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Lannan Foundation v. Gingold

United States District Court, District of Columbia

October 25, 2017

LANNAN FOUNDATION, Plaintiff,
v.
DENNIS M. GINGOLD, Defendant.

          MEMORANDUM OPINION MOTION TO DISMISS [ECF NO. 20] AND MOTION FOR LEAVE TO FILE SUPPLEMENTAL COMPLAINT [ECF NO. 29]

          Thomas F. Hogan, Senior United States District Judge

         INTRODUCTION ---- 1

         ALLEGATIONS AND PROCEDURAL POSTURE ---- 2

         STANDARDS OF REVIEW ---- 7

         I. Le gal Standard to Supplement a Pleading Pursuant to Rule 15(d) ---- 7

         II. Standard of Re view for Motion to Dismiss Under Rule 12(b)(1) --- 9

         III. Standard o f Re view for Motion to Dismiss Under Rule 12(b)(6) --- 9

         ANALYSIS ---- 10

         I. Standing and The Court's Jurisdiction Over The Claims ---- 12

         A. Prudential Standing ---- 12

         B. Article III Standing --- 14

         1. Injury in Fact --- 15

         a. The Plain Language of the Assignment ---- 20

         2. Causation ---- 21

         3. Redressability - 22

         II. Timeliness of The Foundation's Claims --- 23

         III. Rule 12(b)(6) Challenges ---- 27

         A. Failure to State a Claim: Counts II and III - Breach of Contract ---- 27

         1. Contract Interpretation and Formation --- 27

         2. Conditions Precedent ---- 34

         B. Failure to State a Claim: Count IV - Tortious Interference With Contractual Relations ---- 37

         C. Failure to State a Claim: Count VI - Aiding and Abetting Breach of Fiduciary Duty ---- 38

         D. Failure to State a Claim: Count VII - Unjust Enrichment 39

         IV. Declaratory Judgment ---- 40

         V. The Foundation's Motion to Supplement and the Assignability of Breach of Fiduciary Duty Claims in the District of Columbia --- ---- 41

         CONCLUSION -- 46

         INTRODUCTION

         Pending before the Court are two motions. One is defendant, Dennis M. Gingold's, Motion to Dismiss [ECF No. 20], and the second is plaintiff, Lannan Foundation's (“the Foundation”), Motion for Leave to File Supplemental Complaint [ECF No. 29]. Gingold's Motion to Dismiss seeks dismissal of the Foundation's Complaint with prejudice pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1) for, inter alia, failure to state a claim and lack of standing. The Foundation's Motion for Leave to File Supplemental Complaint seeks leave to file a supplemental complaint under Fed.R.Civ.P. 15(d) to “account for events that have occurred since it filed its Complaint.” Mot. for Leave 1 [ECF No. 29]. Upon full consideration of the parties' submissions, oral argument held on September 10, 2014, the record in this case, and the applicable law, the Court will deny in part and grant in part Gingold's Motion to Dismiss and grant the Foundation's Motion for Leave to File Supplemental Complaint.

         ALLEGATIONS AND PROCEDURAL POSTURE

         In 1996, the beneficiaries of Individual Indian Money (“IIM”) trust accounts filed a class-action lawsuit against the Secretaries of the Interior and Treasury Departments and other federal government officials to obtain a judicial declaration confirming the scope of the government's trust obligations and an injunction compelling the performance of those obligations.[1] See Cobell v. Norton, 240 F.3d 1081, 1092-93 (D.C. Cir. 2001). On February 4, 1997, the Honorable Royce C. Lamberth certified a class comprising all present and future IIM account beneficiaries. Order Certifying Class Action 2, Cobell, v. Salazar, et al., 1:96-cv-01285 (D.D.C. Feb. 4, 1997) [ECF No. 27]. Judge Lamberth also noted that the class had “retained counsel to prosecute this lawsuit on behalf of the class.” Id. Defendant Gingold was one such counsel.

