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Cadet v. Draper & Goldberg

September 28, 2007


The opinion of the court was delivered by: John D. Bates United States District Judge


This diversity case arises from a real property auction gone awry. On July 15, 2004 plaintiffs, John and Yves Cadet, placed the winning bid of $500,000 at a public auction for property located in northwest Washington, D.C. Although they put down a $30,000 deposit on the day of their successful bid, plaintiffs -- despite their best efforts -- were ultimately unable to secure financing for the remainder of the purchase price. Consequently, the defendants determined that the plaintiffs had breached the sale agreement and thus retained the $30,000 deposit as liquidated damages. Plaintiffs promptly brought suit in a District of Columbia court alleging six counts: (1) fraud, (2) misrepresentation, (3) breach of contract, (4) wrongful conversion, (5) civil conspiracy, and (6) punitive damages. Defendants removed the case to this Court and moved to dismiss the complaint for failure to state a claim upon which relief can be granted. For the reasons set forth below, the Court will grant defendants' motions to dismiss.


Plaintiffs were browsing through the real estate section of the Washington Times during May and June of 2004 when they happened upon an advertisement ("Ad") for the sale at public auction of "VALUABLE" property located at 2948 Albermarle Street, NW, Washington, D.C. 20008 (hereinafter "Subject Property"). Am. Compl. ¶¶ 9-10. The myriad of defendants in this action is a result of the series of steps that culminated in the ultimate auction of the Subject Property. James G. Barnes and Iraline G. Barnes were joint owners of the Subject Property and mortgagees under the Note and Deed of Trust on the Subject Property held by defendant G.E. Capital Mortgage Services, Inc. (hereinafter "G.E."). Id. ¶ 8, 34. G.E. then named defendant Wells Fargo as the servicer for the mortgage loan. Defs.' Wells Fargo Bank, Wells Fargo Home Mortgage, G.E. Capital Mortgage Services Mot. to Dismiss (hereinafter "Wells Fargo Mot. to Dismiss") at 2.*fn1 Upon default of the mortgagees, Wells Fargo in turn appointed defendant Draper & Goldberg, PLLC ("D&G"), as Substitute Trustee of the property; D&G then contracted to place the Ad in the Washington Times and arranged for the auction. Am. Compl. ¶ ¶ 3-5, 10.*fn2

The Ad provided that the public auction would be held on July 15, 2004 at 10:30 a.m. Am. Compl. ¶ 9. In addition to providing the date of the sale, the Ad contained the following terms and conditions of the auction:

A deposit of $30,000 will be required at time of sale in cash or certified funds, except from secured party. Property sold in "AS IS" condition. Subject to liens of record. Conveyance by special warranty deed. Settlement in 30 days. If Sub. Trustee cannot convey Insurable title, purchaser's sole remedy is return of deposit. Additional sale terms announced at sale.

Wells Fargo Mot. Ex. A. The plaintiffs were attracted to the Subject Property because of its "location, the good schools in the area, the nearby shops, and the fact that it was five (5) minutes away and accessible to many areas that the Plaintiffs visited," and thus decided to attend the auction to bid on the property. Am. Compl. ¶ 11. In preparation for the auction, plaintiffs secured a pre-approved loan on July 7, 2004 in the amount of $526,000 from Market Street Mortgage subject to a satisfactory appraisal of the Subject Property by the lender. Id. ¶ 12. Significantly, plaintiffs did not perform a title search on the Subject Property prior to attending the auction, nor is it apparent that they made any physical inspection of the property at that time either. In addition, plaintiffs do not claim that the defendants made any additional representations -- aside from the description of the Subject Property in the Ad -- prior to the auction.

On the morning of the auction, plaintiffs placed the winning bid of $500,000, prevailing over two competing bidders.*fn3 Plaintiffs tendered the earnest money deposit in the amount of $30,000 and then signed a Memorandum of Sale with the substitute trustee D&G. Id. ¶¶ 15, 16. The Memorandum of Sale expressly provided that if the trustee failed for any reason to convey insurable title to the property, the purchaser's sole remedy was return of the deposit. Wells Fargo Mot. to Dismiss Ex. B. Moreover, the Memorandum of Sale further stated that:

Settlement must be within 30 days of the sale date. Time is of the essence. If settlement does not occur within this time, the deposit may be forfeited, and the trustees may avail themselves of all other legal or equitable rights against the defaulting purchaser.

Id. Unbeknownst to the plaintiffs, later that same day, James G. Barnes and Iraline G. Barnes filed a voluntary Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the District of Columbia. Draper & Goldberg Mot. to Dismiss ("D&G Mot. to Dismiss") Ex. A.

Plaintiffs promptly notified Market Street Mortgage of their successful bid, which then proceeded to conduct an appraisal of the Subject Property. Am. Compl. ¶ 19. In August 2004, Market Street informed plaintiffs that the loan would not be approved owing to "inadequate or unacceptable" collateral in the Subject Property. Id. Unfortunately for plaintiffs, this was the beginning of a process that ultimately left them rejected in similar fashion by three additional lenders. After receiving Market Street's decision, plaintiffs notified D&G of the rejection and assured defendant that they would continue to seek financing in good faith. Id. ¶ 20. Plaintiffs next turned to Money Tree Funding, LLC, which also refused to extend financing for the purchase of the Subject Property because said property did not "conform with its . . . zone" and consequently its value "as collateral for the proposed loan is very inadequate." Id.

