Martin v. Santorini Capital, LLC ( 2020 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
Nos. 18-CV-1178 & 19-CV-490
CHARLES M. MARTIN, APPELLANT,
v.
SANTORINI CAPITAL, LLC, ET AL., APPELLEES.
Appeal from the Superior Court of the
District of Columbia
(CAB-5462-18)
(Hon. Elizabeth C. Wingo, Trial Judge)
(Submitted October 2, 2019 Decided August 27, 2020)
Charles M. Martin, pro se.
Roger C. Simmons was on the brief for appellees Santorini Capital, LLC,
Steven S. Snider, R. Michael Kuehn, Jeffrey Mertz, and William Leahy.
Lindsay A. Thompson and Thomas F. Murphy were on the brief for appellee
Richard L. Sugarman.
Before BLACKBURNE-RIGSBY, Chief Judge, BECKWITH, Associate Judge, and
RUIZ, Senior Judge.
BLACKBURNE-RIGSBY, Chief Judge: Appellant Charles M. Martin appeals the
trial court’s dismissal of his complaint alleging various wrongdoings by Santorini
Capital, LLC (“Santorini”), its members Steven S. Snider and R. Michael Kuehn, its
2
employee Jeffrey B. Mertz, and its attorneys William F. Leahy and Richard L.
Sugarman. For the most part, appellant’s complaint alleged that appellees’ wrongful
actions caused harms to the ownership interests in several real properties, which
were owned by several limited liability companies (“LLCs”). However, he named
himself in his individual capacity as the plaintiff. Rule 17(a)(1) of the Superior Court
Rules of Civil Procedure requires that actions “must be prosecuted in the name of
the real party in interest.” Although appellant owned and controlled the LLCs,
corporate law recognizes that the LLCs own the real properties at issue, not
appellant, and therefore they are the real parties in interest. Because appellant failed
to prosecute these claims on behalf of the real parties in interest, i.e., the LLCs, and
because appellant did not substitute those parties into the case within a reasonable
time, we conclude that the trial court did not err in dismissing those causes of action
to the extent that appellant’s complaint alleged damages to the ownership interests
in the real properties. The trial court erred, however, in dismissing his breach of
contract claim to the extent that his claim alleged a direct harm to himself that was
independent of any injury to any LLC’s ownership interests. The trial court also
properly dismissed appellant’s intentional infliction of financial distress and
defamation claims for failure to state a claim. In turn, the trial court also properly
3
dismissed lis pendens notices that appellant filed on the real properties at issue. We
therefore affirm in part, reverse in part, and remand for further proceedings.1
I. Factual and Procedural History
Appellant’s complaint makes the following allegations. Between November
2016 and March 2017, Santorini issued approximately nine loans to LLCs owned
and controlled by appellant for the purposes of purchasing, renovating, and selling
several pieces of real property that those LLCs owned.2 Appellant guaranteed each
of the loans in his individual capacity. The LLCs subsequently defaulted on the
loans, and, in May 2018, Santorini – through counsel Sugarman – filed foreclosure
notices on the relevant LLC-owned real properties. To prevent foreclosure and
ensure loan repayment, the LLC-property owners, appellant, and Santorini entered
into a Loan Modification Agreement on June 20, 2018 (the “Agreement”). Pursuant
to the Agreement, the LLCs and appellant (as guarantor of the loans) agreed to repay
1
We sua sponte consolidate appellant’s separate appeal, No. 19-CV-490,
which seeks reversal of the trial court’s order denying his motion for a stay pending
appeal, with this appeal considering the merits of the trial court’s order dismissing
his complaint. Because his arguments in favor of a stay in No. 19-CV-490 are
identical to those raised herein, they are likewise decided for the same reasons
discussed below. Consequently, his request for a stay pending appeal is now moot.
2
All the LLCs are organized under the laws of the District of Columbia.
4
the loan balance of $2,900,000 to Santorini by October 30, 2018, and to pay $50,000
in interest to Santorini every month between August 1 and October 1, 2018. In
addition, each LLC agreed to execute a deed in lieu of foreclosure in Santorini’s
name against the property under its control. Santorini, in turn, made additional
promises to each LLC that were specific to its respective property, described in
relevant part below. Appellant signed the Agreement in his personal capacity as the
“Individual Guarantor” and on behalf of each LLC as its “Authorized Member.”
The complaint further alleges that appellees breached the Agreement with
respect to three LLC-owned real properties. First, Snider and Kuehn forced a tenant
to leave one real property (owned by “CMSEP – 601 Atlantic St. SE, LLC”), which
made it impossible for that LLC to sell the real property to that tenant and make
specified modifications to the contract of sale, as provided for in the Agreement.
