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Bonfire, LLC v. Zacharia

United States District Court, District of Columbia

April 25, 2017

BONFIRE, LLC, Plaintiff,
v.
MICHAEL R. ZACHARIA, et al., Defendants.

          MEMORANDUM OPINION

          AMY BERMAN JACKSON United States District Judge.

         Plaintiff Bonfire, LLC has brought this breach of contract action against defendants Michael R. Zacharia and 1132 19th Street NW, LLC. Compl. [Dkt. # 1]. The case arises out of a 2014 lease agreement in which Bonfire agreed to rent the premises, located at 1132 19th Street N.W. in Washington, D.C., from the defendants for the purpose of operating a restaurant. Id. ¶ 5. Plaintiff alleges that in the conversations leading up to the execution of the lease, defendants granted it a right of first refusal to purchase the property if defendants sought to sell it, but that defendants breached the oral agreement and sold the property without notifying plaintiff. Plaintiff also alleges that defendants committed fraud by failing to honor the right of first refusal, and by misrepresenting defendant Zacharia's ownership stake in the property. See Compl. Defendants have moved to dismiss plaintiff's complaint pursuant to Rule 12(b)(6). Mot. to Dismiss [Dkt. # 8] (“Defs.' Mot.”); Mem. of P. & A. in Supp. of Defs.' Mot. [Dkt. # 8-1] (“Defs.' Mem.”) at 1-2. Since an oral promise to grant a right of first refusal to purchase property is unenforceable under the statute of frauds, and plaintiff has not stated a claim for misrepresentation, defendants' motion will be granted, and this case will be dismissed in its entirety.

         BACKGROUND

         On September 18, 2014, plaintiff entered into a lease agreement with defendants to rent property at 1132 19th Street, N.W. and operate a restaurant called Bonfire. Compl. ¶ 5. Plaintiff alleges that while the deal was being negotiated, Zacharia, the commercial real estate broker, and manager and co-owner of the property, orally agreed to provide plaintiff with a right of first refusal to purchase the property if defendants decided to sell it. Id. ¶¶ 6, 8, 15. Plaintiff alleges that, in reliance on Zacharia's oral assurances, it did not insist on a written right of first refusal clause in the lease agreement. Id. ¶ 16. The lease did not contain any reference to the right of first refusal, and it did include a provision in which plaintiff specifically agreed to execute any documents to subordinate the lease agreement “upon demand” by the landlord. Ex. 1 to Defs.' Mot. [Dkt. # 8-2] (“Lease”) § 15.[1] Also, the lease included an integration clause: “[t]his Lease contains the final and entire agreement between the parties hereto, and they shall not be bound by any terms, conditions, oral statements, warranties or representations not herein contained.” Id. § 25(a).

         On April 15, 2016, defendants asked plaintiff to sign the Tenant Estoppel Certificate and Subordination, Non-Disturbance and Attornment Agreement (“SNDA”) referenced in section 15 of the lease. Compl. ¶¶ 9, 18; see Lease § 15. Plaintiff was not informed that defendants needed plaintiff to sign those agreements because of an impending sale of the property to a third party. Id. Plaintiff signed the documents, believing that it needed to do so to remain in compliance with the terms of the lease. Id. ¶ 19. The estoppel document “forced [plaintiff] to admit that it has no right of first refusal to purchase the Property.” Id. ¶ 18. Defendants thereafter entered into a sale agreement with a third party in April 2016 “without informing or allowing [p]laintiff to meet the purchase price.” Compl. ¶ 17.

         Plaintiff initiated this action on July 27, 2016. Compl. In Count I, plaintiff alleges that defendants breached their contract with plaintiff by selling the property to a third party without honoring the oral agreement to provide plaintiff a right of first refusal. Id. ¶¶ 14-25. In Count II, plaintiff alleges that defendants engaged in fraud when they demanded that plaintiff sign the estoppel and SNDA “ostensibly for bank requirements without disclosing beforehand the impending sale for which the documents were required.” Id. ¶¶ 27-31. On September 2, 2016, defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(6). See Defs.' Mot.; Defs.' Mem. Plaintiff opposed the motion on September 16, 2016, Pl.'s Mem. in Opp. to Defs.' Mot. [Dkt. # 10] (“Pl.'s Opp.”), and defendants filed their reply on September 23, 2016. Defs.' Reply to Pl.'s Opp. [Dkt. # 11] (“Defs.' Reply”).

         STANDARD OF REVIEW

         “To survive a [Rule 12(b)(6)] 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, 556 U.S. 662, 678 (2009) (internal quotation marks omitted); accord Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In Iqbal, the Supreme Court reiterated the two principles underlying its decision in Twombly: “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” 556 U.S. at 678. And “[s]econd, only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679.

         A claim is facially plausible when the pleaded factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. A pleading must offer more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action, ” id., quoting Twombly, 550 U.S. at 555, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

         When considering a motion to dismiss under Rule 12(b)(6), the Court is bound to construe a complaint liberally in the plaintiff's favor, and it should grant the plaintiff “the benefit of all inferences that can be derived from the facts alleged.” Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Nevertheless, the Court need not accept inferences drawn by the plaintiff if those inferences are unsupported by facts alleged in the complaint, nor must the Court accept plaintiff's legal conclusions. See id.; Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). In ruling upon a motion to dismiss for failure to state a claim, a court may ordinarily consider only “the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice.” Gustave-Schmidt v. Chao, 226 F.Supp.2d 191, 196 (D.D.C. 2002), citing EEOC v. St. Francis Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997).

         ANALYSIS

         Because this Court sits in diversity pursuant to 28 U.S.C. § 1332, the Court applies state substantive law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The Court will apply District of Columbia substantive law since both parties agree that District of Columbia substantive law governs this matter. In re Korean Air Lines Disaster of Sept. 1, 1983, 932 F.2d 1475, 1495 (D.C. Cir. 1991) (Mikva, C.J., dissenting in part) (explaining that courts need not address choice of law questions sua sponte).

         I. Count I will be dismissed because the oral agreement to provide a right of first refusal is unenforceable.

         Defendants have moved to dismiss Count I under Rule 12(b)(6). Defs.' Mot. They argue that an oral promise to grant a right of first refusal does not constitute a valid contract, because any promise related to real estate would need to be in writing under the statute of frauds, and because the integration ...


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