JAMES S. GWIN, District Judge:
In this lawsuit for payment for delivered products and provided services, Plaintiff
On November 7, 2007, the District of Columbia entered into a partnership with Specialty Hospitals for the acquisition and improvement of the Greater Southeast Community Hospital. See [Doc. 3-1, at 23-40]. The District of Columbia was the sole limited partner and owned ninety-nine percent of the partnership's interest. Id. at 28, § 1.6. Specialty Hospitals, as the general partner, owned one percent of the partnership's interest, id., and was responsible for the management, operation, and control of the partnership's business, id. at 33, § 5.2. Specialty Hospitals had no authority to "obligate, bind or commit [the District of Columbia] in any way for any obligation." Id. at 30, § 4.2(a). Also, the District of Columbia was not liable to the partnership for any obligations, except its agreed capital contributions. Id. at 33, § 5.1.
Consistent with the agreement, Specialty Hospitals purchased the old Greater Southeast Community Hospital and began operations under the name United Medical Center. [Doc. 1, ¶ 8]. Plaintiff Direct Supply and Defendant Specialty Hospitals entered into two "Product and Services Agreements" under which Direct Supply, true to its name, agreed to supply "certain products and services to [United Medical Center] for the operation of the facility." Id. ¶ 9. Although Direct Supply kept up its end of the agreement and has repeatedly demanded full payment, a balance of $462,055.17 (not including interest and costs) remains unpaid to Direct Supply. Id. ¶ 10. On August 21, 2009, and June 9, 2010, Specialty Hospitals's Regional Controller acknowledged Specialty Hospitals's obligation to pay this outstanding balance. Id. ¶ 11.
On July 9, 2010, the District of Columbia took control of United Medical Center. [Doc. 1, ¶ 12]. First, the District transferred the United Medical Center property to itself by a Substitute Trustee's Deed, see [Doc. 7-4], and formed NFP, [Doc. 1, ¶ 12]; see [Doc. 7-5]. Then, in a mayoral order (No. 10-117), the mayor of the District of Columbia transferred the rights and obligations of United Medical Center to the newly formed NFP. [Doc. 1, ¶ 12]; see [Doc. 7-6]. In response to the District's takeover, Specialty Hospitals provided the District of Columbia with notice, pursuant to D.C.Code § 12-309, that it planned to pursue legal remedies, see [Doc. 3-1, at 21], and has since filed a lawsuit challenging the takeover,
On January 26, 2011, Direct Supply sent letters to NFP and to Specialty Hospitals's attorney again demanding payment. Id. at ¶¶ 15-16. When neither responded, Direct Supply brought this breach-of-contract and quantum-meruit action against Specialty Hospitals and, in the alternative, against NFP. See [Doc. 1].
Specialty Hospitals moves to dismiss on the theory that the District of Columbia is a necessary party required to be joined under Federal Rule of Civil Procedure 19. [Docs. 3 & 4]. NFP also moves to dismiss, on the theory that Direct Supply has not and cannot state a claim against NFP because Mayoral Order 10-117 transferred Specialty Hospitals's assets to NFP but did not transfer any of Specialty Hospitals's liabilities to NFP. [Doc. 7].
The Court considers the two motions in turn.
NFP moves to dismiss for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). For Direct Supply to defeat this motion, its complaint must have "facial plausibility," requiring that the pleading possess "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). When evaluating a Rule 12(b)(6) motion, the Court must construe the complaint "in favor of the plaintiff, who must be granted the benefit of all inferences that can be derived from the facts alleged." Schuler v. United States, 617 F.2d 605, 608 (D.C.Cir. 1979). Although factual allegations are assumed to be true, those allegations must still be sufficient to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Additionally, the Court need not "accept legal conclusions cast in [the complaint] as factual allegations." Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994).
NFP argues that, as a matter of law, Direct Supply's breach-of-contract and quantum-meruit claims against it should be dismissed because Mayoral Order 10-117 did not transfer any of Specialty Hospitals's liabilities to NFP; the order transferred only Specialty Hospitals's assets.
