BERYL A. HOWELL, United States District Judge.
The plaintiff, John Coon, proceeding pro se, brings numerous state law claims arising out of allegedly incorrect advice provided to him by his real estate agent regarding a sale of property in 2010. Pending before this Court is the defendants' Motion to Dismiss the Complaint,
In 2000, the plaintiff purchased a property "for investment purposes" in Washington D.C. ("the D.C. Property"). See Compl., ECF No. 1, ¶ 9. The plaintiff was represented in this transaction by the defendant Edward Wood, who is an "associate broker" at defendant City Houses D.C., which is a licensed and registered real estate agency, with its principal place of business in the District of Columbia. Id. ¶¶ 3, 5, 9. Brooke Meyer, the third and final defendant, owns City Houses D.C. and is its "principal broker." Id. ¶¶ 1, 4.
In 2010, the plaintiff decided to sell the D.C. Property and use the proceeds to finance a new investment property consisting of farm land near Charles Town, West Virginia ("the Farm"). Id. ¶ 10. To do so, the plaintiff once again retained Wood and City Houses, to assist him. Id. On June 17, 2010, the plaintiff and City Houses executed a Listing Agreement for Improved Real Property (the "Brokerage Agreement").
Shortly after entering the Brokerage Agreement, the plaintiff executed a Regional Sales Contract (the "Sales Agreement"), on June 30, 2010, with another person for the sale of the D.C. Property. See Defs' Mem., Ex. B, ECF No. 5-3. The Sales Agreement provides that City Houses was "retained solely as a real estate agent and not as an attorney, tax advisor, lender, appraiser, surveyor, structural engineer, mold or air quality expert, home inspector or other professional service provider." Id. ¶ 27(d). The Sales Agreement also advises that: "The Broker can counsel on real estate matters, but if legal advice is desired by either party, such party is advised to seek legal counsel. Purchaser and Seller are further advised to seek appropriate professional advice concerning the condition of the Property or tax and insurance matters." Id. ¶ 27.
During the course of Wood and City House's representation, the plaintiff asked Wood whether "the sale of the [D.C.] Property could be accomplished in a way to avoid any capital gains on the [D.C.]
On September 14, 2010, the plaintiff completed the sale of the D.C. Property and received a check for $545,000. Compl. ¶ 13. The plaintiff used the funds to purchase and make improvements to the Farm. Id. In 2011, the plaintiff "went to his accountant at H & R Block to file his taxes for 2010" and owed in excess of $75,000 in capital gains taxes as a result of the sale of the D.C. Property, which taxes remain outstanding. Id. ¶¶ 14, 15.
On September 13, 2013, the plaintiff, now residing in West Virginia, brought this diversity action against defendants Wood, Meyer, and City Houses alleging breach of contract, negligent misrepresentation, breach of fiduciary duty, and violations of D.C.Code § 42-1701, et seq., relating to the sale of the D.C. Property. The plaintiff seeks to recover damages and attorneys' fees. The defendants have moved to dismiss all counts for failure to state a claim. See generally Defs.' Mem.
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief," to encourage brevity and, at the same time, "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (ellipses in original; internal quotations and citations omitted); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Wood v. Moss, ___ U.S. ___, 134 S.Ct. 2056, 2067, 188 L.Ed.2d 1039 (2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). A claim is facially plausible when the plaintiff pleads factual content that is more than "`merely consistent with' a defendant's liability," but "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955); see also Rudder v. Williams, 666 F.3d 790, 794 (D.C.Cir.2012). Although "detailed factual allegations" are not required to withstand a Rule 12(b)(6) motion, a complaint must offer "more than labels and conclusions" or "formulaic recitation of the elements of a cause of action" to provide "grounds" of "entitle[ment] to relief," Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (alteration in original), and "nudge[] [the] claims across the line from conceivable to plausible," id. at 570, 127 S.Ct. 1955. Thus, "a complaint [does not] suffice if it tenders `naked assertion[s]' devoid of `further factual enhancement.'" Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557,
Pro se plaintiffs are "[held] to less stringent standards than formal pleadings drafted by lawyers." Haines v. Kerner, 404 U.S. 519, 520, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972); see also Tate v. Dist. of Columbia, 627 F.3d 904, 912 (D.C.Cir.2010). Nevertheless, "even a pro se complainant must plead `factual matter' that permits the court to infer `more than the mere possibility of misconduct.'" Atherton v. Dist. of Columbia Office of Mayor, 567 F.3d 672, 681-82 (D.C.Cir.2009) (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937).
