.
Supp. 2d at 227. Here, the Complaint asserts that the Individual Defendants owed a duty of care
to MSRA, identifies the basis for that duty, describes the circumstances in which the individual
plaintiffs allegedly did not fulfill their duty to MSRA, and alleges that the Individual
Defendants’ failure to act was a proximate cause of harm that occurred to MSRA. The claim of
negligence against the Individual Defendants is adequately plead and will not be dismissed.
II. BREACH OF CONTRACT
Count Eight of the Complaint alleges a claim of breach of contract against all defendants,
including the Individual Defendants. The Complaint alleges that the governing documents of the
Owners Association created a valid and enforceable contract between MSRA and the Individual
Defendants, obligating the Individual Defendants to take “such action as may be necessary to
maintain and repair the Condominium” and to “enforce the responsibilities of the Millennium
Defendants to carry out their maintenance and repair obligations related” to the Parking Unit.
Compl. ¶¶ 110-111. According to the Complaint, the Individual Defendants breached that
contractual obligation by failing to require the performance of necessary maintenance and repair
of the Condominium and the Parking Unit. Id. ¶¶ 112. The Individual Defendants contend that
Count Eight does not contain facts supporting the assertion that the Individual Defendants were
parties to the governing documents and therefore must be dismissed as to them. Individual
Defs.’ Mem. at 14-15. The Court concludes otherwise.
The elements for a claim of breach of contract under D.C. law are: “‘(1) a valid contract
between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty;
13
and (4) damages caused by breach.’” Paulin v. George Wash. Univ. Sch. of Med., 878 F. Supp.
2d 241, 246 (D.D.C. 2012) (quoting Mesumbe v. Howard Univ., 706 F. Supp. 2d 86, 94 (D.D.C.
2010) (internal quotation omitted)). A valid and enforceable contract requires the: 1) express
intention of the parties to be bound; 2) agreement to all material terms, and 3) the assumption of
mutual obligations. See Gaujacq v. EDF, Inc., 601 F.3d 565, 579 (D.C. Cir. 2010); Steven R.
Perles, P.C. v. Kagy, 473 F.3d 1244, 1249 (D.C. Cir. 2007); Simon v. Circle Assocs., 753 A.2d
1006, 1012 (D.C. 2000); Jack Baker, Inc. v. Office Space Dev. Corp., 664 A.2d 1236, 1238 (D.C.
1995). The party asserting the existence of a contract has the burden of proving all three
requirements. See New Econ. Capital, LLC v. New Mkts. Capital Grp., 881 A.2d 1087, 1094
(D.C. 2005). In order to form a binding agreement, all “parties must have the distinct intention
to be bound; without such intent, there can be no assent and therefore no contract.” RDP Techs.,
Inc. v. Cambi AS, 800 F. Supp. 2d 127, 141 (D.D.C. 2011) (quoting Jack Baker, Inc. v. Office
Space Dev. Corp., 664 A.2d 1236, 1238 (D.C. 1995)).
Here, MSRA has alleged a plausible claim of breach of contract against the individual
defendants. While the Individual Defendants did not sign the governing documents, MSRA
alleges that they manifested their intent to be bound by the governing documents by accepting
their positions on the board. In the District of Columbia, condominium instruments, such as
bylaws and the sales agreement, are contracts “between the unit owners and the condominium
association.” 1230-1250 Twenty-Third St. Condo. Unit Owners Ass’n v. Bolandz, 978 A.2d
1188, 1191 (D.C. 2009) (citing Lacy v. Sutton Place Condo. Ass’n, 684 A.2d 390, 393 (D.C.
1996)); see also Johnson v. Fairfax Village Condominium IV Unit Owners Ass’n, 548 A.2d 87,
91 (D.C. 1988).
The bylaws of the condominium association are a “‘form of private law making,’”
and individuals who choose this form of ownership, by agreement, forego some of
14
the traditional incidents of ownership. [Fairfax Village Condo. IV, 548 A.2d at
91] (quoting Ryan v. Baptiste, 565 S.W.2d 196, 198 (Mo. Ct. App. 1978)).
Except as otherwise stated in the condominium instruments or by law, the
condominium association has the power to regulate the use of the common
elements of the condominium. D.C. Code § 45-1848 (a)(6) (1996); see also
Johnson v. Hobson, 505 A.2d 1313, 1317 (D.C. 1986) (The condominium’s
governing body has broad authority to regulate affairs of the development and to
adopt reasonable rules).
