United States District Court, District of Columbia
MEMORANDUM OPINION & ORDER
AMY BERMAN JACKSON, District Judge.
When plaintiff Joel Bartlett and defendant Gordon Overslaugh were still enjoying a close personal relationship, they shared a home and they shared an equal ownership in their business. Am. Compl. [Dkt. # 50] ¶¶ 16, 21. But now that their professional and personal relationship has deteriorated, they have turned to the courts, each claiming that the other violated fiduciary duties to Suite Services, Inc. ("Suite Services" or "SSI"), the Washington, D.C. corporation in which each retains a fifty-percent stake. Id. ¶¶ 3-5, 41-74. In 2012, Bartlett sued Overslaugh in the Southern District of Florida, alleging that Overslaugh had breached fiduciary duties to SSI by converting corporate funds for his personal use. See generally Compl. [Dkt. # 1]. After the case was transferred to this Court, Bartlett amended his complaint to add a request for a declaratory judgment, and to add the company as a defendant. Am. Compl. SSI, in its answer to Bartlett's amended complaint, asserted a counterclaim against Bartlett - SSI claims that Bartlett breached his fiduciary duties to SSI, and that he also converted SSI's corporate assets for his personal use. Countercl. [Dkt. # 97].
Bartlett has moved to dismiss SSI's counterclaim under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Pl. Thomas M. Bartlett's Mot. to Dismiss Def. SSI's Countercls. [Dkt. # 101] ("Pl.'s Mot."); Pl. Thomas M. Bartlett's Mem. of P. & A. in Supp. of Pl.'s Mot. [Dkt. # 101] ("Pl.'s Mem."). Because the Court finds that SSI's claims are barred by the statute of limitations, and because SSI likely lacks legal authority to sue Bartlett without Bartlett's consent, it will grant Bartlett's motion to dismiss SSI's counterclaim.
Bartlett founded Suite Services in 1982. Am. Compl. ¶ 13. The company provides "janitorial cleaning services to condominiums, office spaces, towers, and other properties." Id. ¶ 11. In 1988, pursuant to a stock assignment, Bartlett and Overslaugh became equal shareholders, each owning a 50% share in the business. Id. ¶ 16; see also Ex. B to Am. Compl. (stock assignment). In 2005, "[d]ue to a strong and irreparable rift in the personal relationship" of the parties, it became impossible for the couple to be in the same place at the same time. Id. ¶ 22. Bartlett alleges that he and Overslaugh then agreed that Bartlett would move away to Florida; Overslaugh would manage the business, and Bartlett would maintain his salary and benefits. Id. ¶¶ 23-24. The complaint alleges that the parties abided by that arrangement from 2006 to 2010. Id. ¶ 26.
Bartlett alleges that over time, Overslaugh began to neglect the business. He alleges that the company failed to pay state or federal taxes from 2006 until 2012, which ultimately caused a $600, 000 tax liability for the company, and that Overslaugh used SSI funds to make personal rent payments. Am. Compl. ¶¶ 28, 38. Bartlett alleges that in 2009, Overslaugh began to freeze him out of the business by eliminating his access to corporate checking and credit card accounts. Id. ¶¶ 29, 40. He alleges that in 2010, Overslaugh terminated Bartlett's employment with SSI, and converted him from an employee to an independent contractor. Id. ¶ 30. And in 2011, Overslaugh allegedly again changed Bartlett's employment status, and categorized payments to Bartlett as "shareholder distributions, " not salary. Id. ¶ 31.
Bartlett filed suit against Overslaugh on February 14, 2012 in federal court in Florida, alleging that Overslaugh breached his fiduciary duties to his former partner. Compl. ¶¶ 35-48. That suit was transferred to this Court. Order (Aug. 3, 2012) [Dkt. # 26]. On April 12, 2013, Bartlett amended his complaint to add Suite Services as a defendant. Am. Compl. Bartlett's Amended Complaint requests a declaratory judgment, alleges that Overslaugh breached his fiduciary duties, requests that the Court permanently enjoin Overslaugh from "continuing to exercise sole control of SSI" and from "withhold[ing] salary, income, distributions, and benefits" from Bartlett, and demands a partition of the parties' jointly-owned real property in Washington, D.C. Id. ¶¶ 41-80.
Despite three referrals to mediation, see Order Referring Case to Mediation (Nov. 5, 2012) [Dkt. # 37]; Order Referring Case to Mag. J. Facciola for Mediation (Apr. 12, 2013) [Dkt. # 48]; Order Re-Referring Case to Mag. J. Facciola for Mediation (Jan. 29, 2014) [Dkt. # 67], and numerous extensions of the parties' mediation deadlines, see Min. Order (Sept. 24, 2013); Min. Order (Nov. 26, 2013); Min. Order (Jan. 28, 2014); Min. Order (Feb. 27, 2014); Min. Order (May 6, 2014); Min. Order (July 2, 2014), the case has not come to a negotiated resolution. Although the mediation failed, it did result in an agreement to fund an independent accounting of the company's assets. See Status Report (Apr. 1, 2014) [Dkt. # 70].
Faced with a company that was owned in equal shares by individuals with irreconcilable differences, on October 8, 2014, the Court held a status conference and inquired whether dissolution would be the appropriate remedy. See Min. Entry (Oct. 8, 2014); Min. Order (Sept. 8, 2014).