In this Circuit, dismissals with prejudice under Rule 12(b)(6) are disfavored and the "`standard for dismissing a complaint with prejudice is high.'" Rudder v. Williams, 666 F.3d 790, 794 (D.C.Cir.2012) (quoting Belizan v. Hershon, 434 F.3d 579, 583 (D.C.Cir.2006)); see also Rollins v. Wackenhut Services, Inc., 703 F.3d 122, 132 (D.C.Cir.2012) (Kavanaugh, J., concurring) (noting that this Circuit's "decisions have imposed a `high' bar for Rule 12(b)(6) dismissals with prejudice," and that such "case law on Rule 12(b)(6) dismissals is not fully aligned with the Rules" since "[o]n the contrary, Rule 41(b) contemplates that a Rule 12(b)(6) dismissal ordinarily operates as a dismissal with prejudice, unless the district court in its discretion states otherwise."). Dismissal with prejudice may be appropriate, however, "when a trial court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C.Cir.1996) (internal quotation marks and citations omitted).
The defendants have moved, under Federal Rule of Civil Procedure 12(b)(6), to dismiss all four of the plaintiff's state law claims for breach of contract, negligent misrepresentation, breach of fiduciary duty, and violations of D.C.Code § 42-1701, et seq.
The Court addresses the sufficiency of each of the plaintiff's claims seriatim below.
Under District of Columbia law, to state a claim for breach of contract, "a party must establish (1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by the breach." Logan v. LaSalle Bank Nat'l Ass'n, 80 A.3d 1014, 1023 (D.C. 2013) (quoting Tsintolas Realty Co. v. Mendez, 984 A.2d 181, 187 (D.C.2009)); Osseiran v. Int'l Fin. Corp., 950 F.Supp.2d 201, 208 (D.D.C.2013) (same).
The plaintiff alleges, in his First Cause of Action, that the defendants "breached the [Brokerage Agreement] by failing to structure the sale of the [D.C.] Property" in such a way as to avoid capital gains tax. Compl. ¶¶ 17, 18. The plaintiff cites to no provision of the contract that the defendants allegedly violated. The defendants counter that they "did not have any contractual obligation to `structure' [the D.C. Property's] sale in any particular way." Defs.' Mem. at 4. In support of their argument, the defendants cite to a provision of the Brokerage Agreement, which they claim sets forth the duties and obligations of the defendants. Id. The provision provides that the "purpose" of the agreement is to "grant to [the defendants] the exclusive right to sell, exchange or convey the [D.C. Property]." Brokerage Agreement ¶ 3. The defendants also note that under the Brokerage Agreement, the defendants earn their broker's fee when the plaintiff "enters into a sales contract... with any buyer procured by seller... provided the buyer performs and settles on said contract." Id. ¶ 6(a).
The defendants are correct that no provision of the Brokerage Agreement creates an obligation on behalf of the defendants to either furnish tax advice or to "structure the sale of the [D.C.] Property" so as to avoid capital gains taxes. See generally id. Nor has the plaintiff in either his Complaint, or his briefing, pointed to any provision of the Brokerage Agreement creating such an obligation. Accordingly, because there is no "obligation or duty arising out of the contract" to structure the [D.C.] Property sale in such a way as to avoid capital gains tax, the defendants could not have breached such a provision. See Logan, 80 A.3d at 1023. The plaintiff's breach of contract claim is therefore dismissed.