Direct Supply asserted its breach-of-contract claim against NFP as an alternative to its breach-of-contract claim against Specialty Hospitals to the extent "that any [of Specialty Hospitals's] obligations arising under the Products and Services Agreements were transferred to NFP pursuant to Mayoral Order 10-117." [Doc. 1, ¶ 31].
First, Mayoral Order 10-117 never assigned Specialty Hospitals's contracts with Direct Supply to NFP. It transferred only "[t]he Hospital Property and all other existing rights and obligations,"
Second, Specialty Hospitals's liabilities did not — by operation of D.C. common law — pass to NFP when Mayoral Order 10-117 conveyed Specialty Hospitals's assets. D.C. common law provides, as a general rule, that when a business entity acquires the assets of another business, the successor is not liable for the predecessor's debts or liabilities. Bingham v. Goldberg, Marchesano, Kohlman, Inc., 637 A.2d 81, 89 (D.C.1994). To be sure, this is not an absolute rule; four established exceptions place liability for a predecessor's debts upon the entity acquiring the assets. Specifically, when:
Id. at 89-90. But Direct Supply does not even argue that any of these exceptions apply, much less set forth facts in its complaint that, if true, might establish NFP's contractual liability under any of these exceptions to the general rule.
First, the mayoral order did not transfer Specialty Hospitals's contractual debt to NFP. Expressly, the order transferred only the "obligations transferred to the District of Columbia under the [July 9, 2010,] Substitute Trustee's Deed." [Doc. 7-6, at 1]. The Substitute Trustee's Deed describes the transferred property and does not include any of Specialty Hospitals's contractual debts. See [Doc. 7-4, at 2]; see also [Doc. 7-6, at 1]; [Doc. 24-1, at 13-14 (Greater Southeast Community Emergency Physicians, LLC v. Capitol Medical Center, LLC, Case No. 2011 CA 000712 C (D.C.Super. Nov. 15, 2011))] ("[N]either the District [of Columbia] nor NFP expressly assumed all of [Specialty Hospitals's] liabilities.").
Nor does the complaint suggest that NFP impliedly accepted Specialty Hospitals's
Second, Direct Supply has not alleged a de facto merger of the Specialty Hospitals and NFP. They remain separate entities, and the de-facto-merger exception generally requires that the two entities — the predecessor entity and the acquiring entity — be essentially the same. See, e.g., [Doc. 24-1, at 14 (Greater Southeast Community Emergency Physicians, LLC v. Capitol Medical Center, LLC, Case No. 2011 CA 000712 C (D.C.Super. Nov. 15, 2011))] (The merger exception does not apply when Specialty Hospitals, the predecessor entity, "continues to retain its separate existence."); Rivas v. Dist. Int'l Trucks, Civ. A. No. 85-3411 BDP/PJA, 1989 WL 117871 (D.D.C. Oct. 5, 1989) (For the de-facto-merger exception to apply "there must have been continuity of ownership; i.e., the succession of the selling corporation's stockholders to stockholder status in the purchasing corporation."). Specialty Hospitals continues to exist separate and apart from NFP. And the complaint makes no allegations suggesting any affiliation between Specialty Hospitals and NFP. Accord [Doc. 7-3, at 5 (Sodexo Operations, LLC v. Capitol Med. Ctr., Civil Action No. 2010 CA 002467 B (D.C.Super. Feb. 11, 2011))] (finding no evidence that the District merged with Specialty's Hospitals).