On October 21, 2014, Overslaugh filed, in D.C. Superior Court, a shareholder derivative action to dissolve Suite Services pursuant to D.C. Code § 29-312.20(a)(2), and moved to stay the federal court action. Overslaugh v. Bartlett, 2014-CA-6635B (D.C. Super. Ct. Oct. 21, 2014); see Ex. C to Def.'s Mot. to Stay Proceedings [Dkt. # 80] (Superior Court Complaint). In addition, Overslaugh's Superior Court petition alleged that Bartlett breached his fiduciary duty, wasted corporate assets, and had been unjustly enriched. Id. ¶¶ 50-62. While this Court noted that "dissolution may well turn out to be the appropriate remedy for the impasse that has been reached in this case, " it denied without prejudice Overslaugh's Motion to Stay and ordered the parties to file routine status reports to update the Court on the proceedings in Superior Court. Order (Jan. 13, 2015) [Dkt. # 86] at 1-3. In light of the Superior Court action, and with plaintiff's agreement, the Court also dismissed as moot Counts III and IV of plaintiff's Amended Complaint, which requested that the Court enjoin Overslaugh from limiting Bartlett's access to the corporation's funds. Min. Order (Apr. 13, 2015).
On May 28, 2015, defendant SSI answered plaintiff's Amended Complaint and counterclaimed against plaintiff Bartlett. Answer & Countercl. [Dkt. # 97]. The counterclaim alleges that it was Bartlett - not Overslaugh - who breached his fiduciary duty and converted corporate assets. Countercl. ¶¶ 25-37. SSI alleges that until 2001, Bartlett and Overslaugh operated the business together, but, from 2002 to 2005, Bartlett began to withdraw from the managerial and day-to-day operations of SSI, and Overslaugh was left with the "lion's share" of those roles. Id. ¶¶ 5-7. SSI also alleges that Bartlett began to withdraw from the business because he "began abusing drugs and alcohol." Id. ¶ 5.
According to SSI, since Bartlett's 2005 move to Florida, he has not "participated in SSI's business in any manner whatsoever, " and it was Overslaugh who managed the business. Id. ¶¶ 7-8. SSI disputes the notion that Bartlett had any authority to receive funds from the company after he relocated, and it alleges that Bartlett improperly used SSI corporate bank accounts and credit cards for his own personal use. Id. ¶ 9. SSI claims that between 2006 and 2011, Bartlett used his corporate credit card and company checks to withdraw approximately $315, 100 from SSI's corporate accounts. Id. ¶¶ 10-14. In addition, SSI alleges that between 2006 and 2011, Bartlett withdrew approximately $504, 000 from his SSI capital account, which caused the balance of his capital account to fall to negative $497, 621.22. Id. ¶¶ 15-16.
SSI alleges that in light of those developments, Overslaugh removed Bartlett's name from the signature cards of SSI's bank accounts in 2009. Countercl. ¶ 17. But, because Bartlett continued to have access to company credit cards, SSI contends that he continued to charge personal expenses to SSI. Id. SSI alleges that Bartlett travelled to Washington, D.C. on August 2, 2011, attempted to withdraw corporate funds from SSI's bank account, and was unsuccessful. Id. ¶ 19. The counterclaim asserts three counts: breach of fiduciary duties (Count I); conversion (Count II); and a claim for a declaratory judgment that adjudicates whether Bartlett breached his fiduciary duties (Count III). Id. ¶¶ 38-40.
On August 3, 2015, Bartlett moved to dismiss the counterclaim under Rules 12(b)(1) and 12(b)(6). Pl.'s Mot.; Pl.'s Mem. Bartlett asserts that SSI lacks legal authority to sue Bartlett without the authorization of SSI's Board of Directors. Pl.'s Mot. at 3-4. Bartlett further argues that Counts I and II of the counterclaim - breach of fiduciary duty and conversion - are barred by the three-year statute of limitations. Id. at 4. Finally, Bartlett maintains that SSI is not entitled to a declaratory judgment; SSI in its counterclaim cannot ask the Court to determine "the ownership rights and responsibilities of Bartlett and Overslaugh" because Overslaugh is not a party to the counterclaim. Id. SSI responded to the motion, Countercl. Pl. SSI's Opp. to Mot. to Dismiss [Dkt. # 105] ("SSI's Opp."), and Bartlett replied. Def. Thomas M. Bartlett's Reply Mem. to Pl. SSI Opp. to Mot. to Dismiss [Dkt. # 106] ("Pl.'s Reply").
On September 1, 2015, the Superior Court dismissed without prejudice Overslaugh's petition to dissolve Suite Services. Order Granting Joint Mot. to Dismiss Pet. for Dissolution of Suite Servs., Inc. [Dkt. # 107-1] at 1. The court determined - apparently at the joint request of Overslaugh and Suite Services - that the pendency of this matter counseled in favor of dismissing the petition. Id. at 2. The Court explained that "potential inequitable consequences" may result from the dissolution while this proceeding was ongoing:
The equitable considerations raised by [Overslaugh and SSI] included (1) Suite Services' inability to prosecute the claims it has asserted against Defendant Bartlett in this federal matter should Defendant Bartlett gain control of the corporation and terminate the corporation's counsel of record; (2) the substantial impact on the value of the corporation as well as the terms and conditions of the sale of shares, in the event that Plaintiff Overslaugh or Defendant Bartlett were ordered to return or disgorge funds belonging to the corporation; and (3) Suite Services' recent acceptance into the District of Columbia's voluntary disclosure program for the purpose of negotiating the payment of past-due sales taxes.
Id. In other words, "[w]ere Defendant Bartlett permitted to purchase Plaintiff Overslaugh's shares prior to the resolution of this federal court proceeding, it is all but certain that Defendant Bartlett would terminate Suite Services' counsel of record and dismiss the corporation's counterclaims asserted against him in that proceeding, thereby leaving the corporation unable to prosecute what may be ...