Lacy v. Sutton Place Condo. Ass’n, 684 A.2d 390, 393 (D.C. 1996).
In addition, MSRA cites the opinions in Bolandz v. 1230-1250 Twenty-Third St. Condo.
Unit Owners Ass’n, 849 A.2d 1010, 1012 (D.C. 2004), and Willens v. 2720 Wis. Ave. Coop.
Ass'n, 844 A.2d 1126, 1135-1136 (D.C. 2004), two cases where District of Colombia courts
allowed breach of contract claims against Boards of Directors to be advanced. Count Eight will
not be dismissed as it applies to the Individual Defendants.
III. BREACH OF FIDUCIARY DUTY
Count Nine of the Complaint alleges that the Individual Defendants, as officers or
members of the Board of Directors, owed fiduciary duties to the residential unit owners, whose
interests are represented by the MSRA. Compl. ¶¶ 114-118. According to the Complaint, the
defendants breached that duty by willfully, in bad faith, failing to maintain the Parking Unit in a
safe and proper manner in accordance with the governing documents. Id. ¶¶ 119.
The Individual Defendants argue that Count Nine’s claim of breach of fiduciary should
be dismissed. The Individual defendants argue that Count Nine should be dismissed because
their actions were protected by the business judgment rule. The Individual Defendants also
argue that the Complaint does not plausibly allege that the Individual Defendants owed MSRA
fiduciary duties, or that if they did owe such duties that the Individual Defendants breached
15
them. Individual Defs.’ Mem. at at 10-11, 16-18.9 To make a legally cognizable claim of
breach of fiduciary duty under District of Columbia law, a plaintiff “must allege facts sufficient
to show (1) the existence of a fiduciary relationship; (2) a breach of the duties associated with the
fiduciary relationship; and (3) injuries that were proximately caused by the breach of the
fiduciary duties.” Armenian Genocide Museum & Memorial, Inc. v. Cafesjian Family Found.,
Inc., 607 F. Supp. 2d 185, 190-191 (D.D.C. 2009) (citing Paul v. Judicial Watch, Inc., 543 F.
Supp. 2d 1, 5-6 (D.D.C. 2008). “District of Columbia law has deliberately left the definition of
‘fiduciary relationship’ flexible, so that the relationship may change to fit new circumstances in
which a special relationship of trust may properly be implied.” Teltschik v. Williams & Jensen,
PLLC, 683 F. Supp. 2d 33, 46 (D.D.C. 2010); see also Council on American-Islamic Relations
Action Network, Inc. v. Gaubatz, 793 F. Supp. 2d 311, 341-42 (D.D.C. 2011) (finding that
plaintiff’s factual allegations were sufficient to survive a motion to dismiss even assuming no
contractual relationship existed when the relationship “extended beyond the normal bounds of a
contractual relationship to form a special relationship founded upon trust and confidence”)
(internal citation omitted)). Whether a fiduciary relationship exists is a fact-intensive question,
and the fact-finder must consider “the nature of the relationship, the promises made, the type of
services or advice given and the legitimate expectations of the parties.” Firestone v. Firestone,
76 F.3d 1205, 1211 (D.C. Cir. 1996) (quoting Church of Scientology Int’l v. Eli Lilly & Co., 848
F. Supp. 1018, 1028 (D.D.C. 1994)).
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The Individual Defendants also argue that the claim for breach of fiduciary duty against
Mooney should be dismissed because he was not a member of the Board of Directors. Individual
Defs.’ Mem. at 16. MSRA has not responded to this argument, and thus has conceded it. See
Maib v. FDIC, 771 F. Supp. 2d 14, 20 (D.D.C. 2011) (“[t]he plaintiffs do not address this
argument in their opposition to the motion to dismiss, and therefore have waived any opposition
or have conceded the issue”).
