Coon v. Wood ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JOHN COON,
Plaintiff,
Civil Action No. 13-1400 (BAH)
v.
Judge Beryl A. Howell
EDWARD WOOD, et al.,
Defendants.
MEMORANDUM OPINION
The plaintiff, John Coon, proceeding pro se, brings numerous state law claims arising out
of allegedly incorrect advice provided to him by his real estate agent regarding a sale of property
in 2010. Pending before this Court is the defendants’ Motion to Dismiss the Complaint, ECF
No. 5. For the reasons stated below, the defendants’ motion is granted in part and denied in part.
I. BACKGROUND
In 2000, the plaintiff purchased a property “for investment purposes” in Washington D.C.
(“the D.C. Property”). See Compl., ECF No. 1, ¶ 9. The plaintiff was represented in this
transaction by the defendant Edward Wood, who is an “associate broker” at defendant City
Houses D.C., which is a licensed and registered real estate agency, with its principal place of
business in the District of Columbia. Id. ¶¶ 3, 5, 9. Brooke Meyer, the third and final defendant,
owns City Houses D.C. and is its “principal broker.” Id. ¶¶ 1, 4.
In 2010, the plaintiff decided to sell the D.C. Property and use the proceeds to finance a
new investment property consisting of farm land near Charles Town, West Virginia (“the
Farm”). Id. ¶ 10. To do so, the plaintiff once again retained Wood and City Houses, to assist
him. Id. On June 17, 2010, the plaintiff and City Houses executed a Listing Agreement for
1
Improved Real Property (the “Brokerage Agreement”). 1 See Defs.’ Mem. Supp. Mot. Dismiss
(“Defs.’ Mem.”), Ex. A, ECF No. 5-2. The seven-page Brokerage Agreement provides, in part,
that the “purpose” of the agreement is to “grant[] to [the defendants] the exclusive right to sell,
exchange or convey the [D.C. Property.]” Id. ¶ 3. Additionally, under the Brokerage
Agreement, the defendants earn their fee when the plaintiff “enters into a sales contract . . . with
any buyer procured by seller . . . provided the buyer performs and settles on said contract.” Id. ¶
6(a).
Shortly after entering the Brokerage Agreement, the plaintiff executed a Regional Sales
Contract (the “Sales Agreement”), on June 30, 2010, with another person for the sale of the D.C.
Property. See Defs’ Mem., Ex. B, ECF No. 5-3. The Sales Agreement provides that City
Houses was “retained solely as a real estate agent and not as an attorney, tax advisor, lender,
appraiser, surveyor, structural engineer, mold or air quality expert, home inspector or other
professional service provider.” Id. ¶ 27(d). The Sales Agreement also advises that: “The Broker
can counsel on real estate matters, but if legal advice is desired by either party, such party is
advised to seek legal counsel. Purchaser and Seller are further advised to seek appropriate
professional advice concerning the condition of the Property or tax and insurance matters.” Id. ¶
27.
1
Although the plaintiff did not attach, or quote, either the Brokerage Agreement or the Sales Agreement in either his
Complaint or briefing during the Motion to Dismiss, see generally Compl., the Court may nonetheless consider the
agreements, which were attached to the defendants’ Motion to Dismiss and whose authenticity was not challenged
by the plaintiff. A document outside the complaint may be considered on a motion to dismiss under Rule 12(b)(6),
without converting the motion to one for summary judgment, if it is “referred to in the complaint” and is “integral
to” the plaintiff's claim. Kaempe v. Myers, 367 F.3d 958, 965 (D.C. Cir. 2004); see also Abhe & Svoboda, Inc. v.
Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007); Stewart v. Nat'l Educ. Ass'n, 471 F.3d 169, 173 (D.C. Cir. 2006);
Saunders v. Mills, 842 F. Supp. 2d 284, 293 n.2 (D.D.C. 2012); Pearson v. Dist. of Columbia, 644 F. Supp. 2d 23,
29 n.1 (D.D.C. 2009). The Court may properly consider the documents at issue on this motion to dismiss because
the plaintiff's Complaint plainly references the agreements, see Compl. ¶¶ 16–20, and alleges that the defendants
breached their obligations under the agreements.
2
During the course of Wood and City House’s representation, the plaintiff asked Wood
whether “the sale of the [D.C.] Property could be accomplished in a way to avoid any capital
gains on the [D.C.] Property.” Compl. ¶ 11. Under 26 U.S.C. § 1031, “no gain or loss shall be
recognized on the exchange of property held for . . . investment if such property is exchanged
solely for property of like kind . . . .” This transaction is known as a “Starker Exchange.” In
response to the plaintiff’s inquiry, Wood advised that the purchase of the D.C. Property in 2000
as a Starker Exchange—a transaction on which Wood had served as the plaintiff’s real estate
agent—meant the sale of the D.C. Property in 2010 could not be structured so as to avoid
payment of capital gains. Compl. ¶ 11. As a result of Wood’s representation, the plaintiff
proceeded with the sale of the D.C. Property “without implementing the appropriate transaction
to qualify” as a Starker Exchange under 26 U.S.C. § 1031. Compl. ¶ 13. The plaintiff alleges—
and the defendants have not disputed—that this advice was incorrect. Compare Compl. ¶ 12
with Defs.’ Mem.
On September 14, 2010, the plaintiff completed the sale of the D.C. Property and
received a check for $545,000. Compl. ¶ 13. The plaintiff used the funds to purchase and make
improvements to the Farm. Id. In 2011, the plaintiff “went to his accountant at H&R Block to
file his taxes for 2010” and owed in excess of $75,000 in capital gains taxes as a result of the sale
of the D.C. Property, which taxes remain outstanding. Id. ¶¶ 14, 15.
On September 13, 2013, the plaintiff, now residing in West Virginia, brought this
diversity action against defendants Wood, Meyer, and City Houses alleging breach of contract,
negligent misrepresentation, breach of fiduciary duty, and violations of D.C. Code §42-1701, et
seq., relating to the sale of the D.C. Property. The plaintiff seeks to recover damages and
3
attorneys’ fees. The defendants have moved to dismiss all counts for failure to state a claim. See
generally Defs.’ Mem.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” to encourage brevity
and, at the same time, “give the defendant fair notice of what the . . . claim is and the grounds
upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (ellipses in
original; internal quotations and citations omitted); Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 319 (2007). To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), the “complaint must contain sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face.” Wood v. Moss, 134 S. Ct. 2056, 2067 (2014) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim is facially plausible when the plaintiff
pleads factual content that is more than “‘merely consistent with’ a defendant's liability,” but
“allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556); see also Rudder v. Williams,
666 F.3d 790, 794 (D.C. Cir. 2012). Although “detailed factual allegations” are not required to
withstand a Rule 12(b)(6) motion, a complaint must offer “more than labels and conclusions” or
“formulaic recitation of the elements of a cause of action” to provide “grounds” of “entitle[ment]
to relief,” Twombly, 550 U.S. at 555 (alteration in original), and “nudge[ ] [the] claims across the
line from conceivable to plausible,” id. at 570. Thus, “a complaint [does not] suffice if it tenders
‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 557). In considering a motion to dismiss for failure to plead a claim on
which relief can be granted, the court must consider the complaint in its entirety, accepting all
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factual allegations in the complaint as true, even if doubtful in fact. Twombly at 555; Sissel v.
U.S. Dep’t of Health & Human Servs., No. 13-5202, 2014 U.S. App. LEXIS 14397 (D.C. Cir.
