Jones and Associates, Inc. v. District of Columbia

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JONES AND ASSOCIATES, INC., and
JAMES JONES,
Plaintiffs,
v. Civil Action No. 10-00461 (JDB)
THE DISTRICT OF COLUMBIA, and
ROQUE GERALD,
Defendants.
MEMORANDUM OPINION
Jones and Associates, Inc., ("J&A") and Dr. James Jones (collectively, "plaintiffs") have
brought suit against the District of Columbia and Roque Gerald, Director of the District Child
and Family Services Agency ("defendants"), regarding contracts J&A had with the District to
provide independent living services to older youth in the D.C. foster care system. Jones is suing
both "[i]ndividually and [i]n [his] [c]apacity as CEO" of J&A, and J&A is suing on its own
behalf and on behalf of foster care youth who qualify for its services. Am. Compl. [Docket Entry
7] at 1. Plaintiffs' only federal claim is that defendants' contracting process has violated their
Fifth Amendment due process rights.1 The vast majority of plaintiffs' suit consists of various
contract claims under D.C. law. Defendants have moved to dismiss pursuant to Federal Rules of
Civil Procedure 12(b)(1) and 12(b)(6). They argue that J&A does not have standing to sue on
1
Separate from any count and unrelated to any allegations in their amended complaint,
plaintiffs request a declaration that defendants violated their First Amendment rights "due to
[their] retaliatory customs and practices." Am. Compl. ¶ 143(b). Plaintiffs, however, fail to
identify any speech for which they suffered retaliation.
-1-
behalf of foster care youth who qualify for its supervision and that Jones does not have standing
to sue in his individual capacity. Defendants also contend that plaintiffs fail to state a claim in
any of their six counts. Significantly, defendants argue that because plaintiffs fail to state a
federal claim, this Court "should decline to exercise supplemental jurisdiction over any of
plaintiffs' remaining claims." Defs.' Mot. to Dismiss [Docket Entry 11] at 13.
For the reasons detailed below, the Court finds that plaintiffs fail to state a federal claim.
Moreover, the Court declines to exercise supplemental jurisdiction over plaintiffs' remaining
D.C.-law claims. Hence, the case will be dismissed in its entirety.
BACKGROUND
J&A has provided independent living program (ILP) services to foster care youth between
the ages of sixteen and twenty-one for the District of Columbia's Child and Family Services
Agency since 2003. Am. Compl. ¶¶ 5-6. Plaintiffs allege that defendants underpaid them for
ILP services that plaintiffs rendered between 2004 and 2009. Specifically, plaintiffs contend that
during the 2004 to 2005 contract period, the District of Columbia "threaten[ed] J&A with" a
series of "'take it or leave it' deal[s]," and insisted on a significantly lower rate than J&A's best
offer. Id. ¶ 35. Plaintiffs allege that they signed these contracts with the District "under protest."
¶¶ 52, 55. With respect to contracts between 2005 and 2008, plaintiffs maintain that defendants
engaged in a "bait and switch" scheme whereby they would accept a proposed price for services
and then unilaterally reduce that price. Id. ¶¶ 55, 70, 76, 83. Moreover, plaintiffs contend that
they rendered services for the first week of 2009 without payment. Id. ¶¶ 87-91.
Finally, plaintiffs allege that they "(J&A and Dr. Jones) made a series of loans to
[d]efendant (CFSA) as mandated by" D.C. Mun. Regs. tit. 29, § 6307.2(d) (2011). Id. ¶ 93. That
regulation provides that in order to operate an ILP, an operator, such as J&A, must show
-2-
"[d]ocumentation of sufficient funds on hand to operate the independent program for at least
three months." D.C. Mun. Regs. tit. 29, § 6307.2(d). Plaintiffs state that "J&A has made
repeated requests to the [d]efendant (CFSA) for repayment of these loans." Id. ¶ 94. To
evidence these "loans," plaintiffs have attached personal checks from Jones made out to J&A and
describe these checks as "funds loaned to J&A ILP." Id. Ex. 30.
