D.C. Superior Court Opinions
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Application of Res Judicata to Consent Judgments / Rights of Pro Se Litigants
Under the doctrine of res judicata, a prior consent judgment does not preclude Defendant’s counterclaims of breach under the implied warranty of habitability unless it clearly addresses the issue of counterclaims. The Plaintiff must establish the parties had a mutual understanding that the consent judgment was intended to resolve all claims and defenses. Pro se litigants are entitled to reasonable accommodation from courts to ensure they understand the proceedings and procedural requirements. The doctrine of res judicata is subject to the overriding public policy that a party must not be deprived of an actual opportunity to be heard, a limitation which is of particular significance in cases where the party against whom the doctrine is advanced was self-represented in the earlier action.
EXPUNGEMENT OF RECORDS AFTER FIRST OFFENSE DRUG CONVICTION
EFFECT OF SAME ON SUBSEQUENT LANDLORD-TENANT SUIT FOR EVICTION DUE TO ILLEGAL
Abstract: Providing for the process which is sometimes referred to as “probation without judgment” or “probation with expungement,” the D.C. Code (the statute) establishes a one-time-only provision to permit first-time drug offenders to enter a guilty plea, receive probation, and upon completion of the probationary conditions (typically within one year), to have their guilty plea vacated and the entire documentary record of the case expunged. But what records, exactly, are included in the expungement? In this case, with the assistance of briefing by the parties and three amici, the Trial Court meticulously answered that question. Facts: (1) At all times relevant herein, the Plaintiff rented an apartment located in the 500 block of 50th Place NE, near Marvin Gaye Park, which was leased under the aegis of the D.C. Housing Authority (DCHA). (2) In July 2010, a police operative purchased a quantity of opiate from the Plaintiff inside the apartment. Based on a police affidavit containing this information, a search warrant was procured and executed for the premises, which turned up quantities of crack cocaine, together with drug paraphernalia for both use and distribution. (3) The Defendant in the instant case was charged with a misdemeanor drug offense and the prosecution of the case also generated several other police forms and reports, together with filings in the Criminal Division of the Superior Court. (4) Inasmuch as it was her first drug offense, the Defendant was eligible for “first offender treatment” under the statute at issue herein and in September 2010, she entered a guilty plea and was placed on probation for twelve months on the condition that she fulfill all the terms thereof, after which her record would be expunged. (5) The statute provides in pertinent part that upon successful completion of such probation, “such discharge or dismissal shall not be deemed a conviction, for purposes of disqualification or disabilities imposed by the law.” (6) It further provides that upon said completion of probation a person “may apply to the court for an order to expunge from all official records … all recordation relating to his or her arrest, indictment or information, trial, finding of guilty, and dismissal and discharge” of the case. (7) Finally, the statute provides that “the effect of such order shall be to restore such person, in the contemplation of this law, to the status he or she occupied before such arrest, indictment, or information” and expressly provides that such a person may state, without being subject to penalties for perjury or false statement, that s/he has never been convicted of the misdemeanor drug offense in question. (8) In July 2011, the Defendant herein received a court order to this effect, discharging her from probation early. (9) However, in August 2011, she received a “notice to quit” from the DCHA, quoting documents in the expunged case, requiring her to vacate her apartment within 30 days because of the drug activities that had concededly occurred therein. Proceedings: (1) in December 2011, when the Defendant failed to vacate the premises, DCHA filed suit in the Landlord and Tenant Branch of Superior Court for possession thereof. (2) There was no indication that DCHA was aware of the expungement. (3) The Defendant filed an Answer requesting a jury trial and the case was certified to the Civil Division for same. (4) The Plaintiff then propounded interrogatories containing questions about the misdemeanor drug prosecution. (5) The Defendant, through counsel, adopted the position that the statutory expungement provided her with a “testimonial privilege” permitting her to refuse to answer any such questions, despite a Motion to Compel. (6) She also moved for dismissal, or alternatively for summary judgment, based on the total expungement of her record in the criminal case, arguing that because it had been purged, there were no legal grounds for the L&T suit to begin with. (7) The Court stayed discovery until what it termed “several novel issues” could be fully briefed and, because the prospective ruling had ramifications beyond the L&T suit for the criminal law as well, it invited amici briefs from the Offices of the U.S. Attorney (USA) and the D.C. Attorney General (OAG), as well as the D.C. Legal Aid Society (LAS). The prosecutorial amici filed briefs in support of DCHA as Plaintiff and Legal Aid filed a brief in support of the Defendant. (8) The issues to be briefed were whether: (a) the documents in the possession of DCHA, as an agency of the Government, were “official records” subject to the expungement; (b) the search warrant and return constituted such documents; and (c) the civil suit should therefore be dismissed. Rulings: The Court ruled on the issues presented as follows: (A) Records. (1) The USA, as the prosecuting office in the collateral misdemeanor case, acknowledged that the documents relied upon by DCHA were “official records” within the scope of the statute “relating to the defendant’s arrest and prosecution.” (2) Moreover, DCHA also conceded that “if the documents were required to be expunged” by the Court’s order, it could not rely on them. (B) Scope. (1) This left the question of the scope of the expungement, particularly whether it applied to the affidavit in support of the search warrant, the warrant itself, and the return thereon – documents on which DCHA primarily relied for the factual basis for its notice to the Defendant to vacate the apartment. (2) Put another way, the question was whether, in the statutory