2014) (in considering Rule 12(b)(6) motion, the “court assumes the truth of all well-pleaded
factual allegations in the complaint and construes reasonable inferences from those allegations in
the plaintiff's favor, but is not required to accept the plaintiff's legal conclusions as correct”
(internal citations omitted)). In addition, courts may “ordinarily examine” other sources “when
ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated the complaint
by reference, and matters of which a court may take judicial notice.” Tellabs, 551 U.S. at 322;
see also English v. Dist. of Columbia, 717 F.3d 968, 971 (D.C. Cir. 2013).
Pro se plaintiffs are “[held] to less stringent standards than formal pleadings drafted by
lawyers.” Haines v. Kerner, 404 U.S. 519, 520 (1972); see also Tate v. Dist. of Columbia, 627
F.3d 904, 912 (D.C. Cir. 2010). Nevertheless, “even a pro se complainant must plead ‘factual
matter’ that permits the court to infer ‘more than the mere possibility of misconduct.’” Atherton
v. Dist. of Columbia Office of Mayor, 567 F.3d 672, 681–82 (D.C. Cir. 2009) (quoting Iqbal, 556
U.S. at 679).
In this Circuit, dismissals with prejudice under Rule 12(b)(6) are disfavored and the
“‘standard for dismissing a complaint with prejudice is high.’” Rudder v. Williams, 666 F.3d
790, 794 (D.C. Cir. 2012) (quoting Belizan v. Hershon, 434 F.3d 579, 583 (D.C. Cir. 2006)); see
also Rollins v. Wackenhut Services, Inc., 703 F.3d 122, 132 (D.C. Cir. 2012) (Kavanaugh, J.,
concurring) (noting that this Circuit’s “decisions have imposed a ‘high’ bar for Rule 12(b)(6)
dismissals with prejudice,” and that such “case law on Rule 12(b)(6) dismissals is not fully
aligned with the Rules” since “[o]n the contrary, Rule 41(b) contemplates that a Rule 12(b)(6)
dismissal ordinarily operates as a dismissal with prejudice, unless the district court in its
5
discretion states otherwise.”). Dismissal with prejudice may be appropriate, however, “when a
trial court determines that the allegation of other facts consistent with the challenged pleading
could not possibly cure the deficiency.” Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir.
1996) (internal quotation marks and citations omitted).
III. DISCUSSION
The defendants have moved, under Federal Rule of Civil Procedure 12(b)(6), to dismiss
all four of the plaintiff’s state law claims for breach of contract, negligent misrepresentation,
breach of fiduciary duty, and violations of D.C. Code § 42-1701, et seq. 2 Federal jurisdiction in
this case is based on diversity of citizenship, 28 U.S.C. § 1332, and, accordingly, state law
provides the substantive rules of law with regard to all claims in this case. See Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938). 3 Therefore, the Court will apply District of Columbia law to
this case. See Burke v. Air Serv Int'l, Inc., 685 F.3d 1102, 1107 (D.C. Cir. 2012) (“The ‘broad
command of Erie,’ of course, is that ‘federal courts are to apply state substantive law and federal
procedural law’ when sitting pursuant to their diversity jurisdiction.” (quoting Hanna v. Plumer,
380 U.S. 460, 465 (1965))); see also Arias v. DynCorp, 752 F.3d 1011, 1013 (D.C. Cir. 2014);
Cordoba Initiative Corp. v. Deak, 900 F. Supp. 2d 42, 46 n.3 (D.D.C. 2012) (applying District of
Columbia law in diversity suit where “[b]oth parties applied District of Columbia law in their
motion papers without engaging in any choice of law analysis”); Piedmont Resolution, L.L.C. v.
Johnston, Rivlin & Foley, 999 F. Supp. 34, 39 (D.D.C. 1998) (same).
The Court addresses the sufficiency of each of the plaintiff’s claims seriatim below.