Following this second rejection, plaintiffs wrote to defendant Wells Fargo Bank by letter dated September 10, 2004 informing Wells Fargo of their difficulties in obtaining financing and requesting return of their $30,000 deposit. Am. Compl. ¶ 22. By letter dated September 14, 2004, plaintiff was notified by D&G that pursuant to the Memorandum of Sale, plaintiffs were required to tender the balance of the purchase price or else forfeit their deposit. Id. ¶ 23. D&G evidently then extended plaintiffs' initial 30-day window, setting a new deadline of September 27, 2004. Id. Facing the loss of their deposit, plaintiffs next turned to defendant Wells Fargo Bank for financing. Id. ¶ 26. Before plaintiffs received a response from Wells Fargo, on September 29, 2004 -- after granting plaintiffs an additional time extension of indeterminate length -- D&G referred them to another lender, 1st American Mortgage, Inc., in a last ditch effort to salvage the deal. Id. ¶ 26, 27. Plaintiffs promptly filed an application with 1st American Mortgage, Inc., which initially approved plaintiffs' loan application on September 29, 2004. Id. ¶ 28. On that same day, Wells Fargo also informed plaintiffs that it had approved a loan to purchase the Subject Property. Id. ¶ 31.

Plaintiffs, however, were not yet in the clear. Just as with the prior two lenders, 1st American subsequently denied plaintiffs' loan on October 16, 2004 following an appraisal that indicated that the Subject Property was "unacceptable and inadequate collateral." Id. ¶ 29. Similarly, more than one month later, after conducting two separate appraisals, Wells Fargo Bank also denied plaintiffs' loan for "substantially the same reason(s) as the other prospective lenders." Id. ¶ 33. In the meantime, however, on October 25, 2004 D&G had provided plaintiffs with a notice of default of the Memorandum of Sale agreement and had indicated that defendants had elected to retain plaintiffs' $30,000 deposit as liquidated damages. Id. ¶ 32.

Plaintiffs now bring this action seeking return of their deposit in addition to other compensatory and punitive damages. Their six-count complaint alleges fraud, misrepresentation, breach of contract, wrongful conversion, civil conspiracy, and punitive damages under District of Columbia common law. Defendant D&G has moved to dismiss all counts pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Defendants Wells Fargo and G.E. have similarly moved separately to dismiss all counts on the same grounds.


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. ___, 127 S.Ct. 1955, 1964 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); accord Erickson v. Pardus, 551 U.S. ___, 127 S.Ct. 2197, 2200 (2007) (per curiam). 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." Bell Atl. Corp., 127 S.Ct. at 1964-65; see also Papasan v. Allain, 478 U.S. 265, 286 (1986). Instead, the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp., 127 S.Ct. at 1965 (citations omitted). Hence, although "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is impossible, and 'that a recovery is very remote and unlikely,'" id. (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)), the "threshold requirement" of Fed. R. Civ. P. 8(a)(2) is "that the 'plain statement' possess enough heft to 'sho[w] that the pleader is entitled to relief,'" id. at 1966 (quoting Fed. R. Civ. P. 8(a)(2)).

The notice pleading rules, however, are not meant to impose a great burden on a plaintiff. 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. Leatherman v. Tarrant County Narcotics & Coordination Unit, 507 U.S. 163, 164 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979); see also Erickson, 127 S.Ct. at 2200 (citing Bell Atl. Corp., 127 S.Ct. at 1965)). The plaintiff must be given every favorable inference that may be drawn from the allegations of fact. Scheuer, 416 U.S. at 236; 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. Nor must the court accept legal conclusions cast in the form of factual allegations." Kowal v. MCI Commc'n Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994); see also Domen v. Nat'l Rehab. Hosp., 925 F. Supp. 830, 837 (D.D.C. 1996) (citing Papasan, 478 U.S. at 286).

Finally, the Federal Rules of Civil Procedure provide for a heightened pleading standard for claims involving fraud. Rule 9(b) requires that in "all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). Although the particularity requirement distinguishes fraud claims from ordinary civil pleadings, Rule 9(b) is still subject to the general "short and plain statement" command of Rule 8. United States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (explaining that Rule 9(b) is not the "antithesis" of Rule 8). Consequently, to satisfy Rule 9(b), the "pleader must state the time, place and content of the false misrepresentations, the fact[s] misrepresented and what was obtained or given up as a consequence of the fraud." United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981).


In Counts I and II of the Amended Complaint, plaintiffs seek damages for common law fraud and misrepresentation, respectively, based on certain allegedly fraudulent omissions on the part of the defendants during the auction process. Count III requests relief on contractual grounds for defendants' alleged breach of the Memorandum of Sale for failure to refund plaintiffs' deposit. In Count IV, plaintiffs allege that defendants have wrongfully converted their deposit, whereas in Count V they assert that defendants engaged in an unlawful conspiracy to deprive plaintiffs of their earnest money. Finally, Count VI ...

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