language, the search warrant documents “relate to” the Defendant’s arrest, charge, and disposition of the case. (C) Statutory Interpretation. (1) Language Used. (a) The first rule of statutory interpretation is to look at the language used therein. (b) Here, the Court found that language to be “broad … with which it defines its own scope.” (c) It found that, particularly, the phrase “relating to” was “one of the broadest and most inclusive terms available.” (d) Both the legal dictionary and lay dictionary definitions use the same broad terminology (to have “some relation to”). (e) The Court concluded that “on their face, the search warrant documents ‘relate to’ the arrest and subsequent charge” because their “plain language” provided the background, authority for seizure of the evidence, and the basis for prosecution of the criminal case. (2) Appellate Authority. (a) Moreover, the Court’s research revealed that pertinent appellate authority held that “expungement statutes should be liberally construed because of their remedial purpose.” (b) This “further confirmed” that the search warrant documents “related to” the expungement order. (3) Practical Uses. (a) The Court emphasized that the “practical uses” of the search warrant documents served to provide the police with the authority to act, resulting in the search, the discovery of the evidence, and the arrest of the Defendant, and were, in the ordinary course of things, forwarded to the prosecutor’s office for preparation of the charges and later disposition of the case. (b) Moreover, as such, they would have constituted materials which would be required to be turned over to the defense under the criminal rules of discovery. (c) Such “practical uses” bolstered the nexus between the documents and the expungement. (4) Rejection of Contrary Arguments. (a) The Court also found a general “lack of support” for the arguments of the Plaintiff and supporting governmental amici that the documents at issue were “unrelated” to the expungement. (b) The Court found it “particularly telling” that their briefs “more or less avoided” the “related to” concept, but also took the aggressive position that this “statutory language clearly and unambiguously requires the expungement [only] of all documents of a person’s arrest and criminal prosecution,”
i.e., that are inherent in these processes. (c) But the Court found that “this construction misstates the language of the statute,” which requires the expungement of all documents that are even “related to” the case. (d) It further rejected the argument that search warrants are not “related” to an arrest because they are issued whether the personal target of the search warrant is arrested or not. This negative pregnant does not prove that such documents are “unrelated” to the ensuing processes culminating in the expungement, the Court found. (e) Similarly, it rejected the argument of both prosecutorial amici that expungement applies only to documents which bear the accused’s name, noting that, although such a concept is reasonable, it was not expressly adopted by the legislature in writing the statute. (f) The Court paused briefly over the argument of the USA that, because the statute referred only to the post-investigatory process of the “arrest, indictment or information, trial, finding of guilty, and dismissal and discharge,” but not to the pre-arrest investigation stages, which include search warrants, the latter category of documents do not fall into the category comprehended by the expungement. (g) The Court concluded, however, that if the legislative intent had been to exclude “pre-arrest” documents, it “would have so specified.” (h) In addition, the Court found that “persuasive authority” from other state-level appellate courts’ interpretations of similar expungement statutes take the traditional “liberal” and expansionary approach to the “documentary” language. (5) Policy Considerations. The prosecutorial amici also made what the Court deemed “persuasive,” albeit unsuccessful, arguments sounding in “public policy,” as follows: (a) Practicality. (i) Both prosecutorial amici argued, again as a practical matter, that whatever may happen with regard to documents in the Executive Branch, copies would remain on file in the Criminal Clerk’s Office of the Superior Court, anyway. (ii) Whether this was so or not, however, the Court ruled that it did not narrow the scope of the liberal language of the statute that the expungement process should apply to a properly-filed motion for same. (b) Pragmatism. (i) The USA argued that the logic of the Defendant’s suggested interpretation was precluded by the ironic result which would obtain to such a tenant who would, in fact, end up in a better position as the result of having been arrested – and having it expunged -- than s/he would have been had she never been arrested and charged -- but only implicated – in the drug scheme. (ii) In that event, the DCHA could have arrived on the underlying facts of the drug activity in evicting the Defendant without running into the obstacles erected by the expungement process. (c) Necessity. (i) The USA argued that it needs access to such records for law enforcement purposes, particularly for determining whether a person accused of a drug-related misdemeanor has already used the “one-time-only” relief provided by the statute for first offenders. (ii) Finally, the Plaintiff, as “landlord,” also argued such records help to identify “nuisance properties” wherein illegal drug activities occur with high frequency. (D) Rule 12(b)(6) Dismissal. The Court ruled on the arguments advanced in the Defendant’s Motion to Dismiss as follows: (1) Standards. (a) The Defendant moved to dismiss the civil suit under Rule 12(b)(6), which challenges the legal sufficiency of the complaint. (b) A case may be dismissed only if is beyond a doubt that a plaintiff cannot prove any facts that would entitle it to relief. (c) However, the court may not dismiss a case simply because it does not believe that a plaintiff can prevail on the claim. (d) Rather, the court must conduct a two-pronged inquiry, examining whether the complaint: (i) contains well-pleaded factual allegations, and (ii) they plausibly give rise to an entitlement to relief. (e) The Court found that the complaint “clearly satisfied the … standard” in order to allow the Plaintiff to go forward with the case. (2) Facial Defects. The Court then turned to the two preliminary arguments of the Defendant and the LAS as to why the complaint should be dismissed based on facial defects. (a) The first argument challenged the form of the complaint under L&T Rule 3 