2
The defendants also challenge the plaintiff’s claims for attorneys’ fees as neither the contract nor D.C. § 42-1701,
et seq., permit the plaintiff to recover attorneys’ fees. See Defs.’ Mem. at 8 (citing Summit Valley Indus. v. United
Bhd. of Carpenters & Joiners, 456 U.S. 717 (1982)). Moreover, the plaintiff is proceeding pro se and is not entitled
to reimbursement for any fees that would have been paid to retained counsel. Therefore, the plaintiff’s demand for
attorneys’ fees is stricken.
3
The parties have not raised any choice of law issues, and both parties in their motion papers have relied solely upon
District of Columbia law.
6
A. First Cause of Action for Breach of Contract
Under District of Columbia law, to state a claim for breach of contract, “a party must
establish (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 the breach.” Logan v. LaSalle
Bank Nat'l Ass'n, 80 A.3d 1014, 1023 (D.C. 2013) (quoting Tsintolas Realty Co. v. Mendez, 984
A.2d 181, 187 (D.C. 2009)); Osseiran v. Int'l Fin. Corp., 950 F. Supp. 2d 201, 208 (D.D.C.
2013) (same).
The plaintiff alleges, in his First Cause of Action, that the defendants “breached the
[Brokerage Agreement] by failing to structure the sale of the [D.C.] Property” in such a way as
to avoid capital gains tax. Compl. ¶¶ 17, 18. The plaintiff cites to no provision of the contract
that the defendants allegedly violated. The defendants counter that they “did not have any
contractual obligation to ‘structure’ [the D.C. Property’s] sale in any particular way.” Defs.’
Mem. at 4. In support of their argument, the defendants cite to a provision of the Brokerage
Agreement, which they claim sets forth the duties and obligations of the defendants. Id. The
provision provides that the “purpose” of the agreement is to “grant to [the defendants] the
exclusive right to sell, exchange or convey the [D.C. Property].” Brokerage Agreement ¶3. The
defendants also note that under the Brokerage Agreement, the defendants earn their broker’s fee
when the plaintiff “enters into a sales contract . . . with any buyer procured by seller . . . provided
the buyer performs and settles on said contract.” Id. ¶ 6(a).
The defendants are correct that no provision of the Brokerage Agreement creates an
obligation on behalf of the defendants to either furnish tax advice or to “structure the sale of the
[D.C.] Property” so as to avoid capital gains taxes. See generally id. Nor has the plaintiff in
either his Complaint, or his briefing, pointed to any provision of the Brokerage Agreement
7
creating such an obligation. Accordingly, because there is no “obligation or duty arising out of
the contract” to structure the [D.C.] Property sale in such a way as to avoid capital gains tax, the
defendants could not have breached such a provision. See Logan, 80 A.3d at 1023. The
plaintiff’s breach of contract claim is therefore dismissed.
Additionally, because the contract contains no language or provision creating such an
obligation, and because the Court can envision no additional facts by which an amended
pleading could cure such a deficiency, the plaintiff’s claim for breach of contract is dismissed
with prejudice. See Firestone, 76 F.3d at 1209.
B. Second Cause of Action for Negligent Misrepresentation
The plaintiff next brings a claim for negligent misrepresentation against the defendants.
Under District of Columbia law, a claim for negligent misrepresentation requires that: (1) the
defendant make “a false statement or omit[] a fact that he had a duty to disclose;” (2) the false
statement or omission “involve[] a material issue;” and (3) the plaintiff “reasonably rel[y] upon
the false statement or omission to his detriment.” Redmond v. State Farm Ins. Co., 728 A.2d
1202, 1207 (D.C. 1999); see also Parr v. Ebrahimian, 774 F. Supp. 2d 234, 240 (D.D.C. 2011).
“While reasonable reliance can be a jury issue, dismissal for failure to state a claim is proper
when no reasonable person would have relied on the representation.” Davis v. World Sav. Bank,
FSB, 806 F. Supp. 2d 159, 173 (D.D.C. 2011); see also Alicke v. MCI Commc’ns Corp., 111 F.3d
909, 912 (D.C. Cir. 1997) (discussing requirement that “the plaintiff acted in reliance upon the
alleged misrepresentation”).
