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Heyer v. Schwartz & Associates PLLC

United States District Court, District of Columbia

August 2, 2018

ERIC N. HEYER, Plaintiff,
v.
SCHWARTZ & ASSOCIATES PLLC, et al., Defendants.

          MEMORANDUM OPINION

          DABNEY L. FRIEDRICH, UNITED STATES DISTRICT JUDGE.

         Eric Heyer brings claims for breach of contract, breach of fiduciary duty, and negligent misrepresentation against Schwartz & Associates and its sole member, Christopher Schwartz. Before the Court is the defendants' Motion to Dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Dkt. 7. For the reasons that follow, the Court will grant the motion in part and deny it in part.

         I. BACKGROUND

         The following facts are taken from the complaint, which is presumed truthful at this stage. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Heyer and Schwartz, both lawyers, left a national law firm in spring 2012 to start their own two-person law firm called Schwartz & Associates. Compl. ¶¶ 8-11, Dkt. 1. They did not create an operating agreement, but tax forms indicate that at the start, Heyer held a 20 percent equity interest and Schwartz held an 80 percent interest. Id. ¶ 12. Heyer and Schwartz had been working largely for one particular client at their old firm, and they created the new firm primarily to serve this client with their own billing arrangement. Id. ¶ 9.

         Schwartz, on behalf of Schwartz & Associates, signed a written agreement with the principal client that required the client to pay Schwartz & Associates a fixed fee each month. Id. ¶¶ 15-16. Schwartz and the client also agreed orally that the client would pay a 25 percent contingency fee on any recovery resulting from Schwartz & Associates' representation. Id. Heyer and Schwartz agreed orally that Heyer would be entitled to a fixed monthly distribution along with a portion of any contingent fee recoveries received from the client. Id. ¶ 13.

         In spring 2013, Schwartz & Associates successfully negotiated a settlement that allowed the client to recover $2.1 million. Id. ¶¶ 17-18. But the client failed to promptly pay the 25 percent contingency fee-$525, 000-and Schwartz failed to press the client for payment. Id. ¶ 19. In late summer 2013, Heyer and Schwartz agreed to increase Heyer's equity share to 30 percent and that Heyer would receive 30 percent of future contingency fees from the client. Id. ¶ 21. Heyer and Schwartz also agreed that Heyer would receive $150, 000 of the $525, 000 already earned. Id. ¶ 22.

         Unbeknownst to Heyer, however, Schwartz had struck a deal with the client that significantly reduced the $525, 000 amount. Id. ¶ 26. Another law firm had assisted Schwartz & Associates on one of the client's cases, and under the deal, the law firm was paid from the $525, 000. Id. Heyer learned about the deal several months later from the client. Id. ¶ 27. Schwartz initially denied that he had made such deal, but in early January 2014 he notified Heyer that he had accepted an amount of $305, 484.29 instead of $525, 000 from the client. Id. ¶¶ 29, 33. Heyer ultimately received 30 percent of the $305, 484.29 amount, which at $91, 645.29 was $58, 354.71 less than the $150, 000 he was promised. Id. ¶ 38.

         Also in early January, the client indicated that it might end the litigation for which it had retained Schwartz & Associates, cutting off Schwartz & Associates' primary source of revenue. Id. ¶ 31. The client assured Heyer, however, that it would continue to pay the funds necessary for Heyer to take his fixed monthly distribution for the next three months. Id. ¶ 35. Schwartz, in turn, promised Heyer that he would receive that monthly distribution through May 2014. Id. ¶ 36.

         Meanwhile, Schwartz & Associates helped the client settle three additional cases in January and February, and Schwartz promised Heyer that he would ensure that they would receive the 25 percent contingency fees from the client. Id. ¶ 39. Heyer continued to work for Schwartz & Associates, assuming that he would continue to receive his fixed monthly distribution and his portion of the contingency fees. Id. ¶ 41.

         On February 19, however, the client told Heyer that beginning in March it would no longer pay the funds corresponding to his fixed monthly distribution. Id. Schwartz then decided to withhold Heyer's fixed monthly distribution for February. Id. ¶ 42. Heyer left Schwartz & Associates and resumed work at the national law firm in mid-March. Id. ¶ 43. After Heyer left, the client settled two additional cases that Schwartz & Associates had worked on. Id. ¶ 44. Schwartz, however, never pressed the client to pay the contingency fees-for these two cases or the three that had settled earlier. Id. ¶¶ 40, 44.

         As Heyer prepared to sue the client for the promised fixed monthly distribution and contingency fees that summer, Schwartz and the client entered into a release agreement covering all potential claims of Schwartz & Associates principals, agents, and authorized representatives. Id. ¶ 46. In exchange, the client's majority owner-who also owned an entity that acted as Schwartz & Associates' landlord-gave Schwartz & Associates free rent for ten months. Id. ¶ 48. Heyer's claims were ultimately heard by an arbitration board, which awarded Heyer an amount corresponding to his fixed monthly distribution for the first half of March 2014 during which he was unemployed. Id. ¶ 47.

         Heyer brought this suit in April 2016, the defendants moved to dismiss in September 2016, and the case was reassigned to the undersigned judge in December 2017.

         II. LEGAL STANDARDS

         Rule 12(b)(1) allows a defendant to move to dismiss an action for lack of subject-matter jurisdiction. Fed.R.Civ.P. 12(b)(1). Federal law empowers federal district courts to hear only certain kinds of cases, and it is “presumed that a cause lies outside this limited jurisdiction.” Kokkonen v. Guardian Life Ins., 511 U.S. 375, 377 (1994). When deciding a Rule 12(b)(1) motion, the court must “assume the truth of all material factual allegations in the complaint and construe the complaint liberally, granting plaintiff the benefit of all inferences that can be derived from the facts alleged, and upon such facts determine [the] jurisdictional questions.” Am. Nat. Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011) (internal quotation marks omitted). But the court “may undertake an independent investigation” that examines “facts developed in the record beyond the complaint” in order to “assure ...


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