because it was not “verified,” i.e., submitted under oath, averring that its contents were “true to the best of the plaintiff’s knowledge, information, and belief.” (b) The second argument was that pursuant to Civil Rule 11(b)(2), the complaint was not submitted in a good faith assurance that the claims … and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law.” (c) Since the Rule 3 problem could be easily cured and because Rule 11 does not normally provide a basis for dismissal, the Court rejected these arguments by the Defendant. (3) Expungement. (a) It was agreed that DCHA’s receiving “notice of the expungement triggers the obligation … not to rely upon” the pertinent records for the L&T-Civil action. (b) The Defendant’s central argument for dismissal was that the overall purpose of the statute is “to provide recipients of an expungement with a fresh start,” which goal would be defeated if the Plaintiff could use the criminal proceedings as a basis for evicting her. (c) That purpose, they argued, made the case void ab initio, inasmuch as it totally deprived the Plaintiff of any legal basis to file or proceed with the suit. (d) The Court found that the central issue in this question is “whether the statute expunges merely the records relating to the criminal conduct, or the underlying conduct itself.” (e) The Court carefully noted two facts about the statute in this regard: (i) its language “does not contain provisions that prevent reliance by anyone, be they governmental or non-governmental actors, on the conduct underlying the records”; and (ii) appellate court cases on actual pardons themselves dating back to 1866, e.g., with regard to the lack of effect of a presidential pardon for a criminal conviction on such matters as disbarment, do “not require the exclusion from consideration by the … authorities of the facts surrounding the arrest or conviction” of the person pardoned. (f) The Court therefore concluded that “the statute expunges records and the fact of an arrest, charge, or conviction, but does not go further to prohibit separate actions based on independent evidence of the conduct underlying the expunged conviction.” (g) Accordingly, the Court ruled that because (i) the complaint adequately set forth a claim upon which relief could be granted; (ii) the Plaintiff did not know of the expungement order at the time it filed this suit; and (iii) the statutory language does not preclude the Plaintiff’s reliance on the underlying facts regarding the drug offense to which the Defendant had pleaded guilty before that record was expunged, “dismissal under Rule 12(b)(6) was not appropriate.” (E) Summary Judgment. (1) “Given the order of expungement and the Court’s decision as to its scope and effect,” the Court ruled that DCHA “cannot oppose the [Defendant’s] request for summary judgment through the use of any of the documents” in the criminal case. (2) Moreover, although the Court had ruled that the “underlying conduct” itself had not been expunged, it also ruled that no testimony derived from the documents could be introduced in support of the eviction process. (3) This, it reasoned, is because “if records are to be expunged, … [DCHA] should not have [had] them” in the first place and the agency “cannot simply [have them] reviewed by a [prospective] witness and regurgitated into affidavits or testimony in order to defeat summary judgment or to prevail at trial” based on that review. (4) Any such evidence, therefore, must have been “independently” obtained. “A contrary result,” the Court concluded, “would vitiate the purpose of the expungement statute.” (5) Nevertheless, the Court granted the Plaintiff an opportunity attempt to demonstrate that any evidence it might proffer in opposition to the Defendant’s motion for summary judgment was “independent” of or “untainted” by the documents expunged in the criminal case. (6) Accordingly, it denied the Defendant’s summary judgment motion without prejudice at this time (also, in the process, rejecting the LAS’s theory of “laches” because this is an equitable doctrine which “requires fact-intensive focus on [the] reasonableness of delay and [the] prejudice to the opposing party”). (F) Motion to Compel. (1) Having made the foregoing rulings, the Court rejected the Defendant’s argument that the statute created a “testimonial privilege” against answering discovery or testifying at trial with regard to her “acts or conduct” involving the criminal activities leading up to the charge in the case against her, the records of which were expunged. (2) The Court held that the purpose of the statute “is not to restore a person to the status he or she occupied before he or she committed the underlying act, or to eliminate the act as if it did not occur as a historical event.” (3) Despite the fact that the statute provides that “the effect of such [an expungement] order shall be to restore such person, in the contemplation of this law, to the status he or she occupied before such arrest, indictment, or information,” the Court held that the italicized phrase above does not act to obviate the underlying facts as though they had never occurred. (4) Even though the statute speaks to how such a person may speak about the event, in the final analysis, all it does is to protect a person from “charges of perjury or false statement” for denying that s/he has any such conviction – it does not protect such a person from perjury for deliberately lying about the underlying facts or stating that they had never occurred. (5) The Court therefore granted in part DCHA’s Motion to Compel answers to certain interrogatories, “except to the extent that the responses would implicate the arrest itself, the charge itself, or the court proceedings.” Conclusions. In sum, the Trial Court ruled as follows: (1) The Plaintiff, as a D.C. governmental agency, “must forthwith expunge all of the police records in its possession that relate to the Defendant’s arrest … [and] charge” in the collateral criminal case. (2) The Defendant’s Motion to Dismiss under Rule 12(b)(6) was denied because the expungement statute does not bar inquiry into the underlying facts of the collateral criminal case or create a testimonial privilege with regard thereto. (3) The Defendant’s alternative Motion for Summary Judgment was denied without prejudice, permitting the Plaintiff to demonstrate that it has evidence “independent” of the expunged documents in the criminal case that would create a genuine issue of material fact. (4) The Defendant was required to respond within ten days with qualified answers to the Plaintiff’s outstanding interrogatories at issue.
