Kelleher v. Dream Catcher, L.L.C.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
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STEPHEN KELLEHER, )
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Plaintiff, )
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v. ) Case No. 1:16-cv-02092 (APM)
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DREAM CATCHER, L.L.C., et al., )
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Defendants. )
_________________________________________ )
MEMORANDUM OPINION AND ORDER
Before the court are two separate Motions to Dismiss Plaintiff Stephen Kelleher’s
Amended Complaint. In one, Defendants Cesar De Armas and Heidi Schultz move to dismiss all
claims brought against them. See Indiv. Defs.’ Mot. to Dismiss, ECF No. 15 [hereinafter Indiv.
Defs.’ Mot.]. In the other, Defendant Dream Catcher, L.L.C., moves to dismiss Counts III, VI,
and VII of the Amended Complaint. See Def. Dream Catcher, L.L.C.’s Mot. to Dismiss Counts
III, VI, and VII, ECF No. 16 [hereinafter Dream Catcher Mot.]. For the reasons that follow, the
Motions are granted in part and denied in part.
Background. Defendant Dream Catcher, L.L.C., is a Washington, D.C.-based
construction company wholly owned by Defendants Cesar De Armas and Heidi Schultz (the
“Individual Defendants”). Am. Compl., ECF No. 13 [hereinafter Am. Compl.], ¶¶ 4, 8.
According to the Amended Complaint, Plaintiff hired Defendants to perform construction and
renovation work on a home owned by Plaintiff. Id. ¶ 9. When the project went awry, Plaintiff
filed a Complaint, advancing contract, quasi-contract, and tort claims, as well as two putative
statutory claims under District of Columbia law. See Notice of Removal, ECF No. 1, Compl.,
ECF No. 1-1. On December 23, 2016, the court dismissed the original Complaint against the
Individual Defendants because it failed to allege sufficient facts to support holding Individua l
Defendants liable for Dream Catcher’s alleged misconduct on an alter ego, or veil-piercing, theory
of liability. See Mem Op & Order, ECF No. 11.
On January 10, 2017, Plaintiff filed an Amended Complaint alleging further facts in
support of his claims, with particular focus on buttressing his claims against the Individua l
Defendants. See Am. Compl. The Individual Defendants again moved to dismiss, arguing that
the Amended Complaint fares no better than the original Complaint in establishing alter ego
liability. See Indiv. Defs.’ Mot. at 3–6. Separately, Dream Catcher filed a Motion to Dismiss
Counts III, VI, and VII of the Amended Complaint, asserting that: (1) Plaintiff cannot advance
quasi-contract claims because the Amended Complaint “concedes that a contract exists” (Count
III); (2) Plaintiff’s “statutory” claim under the District of Columbia municipal regulations
governing home improvement contractors fails because those regulations do not provide a private
right of action (Count VI); and (3) Plaintiff’s fraud claim is fatally flawed because he has not
pleaded any fraudulent conduct that is distinct from his breach of contract claims (Count VII).
See Dream Catcher Mot. The Individual Defendants joined in Dream Catcher’s motion to dismiss
Count VII. See Indiv. Defs.’ Mot. at 6–7.
The court now turns to assess Defendants’ asserted grounds for dismissal under the
“plausibility standard” of Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009), and Bell Atlantic
Corporation v. Twombly, 550 U.S. 544, 556–57 (2007).
Alter Ego Liability (All Counts). The court begins with the Individual Defendants’
argument that the Amended Complaint fails to allege facts sufficient to support an alter ego, or
veil-piercing, theory of liability. The D.C. Circuit has found it appropriate to pierce the corporate
veil when “the corporation, rather than being a distinct, responsible entity, is in fact the alter ego
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or business conduit of the person in control.” Labadie Coal Co. v. Black , 672 F.2d 92, 97 (D.C.
Cir. 1982). In making that determination, courts generally inquire as to “whether corporate
formalities have been observed; whether there has been commingling of corporate and shareholder
funds, staff and property; whether a single shareholder dominates the corporation; whether the
corporation is adequately capitalized; and, especially, whether the corporate form has been used
to effectuate a fraud.” Ruffin v. New Destination, LLC, 773 F. Supp. 2d 34, 40 (D.D.C. 2011).
“Although a plaintiff need not ‘show at the pleadings stage . . . [that which] he needs to show to
prevail at trial, the plaintiff must still allege sufficient facts regarding an alter ego relationship to
satisfy Rule 8(a)(2) and Iqbal.” Motir Servs., Inc. v. Ekwuno, 191 F. Supp. 3d 98, 109 (D.D.C.