         Recognizing the monumental task before her in litigating a century of alleged financial mismanagement, Class Representative Elouise Cobell reached out to the Lannan Foundation[2] in the fall of 1997 with a letter requesting financial support. Compl. ¶¶ 29-30 [ECF No. 1]. After the Foundation resolved to assist the Class, Ms. Cobell created the Blackfeet Reservation Development Fund[3] (“BRDF”), a nonprofit organization domiciled on the Blackfeet Reservation in Browning, Montana, to seek and receive grants from non-profit organizations. Id. ¶¶ 3, 29-32.

         A few months after Ms. Cobell's initial request, the Foundation made its first refundable grant to the BRDF in the amount of $2 million to pay for the services of Price Waterhouse LLP (now Pricewaterhouse Coopers LLP or PwC). Compl. ¶ 32. The Grant Agreement states in relevant part:

This Agreement (“Agreement”) is made between the Lannan Foundation (hereinafter the “Foundation”) and Blackfeet Reservation Development Fund, Inc. (hereinafter the “Grantee”). …

         C. Grant Conditions

4. Reversion of grant funds:
If, pursuant to judgment or settlement, Plaintiffs in the litigation or their attorneys recover from the United States (including any agency or department thereof) any attorney's fees and/or costs and/or expenses of the Litigation, the grantee shall take all appropriate action to ensure prompt payment to the Foundation of one-half of all such amounts recovered until the grant is repaid in full. In the event that one or more other non-profit entities contributed or have contributed funds toward the Litigation, the Grantee will share the one-half of the amounts recovered, pro rata, in proportion to amounts advanced by the other non-profit entities.
By his signature, Dennis M. Gingold, [Plaintiffs'] lead counsel, acknowledges that one-half of any attorney's fees and/or costs and/or expenses of the Litigation recovered from the United States, by judgment or settlement, shall be paid to the Grantee, until the grant is repaid in full.
By separate assignments to the Blackfeet Reservation Development Fund, Elouise Pepion Cobell, Earl Old Person, Thomas Maulson, and James Louis Larose, beneficiaries of this Agreement, have agreed to pay to the Blackfeet Reservation Development Fund all amounts that any or all of them recover from the United States (including any agency or department thereof) related to attorney's fees and/or costs and/or expenses of the Litigation.

Id. Ex. A. 4 [ECF No. 1-2]. Ms. Cobell and Gingold both signed the agreement under the heading “Grantee.” Id. at 5. Ms. Cobell signed on behalf of the BRDF, and defendant Gingold signed as “Plaintiff's Counsel.”

         Within a month of the first Grant Agreement, named plaintiffs Elouise Pepion Cobell, Earl Old Person, James Louis Larose, and Thomas Maulson executed their contemplated assignment to the BRDF. Ex. B to Compl. 2-4 [ECF No. 1-3]. The simple assignment states in whole:

This assignment is made between the Blackfeet Reservation Development Fund (“Fund”) and Elouise Pepion Cobell, Earl Old Person, Thomas Maulson, and James Louis Larose.
In consideration of payment by the Fund of certain fees and expenses incurred in relation to Civil Action 96-01285 in the United States District Court for the District of Columbia (“the Litigation”), an action in which each of the undersigned is a plaintiff, each of the undersigned assigns to the Fund all rights to any attorney's fees and/or costs and/or expenses of the Litigation, recovered from the United States, whether pursuant to judgment or to settlement, that the undersigned recovers as a result of the Litigation.

Id. at 2.

         Over the next seven years, the Foundation made six additional refundable grants to the BRDF: (1) February 2000 Grant Agreement in the amount of $2, 100, 000 to fund services performed by Price Waterhouse LLP in support of the Litigation; (2) November 2002 Grant Agreement in the amount of $1, 500, 000 to fund services performed by expert witnesses named in a referenced grant proposal; (3) November 2003 Grant Agreement in the amount of $50, 000 to fund services performed by Northwest Strategies in support of a public education campaign; (4) April 2004 Grant Agreement in the amount of $275, 000 to fund services performed by THE PR CONSULTING GROUP in support of a public education campaign; (5) November 2004 Grant Agreement in the amount of $200, 000 to fund services performed by THE PR CONSULTING GROUP in support of a public education campaign; and (6) March 2005 Grant Agreement in the amount of $300, 000 to fund services in support of a public education campaign. See generally Ex. A. to Compl. In total, the BRDF received $6, 425, 000 in refundable grants from the Foundation.[4] Compl. ¶¶ 3, 4, 32-36. Each of these six grant agreements contained the same reversionary language as the 1998 Grant Agreement. Ex. A. to Compl. Ms. Cobell signed on behalf of the BRDF and defendant Gingold signed as “Plaintiff's Counsel” under the column heading “Grantee” for all Grant Agreements.