ATTORNEY-CLIENT RELATIONSHIP / DEFINITION / ALTER EGO REPRESENTATION / VICARIOUS CLIENT RELATIONSHIP / PROXIMATE CAUSE / LAW OF THE CASE / ELEMENTS FOR MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT DISTINGUISHED
Précis: (1) The “law of the case” doctrine holds that once a court (or any Judge thereof) has decided an important issue in the case, unless it is “clearly erroneous,” it becomes and remains settled, unless it is reversed or modified by a higher court. (2) The doctrine thus “prevents re-litigation of the same issue in the same case by courts of co-ordinate jurisdiction,” and “serves the judicial systems need to dispose of cases efficiently by discouraging ‘judge shopping’ and multiple attempts to prevail on a single question.” (3) Traditionally, it is not “lightly disregarded.” (4) Nevertheless, in recent years the D.C. Court of Appeals has somewhat liberalized the doctrine, holding that “denial of a motion for summary judgment by one judge does not foreclose grant of summary judgment by another judge.” (5) The denial of a summary judgment motion, in fact, falls in the category of interlocutory – or non-final – orders, which are not appealable. (6) Essentially, then, the application of the law of the case doctrine is discretionary rather than controlling. (7) Previous denial of a motion to dismiss or denial of a motion for summary judgment in the same case will not necessarily have a preclusory effect under the law the case doctrine. (8) This is because there is a dramatic difference between the standards for a motion to dismiss and those for a motion for summary judgment. (9) In the former, a court is required to accept all the allegations of the complaint as true and to construe all facts and inferences in favor of the plaintiff. By contrast, when deciding a motion summary judgment a court must conduct an independent review of the record to determine whether any relevant factual issues exist, by examining and taking into account the pleadings, depositions, and admissions, together with any affidavits and other supporting documentation, construing the material in the light most favorable to the party opposing the motion. (10) Moreover, where extensive discovery has been conducted since the initial ruling on a summary judgment motion, in a renewed motion, the court has a large mass of information not available to the previous Judge. (11) To prevail on a claim for legal malpractice, a plaintiff must demonstrate that (a) there is an attorney-client relationship; (b) the attorney in question neglected a reasonable duty; and (c) the attorney’s negligence resulted in and was the proximate cause of, a loss to the client. (12) In order for an attorney-client relationship to exist, the parties must “explicitly or by their conduct manifest an intent to create … [such a] relationship.” (13) Where the putative client is a corporation, “the attorney owes a fiduciary duty only to the entity that s/he represents, not to individual shareholders, officers, or directors, or, presumably, affiliated corporations.” (14) There is no governing D.C. caselaw on this issue. (15) Generally speaking, this determination depends on the circumstances of each case. (16) The Court of Appeals has indicated, however, that it will rely on the Restatement (Second) of the Law Governing Lawyers, which provides the following definition: “A relationship of client and lawyer arises when a person manifests to a lawyer the person’s intent that the lawyer provide legal services for the person; and either (a) the lawyer manifests to the person consent to do so; or (b) the lawyer fails to manifest lack of consent to do so, and the lawyer knows, or reasonably should know, that the person reasonably relies on the lawyer to provide the services.” (17) Notably, under the latter section of this definition “it is not necessary for an attorney to take substantive action and give legal advice in order to establish such a relationship.” (18) As a general rule, the obligation of an attorney is to his or her client, not to a third party. (19) A lawyer’s duty only extends to related entities that “are the ‘direct and intended’ beneficiaries of the lawyer’s services.” (20) For purposes of determining a legal conflict of interest, the role of corporate alter ego arises where “there is likely to be a reasonable expectation by the constituents or affiliates of the organization that each has an individual as well as collective client-lawyer relationship with the lawyer.” (21) To make that determination the following relevant factors must be considered: (a) the parent entity directly or indirectly owns all or substantially all of the voting stock of the subsidiaries; (b) the two companies have common directors, officers, office premises, or business activities; or (c) a single legal department retains, supervises, and pays outside lawyers for both the parent and the subsidiary. (22) If all or most of those factors are present for conflict of interest purposes, the two entities normally would be considered alter egos of one another and the lawyer for one of them should refrain from engaging in representation adverse to the other. (23) At the same time, however, another Comment to that Rule states that “a lawyer is not required to inquire of the client concerning the full range of that client’s interests and issues, unless it is clear to the lawyer that there is a potential for adversity between the interests of clients of the lawyer,” except in “matters involving a specific party or parties.” (24) Moreover a substantive Rule, not a Comment, provides that “[n]othing in these Rules, the Comments associated with them, or this … section is intended to enlarge or restrict existing law regarding the liability of lawyers to others or the