Second, Santorini failed to reduce and amend an Indemnity Deed of Trust (“IDOT”)
on a second property (owned by “P3DC – 1668 Tamarack St. NW, LLC”), as
required by the Agreement. Third, after appellant paid off the debt for a third
property (owned by “CSFB – 5000 Marlboro Pike, LLC”), Santorini failed to issue
a debt satisfaction letter, as required by the Agreement.
5
On August 1, 2018, appellant filed the complaint, naming himself in his
individual capacity as plaintiff, against Santorini, Snider, Leahy, Kuehn, Mertz, and
Sugarman. He alleged nine claims: breach of contract, i.e., the Agreement, against
all appellees except Sugarman (Count 1); tortious interference with contract against
appellees Kuehn and Snider for their actions affecting the property owned by
“CMSEP – 601 Atlantic St. SE, LLC” (Count 2); wrongful foreclosure against all
appellees based on foreclosure notices issued in May 2018 against all the properties
(Count 3); fraud against all appellees arising out of an alleged scheme to obtain the
real properties by making false representations in the Agreement (Count 4);
fraudulent inducement against all appellees based on the transference of real
property deeds in lieu of foreclosure (Count 5); unjust enrichment against all
appellees for retaining the real properties (Count 6); conspiracy to commit fraud
against all appellees (Count 7); intentional infliction of financial distress against all
appellees (Count 8); and defamation against all appellees (Count 9). On August 10,
2018, appellant filed lis pendens notices on the real properties at issue.
On September 4, 2018, Leahy filed a motion to dismiss for failure to state a
claim for relief under Super. Ct. Civ. R. 12(b)(6), specifically arguing that appellant
lacked standing as to Counts 1 through 7. Sugarman filed a motion to dismiss on
6
September 5, 2018. On September 20, 2018, Santorini filed an Emergency Motion
to Cancel and Release Lis Pendens Notices.
On November 1, 2018, the trial court issued an Omnibus Order granting the
motions to dismiss filed by appellees Leahy and Sugarman, sua sponte dismissing
the complaint as to the remaining defendants, and granting Santorini’s motion to
cancel and release the lis pendens notices. The court dismissed Counts 1 through 7
without prejudice as to all appellees, reasoning that appellant lacked standing to
assert these claims in his individual capacity. The court noted that appellant’s
alleged injuries – monetary losses, deprivation of real properties, inability to use and
invest real properties, and inability to direct funds and gains – “accrued in the first
instances to the LLCs.” Grounding its analysis in constitutional standing and
corporate law, the court found that appellant’s membership in or controlling interest
in the LLCs or role as guarantor to the loans did not vest him with standing to assert
claims in his individual capacity for harms directly sustained by the LLCs. The court
then dismissed Count 8 with prejudice because intentional infliction of financial
distress is not a viable cause of action under District of Columbia law, and dismissed
Count 9 without prejudice for failure to state a claim because appellant’s defamation
claim failed to attribute any defamatory statement to any of the named defendants.
7
As a result of its dismissal of the complaint, the court granted Santorini’s motion to
release the lis pendens notices. This appeal followed.
II. Legal Framework
Rule 17(a)(1) of the Superior Court Rules of Civil Procedure requires that an
action be “prosecuted in the name of the real party in interest.” Varnum Props., LLC
v. District of Columbia Dep’t of Consumer & Regulatory Affairs, 204 A.3d 117, 121
(D.C. 2019) (quoting Super. Ct. Civ. R. 17(a)(1)). The “real party in interest” is the
person or entity “holding the substantive right sought to be enforced, and not
necessarily the person who will ultimately benefit from the recovery.” Id. (quoting
United States ex rel. Spicer v. Westbrook, 751 F.3d 354, 362 (5th Cir. 2014)).
