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McWilliams Ballard, Inc. v. Level 2 Development

March 24, 2010

MCWILLIAMS BALLARD, INC., PLAINTIFF,
v.
LEVEL 2 DEVELOPMENT, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge

MEMORANDUM OPINION

Plaintiff McWilliams Ballard, Inc. ("plaintiff" or "McWilliams Ballard") commenced this action alleging that the two limited liability company defendants and two individual defendants are alter egos of one another and failed to repay funds loaned to them to assist in the purchase and development of real property located in the District of Columbia. Defendants L2CP LLC ("L2CP"), Jeffrey D. Blum ("Blum"), and David Franco ("Franco") have moved to dismiss all claims against them and to vacate the Notice of Pendency of Action ("lis pendens") filed by plaintiff.*fn1 Upon consideration of the motion, the response and reply thereto, the applicable law, the entire record, and for the reasons following, the Court DENIES defendants' motion to dismiss and to remove the notice of lis pendens.

I. BACKGROUND

Plaintiff, a corporation organized under the laws of Virginia, Compl. ¶ 1, alleges the following facts. Defendant Level 2 is a limited liability company organized under the laws of the District of Columbia, with its principal place of business in the District of Columbia. Compl. ¶ 2. Defendant L2CP is a company organized under the laws of Delaware with its principal place of business in the District of Columbia, at the same address as Level 2. Compl. ¶ 3. Defendants Blum and Franco (the "individual defendants") are managers, members, directors, or officers of Level 2 and L2CP. Compl. ¶¶ 4-5.

Plaintiff agreed to loan $100,000 to defendant Level 2 on March 11, 2005 for the acquisition, development, and/or improvement of real property located in the District of Columbia (the "Property"). Compl. ¶ 11.*fn2 The Property was intended to be developed as a mixed-use, nine-story building containing approximately 170 residential condominiums, street-level retail, and underground parking, to be known as "View 14" ["View 14 Project"]. Compl. ¶ 13. Defendant L2CP then purchased the Property on June 6, 2005, presumably with the proceeds of the loan made by plaintiff to Level 2, and development began soon after. Compl. ¶ 13. The loan became due on March 11, 2009; however, Level 2 did not make the payment required of it on that date, nor has any payment been made since. Compl. ¶¶ 14-15. Plaintiff provided Level 2 with a written notice of default on March 11, 2009. Compl. ¶ 16; Notice of Default, Ex. C.

Plaintiff alleges that the defendants are collectively "alter egos and/or agents of one another and, at all relevant times, operated as a single business enterprise in the District of Columbia." Compl. ¶ 6. Plaintiff further alleges that the individual defendants formed L2CP "to create a layer of a limited liability company between them and Level 2 and between Level 2 and the [View 14] Project" and "exercised full control over Level 2 and [L2CP] for their own benefit and purposes... completely dominated and controlled the assets, operations, activities, policies, programs, procedures, strategies and tactics of Level 2 and [L2CP], [and] failed to observe important corporate formalities." Compl. ¶¶ 19, 24.

The complaint contains five counts alleging claims against all defendants: breach of contract, unjust enrichment, breach of the implied duty of good faith and fair dealing, fraudulent inducement, and conversion. The complaint also alleges two additional counts against the individual defendants: conspiracy to commit fraud and aiding and abetting fraud. Finally, the complaint seeks to impose a constructive trust against the Property owned by L2CP. The individual defendants and L2CP filed a motion to dismiss all claims against them under Federal Rule of Civil Procedure 12(b)(6) and to vacate the lis pendens plaintiff filed encumbering the Property.

II. STANDARD OF REVIEW

To survive a motion to dismiss, a complaint must satisfy Federal Rule of Civil Procedure 8(a)(2)*fn3 or, when pleading fraud, Rule 9(b).*fn4 To survive a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), a plaintiff must make sufficiently detailed factual allegations in the complaint. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The allegations must "raise a right to relief above the speculative level." Id. (citation omitted). "In evaluating a Rule 12(b)(6) motion, the Court must accept as true all of the factual allegations contained in the complaint and grant the plaintiff the benefit of all inferences that can be derived from the facts alleged." Eleson v. United States, 518 F. Supp. 2d 279, 282 (D.D.C. 2007) (internal citations and quotation marks omitted). "However, 'a plaintiff's obligation to provide the grounds of his entitlement to relief [in his complaint] requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555). The Court is "not bound to accept as true a legal conclusion couched as a factual allegation" when considering a motion to dismiss. Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

III. DISCUSSION

A. Breach of Contract

Count I of the complaint alleges breach of contract against all defendants. The moving defendants argue that they were not parties to the alleged contract between Level 2 and McWilliams Ballard and that the promissory note does not impose obligations on them. Plaintiff responds that the moving defendants are liable because they are the "alter egos" of, and therefore indistinguishable from, Level 2, and that all defendants operated as a single business enterprise. Pl.'s Mem. of P. & A. in Opp'n to Defs.' Mot. to Dismiss, and to Remove Notice of Pendency of Action ("Pl.'s Mem."); Compl. ¶ 6. The "alter ego" theory may be invoked by parties seeking to pierce the corporate veil and impose liability upon the corporation's shareholders. Estate ofv. Mitchell, 947 A.2d 464, 470 (D.C. 2008).*fn5

The District of Columbia Court of Appeals has enunciated the following test for piercing the corporate veil: "[g]enerally, the corporate entity will be respected, but a party may be permitted to pierce the corporate veil upon proof, 'that there is (1) unity of ownership and interest, and (2) use of the corporate form to perpetrate fraud or wrong,' or 'other considerations of justice and equity' justify it." Id. (citing Bingham v. Goldberg, Marchesano, Kohlman, Inc., 637 A.2d 81, 92 (D.C. 1994)).*fn6

Factors for determining when to pierce the corporate veil include, inter alia, "(1) whether corporate formalities have been disregarded, (2) whether corporate funds and assets have been extensively intermingled with personal assets, (3) inadequate initial capitalization, and (4) fraudulent use of the corporation to protect ...


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