requirements that the testimony of expert witnesses or other modes of proof must be employed in determining the scope of a lawyer’s duty to others.” (25) There is no precedent in this jurisdiction for inferring a duty to a non-client based on a relationship with an entity affiliated with the non-client.” (26) The existence of proximate cause is a fact-intensive inquiry that, to a certain extent, should be reserved for the jury, except where the absence of proximate cause is clear from the record and situations wherein “reasonable people could draw but one conclusion from the facts alleged so that negligence and proximate cause become questions of law.” (27) This situation, however, is traditionally deemed “exceptional.” (28) In the context of a legal malpractice claim, the term “proximate cause” means a “substantial direct causal link between the attorney’s breach and the injury sustained by the client.” (29) Put another way, the plaintiff must “demonstrate that the attorney’s alleged negligence adversely affected its ability to assert or benefit from an otherwise meritorious claim or defense in the underlying action.” (30) This, in turn, requires an evaluation of the underlying case – “a case within a case” – to determine whether it was “a good cause of action.” If it is determined that the underlying case was not, “then the claim of professional malpractice must fail.”
Abstract: The Trial Judge in this case arduously cut her way thorough a Gordian tangle of competing facts and arguments contained in nearly 1,650 pages of pleadings and motions in this complex legal malpractice case before arriving at a decision to grant partial summary judgment to the defendant law firm. Facts: Central to this case was the interrelationship between two domestic air carriers, referred to herein as Corp. A (operating out of Massachusetts) and Corp. B (operating out of New Hampshire), which is summarize as follows: (1) The Corporations. Both were wholly owned by a Holding Company. Mr. AB owned 95% of each. The Law Firm Defendant herein had previously represented Corp. A in litigation and Mr. AB himself. However, it had never represented Corp. B in any capacity. (2) Corp. A’s Bond. In the early 2000s the Airline Pilots Association sued Corp. A in an employment matter. The Law Firm did not represent Corp. A in that case. The case was settled, one of the premises being that Corp. A would provide a surety bond to secure the settlement. The company’s Insurer, however, declined to issue a bond. Astonishingly, Corp. A’s General Counsel then forged the name of the Insurer’s agent on a bogus surety bond and provided it as proof of compliance with the settlement. Corp. A, nevertheless, made all the necessary payments pursuant to the settlement and the bond, now superfluous, was returned to its General Counsel. At some point, however, the Insurer learned of the forgery and contacted the Law Firm regarding it. This became relevant later on, when the Law Firm agreed to represent the General Counsel personally. (3) Corp. B’s Applications. Meanwhile, on a separate track, Corp. B, already in severe financial straits, applied for a “Certificate of Public Convenience,” required by the Department of Transportation (DOT) to operate a domestic airline. Among the prerequisites for obtaining such a certificate are meeting FAA standards for operational safety as well as DOT standards for economic fitness. Although DOT granted Corp. B certification to operate small aircraft, in a supplemental application it sought certification to operate large aircraft. The DOT informed it that its previous information would not support the economic requirements for that purpose. This process wended its way through 14 supplemental applications, during the year 2005, six of which contained forged and other materially false financial and other information, some of which was again directly provided by Corp. B’s General Counsel. When the President of Corp. B discovered the fraudulent submissions, he wrote a letter to the Secretary of DOT, pleading for expedited review of the company’s application and providing additional information, but the application was rejected and the company went out of business. As with the Airline Pilot litigation, the Law Firm had no involvement in the certification application. (4) The Law Firm’s Contact. The Firm did, however, continue to represent several of Corp. B’s sister entities in other actions. Meanwhile, the corporation’s General Counsel confided to the contact lawyer in the Law Firm the information about the forged security bond, but noted that the settlement had been consummated without the bond’s ever having been called. The lawyer agreed to keep the matter “confidential” but urged the General Counsel to inform the corporation’s President. Instead, the General Counsel informed the corporation’s outside counsel, also stating that he was being personally presented by the lawyer with whom he had spoken in the Law Firm. (5) The Malpractice Suit. In March 2007, the Holding Company filed a legal malpractice suit against the Law FIrm, asserting claims for breach of fiduciary duty and legal malpractice arising from its representation of the General Counsel and for failing to inform Corp. B of his malfeasance. It further contended that, had it been so informed, it would have immediately revealed the forgeries to the DOT, thus mitigating the financial and reputational harm incurred, and that, in all probability, it could have salvaged its certification application and thus saved the company. (6) Initial Defense Motions. Early in the case, the Defendant filed two dispositive motions which were denied by a previous Judge. A motion to dismiss was denied on the grounds that, at that stage of the case, the Plaintiffs had