Substantive law determines whether a party holds the right to be enforced. Id. at
121-22. Rule 17(a)(3) prohibits dismissal of a complaint based on a failure to
prosecute an action in the name of the real party in interest, however, “until a
reasonable time has been allowed for substitution of that party.” Estate of Raleigh
v. Mitchell, 947 A.2d 464, 473 (D.C. 2008) (citation omitted). When property
belongs to a corporation and harms are alleged to the ownership interests in that
corporation’s property, generally the corporation is the real party in interest that must
prosecute an action seeking to redress claims based on those harms because the
8
corporation possesses the actionable right that may be sued upon. See id. at 470-72;
Varnum Props., 204 A.3d at 122.3
Rule 17’s real-party-in-interest requirement is “essentially a codification of
th[e] nonconstitutional, prudential limitation on standing.” Varnum Props., 204
A.3d at 121 n.7 (quoting Rawoof v. Texor Petroleum Co., 521 F.3d 750, 757 (7th
Cir. 2008)). In every case, this court applies the constitutional limitation on standing
– requiring that a plaintiff plead a “case or controversy” – as well as any applicable
prudential limitations on standing. Friends of Tilden Park, Inc. v. District of
Columbia, 806 A.2d 1201, 1206 (D.C. 2002). Prudential concerns impose judicially
created limits on standing aside from those imposed by the Constitution, including
among others “the general prohibition on a litigant’s raising another person’s legal
rights.” Grayson v. AT & T Corp., 15 A.3d 219, 233-35 (D.C. 2011) (en banc)
(quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). Pursuant to this prudential
limit, this court will generally restrict cases to those in which the plaintiff is the real
party in interest, i.e., “the plaintiff generally must assert his own legal rights and
interests, and cannot rest his claim to relief on the legal rights or interests of third
3
Because Rule 17 “is similar to its federal counterpart,” this court looks to
cases interpreting the federal rule for guidance. Varnum Props., 204 A.3d at 121.
9
parties.” Consumer Fed’n of Am. v. Upjohn Co., 346 A.2d 725, 727 (D.C. 1975)
(quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)).4
In Estate of Raleigh, this court held that a majority or sole shareholder is
prohibited from suing individually to redress wrongs associated with real property
owned by a corporate entity because, under corporate law, “title to the corporate
property is vested in the corporation and not in the owner of its stock.” 947 A.2d at
470-73. Rather, Rule 17 requires the real party in interest, i.e., the corporate entity,
to sue on its own behalf, and a complaint filed by the shareholder was properly
dismissed. Id. There, an estate sued a corporate entity and others to quiet title of
certain real property. Id. at 468. While the real property was recorded and titled in
the name of the corporate entity (in which the decedent had been a majority
shareholder), the estate of the decedent argued that the decedent, in fact, owned the
property. Id. at 468, 471. The court concluded that, under applicable corporate law
principles, the estate had “no legal right to the individual assets owned by the
corporation merely because its decedent was a shareholder or even the sole
4
There are exceptions, such as where applicable legislation is clear that the
statutorily-created right extends to the limits of constitutional standing and “courts
‘lack the authority to create prudential barriers to standing.’” Exec. Sandwich
Shoppe, Inc. v. Carr Realty Corp., 749 A.2d 724, 731 (D.C. 2000) (quoting Havens
Realty Corp. v. Coleman, 455 U.S. 363, 372 (1982)).
10
shareholder.” Id. at 470. Because corporate property “is vested in the corporation
and not its individual shareholders,” “[t]he authority to sue to redress the alleged
wrongs related to [conduct concerning the corporate property] also belongs to the
corporation, not to the individual shareholder.”5 Id. (citation omitted). “[T]he estate
had no legal interest in the real property belonging to the corporation” and therefore
“could not sue individually to redress any alleged wrongs against the corporation’s
property interests.”6 Id. Rule 17 permits substitution of the corporate entity for the
individual shareholder within “a reasonable time.” Id. at 472-73. Noting that the
estate was on notice of the real-party-in-interest issue for at least twenty-nine months
without substituting the corporate entity as plaintiff, this court found no error in the
trial court’s decision to deny the estate’s motion to substitute, which the estate filed
only after the trial court had granted summary judgment against it. Id. at 472-73.
5
This rule avoids multiple suits, safeguards the corporation’s right of action,
and ensures that any recovered damages are available to the corporation’s creditors
and any other shareholders. Estate of Raleigh, 947 A.2d at 469.
6
An exception is a derivative action, which allows a shareholder “to enforce
a corporate cause of action against officers, directors, and third parties” on behalf of
the corporation, as long certain procedural rules are followed. See Estate of Raleigh,
947 A.2d at 470 n.6. No such derivative claim is pled here.
11
The rules governing corporations as articulated in Estate of Raleigh are
similarly applicable to LLCs because an LLC, like a traditional corporation, “is an
entity distinct from its member or members.” D.C. Code § 29-801.04(a) (2013
Repl.) (“Nature, purpose, and duration of limited liability company”).7 Thus, LLC
members, like corporate shareholders, own an interest in an LLC; they are not the
LLC nor do they own an LLC’s property. Cf. Wallasey Tenants Ass’n, Inc. v.