The defendants do not challenge—and thereby concede— that the plaintiff has alleged
sufficient facts to satisfy the first two requirements for negligent misrepresentation, namely, the
making of a false statement involving a material issue. The defendants do challenge, however,
8
whether the reliance by the plaintiff on statements regarding the “tax status” of the D.C. Property
was reasonable. See Defs.’ Mem. at 6. In support of their argument, the defendants cite three
cases from this Court for the proposition that where an alleged representation contradicts the
clear terms of a written contract, reliance upon the representation is unreasonable as a matter of
law. See id. (citing Davis, 806 F. Supp.2d at 173; In re United States Office Prods. Co. Sec.
Litig., 251 F. Supp. 2d 58, 74–75 (D.D.C. 2003); Smith v. Washington Metro Area Transit Auth.,
No. 95-0687, 1997 WL 182286 (D.D.C. Apr. 4, 1997)).
For example, in Davis, the plaintiff claimed fraud and negligent misrepresentation on the
part of a mortgage lender because “although the Note stated on its face that it is fixed-rate, it is
really an adjustable rate note.” 806 F. Supp. 2d at 174. The court painstakingly reviewed the
Note at issue and determined that “[o]n its face it expressly and clearly provided that the while
the interest rate is fixed, the minimum payment might” fluctuate depending on various factors.
Id. Consequently, the plaintiff failed to allege reasonable reliance to state a claim “[b]ecause the
claims for fraud and negligent misrepresentation are flatly contradicted by the express terms of
the Note.” Id.
Similarly, in Smith, the court found that the plaintiff could not demonstrate reasonable
reliance on his supervisor’s oral promise that a temporary promotion would be permanent when
that oral representation was “contradicted by the express written provisions of the WMATA
Manual,” which “establishe[d] in unambiguous terms the necessary requirements for a promotion
or any other change in employment status.” 1997 WL 182286 at *5. Thus, the plaintiff, who
was a long-tenured employee familiar with the employer’s practices, “could not reasonably
believe that his promotion could be effected without a Personnel Action Report authorizing it” or
that his supervisor “acting alone, had actual authority to effect, without any documentation, a
9
permanent promotion.” Id.
By contrast to both Davis and Smith, the alleged misrepresentation at issue in the present
case does not “flatly contradict” the express terms of the agreement. According to the
Complaint, defendant Wood made a misrepresentation with the statement that “the purchase of
the [D.C.] Property as a ‘Starker Exchange’ in 2000 barred another exchange in 2010.” Compl. ¶
22; see also id. ¶ 11. Neither the Brokerage Agreement nor the Sales Agreement contains any
provision to the contrary. Indeed, neither discusses the tax status of the D.C. Property in 2000 or
makes any representations regarding its status in 2010. The Sales Agreement provides only that
Defendant Wood was “retained solely as a real estate agent and not as an attorney, tax advisor, . .
. or other professional service provider.” Sales Agreement ¶ 27(d). The Sales Agreement also
advises the plaintiff “to seek appropriate professional advice concerning the condition of the
Property or tax and insurance matters.” Id. ¶ 27.
The issue here, therefore, is not whether the plaintiff reasonably relied on a representation
flatly contradicting the express terms of a writing, as discussed in both Davis and Smith. See
Davis, 806 F. Supp. 2d at 174 (“Because the claims for fraud and negligent misrepresentation are
flatly contradicted by the express terms of the Note, they fail to state a claim.”); Smith, 1997 WL
182286, at *5 (“[N]o reasonable trier of fact could conclude that plaintiff was entitled to rely
upon oral representations of his superior that were contradicted by the express written provisions
of the WMATA Manual.”). Rather, the issue is whether the plaintiff’s reliance on defendant
Wood’s representation regarding a tax matter involving a real estate transaction was reasonable
in light of the admonitions contained in the contract. 4 This is a closer call.