Nor has Direct Supply alleged that NFP is a "mere continuation" of Specialty Hospitals. An acquiring entity is a mere continuation of its predecessor when "there is a continuation of the corporate entity of the seller" — it's not enough that "there is a continuation of the seller's business operation." Bingham, 637 A.2d at 92 (quoting Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985)). Specialty Hospitals did not sell United Medical Center to NFP; the District of Columbia took the hospital from Specialty Hospitals and gave it to NFP. [Doc. 1, ¶ 12]. Specialty Hospitals's corporate identity has not continued as NFP; it was a complete change of ownership, and Specialty Hospitals has challenged the takeover. [Doc. 1, ¶ 12]. Additionally, Specialty Hospitals is a privately owned corporation, [Doc. 1, ¶¶ 2 & 3], while NFP is a government-created, non-profit corporation, [Doc. 1, ¶¶ 4 & 12]. NFP and Specialty Hospitals remain separate; NFP is not a corporate continuation of Specialty
Finally, Direct Supply does not allege that Specialty Hospitals was trying to escape its debts by virtue of a fraudulent transfer. As Direct Supply's complaint acknowledges, "Specialty Hospitals challenged the District of Columbia's takeover of [United Medical Center] and NFP's assumption of control over the facility." [Doc. 1, ¶ 12]. Instead, the takeover was the District's response to Specialty Hospitals's breach of its agreement with the District. [Doc. 7-4, at 1, ¶ D]; accord [Doc. 25-1, at 4 (MedAssets Net Revenue Systems, LLC v. Capitol Medical Center, LLC, Case No. 2010 CA 005679 C (D.C.Super. Apr. 4, 2012))] (concluding that the District of Columbia could not be attempting to escape liability for Specialty Hospitals's contracts because the District had no liability for these contracts under the limited partnership agreement).
Accordingly, Direct Supply "can prove no set of facts in support of their [breach-of-contract] claim [against NFP] which would entitle them to relief," Kowal, 16 F.3d at 1276, and the Court dismisses Count III of the complaint.
Nonetheless, the Court cannot dismiss Direct Supply's quantum-meruit claim against NFP. That claim is premised on NFP's possession and continued enjoyment of Direct Supply's products and already-provided services, and it is independent of whether Specialty Hospitals's contractual debt passed to NFP. [Doc. 26, at 2].
NFP argues that Count IV fails as a matter of law because the plaintiff has not sufficiently pleaded the elements of a quantum-meruit claim. To succeed on a claim of quantum meruit, a plaintiff must establish:
In re Rich, 337 A.2d 764, 766 (D.C.1975).
Direct Supply has alleged facts sufficient to state a quantum-meruit claim against NFP. First, Direct Supply alleges that it provided valuable products to United Medical Center under the Products and Services Agreements that have not been paid for. [Doc. 1, ¶ 10]. Second, Direct Supply alleges that NFP has assumed control of the facility and so is benefitting from those unpaid products. [Doc. 1,
Fourth, the complaint sufficiently alleges a number of circumstances that, if true, reasonably put NFP on notice that Direct Supply would expect payment. Most tellingly, Direct Supply sent a letter to NFP on January 26, 2011, which told NFP that Specialty Hospitals had taken the position that NFP was liable for the remaining balance. [Doc. 1, ¶ 16]. Initiating discussions regarding payment for services rendered establishes an "expectation of payment" for a benefit conferred. Perles v. Kagy, 362 F.Supp.2d 195, 199 (D.D.C.2005), vacated and remanded on other grounds, 473 F.3d 1244 (D.C.Cir. 2007).
Additionally, Direct Supply alleges that United Medical Center's property was transferred to NFP under Mayoral Order 10-117. [Doc. 1, ¶ 12]. An entity acquiring rights to property may be on reasonable notice that United Medical Center had not paid for much of its inventory and equipment, particularly when the Substitute Trustee's Deed noted that the conveyance was being "made subject to such liens, leases, encumbrances, reservations, covenants, conditions, easements and restriction, if any, lawfully affecting the ... property." Direct Supply reasonably alleges that the District of Columbia and NFP were aware that the United Medical Center acquisition would include certain liabilities. See [Doc. 7-4, at 2].
Direct Supply's complaint contains sufficient factual allegations to state a quantum-meruit claim against NFP. Accordingly, the Court denies NFP's motion to dismiss Count IV of the complaint.