sufficiently pleaded the existence of an attorney-client relationship with the Defendant. An initial motion for summary judgment was denied on the grounds that the proximate cause of the Plaintiffs’ loss was a matter still in controversy and should be decided by the jury. (7) Renewed Motion for Summary Judgment. Following extensive discovery, the Law Firm renewed its motion for summary judgment, contending that it never had an attorney-client relationship with Corp. B and that, even if it had, nothing it did, or failed to do, was the proximate cause of any damage to the company. Rulings: The Court issued this extensive Memorandum Opinion, ruling on the issues presented as follows: (A) Summary Judgment. Citing the well-known standards for granting a motion for summary judgment, the Court noted that it “is an essential tool of judicial management,” albeit an “extreme remedy.” (B) Law of the Case. At the threshold, the Court addressed the question of whether the previous Judge’s rulings constituted the “law of the case” for purposes of the renewed summary judgment motion. This doctrine holds that once the court (or any Judge thereof) has decided an important issue in the case, unless it is “clearly erroneous,” it becomes and remains settled, unless it is reversed or modified by a higher court. The doctrine thus “prevents re-litigation of the same issue in the same case by courts of co-ordinate jurisdiction,” and “serves the judicial system’s need to dispose of cases efficiently by discouraging ‘judge shopping’ and multiple attempts to prevail on a single question.” Traditionally, it is not “lightly disregarded.” Nevertheless, in recent years the D.C. Court of Appeals has somewhat liberalized the doctrine, holding that “denial of a motion for summary judgment by one judge does not foreclose grant of summary judgment by another judge.” The denial of a summary judgment motion, in fact, falls in the category of interlocutory – or non-final – orders, which are not appealable. Essentially, then, the application of the law of the case doctrine is discretionary rather than controlling. Under this rubric, the Court determined that the previous rulings did not have a preclusory effect. To begin with, it noted the difference between the standards for a motion to dismiss and those for a motion for summary judgment. In the former, a court is required to accept all the allegations of the complaint as true and to construe all facts and inferences in favor of the plaintiff. By contrast, when deciding a motion for summary judgment a court must conduct an independent review of the record to determine whether any relevant factual issues exist, by examining and taking into account the pleadings, depositions, and admissions, together with any affidavits and other supporting documentation, construing the material in the light most favorable to the party opposing the motion. Moreover, the Court pointed out, the Defendant’s renewed summary judgment motion was filed after the bulk of discovery had been completed, thus providing a large mass of information not available to the previous Judge. Accordingly, in light of the differences in the procedures involved in the motions and the additional factual materials provided, the Court concluded that the prior rulings had no preclusive effect on the instant motion for summary judgment and that the law of the case doctrine did not apply. (C) Legal Malpractice Elements. To prevail on a claim for legal malpractice, a plaintiff must demonstrate that (1) there is an attorney-client relationship; (2) the attorney in question neglected a reasonable duty; and (3) the attorney’s negligence resulted in, and was the proximate cause of, a loss to the client. The Court considered these elements as follows: (D) Attorney-Client Relationship. As noted above, this is the threshold element in a legal malpractice claim, although the Court considered it last in order. Under the second element for legal malpractice claim, a lawyer cannot owe a “duty” to a person or entity unless there is an attorney-client relationship in the first place. The Court approached this determination by analyzing the three arguments that the Plaintiffs made in support of such a relationship. (1) Existence. (a) Definition. In order for an attorney-client relationship to exist, the parties must “explicitly or by their conduct manifest an intent to create … [such a] relationship.” Where the putative client is a corporation, “the attorney owes a fiduciary duty only to the entity that s/he represents, not to individual shareholders, officers, or directors, or, presumably, affiliated corporations.” There is no governing local caselaw on this issue. Generally speaking, this determination depends on the circumstances of each case. The Court of Appeals has indicated, however, that it will rely on the Restatement (Second) of the Law Governing Lawyers, which provides the following definition: “A relationship of client and lawyer arises when a person manifests to a lawyer the person’s intent that the lawyer provide legal services for the person; and either (a) the lawyer manifests to the person consent to do so; or (b) the lawyer fails to manifest lack of consent to do so, and the lawyer knows, or reasonably should know, that the person reasonably relies on the lawyer to provide the services.” Notably, under the latter section of this definition “it is not necessary for an attorney to take substantive action and give legal advice in order to establish such a relationship.” (b) As Applied. In light of the fact that it was uncontested that the Law Firm did not represent Corp. B in the DOT proceedings and that there was no evidence that it had represented that corporation in any other matter, or that the FIrm had provided legal advice