Based on these allegations, Jones has brought suit both "[i]ndividually and [i]n [his]
[c]apacity as CEO" of J&A and J&A has brought suit on its own behalf and on behalf of the
foster care youth who qualify for its services. Plaintiffs' sole federal claim is that the "policies
and practices of the [d]efendants . . . deprived [them] of . . . property rights without due process
of law" in violation of the Fifth Amendment. Id. ¶¶ 96-98. Plaintiffs seek a declaration that this
treatment is unconstitutional and request damages under 42 U.S.C. § 1983. Id. ¶¶ 143(a), 145.
Plaintiffs also include multiple D.C.-based contract claims supported by these same allegations.
Defendants have moved to dismiss for lack of subject-matter jurisdiction and for failure
to state a claim upon which relief can be granted. Defendants only object to subject-matter
jurisdiction as to Jones's suit in his individual capacity and as to J&A's suit on behalf of foster
care youth who qualify for its services. Although defendants contend that all of plaintiffs' claims
fail to state a claim upon which relief can be granted, they specifically argue that "[i]n light of
[plaintiffs'] failure to identify a viable claim under federal law, the Court should decline to
exercise supplemental jurisdiction over any of [p]laintiffs' remaining claims." Defs.' Mot. to
Dismiss 13.
STANDARD OF REVIEW
Under Fed. R. Civ. P. 12(b)(1), "the plaintiff bears the burden of establishing that the
-3-
court has jurisdiction." Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9,
13 (D.D.C. 2001). A court must accept as true all the factual allegations contained in the
complaint when reviewing a motion to dismiss pursuant to Rule 12(b)(1), and the plaintiff should
receive the benefit of all favorable inferences that can be drawn from the alleged facts. See
Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164,
(1993); EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 n.3 (D.C. Cir. 1997).
However, "the court need not accept inferences drawn by plaintiffs if such inferences are
unsupported by the allegations set out in the complaint. Nor must the court accept legal
conclusions cast in the form of factual allegations." Kowal v. MCI Commc'ns Corp., 16 F.3d
1271, 1276 (D.C. Cir. 1994).
With respect to a motion to dismiss for failure to state a claim, all that the Federal Rules
of Civil Procedure require of a complaint is that it contain "'a short and plain statement of the
claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of
what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Although "detailed
factual allegations" are not necessary to withstand a Rule 12(b)(6) motion to dismiss, to provide
the "grounds" of "entitle[ment] to relief," a plaintiff must furnish "more than labels and
conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S.
at 555-56. "To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). A complaint is plausible on its face
"when the plaintiff pleads factual content that allows the court to draw the reasonable inference
-4-
that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949. This amounts
to a "two-pronged approach" under which a court first identifies the factual allegations entitled to
an assumption of truth and then determines "whether they plausibly give rise to an entitlement to
relief." Id. at 1950-51.
The notice pleading rules are not meant to impose a great burden on a plaintiff. See Dura
Pharm., Inc. v. Broudo, 544 U.S. 336, 347 (2005); see also Swierkiewicz v. Sorema N.A., 534
U.S. 506, 512-13 (2002). When the sufficiency of a complaint is challenged by a motion to
dismiss under Rule 12(b)(6), the plaintiff's factual allegations must be presumed true and should
be liberally construed in his or her favor. See Leatherman, 507 U.S. at 164; Phillips v. Bureau of
Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979); see also Erickson v. Pardus, 551 U.S. 89, 94 (2007)
(citing Twombly, 550 U.S. at 555-56). The plaintiff must be given every favorable inference that
may be drawn from the allegations of fact. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974);
Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). However, "the court
need not accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set
out in the complaint." Kowal, 16 F.3d at 1276. Nor need the court accept "a legal conclusion
couched as a factual allegation," or a "naked assertion[] [of unlawful misconduct] devoid of
further factual enhancement." Iqbal, 129 S. Ct. at 1949-50 (internal quotation marks omitted).
DISCUSSION
Defendants object to Jones's individual standing and J&A's standing on behalf of foster
care youth. Moreover, defendants contend that plaintiffs fail to state a federal claim upon which
relief can be granted, and thus that this Court should decline to exercise supplemental jurisdiction
over plaintiffs' state (i.e., D.C.) law claims. The Court will address each of these issues in turn.