         As the litigation continued through 2006, Judge Lamberth granted the Class Representatives' petition for an interim fee award pursuant to the Equal Access to Justice Act, awarding the plaintiffs $7, 066, 471.05 for attorneys' fees and expenses. Compl. ¶¶ 40-42. Upon receipt of the interim fee award, Gingold disputed whether any of the funds were subject to the provisions of the BRDF's refundable grants, arguing that the award was based on “interim” fees and expenses. Id. ¶¶ 42-44. Ultimately, Gingold and the Foundation resolved the dispute without judicial intervention and the Foundation received $1, 884, 392.28 as a “pro rata” share of the fee and expense award based only on its initial $2 million grant.[5] Id. ¶ 45. The Foundation agreed to defer the remaining outstanding balance of $4, 540, 607.72. Id. ¶¶ 45-46.

         After approximately 13 years of litigation, the parties in Cobell entered into a settlement agreement to resolve the case. See Joint Mot. for Preliminary Approval of Settlement 1, Cobell, 1: 96-cv-1285 (D.D.C. Dec. 10, 2010) [ECF No. 3660]. The Cobell parties also executed a separate Agreement on Attorneys' Fees, Expenses, and Costs that provided for the payment of up to $99, 000, 000 for reasonable attorneys' fees and costs. Compl. ¶ 48. Those fees, expenses, and costs were paid from an “Accounting/Trust Administration Fund” established by the Settlement Agreement and funded by $1.412 billion “that Defendants [paid] into a Settlement Account held in the trust department of” a federally-insured depository institution. Id. ¶ 48. On December 8, 2010, President Barack Obama signed the Claims Resolution Act of 2010, Pub. L. No. 111-291, approving and authorizing the Cobell settlement. Id. ¶ 49.

         On June 20, 2011, the Court conducted a Fairness Hearing and announced that it was approving the Cobell Settlement Agreement. Compl. ¶¶ 51-52. The Court also granted in part the Class Representatives' motion for incentive awards but denied a request for over $10, 000, 000 in expenses - which included the outstanding balance on the seven refundable grants. Id. ¶¶ 53-54. On July 27, 2011, the Court issued an order granting final approval of the settlement and allocated $85.4 million of the $99 million in attorneys' fees to Gingold and his co-counsel.[6] Id. ¶ 57. Gingold and his co-counsel received their fees between November 7, 2012 and December 4, 2012. Id. ¶ 58.

         The day after the Court allocated attorneys' fees, Howard McCue, counsel for the Foundation, contacted Mr. Gingold to determine when and how the Foundation would receive payment on the balance of the refundable grants. Id. ¶ 61. After exchanging a number of emails over the next month, Gingold “refused to recognize any obligation on his part to facilitate reimbursement of the grant from the $99 million attorneys' fees award, and instead contended that the Foundation had no legal right to repayment from the $99 million attorneys' fees award.” Id. ¶¶ 61-62.

         In the spring of 2013, the BRDF executed an Assignment Agreement with the Foundation, assigning its rights to pursue the outstanding balance on the refundable grants through the claims asserted here. Id. Ex. C, Assignment Agreement 2 [ECF No. 1-4]. On July 16, 2013, the Foundation filed suit against Dennis M. Gingold and Kilpatrick Townsend & Stockton, LLP. See generally Compl. [ECF No. 1]. In its Complaint, the Foundation pled one count of declaratory relief and six counts of monetary relief through claims for (II) breach of contract; (III) breach of contract (as assignee of the BRDF's interests); (IV) intentional interference with contractual relations; (V) breach of fiduciary duty; (VI) aiding and abetting breach of fiduciary duty; and (VII) unjust enrichment. Id.