4
Under both federal and District of Columbia law, the plaintiff has an obligation to read the contract. See Shelton v.
The Ritz Carlton Hotel Co., 550 F. Supp. 2d 74, 80 (D.D.C. 2008) (“[U]nder both D.C. and federal law one who
signs a contract has a duty to read it and is obligated according to its terms.” (citing Paterson v. Reeves, 304 F.2d
950, 951 (D.C. Cir. 1962); Pers Travel, Inc. v. Canal Square Assoc., 804 A.2d 1108, 1110 (D.C. 2002))).
10
On this point, In re United States Office Prods. Co. Sec. Litig., 251 F. Supp. 2d 58, 74–75
(D.D.C. 2003), which is relied upon by the defendants, proves instructive but not helpful to the
defendants. In United States Office Products, the court addressed whether a plaintiff’s reliance
on an alleged oral contract modification was reasonable in light of a written contract’s express
requirement that all modifications be made in writing. Id. at 75. The court concluded that such
reliance was unreasonable, absent additional facts explaining why the plaintiff reasonably
believed the written contract terms did not apply to the oral representations. Id. In the court’s
estimation, “the plaintiff’s reliance on the alleged misrepresentations regarding the compensation
by the defendants resembles blind reliance . . . .” Id. at 75. Absent a fiduciary duty, “one cannot
close his eyes and blindly rely upon the assurances of another . . . .” Id. at 74–75 (quoting
Hercules & Co. v. Shama Rest. Corp., 613 A.2d 916, 934 (D.C. 1992)).
The instant case is distinguishable from United States Office Products. First, distinct
from United States Office Products, and the other cases relied upon by the defendants, the instant
case does concern a fiduciary duty. See Vicki Bagley Realty, Inc. v. Laufer 482 A.2d 359, 364
(D.C. 1984) (“A real estate broker, like any other agent, owes a fiduciary duty to his principal.”).
Second, and unlike in United States Office Products, the plaintiff here alleges additional facts to
justify his reliance upon the representation of his real estate agent, defendant Wood. According
to the Complaint, defendant Wood was the plaintiff’s real estate agent during the original 2000
purchase of the D.C. Property, which was structured as a Starker Exchange. Compl. ¶¶ 9, 13.
Drawing all inferences favorable to the plaintiff, the 2000 purchase of the D.C. Property suggests
that Defendant Wood was, at a minimum, familiar with Starker Exchanges and that the plaintiff
was aware of this fact.
11
Accordingly, the plaintiff alleges additional facts—beyond merely the alleged
misrepresentation—to explain his reliance on the defendants’ representation concerning the tax
status of the D.C. Property. The defendants owed the plaintiff a fiduciary duty and the
defendants had prior experience in precisely the type of transactions inquired of by the plaintiff.
In light of these additional facts, the plaintiff’s reliance was not unreasonable as a matter of law
such as to warrant dismissal on a Rule 12(b)(6) motion. 5 Where a real estate agent—experienced
in a specific type of transaction—makes an affirmative representation to the principal regarding
that same type of transaction, the principal is not unreasonable as a matter of law to rely upon the
representation.
Therefore, the Court denies the defendants’ Motions to Dismiss the Complaint with
respect to Count II.
C. Third Cause of Action for Breach of Fiduciary Duty
In his Third Cause of Action, the plaintiff alleges that the defendants failed in their
fiduciary duty to the plaintiff by “failing to either notify Plaintiff of the tax exemption or taking
the necessary steps to create a like-kind exchange to qualify for the [28 U.S.C. § 1031] tax
exemption . . . .” Compl. ¶ 30. 6
To state a claim for breach of fiduciary duty under District of Columbia law, a plaintiff
must allege that “‘(1) defendant owed plaintiff a fiduciary duty; (2) defendant breached that duty;
and (3) to the extent plaintiff seeks compensatory damages—the breach proximately caused an
5
This conclusion is limited to the facts alleged in the pleading that must, at the motion to dismiss stage, be assumed
to be true, along with all reasonable inferences drawn in the plaintiff’s favor. As the case proceeds, the apparent
sophistication of the plaintiff in this matter, the relative simplicity of the contracts at issue, and any caveats to the
representation made by the defendants may very well make the plaintiff’s reliance unreasonable.