Varner, 892 A.2d 1135, 1141 n.3 (D.C. 2005) (describing LLC and its sole member
as “two separate legal entities”). And, like corporate shareholders, LLC members
are prohibited from initiating actions to enforce the rights of the corporation, with
some exceptions. Under § 29-808.01 (2013 Repl.), an LLC member may bring a
“direct action” against another member, a manager, or the LLC “to enforce the
member’s rights and otherwise protect the member’s interests” only so long as the
member’s injury is “not solely the result of an injury suffered or threatened to be
suffered by the [LLC].” LLC members may also bring derivative actions “to enforce
the rights of a limited liability company” in certain circumstances and according to
certain procedures. Id. §§ 29-808.02 to -808.06 (2013 Repl.); see also supra note 6.
7
In 2010, the Council of the District of Columbia enacted the Uniform
Limited Liability Company Act of 2010. See D.C. Law 18-378, 58 D.C. Reg 1720-
2186 (Feb. 27, 2011), codified at D.C. Code §§ 29-801.01 to 29-810.01 (effective
July 2, 2011).
12
A guarantor of a corporate loan stands in no different a position than a
shareholder (or LLC member), creditor, or lessor and therefore is not a real party in
interest that can prosecute a claim on behalf of a corporation or LLC. See Labovitz
v. Wash. Times Corp., 172 F.3d 897, 902 (D.C. Cir. 1999). A guarantor is a
contingent creditor, and creditors, like a corporate shareholder, cannot recover
directly for an injury to a corporation. See id. at 901-02 (discussing Mid-State
Fertilizer Co. v. Exch. Nat’l Bank of Chi., 877 F.2d 133, 1336-37 (7th Cir. 1989)).
In Labovitz, two owner-shareholders of DCI Publishing, Inc. (“DCI”), who together
owned half the company, sued Washington Times Corp. when it attempted to acquire
DCI at a distressed price. Id. at 898. The shareholders alleged that the Times’
“dealings with them and DCI substantially reduced the value of their interests in
DCI” and “triggered their personal guarantees of loans to DCI.” Id. at 898. The
federal appellate court noted that the issue presented was “who is the real party in
interest to bring a lawsuit under the governing substantive law to enforce the asserted
right.” Id. at 900 n.6 (citing Fed. R. Civ. P. 17(a) and quoting Whelan v. Abell, 953
F.2d 663, 672 (D.C. Cir. 1992)). It concluded that, under governing Delaware law,
corporate shareholders can bring an individual claim only “if they suffer injuries
directly or independently of the corporation” and they are able to “allege a special
injury to themselves, apart from that suffered by the corporation.” Id. at 900-01
(citation and internal quotations omitted). The court held that a personal guarantor
13
is sufficiently similar to a creditor of a corporation in that, without a showing of a
special injury, the guarantor lacks standing to pursue damages suffered by the
corporation. Id. at 898, 902. Therefore, a guarantor is not the real party in interest
when it sues a third party whose alleged wrongdoing damaged the corporation, as
the harm the guarantor suffers is derivative, rather than direct. Id. Similarly, a
shareholder-guarantor is not the real party in interest when he or she sues a third
party whose wrongdoing to the corporation triggers his or her guarantee and thereby
causes an injury to the shareholder-guarantor. Id.
However, a member of an LLC, like a shareholder, “with a direct, personal
interest in a cause of action [may] bring suit even if the corporation’s rights are also
implicated.” Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331, 336
(1990). To sue directly, an individual “must identify a legal interest that has been
directly or independently harmed, i.e., a ‘special injury’ that does not derive from
the injury to the corporation.” Harpole Architects, P.C. v. Barlow, 668 F. Supp. 2d
68, 77 (D.D.C. 2009) (applying D.C. law). A shareholder’s economic damage
resulting from losses to the corporation is not a direct or independent harm giving
rise to shareholder standing. See id. at 77-78; Cheeks v. Fort Myer Constr. Co., 722
F. Supp. 2d 93, 109 (D.D.C. 2010).
14
III. Standard of Review
A plaintiff’s violation of Rule 17 can be raised by a defendant in a Rule
12(b)(6) motion to dismiss a complaint for failure to state a claim upon which relief
can be granted. Whelan, 953 F.2d at 672.8 We review a dismissal for failure to state
a claim under Rule 12(b)(6) de novo. See Grayson, 15 A.3d at 228. We accept the
allegations in the complaint as true, and we construe all facts and inferences in favor
of the plaintiff. Id. We may dismiss for failure to state a claim where the complaint
fails to allege the elements of a legally viable claim or defense. Id. at 250.