-5-
I. Standing
Article III of the U.S. Constitution "limits the 'judicial power' of the United States to the
resolution of 'cases' and 'controversies,'" Valley Forge Christian Coll. v. Am. United for
Separation of Church & State, Inc., 454 U.S. 464, 471 (1982), and the doctrine of standing serves
to identify those "'Cases' and 'Controversies' that are of the justiciable sort referred to in Article
III," Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). To establish the "irreducible
constitutional minimum of standing," a plaintiff must allege (1) an "injury in fact," defined as "an
invasion of a legally protected interest which is (a) concrete and particularized," and (b) "actual
or imminent, not conjectural or hypothetical"; (2) "a causal connection between the injury and the
conduct complained of"; and (3) a likelihood "that the injury will be redressed by a favorable
decision." Id. at 560-61 (internal quotation marks and citations omitted). In order for an injury
to be "concrete and particularized," it must "affect the plaintiff in a personal and individual way."
Id. at 560 n.1.
Although defendants contend that J&A does not have third-party standing to sue on
behalf of youth qualifying for its services, the Court need not address third-party standing as
plaintiffs have failed sufficiently to allege any injury-in-fact to these foster care youth. Although
plaintiffs twice mention injury to foster care youth, these alleged injuries are merely "conjectural
[and] hypothetical," Lujan, 504 U.S. at 560. First, plaintiffs allege that "the procurement and
contract practices imposed on J&A potentially expose[] foster care children to increased
irreparable and ongoing physical, mental, and emotional harm." Am. Compl. 3-4 (emphasis
added). Second, plaintiffs contend that "[t]he Agency's repeated false instigations and acts of bad
faith put foster care youth in continuing jeopardy of abrupt, untimely, and unjustified removal
-6-
from J&A, placing the residents at risk for unnecessarily interrupted and discontinued medical,
emotional, educational and transitional services." Id. ¶ 46 (emphasis added). Potential harms
and possible placement in "jeopardy" are precisely the type of "conjectural [and] hypothetical"
injuries that fail to satisfy Article III standing requirements. Lujan, 504 U.S. at 560.
Defendants also object to Jones's standing in his individual capacity because they contend
that "[a] partner may not sue individually to recover damages for an injury to the partnership."2
Defs.' Reply [Docket Entry 15] at 4. Regardless of whether Jones has Article III standing to sue
in his individual capacity, he does not have prudential standing to sue because of the shareholder
standing rule. The "question of standing 'involves both constitutional limitations on federal-court
jurisdiction and prudential limitations on its exercise.'" Nat'l Ass'n of Home Builders v. U.S.
Army Corps of Eng'rs, 417 F.3d 1272, 1287 (D.C. Cir. 2005) (quoting Bennett v. Spear, 520 U.S.
154, 162 (1997)). One of the prudential requirements of standing is that "the plaintiff generally
must assert his own legal rights and interests, and cannot rest his claim to relief on the legal
rights or interests of third parties." Franchise Tax Bd. of California v. Alcan Aluminium Ltd.,
493 U.S. 331, 336 (1990) (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)). The Supreme
Court has explained that "[r]elated to th[e] principle" of third-party standing "is the so-called
shareholder standing rule" which "is a longstanding equitable restriction that generally prohibits
shareholders from initiating actions to enforce the rights of the corporation unless the
corporation's management has refused to pursue the same action for reasons other than good-faith
business judgment." Id.; see also Am. Airways Charters, Inc. v. Regan, 746 F.2d 865, 873 n.14
2
Plaintiffs never explain what it means for Jones to sue "[i]n [his] [c]apacity as CEO of
[J&A]." Am. Compl. 1. The Court understands Jones's suit in this capacity to be an alternative
way of pleading J&A's claims.
-7-
(D.C. Cir. 1984) ("No shareholder—not even a sole shareholder—has standing in the usual case
to bring suit in his individual capacity on a claim that belongs to the corporation.").
To determine "whether a shareholder's claims are purely derivative of the corporation's
claims for standing purposes and thus barred by the shareholder standing rule, courts apply the
law of the state of incorporation." Cheeks v. Fort Myer Constr. Co., 722 F. Supp. 2d 93, 108
(D.D.C. 2010) (citing Harpole Architects, P.C. v. Barlow, 668 F. Supp. 2d 68, 76 (D.D.C.