6
The plaintiff has not alleged that the defendants breached a fiduciary duty by affirmatively providing incorrect
guidance regarding the tax implications of the sale. See Compl. ¶ 30 (“Defendants breached their fiduciary duty by
failing to either notify Plaintiff of the tax-emption or taking the necessary steps to create a like-kind exchange to
qualify for the 1031 tax exemption itself.”). Therefore, the Court need not address whether such allegations could
state a claim for breach of fiduciary duty on the instant motion.
12
injury.’” Henok v. Chase Home Fin., LLC, 915 F. Supp. 2d 109, 115 (D.D.C. 2013) (quoting
Bode & Grenier, LLP v. Knight, 821 F. Supp. 2d 57, 64 (D.D.C. 2011)). “A real estate broker,
like any other agent, owes a fiduciary duty to his principal.” Laufer, 482 A.2d at 364 (citations
omitted). “The fiduciary duty owed by a real estate agent . . . requires the exercise of the highest
fidelity toward the principal. It encompasses an obligation to inform the principal of every
development affecting his interest . . . .” Id. at 364–65; Jenkins v. Strauss, 931 A.2d 1026, 1032-
33 (D.C. 2007).
D.C. statutory law prescribes the scope of the duties owed by real estate brokers. See
D.C. Code § 42-1703 (titled “Duties of real estate brokers, salespersons, and property managers,”
and stating “The common law of agency relative to brokerage relationships in real estate
transactions to the extent inconsistent with this section shall be expressly abrogated.”). A real
estate broker is required to “exercise ordinary care,” § 42-1703(a)(1)(D), and to “disclos[e] to the
seller material facts related to the property or concerning the transaction of which the licensee
has actual knowledge.” § 42-1703(a)(1)(B)(iii). A “material fact” is “information that, if
known, would be likely to induce a reasonable person to enter into or not enter into or
consummate a real estate transaction.” § 43-1702(7B). A broker is deemed “to possess actual
knowledge and information only.” § 42-1703(l)(3). Additionally, a real estate broker is required
to “perform in accordance with the terms of the brokerage relationship,” see § 42-1703(a)(1)(A),
which is defined as “the contractual relationship between a client and a real estate [broker] . . . .”
§ 42-1702(2A). Therefore, the fiduciary duties owed by the real estate agent are set by statute
and modified by the contractual agreement of the parties. 7
7
See also Restatement (Second) of Agency § 376 (“The existence and extent of the duties of the agent to the
principal are determined by the terms of the agreement between the parties . . . .”).
13
As discussed above, no contractual provision of the Brokerage Agreement creates an
obligation or duty to examine the tax liabilities of the potential sale or to structure the sale to
avoid tax liability. Thus, the question before the Court is whether an obligation to examine and
notify the seller of the tax consequences of a potential sale, and to structure the sale accordingly,
arises out § 42-1701 et seq. and, if so, whether the Brokerage Agreement or Sales Agreement
limit that duty.