to it, the Court agreed with the Defendant that there was no attorney-client relationship between them. Here, the deposition testimony of Mr. AB, the 95% owner of both corporations, that he felt that the contact lawyer in the Law Firm would be “ready and willing to step in and represent any of the companies” which he owned, the Court found to be a “subjective belief … [that] does not establish an attorney-client relationship between” the Law Firm and Corp. B. The Court, therefore, found that there was no manifestation of intent to establish such a relationship. (2) Alter Ego Representation. (a) The Rule. As to the Plaintiffs’ argument that the Law Firm had a duty to Corp. B the under the theory that it was the “alter ego” of its parent Holding Company which the FIrm had previously represented in other matters, the Court noted that “[a]s a general rule, the obligation of an attorney is to his client, not to a third party.” A lawyer’s duty only extends to related entities that “are the ‘direct and intended’ beneficiaries of the lawyer’s services.” Plaintiffs relied on a Comment to Disciplinary Rule 1.7 which discusses the “alter ego” concept. This role arises where “there is likely to be a reasonable expectation by the constituents or affiliates of the organization that each has an individual as well as collective client-lawyer relationship with the lawyer.” To make that determination the following relevant factors must be considered: (i) the parent entity directly or indirectly owns all or substantially all of the voting stock of the subsidiaries; (ii) the two companies have common directors, officers, office premises, or business activities; or (iii) a single legal department retains, supervises, and pays outside lawyers for both the parent and the subsidiary. “If all or most of those factors are present for conflict of interest purposes,” the Comment states, “the two entities normally would be considered alter egos of one another and the lawyer for one of them should refrain from engaging in representation adverse to the other.” The Court pointed out, however, that another Comment to that Rule states that “a lawyer is not required to inquire of the client concerning the full range of that client’s interests and issues, unless it is clear to the lawyer that there is a potential for adversity between the interests of clients of the lawyer,” except in “matters involving a specific party or parties.” Moreover a substantive Rule, not a Comment, provides that “[n]othing in these Rules, the Comments associated with them, or this … section is intended to enlarge or restrict existing law regarding the liability of lawyers to others or the requirements that the testimony of expert witnesses or other modes of proof must be employed in determining the scope of a lawyer’s duty to others.” (b) As Applied. The Plaintiffs argued that because the Law Firm had had an attorney-client relationship with the Holding Company and Corp. A, it also had an implied alter ego relationship with the sister Corp. B which precluded, on a conflict of interest basis, its undertaking representation of the latter’s errant General Counsel. Even examining the allegations in the light most able to the Plaintiffs, however, the Court could not find that the Law Firm had an attorney-client relationship with, and therefore owed a duty to, Corp. B based on the aforementioned provisions of the Disciplinary Rules. Although the two corporations shared many, they did not share all the same officers. The Court also noted that the Holding Company was not itself involved in the operation of commercial aircraft and that Corp. B’s operational facilities were located in another State. The Court concluded that, even considering these facts in the light most favorable to the Plaintiffs, and assuming that there may have been an alter ego relationship between the corporations, “such a finding would not be dispositive of whether Defendant had an attorney-client relationship with (or a duty to)” Corp. B. Even so, the Court ruled, the question before the Court was not whether the Law Firm had breached a fiduciary duty to the Holding Company, Corp. A, or Mr. AB, by agreeing to represent the General Counsel of Corp. B. Rather, the question before the Court was whether the FIrm had a duty to Corp. B by agreeing to represent him. It found that the Plaintiffs had provided “no convincing argument as to how the Court may find that a Comment to a Rule of Professional Conduct regarding conflicts of interest suffices to create a relationship between Defendants and … [Corp. B] such that a fiduciary duty would arise,” particularly in view of the fact that the Court had already found that no attorney-client relationship existed between them. Accordingly, the Court concluded that “Plaintiffs’ alter ego argument is insufficient as a matter of law to create a duty on the part of the Defendant to” Corp. B. (3) Vicarious Client Relationship. The Court disposed of this argument by noting that “there is no precedent in this jurisdiction for inferring a duty to a non-client based on a relationship with an entity affiliated with the non-client.” It rejected the foreign jurisdictional caselaw supplied by the Plaintiffs in support of this argument as inapposite. Even though the Court thus found no basis to impute an attorney-client relationship between the Law Firm and Corp. B, it nevertheless addressed the issue of whether anything that the FIrm did or failed to do was the proximate cause of the damages claimed by that corporation. (E) Proximate Cause. Regarding this vital element, which presupposes “a reasonable duty,” the Court acknowledged that “the existence of proximate cause is a fact-intensive inquiry that, to a certain extent, should be reserved for the