United States District Court, District of Columbia
MEMORANDUM OPINION AND ORDER
P. Mehta United States District Judge
the court are two separate Motions to Dismiss Plaintiff
Stephen Kelleher's Amended Complaint. In one, Defendants
Cesar De Armas and Heidi Schultz move to dismiss all claims
brought against them. See Indiv. Defs.' Mot. to
Dismiss, ECF No. 15 [hereinafter Indiv. Defs.' Mot.]. In
the other, Defendant Dream Catcher, L.L.C., moves to dismiss
Counts III, VI, and VII of the Amended Complaint.
See Def Dream Catcher, LLC's Mot. to Dismiss
Counts III, VI, and VII, ECF No. 16 [hereinafter Dream
Catcher Mot.]. For the reasons that follow, the Motions are
granted in part and denied in part.
Defendant Dream Catcher, L.L.C., is a Washington, D.C.-based
construction company wholly owned by Defendants Cesar De
Armas and Heidi Schultz (the "Individual
Defendants"). Am. Compl., ECF No. 13 [hereinafter Am.
Compl.], ¶¶ 4, 8. According to the Amended
Complaint, Plaintiff hired Defendants to perform construction
and renovation work on a home owned by Plaintiff.
Id. ¶ 9. When the project went awry, Plaintiff
filed a Complaint, advancing contract, quasi-contract, and
tort claims, as well as two putative statutory claims under
District of Columbia law. See Notice of Removal, ECF
No. 1, Compl., ECF No. 1-1. On December 23, 2016, the court
dismissed the original Complaint against the Individual
Defendants because it failed to allege sufficient facts to
support holding Individua l Defendants liable for Dream
Catcher's alleged misconduct on an alter ego, or
veil-piercing, theory of liability. See Mem Op &
Order, ECF No. 11.
January 10, 2017, Plaintiff filed an Amended Complaint
alleging further facts in support of his claims, with
particular focus on buttressing his claims against the
Individua l Defendants. See Am. Compl. The
Individual Defendants again moved to dismiss, arguing that
the Amended Complaint fares no better than the original
Complaint in establishing alter ego liability. See
Indiv. Defs.' Mot. at 3-6. Separately, Dream Catcher
filed a Motion to Dismiss Counts III, VI, and VII of the
Amended Complaint, asserting that: (1) Plaintiff cannot
advance quasi-contract claims because the Amended Complaint
“concedes that a contract exists” (Count III);
(2) Plaintiff's “statutory” claim under the
District of Columbia municipal regulations governing home
improvement contractors fails because those regulations do
not provide a private right of action (Count VI); and (3)
Plaintiff's fraud claim is fatally flawed because he has
not pleaded any fraudulent conduct that is distinct from his
breach of contract claims (Count VII). See Dream
Catcher Mot. The Individual Defendants joined in Dream
Catcher's motion to dismiss Count VII. See
Indiv. Defs.' Mot. at 6-7.
court now turns to assess Defendants' asserted grounds
for dismissal under the “plausibility standard”
of Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009),
and Bell Atlantic Corporation v. Twombly, 550 U.S.
544, 556-57 (2007).
Ego Liability (All Counts).
court begins with the Individual Defendants' argument
that the Amended Complaint fails to allege facts sufficient
to support an alter ego, or veil-piercing, theory of
liability. The D.C. Circuit has found it appropriate to
pierce the corporate veil when “the corporation, rather
than being a distinct, responsible entity, is in fact the
alter ego or business conduit of the person in
control.” Labadie Coal Co. v. Black, 672 F.2d
92, 97 (D.C. Cir. 1982). In making that determination, courts
generally inquire as to “whether corporate formalities
have been observed; whether there has been commingling of
corporate and shareholder funds, staff and property; whether
a single shareholder dominates the corporation; whether the
corporation is adequately capitalized; and, especially,
whether the corporate form has been used to effectuate a
fraud.” Ruffin v. New Destination, LLC, 773
F.Supp.2d 34, 40 (D.D.C. 2011). “Although a plaintiff
need not ‘show at the pleadings stage . . . [that
which] he needs to show to prevail at trial, the plaintiff
must still allege sufficient facts regarding an alter ego
relationship to satisfy Rule 8(a)(2) and
Iqbal.” Motir Servs., Inc. v. Ekwuno,
191 F.Supp.3d 98, 109 (D.D.C. 2016) (alteration in original)
(internal quotation marks omitted).