IV. Analysis
8
A Rule 17 defense, however, “may not be raised at any time, for the real
party must have the opportunity to step into the ‘unreal’ party’s shoes and should
not be prejudiced by undue delay.” Whelan, 953 F.2d at 672. Thus, it would be an
abuse of discretion for the trial court to allow a Rule 17(a) defense “as late as the
start of trial if the real party has been prejudiced by the defendant’s laxness.” Id.Failure to timely raise a Rule 17 defense can result in waiver of that defense. Id.15
In most part, we find no error in the trial court’s dismissal of the complaint
pursuant to Rule 12(b)(6) for failure to state a claim.9 However, we reverse the trial
court’s ruling on appellant’s claim for breach of contract against Santorini, finding
that his complaint alleges a direct and independent harm for which he has standing
to pursue a claim for damages.
A. Affirming Dismissal of Count 1, in part, and of Counts 2 to 7
The trial court dismissed Counts 1 through 7 for lack of constitutional
standing. We affirm that dismissal, in part, though on different grounds. See
Kerrigan v. Britches of Georgetowne, Inc., 705 A.2d 624, 628 (D.C. 1997) (“[W]e
are not limited to reviewing the legal adequacy of the grounds the trial court relied
on for its ruling; if there is an alternative basis that dictates the same result, a correct
judgment must be affirmed on appeal.”).10 Because Count 1, in part, and Counts 2
9
We reject Santorini’s argument that the trial court’s order of dismissal is not
appealable because the dismissal was without prejudice as to several counts. To the
contrary, “the dismissal of a complaint, even without prejudice, is a final order” and
therefore “falls within the scope of our appellate jurisdiction.” Perry v. District of
Columbia, 474 A.2d 824, 825 (D.C. 1984) (citations omitted).
10
When LLC members or corporate shareholders assert an actual injury to
themselves, even if indirect, caused by a defendant that is likely to be redressed by
a favorable decision, they satisfy the minimum requirements of constitutional
standing. See, e.g., Rawoof v. Texor Petroleum Co., 521 F.3d 750, 756 (7th Cir.
2008).
16
through 7 seek to redress alleged harms to the interests of the LLCs (as property
owners), the LLCs are the real parties in interest and must prosecute these claims in
their own name. Appellant’s failure to substitute the LLCs as plaintiffs, despite
adequate notice and reasonable time to do so, and the fact that this appears to be an
intentional decision, given his post-dismissal arguments to the trial court and
arguments on appeal that he is the proper plaintiff, violates Rule 17’s requirement
that actions “must be prosecuted in the name of the real party in interest.” Thus, we
affirm dismissal of Counts 1 through 7 to the extent that they seek to address the
LLC’s rights under the Agreement or to claim damages related to the LLCs’
ownership interests in the real properties.
Appellant’s main argument on appeal – that he can prosecute these claims
because he signed the Agreement in his individual capacity – ignores the allegations
in the complaint that assert harms that flow to the LLC-property owners, and not to
him directly.11 Whether in his role as guarantor of Santorini’s loans, or as a member
of each LLC-property owner, or as a signatory to the Agreement, appellant lacks a
11
Appellant signed the Agreement in two capacities: in his individual
capacity as the “Individual Guarantor” and on behalf of each LLC as its “Authorized
Member.” What is significant is not that he signed the Agreement, but that rights
accrue under the Agreement both to him as the Individual Guarantor and to the LLCs
as property owners. He can sue to enforce the former, see infra Section IV(B), but
not the latter.
17
legal interest in the ownership rights in the real properties, which are owned by the
LLCs. As he is not the real party in interest, he therefore cannot prosecute claims to
redress harms that belong to the LLCs. See Estate of Raleigh, 947 A.2d at 470;
Labovitz, 172 F.3d at 902.
In his complaint for breach of contract (Count 1), appellant alleges the
following harms:
41. As a direct and proximate result of the Defendant’s
Breach of Contract, the Plaintiff has been injured in
damages, monetary losses, deprived of its real properties.
In addition, the Plaintiff is entitled to compensation,
including but not limited to a recovery of its documented
monetary expenditures, a vacating of the Deeds-In-Lieu of
Foreclosure, the Deeds to each of his properties,
compensation for capital losses, and for the personal
injuries resulting from the Defendant’s actions.
42. As a further direct, proximate, reasonably foreseeable
consequence of the Defendant’s actions, the Plaintiff has
sustained an inability to use, enjoy, invest, develop his real
properties, and direct his funds, gains, and potential gains
causing the Plaintiff extreme inconvenience, monetary
losses, the inability to devote his time to his professional
duties, has been deprived of his real properties, and has at
the hands of the Defendants, experienced a diminished
enjoyment of his money and real properties.