Additionally, because the contract contains no language or provision creating such an obligation, and because the Court can envision no additional facts by which an amended pleading could cure such a deficiency, the plaintiff's claim for breach
The plaintiff next brings a claim for negligent misrepresentation against the defendants. Under District of Columbia law, a claim for negligent misrepresentation requires that: (1) the defendant make "a false statement or omit[] a fact that he had a duty to disclose;" (2) the false statement or omission "involve[] a material issue;" and (3) the plaintiff "reasonably rel[y] upon the false statement or omission to his detriment." Redmond v. State Farm Ins. Co., 728 A.2d 1202, 1207 (D.C.1999); see also Parr v. Ebrahimian, 774 F.Supp.2d 234, 240 (D.D.C.2011). "While reasonable reliance can be a jury issue, dismissal for failure to state a claim is proper when no reasonable person would have relied on the representation." Davis v. World Sav. Bank, FSB, 806 F.Supp.2d 159, 173 (D.D.C.2011); see also Alicke v. MCI Commc'ns Corp., 111 F.3d 909, 912 (D.C.Cir.1997) (discussing requirement that "the plaintiff acted in reliance upon the alleged misrepresentation").
The defendants do not challenge — and thereby concede — that the plaintiff has alleged sufficient facts to satisfy the first two requirements for negligent misrepresentation, namely, the making of a false statement involving a material issue. The defendants do challenge, however, whether the reliance by the plaintiff on statements regarding the "tax status" of the D.C. Property was reasonable. See Defs.' Mem. at 6. In support of their argument, the defendants cite three cases from this Court for the proposition that where an alleged representation contradicts the clear terms of a written contract, reliance upon the representation is unreasonable as a matter of law. See id. (citing Davis, 806 F.Supp.2d at 173; In re United States Office Prods. Co. Sec. Litig., 251 F.Supp.2d 58, 74-75 (D.D.C.2003); Smith v. Washington Metro Area Transit Auth., No. 95-0687, 1997 WL 182286 (D.D.C. Apr. 4, 1997)).
For example, in Davis, the plaintiff claimed fraud and negligent misrepresentation on the part of a mortgage lender because "although the Note stated on its face that it is fixed-rate, it is really an adjustable rate note." 806 F.Supp.2d at 174. The court painstakingly reviewed the Note at issue and determined that "[o]n its face it expressly and clearly provided that the while the interest rate is fixed, the minimum payment might" fluctuate depending on various factors. Id. Consequently, the plaintiff failed to allege reasonable reliance to state a claim "[b]ecause the claims for fraud and negligent misrepresentation are flatly contradicted by the express terms of the Note." Id.
Similarly, in Smith, the court found that the plaintiff could not demonstrate reasonable reliance on his supervisor's oral promise that a temporary promotion would be permanent when that oral representation was "contradicted by the express written provisions of the WMATA Manual," which "establishe[d] in unambiguous terms the necessary requirements for a promotion or any other change in employment status." 1997 WL 182286 at *5. Thus, the plaintiff, who was a long-tenured employee familiar with the employer's practices, "could not reasonably believe that his promotion could be effected without a Personnel Action Report authorizing it" or that his supervisor "acting alone, had actual authority to effect, without any documentation, a permanent promotion." Id.
By contrast to both Davis and Smith, the alleged misrepresentation at issue in the present case does not "flatly contradict" the express terms of the agreement. According to the Complaint, defendant Wood made a misrepresentation with the
The issue here, therefore, is not whether the plaintiff reasonably relied on a representation flatly contradicting the express terms of a writing, as discussed in both Davis and Smith. See Davis, 806 F.Supp.2d at 174 ("Because the claims for fraud and negligent misrepresentation are flatly contradicted by the express terms of the Note, they fail to state a claim."); Smith, 1997 WL 182286, at *5 ("[N]o reasonable trier of fact could conclude that plaintiff was entitled to rely upon oral representations of his superior that were contradicted by the express written provisions of the WMATA Manual."). Rather, the issue is whether the plaintiff's reliance on defendant Wood's representation regarding a tax matter involving a real estate transaction was reasonable in light of the admonitions contained in the contract.