2016) (alteration in original) (internal quotation marks omitted).
The Amended Complaint alleges the following relevant facts: (1) although Plaintiff had
advanced Dream Catcher “tens of thousands of dollars” to purchase and install a skylight and to
buy appliances and cabinets, Dream Catcher did not purchase the skylight or pay its suppliers in
full for the appliances and cabinets, Am. Compl. ¶¶ 19–20; (2) Dream Catcher admitted that it was
“strapped for cash” and could not make payments to vendors on Plaintiff’s project until it received
a check from another job, id. ¶ 20; (3) on another project unrelated to Plaintiff’s, Dream Catcher
had to rely on a cash advance from a different client to fund the project, id. ¶ 21; (4) Dream Catcher
and the Individual Defendants shared the same address, id. ¶ 25; (4) the Individual Defendants
borrowed money in their individual capacities from one of Dream Catcher’s clients to fund another
client’s project, and Defendant de Armas repaid that debt with his personal funds only after the
client filed suit, id. ¶ 26; (5) the Individual Defendants used funds from the sale of their house to
satisfy Dream Catcher’s financial obligations, id. ¶ 28; and (6) “upon information and belief,” the
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Individual Defendants deposited funds payable to Dream Catcher “into a college fund, savings
account, or similar bank account in the name of their daughter,” id. ¶ 27.
The court finds that the foregoing allegations support a plausible alter ego theory of
liability. The Amended Complaint contains sufficient factual matter, taken as true, which
establishes that: (1) the Individual Defendants commingled corporate and personal funds, id.
¶¶ 26–28; (2) Dream Catcher was undercapitalized, id. ¶¶ 19–21, 26; (3) Dream Catcher and the
Individual Defendants shared a common address, id. ¶ 25; and (4) the Individual Defendants did
not observe corporate formalities, id. ¶¶ 26–28. See Ruffin, 773 F. Supp. 2d at 41. Taken
together, those facts paint a plausible picture of a closely held corporation that “is in fact the alter
ego or business conduit” of the Individual Defendants. Labadie Coal Co., 672 F.2d at 97.
The Individual Defendants’ arguments to the contrary are unconvincing. First, they insist
that the Amended Complaint establishes, at most, “a financially independent entity with multiple
revenue streams,” rather than an undercapitalized corporation. Indiv. Defs.’ Mot. at 5. Not so.
The Amended Complaint depicts a corporation that: (1) is unable to pay vendors in full or
complete projects despite advance payments from clients; (2) requires financing from some clients
to perform projects for other clients; and (3) lacks sufficient operating capital to fund existing
obligations without first receiving outstanding payments. And then, of course, there is Dream
Catcher’s admission that it was “strapped for cash.” These allegations easily give rise to a
plausible inference that Dream Catcher was undercapitalized. See Iqbal, 556 U.S. at 678–79;
Twombly, 550 U.S. at 556–57.
Next, the Individual Defendants contend that Iqbal and Twombly require the court to
disregard the allegation that they deposited funds payable to Dream Catcher into an account in
their daughter’s name because that allegation is made on “information and belief.” Indiv. Defs.’
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Mot. at 5. Iqbal and Twombly did not, however, eliminate pleading in that manner. A plaintiff
still may plead on “information and belief” “where the facts are peculiarly within the possession
and control of the defendant.” Evangelou v. District of Columbia, 901 F. Supp. 2d 159, 170
(D.D.C. 2012) (internal quotation marks omitted). Here, Plaintiff simply has no way to access,
without the benefit of discovery, the financial records necessary to confirm the Individua l
Defendants’ alleged improper diversion of corporate funds for personal use, and thus that
particular allegation is appropriately advanced on “information and belief” to support Plaintiff’s
theory of alter ego liability.
Finally, the Individual Defendants maintain that no inference of alter ego liability can arise
from their alleged use of personal assets to satisfy Dream Catcher’s debts and obligations. Indiv.
Defs.’ Mot. at 5. That bald assertion, however, flies in the face of the well-settled proposition
that a key factor in deciding whether to pierce the corporate veil is “whether corporate funds and
assets have been extensively intermingled with personal assets.” Estate of Raleigh v. Mitchell,
947 A.2d 464, 470–71 (D.C. 2008). Plaintiff’s averment that the Individual Defendants routinely
used their personal assets to pay off Dream Catcher’s debts thus supports Plaintiff’s alter ego
theory of liability.
In summary, the court finds that the Amended Complaint alleges sufficient facts which,
taken as true, make out a plausible claim of alter ego liability.