Appellant’s complaint mirrors these paragraphs at the end of each of Counts 2
through 7. All of the harms articulated in the complaint that are associated with the
18
ownership interests in the real properties – monetary losses; deprivation of real
properties; inability to use, enjoy, invest, and develop real properties; and inability
to direct funds, gains, and potential gains – would be incurred by the LLC-owners
of those real properties. Although appellant attempts to characterize these harms as
personal – for instance, by alleging that “Plaintiff has sustained an inability to use,
enjoy, invest, [and] develop his real properties” – they are, in fact, harms that flow
first to the LLCs as property owners. His harms are derivative, because these harms
flow to him as owner of the LLCs and guarantor of their debt obligations.
Specifically, Count 1 for breach of contract alleges that appellees breached
the Agreement by failing to fulfill contractual obligations to the LLCs concerning
property owned by them by (1) failing to reduce and amend the IDOT for the
property owned by “P3DC – 1668 Tamarack St. NW, LLC,” and (2) forcing a tenant
to leave one real property, thereby prohibiting its LLC-owner (“CMSEP – 601
Atlantic St. SE, LLC”) from selling it. 12 Count 2 for tortious interference with
contract is premised on actions by Snider and Kuehn affecting the rights of the LLC
12
Because appellant is a party to the Agreement in his role as guarantor of
the LLC’s loans, see supra note 11, he is entitled to allege contractual claims against
other Agreement signatories so long as he can claim a direct or independent harm
caused by breach of the contract that is independent of the injury to the LLC whose
debt he guaranteed. See infra Section IV(B).
19
“CMSEP – 601 Atlantic St. SE, LLC” to sell its property. 13 Counts 3, 5, and 6
concern appellees’ alleged actions that affected the property rights of the LLCs, i.e.,
filing wrongful foreclosure notices on the LLC-owned real properties, fraudulently
inducing the execution of deeds in lieu of foreclosure of those properties, and
unjustly retaining them. Counts 4 and 7, appellant’s allegations of fraud and
conspiracy to commit fraud, are premised on appellees’ acquisition of the LLC-
owned real properties. As to all of these allegations, any harms to ownership
interests in the real properties must be prosecuted by the real parties in interest, i.e.,
the LLCs.
Appellant failed to substitute the LLCs as plaintiffs for these claims, despite
having a reasonable amount of time to do so. We have recognized thirty days as a
reasonable period. See, e.g., Varnum Props., 204 A.3d at 122; Duckett v. District of
Columbia, 654 A.2d 1288, 1290-91 (D.C. 1995) (per curiam). Here, appellant had
almost two months – between appellee Leahy’s September 4, 2018, motion first
13
In his brief, appellant argues that his tortious interference claim is also
premised on appellees’ interference with his contract with the tenant of 601 Atlantic
Ave. for the sale of that property. The complaint does not allege that appellant had
a contract with the tenant, but rather it alleges that the LLC had such a contract.
Therefore, because appellant did not allege this fact in the complaint, we do not
consider it on appeal. See Grayson, 15 A.3d at 228-29 (noting that the “only issue
on review of a dismissal made pursuant to Rule 12(b)(6) is the legal sufficiency of
the complaint”).
20
identifying the issue of standing and the trial court’s November 1 Omnibus Order –
to substitute the LLC-property owners, but he failed to do so. Rather, on appeal,
appellant doubles down on his decision to prosecute these claims in his individual
capacity, arguing that he is entitled to assert these claims as a signatory to the
Agreement. We therefore conclude that dismissal here satisfied the requirements of
Rule 17.
In sum, because appellant is not the real party in interest with respect to any
injury to the ownership interests in the real properties and because he failed to timely
substitute the LLC property owners as plaintiffs, we affirm the trial court’s dismissal
of Counts 1 through 7 without prejudice to the extent that those claims allege
damages to the ownership interests in the real properties.14
B. Reversing, in part, Dismissal of Count 1
Because appellant signed the Agreement in his role as guarantor of the LLC’s
loans, he may allege a claim for breach of contract against other Agreement
signatories so long as he can claim a breach arising from (1) an obligation between
14
We acknowledge that the dismissal was without prejudice and that a
complaint may be filed on behalf of the LLCs asserting these same claims.
21
himself as Individual Guarantor and any signatories, as expressed in the Agreement,
or (2) direct or independent harms that are independent of the injuries to the LLCs
whose debt he guaranteed. Because the complaint alleged such harms, we must
reverse in part and remand as to Count 1 as alleged against Santorini. 15 We affirm
dismissal of Count 1 as to appellees Snider, Kuehn, Mertz, and Leahy because they
were not parties to the contract. See Charlton v. Mond, 987 A.2d 436, 441 (D.C.