While no provision of the D.C. Code expressly provides such a duty, § 42-
1703(a)(1)(B)(iii) requires the real estate broker to “disclos[e] to the seller material facts . . .
concerning the transaction of which the licensee has actual knowledge.” Yet, even a broad
interpretation of this provision cannot save the plaintiff’s Complaint. First, the statute requires
merely that the broker furnish information concerning the transaction to the seller, not “tak[e] the
necessary steps to create a like-kind exchange . . . .” Compl. ¶ 30. It is simply an information
sharing obligation. Second, with respect to the defendants’ other alleged duty—the duty to
notify the plaintiff of potential tax exemptions—the plaintiff’s own Complaint rebuts the
allegation that the defendants did not “notify Plaintiff of the tax exemption.” Indeed, as alleged
in the Complaint, both the plaintiff and defendant Wood engaged in a conversation regarding 26
U.S.C. § 1031. See Compl. ¶ 11 (discussing conversation regarding whether the D.C. Property
was eligible for a “Starker Exchange”). The defendant was therefore plainly aware of the
potential tax exemption.
Finally, the express disclaimer provided in paragraph twenty seven of the Sales
Agreement—“Seller acknowledge[s] that the Broker is being retained solely as a real estate
agent and not as an attorney [or] tax advisor . . . .”—is sufficient to limit any potential statutory
duty. At least one court, on facts similar to the current case, determined that the presence of a
14
contractual provision disclaiming the duty to provide tax advice preempts any argument that the
real estate agent owed such an affirmative duty. See Carleton v. Tortosa, 14 Cal. App. 4th 745,
754-58 (Cal. Dist. Ct. App. 1993) (“[T]he contractual language in effect specifies that a real
estate broker has no duty to provide legal or tax advice.”) (emphasis in original). Indeed,
“plaintiff's allegation that defendant had a duty to ‘issue-spot’ or warn him regarding tax
consequences of the transactions is at odds with the documents’ admonition that plaintiff should
get his tax advice elsewhere.” Id. at 756. In light of the express contractual provisions limiting
any potential duty in the instant case, see Sales Agreement ¶ 27, the Court declines to hold that a
real estate agent has an affirmative duty to notify sellers of potential tax exemptions.
Accordingly, the Court determines that plaintiff has failed to state a valid claim for
breach of a fiduciary duty, which claim is dismissed with prejudice. See Firestone, 76 F.3d at
1209.
D. Fourth Cause of Action for Violations of D.C. Statutory Law
Finally, the plaintiff seeks relief for violations of D.C. Code §§ 42-1701, et seq. See
Compl. ¶¶ 32–35. The defendants argue that the plaintiff fails to identify any obligation or duty
arising out of the D.C. Code that would obligate a real estate broker to “disclose . . . that the sale
of the Property could and should be structured as a qualifying Section 1031 exchange.” Defs.’
Mem. at 7 (citing Compl. ¶ 33). The Court has already addressed the duties and obligations
arising out of D.C. Code §§ 42-1701 when discussing the plaintiff’s breach of fiduciary duty
claim. For the same reasons discussed above, the plaintiff’s claim is dismissed. Moreover,
because the Court can envision no additional facts by which an amended pleading could cure
such a deficiency, the dismissal of this claim is with prejudice. See Firestone, 76 F.3d at 1209.
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IV. CONCLUSION
For the reasons explained above, the defendants’ Motion to Dismiss the Complaint is
granted in part and denied in part. Specifically, the defendants’ Motion to Dismiss the Complaint
is granted with respect to the plaintiff’s claims for breach of contract, breach of fiduciary duty,
and violations of D.C. Code §§ 42-1701 and those claims are dismissed with prejudice. Finally,
the Court denies the defendants’ Motion to Dismiss the Complaint with respect to the plaintiff’s
claim for negligent misrepresentation.
An order consistent with this Memorandum Opinion will be contemporaneously entered.
Digitally signed by Hon. Beryl A. Howell
DN: cn=Hon. Beryl A. Howell, o=U.S.
District Court for the District of Columbia,
Date: September 18, 2014 ou=United States District Court Judge,
email=Howell_Chambers@dcd.uscourts.go
v, c=US
Date: 2014.09.18 16:36:01 -04'00'
__________________________
BERYL A. HOWELL
United States District Judge
16