Quasi-Contract Claims (Count III). Next, Dream Catcher argues that Plaintiff’s unjust
enrichment and quantum meruit claims (Count III) must be dismissed for failure to state a claim,
because quasi-contract claims are inappropriate in light of Plaintiff’s concession “that a contract
exists” in this case. Dream Catcher Mot. at 2. Defendants are correct that, under District of
Columbia law, a plaintiff cannot advance quasi-contract claims where there is an existing contract.
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See Plesha v. Ferguson, 725 F. Supp. 2d 106, 112 (D.D.C. 2010). Here, however, dismissal of
Plaintiff’s quasi-contract claims would be premature because Dream Catcher does not admit such
a contract existed. See Def. Dream Catcher’s Answer, ECF No. 4 (generally denying all
allegations in the Complaint). Thus, at this juncture, Plaintiff is well within his right to plead both
contract and quasi-contract claims as alternative theories of liability. See id.; see also Nevius v.
Africa Inland Mission Int’l, 511 F. Supp. 2d 114, 122 n.6 (D.D.C. 2007). Accordingly, the court
declines to dismiss Count III of the Amended Complaint.
District of Columbia Home Improvement Contractors Law (Count VI). Dream
Catcher’s challenge to Count VI fares much better. That count alleges as a stand-alone cause of
action that Dream Catcher is liable to Plaintiff for violating two provisions of the District of
Columbia Home Improvement Contractors Law (“D.C. Home Contractor Law”). Am. Compl. ¶¶
32, 61–65 (citing See D.C. MUN. REGS. tit. 16, §§ 808, 811). That claim fails, however, because,
as Dream Catcher contends, the D.C. Home Contractor Law does not provide a private right of
action.
The municipal regulations that Dream Catcher allegedly violated do not, on their face,
provide a private right of enforcement. See D.C. MUN. REGS. tit. 16, §§ 808, 811. So, the burden
is on Plaintiff “to demonstrate that, in spite of the absence of any explicit authorization, the
D.C. Council intended to imply a right to sue for damages for violations of” the D.C. Home
Contractor Law. Coates v. Elzie, 768 A.2d 997, 1001 (D.C. 2001). Plaintiff, however, makes no
effort to satisfy his burden. See Pl.’s Opp’n to Dream Catcher Mot., ECF No. 18 [hereinafter Pl.’s
Opp’n], at 1. All he does is assert—wrongly—that the defendant bears the burden of
demonstrating the absence of a private right of action. Id. Because Plaintiff has not shown that
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the D.C. Council intended for there to be a private right of action under the D.C. Home Contractor
Law, the court dismisses Count VI of the Amended Complaint.1
Fraud (Count VII). Finally, as to Count VII, the court agrees that Plaintiff has failed to
state a claim of common law fraud. “District of Columbia law requires that the factual basis for
a fraud claim be separate from any breach of contract claim that may be asserted.” Plesha, 725
F. Supp. 2d at 113; see also Choharis v. State Farm Fire & Cas. Co., 961 A.2d 1080, 1089 (D.C.
2008) (“[T]he tort must exist in its own right independent of the contract, and any duty upon which
the tort is based must flow from considerations other than the contractual relationship.”). Here,
however, Plaintiff’s fraud claim rests entirely on the same acts that form the basis of his breach of
contract claims. Plaintiff’s fraud claim is premised on the allegation that Defendants falsely
represented that they would purchase and install a skylight, cabinetry, and appliances. Am.
Compl. ¶ 67. That allegation, however, is indistinct from Plaintiff’s contract claims. See id.
¶¶ 11–12 (describing as part of the scope of work Defendants’ failure to purchase and install a
skylight, cabinetry, and appliances). Defendants’ alleged unfulfilled promises to perform certain
work, therefore, do not constitute an actionable fraud claim. Plesha, 725 F. Supp. 2d at 113.
Accordingly, the court will dismiss Count VII of the Amended Complaint.
* * *
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The court declines Plaintiff’s alternative request to “construe Count VI as a claim for negligence.” Pl.’s Opp’n at 1.
That request is precluded by the rule that “a plaintiff cannot amend his or her complaint by the briefs in opposition to
a motion to dismiss.” Park Civic Ass’n v. Gray, 27 F. Supp. 3d 142, 160 n.7 (D.D.C. 2014).
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For the foregoing reasons, the court grants in part and denies in part both Defendant Dream
Catcher’s and the Individual Defendants’ Motions to Dismiss. The court dismisses Counts VI
and VII as to all Defendants. As to all other counts, the Motions are denied.
______________________
Dated: August 15, 2017 Amit P. Mehta
United States District Judge
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