         Gingold and Kilpatrick Townsend & Stockton, LLP then filed separate motions to dismiss the suit. [ECF Nos. 20, 21]. In late May 2014, the Foundation and the BRDF entered into an Amendment to Assignment Agreements to change their choice of law from New Mexico to the District of Columbia. Amendment to Assignment Agreements [ECF No. 29-5]. Thereafter, while the motions to dismiss were pending, the Foundation moved to supplement its Complaint to include the Amendment to Assignment Agreements. Mot. for Leave [ECF No. 29]. The attached Supplemental Complaint included a single additional paragraph,

On May 27, 2014, the BRDF executed another assignment, acknowledging that, having previously assigned to the Foundation “all rights, title and interest the Fund has or may have under the laws of the State of New Mexico in any fees, costs, expenses or moneys paid by or paid to counsel for the Plaintiff class, ” the BRDF amends its prior assignments “to assign and transfer to the Foundation any and all rights, title and interests the Fund has or may have with respect to the subject matter of” its earlier assignments “under the laws of the District of Columbia.” A copy of this assignment is attached to this Complaint as Exhibit D.

Supplemental Complaint ¶ 71 [ECF No. 29-1]. Finally, on June 11, 2014, the Foundation dismissed Kilpatrick Townsend & Stockton, LLP as a defendant, leaving Gingold as the sole remaining defendant. Stip. of Dismissal [ECF No. 30].

         STANDARDS OF REVIEW

         I. Legal Standard to Supplement a Pleading Pursuant to Rule 15(d)

In general, a supplemental complaint may be used to set forth new facts that update the original pleading or provide the basis for additional relief; to put forward new claims or defenses based on events that took place after the original complaint or answer was filed; [and] to include new parties where subsequent events have made it necessary to do so.

BEG Invs., LLC v. Alberti, 85 F.Supp.3d 13, 24 (D.D.C. 2015) (citations omitted). However, before filing a supplemental complaint, a plaintiff must request permission from the Court. Fed.R.Civ.P. 15(d).

         Federal Rule of Civil Procedure 15(d) states that “[o]n motion and reasonable notice, the court may, on just terms, permit a party” to supplement its pleading based on transactions that have occurred after the date of the pleading to be supplemented. Thus, the decision to grant leave to supplement a pleading under Rule 15(d) is discretionary and may be granted where it serves the interests of judicial economy and convenience. Banks v. York, 448 F.Supp.2d 213, 214 (D.D.C. 2006); Jones v. Bernanke, 685 F.Supp.2d 31, 35 (D.D.C. 2010). Such leave should be freely given. Hall v. CIA, 437 F.3d 94, 100 (D.C. Cir. 2006); Wildearth Guardians v. Kempthorne, 592 F.Supp.2d 18, 23 (D.D.C. 2008) (citing Willoughby v. Potomac Elec. Power Co., 100 F.3d 999, 1003 (D.C. Cir. 1996)).

         Even though leave to supplement should be freely granted, leave should be denied when there is good reason to the contrary. Willoughby, 100 F.3d at 1003. Futility is one such example. Id. “A proposed supplement to a complaint is futile if it would not survive a motion to dismiss.” Buaiz v. United States, 1:06-cv-1312, 2007 WL 666468, at *1 (D.D.C. Mar. 5, 2007) (citing Howard v. Evans, 193 F.Supp.2d 221, 226 n.2 (D.D.C. 2002)). Thus, “in deciding whether to grant or deny a motion to supplement, the Court may consider the merits of the proposed new pleading.” Burka v. Aetna Life Ins. Co., 945 F.Supp. 313, 317 (D.D.C. 1996). It is the opposing party's burden to demonstrate why leave should not be granted. LaPrade v. Abramson, 1:97-cv- 10, 2006 WL 3469532, at *3 (D.D.C. Nov. 29, 2006) (citing 3 James Wm. Moore et al., Moore's Fed. Prac. § 15.15[3] (3d ed.1999))

         II. Standard of Review for Motion to Dismiss ...


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