2010) (“Non-parties [to a contract] owe no contractual duty to the contracting
parties.”).
First, appellant’s claim for breach of contract (Count 1) includes an allegation
that Santorini breached the Agreement by failing to issue him a debt satisfaction
letter, an obligation arising from his role as Individual Guarantor. Article 4(e) of the
Agreement states that, “[u]pon payment in full of all obligations owed,” Santorini
“agrees to issue letters stating that such person or entity paid the loan satisfactorily.”
The complaint alleges that appellant “caused the loan [owed by CSFB – 5000
Marlboro Pike, LLC] to be paid off via bank wire,” but that, as of filing the
complaint, “Santorini has failed to issue the required letter.” Because the Agreement
15
Santorini filed a motion to dismiss for insufficient service, which the trial
court denied as moot given its Omnibus Order dismissing the complaint in its
entirety. Therefore, on remand, the trial court must reconsider Santorini’s motion,
along with appellant’s related filings, and conduct further proceedings as necessary.
22
obligated Santorini to issue a debt satisfaction letter to appellant, and because it
allegedly failed to do so, appellant has pled a claim for relief for breach of contract
against Santorini.
Second, we reverse the dismissal of the breach of contract claim to the extent
that appellant’s complaint alleges direct harms or harms independent from those that
accrued to the LLCs whose debt he guaranteed. See Jackson v. George, 146 A.3d
405, 415 n.6 (D.C. 2016) (noting plaintiffs “‘alleg[ing] a ‘special injury’ to
themselves apart from that suffered by the corporation’” as an “exception to the
requirement that suits alleging wrongs against a corporation be brought derivatively”
(quoting Labovitz, 172 F.3d at 901)); Harpole, 668 F. Supp. 2d at 77 (acknowledging
that, for injuries to be recoverable, a complaint must allege “a ‘special injury’ that
does not derive from the injury to the corporation”).
In Harpole, a corporation and its sole shareholder sued a former employee on
several claims related to the employee’s conduct that defrauded the corporation. 668
F. Supp. 2d at 77. The plaintiff-shareholder claimed damages in the form of
“emotional distress damages” and “lost personal income as a result of defendant’s
fraud and the subsequent investigation” of the former employee’s conduct. Id. at 76.
The federal district court dismissed the claims raised by the shareholder to the extent
23
that his claims were “based on ‘emotional distress’ deriving from ‘economic
damages . . . suffered by the corporation.’” Id. at 77 (quoting Guides, Ltd. v.
Yarmouth Grp. Prop. Mgmt., Inc., 295 F.3d 1065, 1072 (1st Cir. 2002)). The
plaintiff’s “emotional distress [was] derive[d] from the harm to [the corporation] and
cannot provide standing.” Id. However, the court determined that the plaintiff had
standing “to the extent that [he] suffered direct harm as a result of losses of money
and property in his individual capacity,” e.g., to the extent that he “took no salary
during certain pay periods” as a result of the defendant’s conduct. Id. at 77-78.
Here, appellant’s complaint alleges three ways in which Santorini breached
the contract – concerning the IDOT for Tamarack St. NW, the sale of 601 Atlantic
St. SE, and the debt satisfaction letter for 5000 Marlboro Pike. As a result of that
conduct, he alleges direct harms, independent of those to the LLCs: “documented
monetary expenditures” and “personal injuries” in Paragraph 41, and “diminished
enjoyment of his money” in Paragraph 42. Because these alleged injuries are direct
to appellant and not necessarily dependent on harms to the LLCs, appellant has
standing to assert a claim for breach of contract against Santorini, and that claim
survives a motion to dismiss pursuant to Rule 12(b)(6).
24
Appellant, however, lacks standing in his personal capacity to allege injuries
that derive from harms suffered by the LLCs or economic damages incurred as a
result of his role as a member of each LLC. See Cheeks v. Fort Myer Constr. Co.,
722 F. Supp. 2d 93, 109 (D.D.C. 2010); Harpole, 668 F. Supp. 2d at 77. The
damages alleged in Paragraphs 41 and 42 that were not identified above fall into this
category. For example, appellant cannot claim damages for the “extreme
inconvenience, monetary losses, [] inability to devote his time to his professional
duties, [and depriv]ation of his real properties” as alleged in Paragraph 42 because
he alleges that those injuries were “caus[ed]” by the loss of the ability to “use, enjoy,
invest, [and] develop . . . real properties, and direct [] funds, gains, and potential
gains,” all of which are injuries incurred by the LLCs. See Harpole, 668 F. Supp.