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Here, the Complaint alleges a cognizable claim for breach of fiduciary duty against the
Individual Defendants that falls outside of the purview of the business judgment rule. “The
District of Columbia courts have adopted the business judgment rule, which is a ‘presumption
that in making a business decision the directors of a corporation acted on an informed basis, in
good faith and in the honest belief that the action taken was in the best interests of the
company.’” Armenian Assembly of Am. v. Cafesjian, 772 F. Supp. 2d 20, 104 (D.D.C. 2011)
(quoting Behradrezaee v. Dashtara, 910 A.2d 349, 361 (D.C. 2006) (internal quotation
omitted)). “Where the rule applies, the business judgment of the fiduciary will be respected by
the courts absent an abuse of discretion.” Cafesjian, 772 F. Supp. 2d at 104. The Complaint
alleges that the Individual Defendants were directors of the Millennium Defendants or entities
controlled by the Millennium Defendants, and that, acting in bad faith, they failed to force the
Millennium Defendants to fix the Parking Unit out of self-interest –- namely, the protection of
their employment with the Millennium Defendants. “Where the [business judgment] rule
applies, the business judgment of the fiduciary will be respected by the courts absent an abuse of
discretion . . . [h]owever, the business judgment rule does not apply where the officers or
directors ‘lack independence relative to the decision, do not act in good faith, act in a manner
that cannot be attributed to a rational business purpose or reach their decision by a grossly
negligent process that includes the failure to consider all material facts reasonably available.’”
Cafesjian, 772 F. Supp. 2d at 104 (quoting Behradrezaee, 910 A.2d at 361). Count Nine’s
claims against the Individual Defendants will not be dismissed.
F. MSRA’S MOTION TO DISMISS COUNTERCLAIMS
The Millennium Defendants filed a three count counterclaim alleging two counts of
breach of contract and one count of unjust enrichment. According to the counterclaim, in 2003
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MSRA and the residential owners wanted to have more oversight and control over the portion of
the Parking Unit that they used, and to that end entered into an oral operating agreement to
manage and control the residential parking section of the Parking Unit. Counterclaim ¶¶ 14-15.
According to the Millennium Defendants, MSRA assumed the maintenance and repair
obligations of the residential parking section of the Parking Unit, and because of that, since 2003,
MSRA has been billed only a pro rata portion of the shared operating expenses of the Parking
Unit. The counterclaim alleges that in 2003, the residential parking section of the Parking Unit
was physically separated from the rest of the Parking Unit by a chain link fence and a company
was hired by MSRA to manage the residential section of the Parking Unit, consistent with the
alleged oral operating agreement. Id. ¶¶ 14-16. Count One of the counterclaim alleges that the
MSRA breached the operating agreement by failing to repair the residential portion of the
Parking Unit. Id. ¶¶ 29-37. Count Two of the counterclaim alleges that if the operating
agreement is deemed unenforceable, MSRA and the unit owners were all in default of the
original parking lease because they had not paid the full amount, more than three million dollars
according to the counterclaim, of the operating expenses due under the terms of that lease. Id.
¶¶ 39-42. Count Three alleges that MSRA and the residential unit owners were unjustly
enriched by failing to pay their true share of the operating expenses of the Parking Unit. Id.
¶¶ 44-46.
I. DUTY
MSRA has moved under Rule 12(b)(6) to dismiss the counterclaim in its entirety. MSRA
first argues that the counterclaim fails to allege a duty on behalf of MSRA because the governing
documents imposed a duty on the Millennium Defendants to operate and maintain the Parking
Unit that could not be modified or extinguished by an oral agreement. Pl.’s Mem. at 4-7. As
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mentioned above, the elements for a claim of breach of contract under D.C. law are: “‘(1) a valid
contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of
that duty; and (4) damages caused by breach.’” Paulin, 878 F. Supp. 2d at 246 (quoting
Mesumbe, 706 F. Supp. 2d at 94 (internal quotation omitted)). A valid and enforceable contract
requires the: 1) express intention of the parties to be bound; 2) agreement to all material terms,
and 3) the assumption of mutual obligations. Gaujacq., 601 F.3d at 579. The party asserting the
existence of a contract has the burden of proving both requirements. New Econ. Capital, LLC,
881 A.2d at 1094. Under the law of the District of Columbia, parties may orally modify a
written contract through mutual consent, provided that ‘the modification possess[es] the same
elements of consideration as necessary for normal contract formation.’” St. Paul Mercury Ins.
Co. v. Capitol Sprinkler Inspection, Inc., 573 F. Supp. 2d 152, 173 (D.D.C. 2008) (quoting
Hershon v. Hellman Co., 565 A.2d 282, 283 (D.C. 1989)).
Here, the counterclaim does allege that the oral agreement created a duty on behalf of
MSRA that is not completely foreclosed by, or inconsistent with, the governing documents. The
counterclaim is based not on a modification of the original obligation, but on a separate
agreement. MSRA does not dispute that the Millennium Defendants could contract with a
separate entity to maintain the Parking Unit, and the Millennium Defendants are essentially
arguing that they contracted -- through the oral agreement -- with MSRA to fulfill that
obligation. The counterclaims sufficiently allege a duty.