The Court turns now to Specialty Hospitals's motion to dismiss for failure to join a necessary party. In Specialty Hospitals's view, Direct Supply was required to join the District of Columbia in this action because the District is an indispensable party under Federal Rule of Civil Procedure 19. Federal Rule of Civil Procedure 12(b)(7) provides that a complaint may be dismissed for "failure to join a party under Rule 19." Fed.R.Civ.P. 12(b)(7). Nevertheless, courts are generally reluctant to grant Rule 12(b)(7) motions; "dismissal is warranted only when the defect is serious and cannot be cured." 5C Charles Alan Wright, Arthur R. Miller, Mary Kay Kane & Richard L. Marcus, Federal Practice & Procedure § 1359 (3d ed.2004). As with other Rule 12 motions, the court must accept the complaint's allegations as true for the purposes of a Rule 12(b)(7) motion to dismiss. 16th & K Hotel, LP v. Commonwealth Land Title Ins. Co., 276 F.R.D. 8, 12 (D.D.C.2011).
Also, courts may consider matters outside the pleadings when determining whether Rule 19 requires that a party be joined. Anderson v. Hall, 755 F.Supp. 2, 5 (D.D.C.1991). Whether an absent party is indispensable "can only be determined in the context of particular litigation." Provident Tradesmens Bank & Trust Co., 390 U.S. 102, 118, 88 S.Ct. 733, 19 L.Ed.2d 936 (1968).
Rule 19 "prescribes a three-step procedure for determining whether litigation may proceed in the absence of a particular party": (1) whether the absent party is required to be joined; (2) "whether [the absent party] can be joined"; and (3) if the absent party cannot be joined, "whether the action may still proceed in
At the first step, the Court must determine whether the District of Columbia is required to be joined. A party is required to be joined if: (A) "in that person's absence, the court cannot accord complete relief among existing parties"; or (B) "disposing of the action in the [party's] absence may" either "impede the [missing party's] ability to protect [its] interest" or an existing party is at "risk of incurring double, multiple, or otherwise inconsistent obligations." Fed.R.Civ.P. 19(a). The burden is on the moving party to demonstrate that an absent party is required under Rule 19. Ilan-Gat Engineers, Ltd. v. Antigua International Bank, 659 F.2d 234, 242 (D.C.Cir.1981). If the Court determines that an absent party is not required under Rule 19(a), it need not proceed to the second or third steps of the test. See 16th & K Hotel, 276 F.R.D. at 14.
Specialty Hospitals argues that the District of Columbia is a required party under Rule 19(a) because, "[g]iven the District of Columbia's role in the operation of the facility prior to the foreclosure, it possesses a legally protected interest which will go unprotected should the case proceed in its absence." [Doc. 3, at 7]. To support this argument, Specialty Hospitals points to the fact that the District once had control of United Medical Center. [Doc. 21, at 2]. Specialty Hospitals does not, however, even hint at why the District's previous control of United Medical Center gives it a legally protected interest in this case; the argument is altogether conclusory.
Similarly unpersuasive is Specialty Hospitals's insistence that joinder of the District is required because "NFP is an `instrumentality' of the District of Columbia." [Doc. 3, at 7]. There is no general rule that a party is required to be joined under Rule 19 based merely upon affiliations. See Obadele v. Kelley, Civ. A. No. 80-1844-OG, 1988 WL 40282, at *3 (D.D.C. Apr. 26, 1988) (When evaluating whether a party is required, the determination should be made depending upon the party's "interest in the controversy" and the court should make this "determination[] pursuant to Rule 19(a)."). Absent a protected interest, the District of Columbia's affiliation with NFP is inconsequential. And, to the extent that the District has a secondary interest in a lawsuit against its instrumentality, NFP — the instrumentality and a defendant in this case — can protect that interest.
The Court concludes that the District of Columbia is not required for the adjudication of this case because the District is not "required for the Court to grant complete relief among" Direct Supply, Specialty Hospitals, and NFP. 16th & K Hotel 276 F.R.D. at 14. Accordingly, this litigation may proceed without the District of Columbia, and Specialty Hospitals's motion to dismiss is denied.
For these reasons, the Court
IT IS SO ORDERED.