2009)). Because J&A is a D.C. limited partnership, Am. Compl. ¶ 1, this Court will apply D.C.
law. Although D.C. courts have not definitively articulated a test for evaluating whether a
partner's claim is derivative of the partnership's, D.C. courts have held that to sue directly, a
corporation's shareholder "must identify a legal interest that has been directly or independently
harmed, i.e., a 'special injury' that does not derive from the injury to the corporation." Harpole
Architects, 668 F. Supp. 2d at 77 (citing Labovitz v. Wash. Times Corp., 172 F.3d 897, 901
(D.C. Cir. 1999)); see also Estate of Raleigh v. Mitchell, 947 A.2d 464, 470 (D.C. 2008) ("Since
the [plaintiff] had no legal interest in the real property belonging to the corporation, it could not
sue individually to redress any alleged wrongs against the corporation's property interests.").
To the extent that the District of Columbia has not announced a definitive rule on partner
standing, "D.C. courts have often looked to Delaware for guidance on matters of corporate law."
Cheeks, 722 F. Supp. 2d at 109 n.9 (citing Harpole Architects, 668 F. Supp. 2d at 76, 77 n.4).
Under Delaware law, "[t]he test for distinguishing direct from derivative claims in the context of
a limited partnership is . . . [i]f the injury is one that affects all partners proportionally to their pro
rata interests in the corporation, the claim is derivative." Anglo American Sec. Fund, L.P. v. S.R.
Global Intern. Fund, L.P., 829 A.2d 143, 149-50 (Del. Ch. 2003). As the Delaware Court of
-8-
Chancery has explained, "[i]n a derivative action the plaintiff sues for an injury done to the
partnership and any recovery of damages is paid to the partnership." Id. at 150.
Under these tests, Jones's claims are unquestionably derivative. The contracts at issue are
all between J&A and the District of Columbia. Moreover, defendants' alleged failure to repay
loans was a failure to repay the partnership, not Jones himself. As plaintiffs allege, Jones wrote
personal checks which plaintiffs characterize as "funds loaned to J&A ILP," and it was "J&A
[that] made repeated requests" to defendants "for repayment." Am Compl. ¶ 94, Ex. 30. Indeed,
Jones's sole argument in support of his individual standing—that he "is personally liable for the
debts and obligations of J&A," Pls.' Opp. 10—recognizes that his claim is derivative.
Accordingly, neither Jones in his individual capacity, nor J&A on behalf of the named foster care
youth, may proceed with their claims.
II. Plaintiffs' Due Process Claim
Plaintiffs contend that the "policies and practices of [d]efendants . . . deprived [them] of
. . . property rights without due process of law" in violation of the Fifth Amendment. Am.
Compl. ¶¶ 96-98. Plaintiffs' claims, however, amount to no more than garden-variety contract
claims. Plaintiffs allege three ways in which defendants deprived them of their "property interest
in the[ir] contracts": (1) defendants bargained coercively by employing a "take it or leave it"
policy; (2) defendants underpaid them for their services under the "bait and switch" scheme and
by a failure to repay "loans"; and (3) defendants were unjustly enriched for the days that plaintiffs
rendered services without a contract and without compensation. Am. Compl. ¶ 35, 55, 70, 76,
83, 90, 94, 99. Each of these claims is a classic contract claim for which plaintiffs can seek relief
through D.C.'s administrative contract review procedure or in D.C. courts. See D.C. Code §§ 2-
-9-
359.08, 2-360.03; Davis & Assocs. v. Williams, 892 A.2d 1144, 1150 (D.C. 2006). Although
plaintiffs point to some serious problems in the Child and Family Services Agency's contracting
process, see Am. Compl. Ex. 1 (D.C. Auditor, Audit of CFSA's Contracting and Quality
Assurance Procedures (2008)), plaintiffs never dispute that any loss they suffered can be
addressed through a suit in a D.C. court or through D.C.'s administrative contract review process.