II. STATUTE OF LIMITATIONS
MSRA also argues that any claims alleged in the counterclaim are limited by the statute
of limitations to those that occurred within the past three years. MSRA’s Mem. at 12. In the
District of Columbia, claims for breach of contract are subject to a three-year statute of
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limitations. D.C. Code § 12-301. The limitations period begins to run at the time of the
defendant's breach. Murray v. Wells Fargo Home Mortg., 953 A.2d 308, 319-20 (D.C. 2008)
(citation omitted). The limitations period for a claim for breach of contract may be tolled under
the “discovery rule” so that the limitations period does not begin to run until a plaintiff has actual
or inquiry notice of its cause of action. Harris v. Ladner, 828 A.2d 203, 205-06 (D.C. 2003).
“In addition, where the defendant has done anything . . . to lull the plaintiff into inaction, thereby
affirmatively inducing the plaintiff not to file a timely lawsuit, the defendant may be estopped
from asserting the bar of the statute of limitations.” Beard v. Edmondson & Gallagher, 790 A.2d
541, 546 (D.C. 2002) (internal citation omitted). Here, MSRA does not allege the statute of
limitations as a reason to dismiss the counterclaim. Instead, it argues that it is a reason to limit
the damages in the event that the counterclaim is successful. Furthermore, Millennium
Defendants raise a factual dispute by alleging that MSRA’s course of conduct lulled them into
not timely raising their claims. The factual dispute raised here will not be resolved at this time,
and the counterclaim will not be dismissed as barred by the statute of limitations.
III. UNJUST ENRICHMENT
MSRA argues that the claim for unjust enrichment is prohibited because there is an
express contractual relationship between the parties. “‘Unjust enrichment occurs when a person
retains a benefit (usually money) which in justice and equity belongs to another.’” Movahedi v.
U.S. Bank, N.A., 853 F. Supp. 2d 19, 29 (D.D.C. 2012) (quoting 4934, Inc. v. D.C. Dep’t of
Emp’t Servs., 605 A.2d 50, 55 (D.C. 1992)). Under District of Columbia law, a “plaintiff states a
claim for unjust enrichment when: (1) the plaintiff confers a benefit upon the defendant; (2) the
defendant retains the benefit; and (3) under the circumstances, the defendant's retention of the
benefit is unjust.” Sabre Int'l Sec. v. Torres Advanced Enter. Solutions, 820 F. Supp. 2d 62, 76
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(D.D.C. 2011) (citing News World Communications v. Thompsen, 878 A.2d 1218, 1222 (D.C.
2005)).
Here, the counterclaim does not allege a plausible claim of unjust enrichment. “Because
both promissory estoppel and unjust enrichment presuppose that an express, enforceable contract
is absent, District of Columbia courts generally prohibit litigants from asserting these claims
when there is an express contract that governs the parties' conduct.” Plesha v. Ferguson, 725 F.
Supp. 2d 106, 112 (D.D.C. 2010). Here, the parties have alleged at least two agreements - - the
oral agreement and the condominium documents - - that governed their relationship. There is no
space left for the counterclaimants assertion of unjust enrichment, and that claim will be
dismissed.
CONCLUSION
MSRA has not shown that Millennium Trust and MSCA are entities that can sue or be
sued. MSRA’s Complaint states plausible causes of action for negligence, breach of contract and
breach of fiduciary duty against the Individual Defendants and for strict liability against the
Millennium Defendants. The counterclaim alleges a plausible claim of breach of contract, but
does not allege a plausible claim of unjust enrichment. Therefore, it is hereby ORDERED AS
FOLLOWS:
1) The motions [8, 14] to dismiss the Complaint against Millennium Washington
Commercial Trust and Millennium Square Commercial Association are hereby
GRANTED.
2) The Individual Defendants’ motion [13] to dismiss is hereby GRANTED in part and
DENIED in part. Count Nine is dismissed as to defendant Craig Mooney. The
remainder of the motion is denied.
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3) The Millennium Defendants’ joint motion [9] to dismiss counts 5 and 6 is hereby
DENIED.
4) The plaintiff’s motion [23] to dismiss the counterclaim is hereby GRANTED in part
and DENIED in part.
SO ORDERED.
July 10, 2013
BARBARA J. ROTHSTEIN
UNITED STATES DISTRICT JUDGE
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