Amended Complaint alleges the following relevant facts: (1)
although Plaintiff had advanced Dream Catcher “tens of
thousands of dollars” to purchase and install a
skylight and to buy appliances and cabinets, Dream Catcher
did not purchase the skylight or pay its suppliers in full
for the appliances and cabinets, Am. Compl. ¶¶
19-20; (2) Dream Catcher admitted that it was “strapped
for cash” and could not make payments to vendors on
Plaintiff's project until it received a check from
another job, id. ¶ 20; (3) on another project
unrelated to Plaintiff's, Dream Catcher had to rely on a
cash advance from a different client to fund the project,
id. ¶ 21; (4) Dream Catcher and the Individual
Defendants shared the same address, id. ¶ 25;
(4) the Individual Defendants borrowed money in their
individual capacities from one of Dream Catcher's clients
to fund another client's project, and Defendant de Armas
repaid that debt with his personal funds only after the
client filed suit, id. ¶ 26; (5) the Individual
Defendants used funds from the sale of their house to satisfy
Dream Catcher's financial obligations, id.
¶ 28; and (6) “upon information and belief,
” the Individual Defendants deposited funds payable to
Dream Catcher “into a college fund, savings account, or
similar bank account in the name of their daughter, ”
id. ¶ 27.
court finds that the foregoing allegations support a
plausible alter ego theory of liability. The Amended
Complaint contains sufficient factual matter, taken as true,
which establishes that: (1) the Individual Defendants
commingled corporate and personal funds, id.
¶¶ 26-28; (2) Dream Catcher was undercapitalized,
id. ¶¶ 19-21, 26; (3) Dream Catcher and
the Individual Defendants shared a common address,
id. ¶ 25; and (4) the Individual Defendants did
not observe corporate formalities, id. ¶¶
26-28. See Ruffin, 773 F.Supp.2d at 41. Taken
together, those facts paint a plausible picture of a closely
held corporation that “is in fact the alter ego or
business conduit” of the Individual Defendants.
Labadie Coal Co., 672 F.2d at 97.
Individual Defendants' arguments to the contrary are
unconvincing. First, they insist that the Amended Complaint
establishes, at most, “a financially independent entity
with multiple revenue streams, ” rather than an
undercapitalized corporation. Indiv. Defs.' Mot. at 5.
Not so. The Amended Complaint depicts a corporation that: (1)
is unable to pay vendors in full or complete projects despite
advance payments from clients; (2) requires financing from
some clients to perform projects for other clients; and (3)
lacks sufficient operating capital to fund existing
obligations without first receiving outstanding payments. And
then, of course, there is Dream Catcher's admission that
it was “strapped for cash.” These allegations
easily give rise to a plausible inference that Dream Catcher
was undercapitalized. See Iqbal, 556 U.S. at 678-79;
Twombly, 550 U.S. at 556-57.
the Individual Defendants contend that Iqbal and
Twombly require the court to disregard the
allegation that they deposited funds payable to Dream Catcher
into an account in their daughter's name because that
allegation is made on “information and belief.”
Indiv. Defs.' Mot. at 5. Iqbal and
Twombly did not, however, eliminate pleading in that
manner. A plaintiff still may plead on “information and
belief” “where the facts are peculiarly within
the possession and control of the defendant.”
Evangelou v. District of Columbia, 901 F.Supp.2d
159, 170 (D.D.C. 2012) (internal quotation marks omitted).
Here, Plaintiff simply has no way to access, without the
benefit of discovery, the financial records necessary to
confirm the Individua l Defendants' alleged improper
diversion of corporate funds for personal use, and thus that
particular allegation is appropriately advanced on
“information and belief” to support
Plaintiff's theory of alter ego liability.
the Individual Defendants maintain that no inference of alter
ego liability can arise from their alleged use of personal
assets to satisfy Dream Catcher's debts and obligations.
Indiv. Defs.' Mot. at 5. That bald assertion, however,
flies in the face of the well-settled proposition that a key
factor in deciding whether to pierce the corporate veil is
“whether corporate funds and assets have been
extensively intermingled with personal assets.”
Estate of Raleigh v. Mitchell, 947 A.2d 464, 470-71
(D.C. 2008). Plaintiff's averment that the Individual
Defendants routinely used their personal assets to pay off
Dream Catcher's debts thus supports Plaintiff's alter
ego theory of liability.
summary, the court finds that the Amended Complaint alleges
sufficient facts which, taken as true, make out a ...