On this point, In re United States Office Prods. Co. Sec. Litig., 251 F.Supp.2d 58, 74-75 (D.D.C.2003), which is relied upon by the defendants, proves instructive but not helpful to the defendants. In United States Office Products, the court addressed whether a plaintiff's reliance on an alleged oral contract modification was reasonable in light of a written contract's express requirement that all modifications be made in writing. Id. at 75. The court concluded that such reliance was unreasonable, absent additional facts explaining why the plaintiff reasonably believed the written contract terms did not apply to the oral representations. Id. In the court's estimation, "the plaintiff's reliance on the alleged misrepresentations regarding the compensation by the defendants resembles blind reliance ...." Id. at 75. Absent a fiduciary duty, "one cannot close his eyes and blindly rely upon the assurances of another ...." Id. at 74-75 (quoting Hercules & Co. v. Shama Rest. Corp., 613 A.2d 916, 934 (D.C.1992)).
The instant case is distinguishable from United States Office Products. First, distinct from United States Office Products, and the other cases relied upon by the defendants, the instant case does concern a fiduciary duty. See Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d 359, 364 (D.C.1984) ("A real estate broker, like any other agent, owes a fiduciary duty to his principal."). Second, and unlike in United States Office Products, the plaintiff here alleges additional facts to justify his reliance upon the representation of his real estate agent, defendant Wood. According to the Complaint, defendant Wood was the plaintiff's real estate agent during the original 2000 purchase of the D.C. Property, which was structured as a Starker Exchange.
Accordingly, the plaintiff alleges additional facts — beyond merely the alleged misrepresentation — to explain his reliance on the defendants' representation concerning the tax status of the D.C. Property. The defendants owed the plaintiff a fiduciary duty and the defendants had prior experience in precisely the type of transactions inquired of by the plaintiff. In light of these additional facts, the plaintiff's reliance was not unreasonable as a matter of law such as to warrant dismissal on a Rule 12(b)(6) motion.
Therefore, the Court denies the defendants' Motions to Dismiss the Complaint with respect to Count II.
In his Third Cause of Action, the plaintiff alleges that the defendants failed in their fiduciary duty to the plaintiff by "failing to either notify Plaintiff of the tax exemption or taking the necessary steps to create a like-kind exchange to qualify for the [28 U.S.C. § 1031] tax exemption ...." Compl. ¶ 30.
To state a claim for breach of fiduciary duty under District of Columbia law, a plaintiff must allege that "`(1) defendant owed plaintiff a fiduciary duty; (2) defendant breached that duty; and (3) to the extent plaintiff seeks compensatory damages — the breach proximately caused an injury.'" Henok v. Chase Home Fin., LLC, 915 F.Supp.2d 109, 115 (D.D.C.2013) (quoting Bode & Grenier, LLP v. Knight, 821 F.Supp.2d 57, 64 (D.D.C.2011)). "A real estate broker, like any other agent, owes a fiduciary duty to his principal." Laufer, 482 A.2d at 364 (citations omitted). "The fiduciary duty owed by a real estate agent ... requires the exercise of the highest fidelity toward the principal. It encompasses an obligation to inform the principal of every development affecting his interest...." Id. at 364-65; Jenkins v. Strauss, 931 A.2d 1026, 1032-33 (D.C. 2007).