As this Court has explained, "'[a] claim that a government agency has violated a party's
right to due process by refusing performance under a contract . . . is substantively
indistinguishable from a breach of contract claim.'" LG Elec. U.S.A., Inc. v. Dep't of Energy,
679 F. Supp. 2d 18, 34 (D.D.C. 2010) (quoting Suburban Mortg. Assocs. v. Dep't of Housing &
Urban Dev., 480 F.3d 1116, 1128 (Fed. Cir. 2007)). And it is well-established that when the
government "makes ordinary judicial process available to [an entity] for resolving its contractual
dispute, that process is due process." Lujan v. G & G Fire Sprinklers, Inc., 532 U.S. 189, 197
(2001). Plaintiffs do not contend that they have been deprived of such "ordinary judicial
process." Id. Again, they can seek review of these contracts both administratively and through a
contract suit in a D.C. court.
Plaintiffs, nevertheless, argue that the District "violate[d] [their] due process right to be
free of contracting decisions that are based upon 'bias, bad faith, improper motive, lack of
uniformity, and lack of impartiality.'" Pls.' Opp. 19 (citing Ervin & Assocs., Inc. v. Dunlap, 33 F.
Supp. 2d 1, 8 (D.D.C. 1997)). Ervin, decided before the Supreme Court clearly held that due
process only requires that a state "make[] ordinary judicial process available to [an entity] for
resolving . . . contractual dispute[s]," G & G Fire Sprinklers, 532 U.S. at 197, focuses primarily
on whether a plaintiff had a "property interest" in "contracts [that] would have been awarded to
-10-
him, but for distortion of the procurement process." Ervin, 33 F. Supp. 2d at 9. The case does
not discuss whether a plaintiff had a "contractual dispute" for which "ordinary judicial process
[was] available." G & G Fire Sprinklers, 532 U.S. at 197. To the extent that Ervin dealt with a
contractual dispute, there would be no due process violation if the Ervin plaintiff had access to
ordinary judicial process for his claim, as plaintiffs unquestionably have here. Accordingly,
Ervin is inapposite, and plaintiffs cannot proceed with their federal claim.3
III. Supplemental Jurisdiction
Because this Court has decided to dismiss plaintiffs' sole federal claim, it will decline to
exercise supplemental jurisdiction over the remaining D.C.-law claims. The Supreme Court has
explained that "a federal court should consider and weigh in each case . . . the values of judicial
economy, convenience, fairness, and comity in order to decide whether to exercise jurisdiction
over a case brought in that court involving pendent state-law claims." Carnegie-Mellon Univ. v.
Cohill, 484 U.S. 343, 350 (1988). "Generally, a federal court 'should decline the exercise of
jurisdiction' . . . where the federal claims are resolved early in the litigation leaving only state law
claims." Amiri v. Gelman Mgmt. Co., 734 F. Supp. 2d 1, 4 (D.D.C. 2010) (quoting Carnegie-
Mellon, 484 U.S. at 350). In light of plaintiffs' failure to state a federal claim, the Court can
identify no reason to retain jurisdiction over any remaining claims brought under D.C. law.4
3
In their opposition, plaintiffs contend that defendants also violated their substantive due
process rights. Pls.' Opp. [Docket Entry 14] at 20-22. Plaintiffs' amended complaint, however,
does not include any allegation regarding substantive due process. Hence, this Court will not
consider plaintiffs' substantive due process argument.
4
Although plaintiffs' remaining counts request recovery pursuant to D.C. law, plaintiffs
seek to invoke this Court's jurisdiction pursuant to the "federal mandates of Lashawn A. v.
Fenty." Am. Compl. 2; see LaShawn A. v. Kelly, 887 F. Supp. 297 (D.D.C. 1995). This Court,
however, has already found that this case is not related to Lashawn. [Docket Entry 8]. Plaintiffs
-11-
CONCLUSION
For the reasons explained above, the Court will grant defendants' motion to dismiss and
decline to exercise supplemental jurisdiction. A separate Order accompanies this Memorandum
Opinion.
/s/
JOHN D. BATES
United States District Judge
Dated: July 18, 2011
fail to offer, and it is difficult to fathom, any theory by which a party can invoke federal
jurisdiction by relying on an order from an unrelated federal case.
-12-