2d at 77 (ruling that “emotional distress derive[d] from the harm to [the corporation]
. . . cannot provide standing”). Thus, these allegations in Paragraph 42 do not reflect
harms that are direct to appellant or harms independent of those incurred to the
LLCs.
Thus, we reverse the dismissal of appellant’s breach of contract claim against
Santorini to the extent that he has alleged a breach of Article 4(e) of the Agreement,
as well as damages from Santorini’s breaches that are direct and independent from
any damages to the LLC-property owners.
25
C. Affirming Dismissal of Counts 8 and 9
As the trial court recognized, intentional infliction of financial distress is not
a cognizable claim in the District of Columbia. To survive a motion to dismiss for
failure to state a claim, a complaint must contain factual allegations sufficient to
state a claim, but it need not precisely set out the legal theory on pain of dismissal
“for imperfect statement of the legal theory supporting the claim asserted.” Johnson
v. City of Shelby, 574 U.S. 10, 11 (2014) (per curiam). In the District of Columbia,
intentional infliction of emotional distress is a recognized claim. See Competitive
Enter. Inst. v. Mann, 150 A.3d 1213, 1260 (D.C. 2018). Extreme financial hardship
may cause emotional distress. However, the allegations in appellant’s complaint are
clearly insufficient to allege the elements of such a claim to the required degree of
“extreme and outrageous conduct” and “severe emotional distress,” id., and, for that
reason, Count 8 failed to state a cause of action and was properly dismissed.
Appellant also failed to state a claim for defamation (Count 9) because he did
not identify any statement attributed (or that can be construed as being attributed) to
appellees that was “false and defamatory.” Beeton v. District of Columbia, 779 A.2d
26918, 923 (D.C. 2001).16 Instead, appellant alleges that the “evidence and the
Exhibits will show that . . . Defendants have defamed the Plaintiff.” A vague and
conclusory assertion of what future evidence may prove does not meet the pleading
standards required to survive a Rule 12(b)(6) motion. See Logan v. LaSalle Bank
Nat. Ass’n, 80 A.3d 1014, 1019 (D.C. 2013) (“Bare allegations of wrongdoing that
are no more than conclusions are not entitled to the assumption of truth, and are
insufficient to sustain a complaint.” (citations and quotations omitted)).
V. Lis Pendens
The trial court properly granted Santorini’s emergency motion to release the
lis pendens notices. A lis pendens notice is designed to enable interested third parties
to discover the existence and scope of pending litigation affecting the title to real
property or asserting a mortgage, lien, security interest, or other interest in real
property. See Heck v. Adamson, 941 A.2d 1028, 1029-30 (D.C. 2008); see also D.C.
Code § 42-1207 (2020 Repl.) (“Notice of pendency of action (lis pendens)”). The
16
To bring a claim for defamation, a plaintiff must show that: (1) the
defendant made a false and defamatory statement concerning plaintiff, (2) the
defendant published the statement without privilege to a third party, (3) the
defendant’s fault in publishing the statement amounted to at least negligence, and
(4) either the statement is actionable as a matter of law irrespective of special harm
or the statement’s publication caused the plaintiff special harm. See Beeton, 779
A.2d at 923.
27
trial court found that dismissal of appellant’s complaint was a sufficient basis upon
which to cancel the lis pendens notices. The trial court’s decision comported with
§ 42-1207(d)(1), which provides that the court “shall order the cancellation and
release” of lis pendens notices once “judgment is rendered in the action or
proceeding against the party who filed” them. See also McNair Builders, Inc. v.
1629 16th St., LLC, 968 A.2d 505, 508 (D.C. 2009) (noting that, once there was no
pending trial court action affecting an interest in real property, “cancellation of the
lis pendens was necessary”).
We affirm dismissal of the complaint to the extent that it involves the
ownership interests of the LLCs; appellant may only advance a claim that alleges
direct and independent harms. Therefore, this case is no longer “an action or
proceeding . . . affecting the title to or tenancy interest in . . . real property.” D.C.
Code § 42-1207(a). Because we conclude that the trial court properly dismissed the
complaint as to those claims affecting real property, we conclude that it also
correctly granted Santorini’s motion to cancel and release the lis pendens notices.
28
VI. Conclusion
Accordingly, the trial court’s dismissal of Counts 2 through 9 is affirmed. We
reverse the dismissal of Count 1 only against Santorini to the extent that the
complaint alleges a breach of the Agreement as to Article 4(e) and alleges direct or
independent harms arising from Santorini’s breaches, and remand to the trial court
for further disposition.
So ordered.