D.C. statutory law prescribes the scope of the duties owed by real estate brokers. See D.C.Code § 42-4703 (titled "Duties of real estate brokers, salespersons, and property managers," and stating "The common law of agency relative to brokerage relationships in real estate transactions to the extent inconsistent with this section shall be expressly abrogated."). A real estate broker is required to "exercise
As discussed above, no contractual provision of the Brokerage Agreement creates an obligation or duty to examine the tax liabilities of the potential sale or to structure the sale to avoid tax liability. Thus, the question before the Court is whether an obligation to examine and notify the seller of the tax consequences of a potential sale, and to structure the sale accordingly, arises out § 42-1701 et seq. and, if so, whether the Brokerage Agreement or Sales Agreement limit that duty.
While no provision of the D.C.Code expressly provides such a duty, § 42-1703(a)(1)(B)(iii) requires the real estate broker to "disclos[e] to the seller material facts ... concerning the transaction of which the licensee has actual knowledge." Yet, even a broad interpretation of this provision cannot save the plaintiff's Complaint. First, the statute requires merely that the broker furnish information concerning the transaction to the seller, not "tak[e] the necessary steps to create a like-kind exchange...." Compl. ¶ 30. It is simply an information sharing obligation. Second, with respect to the defendants' other alleged duty — the duty to notify the plaintiff of potential tax exemptions — the plaintiff's own Complaint rebuts the allegation that the defendants did not "notify Plaintiff of the tax exemption." Indeed, as alleged in the Complaint, both the plaintiff and defendant Wood engaged in a conversation regarding 26 U.S.C. § 1031. See Compl. ¶ 11 (discussing conversation regarding whether the D.C. Property was eligible for a "Starker Exchange"). The defendant was therefore plainly aware of the potential tax exemption.
Finally, the express disclaimer provided in paragraph twenty seven of the Sales Agreement — "Seller acknowledge[s] that the Broker is being retained solely as a real estate agent and not as an attorney [or] tax advisor...." — is sufficient to limit any potential statutory duty. At least one court, on facts similar to the current case, determined that the presence of a contractual provision disclaiming the duty to provide tax advice preempts any argument that the real estate agent owed such an affirmative duty. See Carleton v. Tortosa, 14 Cal.App.4th 745, 754-58, 17 Cal.Rptr.2d 734 (1993) ("[T]he contractual language in effect specifies that a real estate broker has no duty to provide legal or tax advice.") (emphasis in original). Indeed, "plaintiff's allegation that defendant had a duty to `issue-spot' or warn him regarding tax consequences of the transactions is at odds with the documents' admonition that plaintiff should get his tax advice elsewhere." Id. at 756, 17 Cal.Rptr.2d 734.
Accordingly, the Court determines that plaintiff has failed to state a valid claim for breach of a fiduciary duty, which claim is dismissed with prejudice. See Firestone, 76 F.3d at 1209.
Finally, the plaintiff seeks relief for violations of D.C.Code §§ 42-1701, et seq. See Compl. ¶¶ 32-35. The defendants argue that the plaintiff fails to identify any obligation or duty arising out of the D.C. Code that would obligate a real estate broker to "disclose ... that the sale of the Property could and should be structured as a qualifying Section 1031 exchange." Defs.' Mem. at 7 (citing Compl. ¶ 33). The Court has already addressed the duties and obligations arising out of D.C.Code §§ 42-1701 when discussing the plaintiff's breach of fiduciary duty claim. For the same reasons discussed above, the plaintiff's claim is dismissed. Moreover, because the Court can envision no additional facts by which an amended pleading could cure such a deficiency, the dismissal of this claim is with prejudice. See Firestone, 76 F.3d at 1209.
For the reasons explained above, the defendants' Motion to Dismiss the Complaint is granted in part and denied in part. Specifically, the defendants' Motion to Dismiss the Complaint is granted with respect to the plaintiff's claims for breach of contract, breach of fiduciary duty, and violations of D.C.Code §§ 42-1701 and those claims are dismissed with prejudice. Finally, the Court denies the defendants' Motion to Dismiss the Complaint with respect to the plaintiff's claim for negligent misrepresentation.
An order consistent with this Memorandum Opinion will be contemporaneously entered.