jury, except where the absence of proximate cause is clear from the record” and situations wherein “reasonable people could draw but one conclusion from the facts alleged so that negligence and proximate cause become questions of law.” This situation, however, is traditionally deemed “exceptional.” The Court found this not to be one of those exceptional cases for the following reasons. (1) In the context of a legal malpractice claim, the term “proximate cause” means a “substantial direct causal link between the attorney’s breach and the injury sustained by the client.” Put another way, a plaintiff must “demonstrate that the attorney’s alleged negligence adversely affected its ability to assert or benefit from an otherwise meritorious claim or defense in the underlying action.” This, in turn, requires an evaluation of the underlying case – “a case within a case” – to determine whether it was “a good cause of action.” If it is determined that the underlying case was not, “then the claim of professional malpractice must fail.” (2) The Court agreed with the Defendant that the deposition testimony of Plaintiffs’ own expert arguably led to the conclusion that even had Corp. B more timely disclose the fraudulent information to the DOT in order to attempt to mitigate its impact and secure the imposition of less severe results, the damage had already been done. “I mean, basically, they ha[d] cancer already,” he testified, and Corp. B was “pursuing what [wa]s a futile application.” He also testified that his research had found “no case of the carrier surviving the submission of … false financial information.” He laid the responsibility and blame entirely at the feet of Corp. B’s General Counsel. Inferentially, therefore, there was nothing that the Law Firm did, or could have done, in the matter, whether it subsequently represented the General Counsel or not, because Corp. B’s DOT application was already moribund. This was vital to the Defendant’s current summary judgment motion, the Court found, because the Plaintiffs’ competing argument that a more timely revelation of the false financial information would have enabled Corp. B to salvage its DOT application, was an issue of highly disputed material fact on which a reasonable jury could credit the one version or the other. At the summary judgment stage, of course, it is not the function of the court to make credibility determinations and therefore, the grant of summary judgment was ruled inappropriate. (F) Conclusions. The Court concluded that, even if the Plaintiffs’ proffered evidence sustained the claim of proximate cause for damages, the fact that no attorney-client relationship existed, as a matter of law, between the Defendant and Corp. B, sufficient to give rise to a fiduciary or other legal duty, was dispositive. It therefore granted summary judgment to the Defendant on the claims brought by Corp. B. At the same time, however, it ruled that this partial summary judgment would “have no effect” on the claims brought by the Holding Company and Corp. A. It scheduled a pretrial conference for further proceedings in March 2012.
IMPOSITION OF GROSS SALES TAX
HOTEL ROOM PURCHASES VIA THE INTERNET
Abstract: With the possible exception of future interests, nothing in the legal world is more arcane (dull, actually) than tax law and accompanying regulations. When that miasma is enveloped in the realm of cyberspace via the Internet and then filtered through several layers of corporate entities – in this case the companies that provide “discount” hotel accommodations -- a Judge trying to make fair sense of it all is called to a life of low adventure. Through more than 40 pages of onion-like peeling away of issues ranging from revenue statutes to equity to constitutional law, the Trial Judge in this case produced what amounts to a manual on the issues presented. The factual and procedural backgrounds to the case are summarized as follows: Facts. (1) Pursuant to its sales tax statutes and regulations, the District of Columbia targeted ten of the most well-known online travel companies (OTCs), such as Expedia and Priceline. (2) The OTCs maintain contracts with numerous hotels doing business in the District. The contracts provide that the hotels will offer rooms to the OTCs at significantly reduced rates. (3) Through their websites, the OTCs add a variable fee to that price for their profit margin and then offer travelers (denominated as “transients” under the statute) room accommodations at a rate which is still lower than the transient would ordinarily pay directly to the hotels. (4) The transients make their payments directly to the OTCs rather than to the hotels. (5) The OTCs then pay the hotels after the transient has checked out, plus a gross sales tax based on the original lower rate, rather than the rate that the transient paid; thus the District does not receive a tax on the profit margin of the OTC, but on the base rate only. Proceedings. (1) In March 2011, the District filed a civil suit against the OTCs for failure to (a) file monthly and annual sales tax returns; (b) state taxes separately from the sale; (c) pay the taxes due; (d) pay penalties for negligence in failing to pay same; and (e) fraud. (2) After the Defendants had filed a motion to dismiss, which was denied in October of that year, they set forth seven affirmative defenses to the complaint, as follows: (a) laches; (b) statute of limitations; (c) the “Dormant Commerce Clause”; (d) equal protection; (e) waiver; (f) the Internet Tax Freedom Act; and (g) vagueness. (3) In making its formal Findings of Fact, the Court divided the OTC Defendants into two groups: (a) those that interacted directly with the hotels – against which the District moved for summary judgment, and (b) those whose subsidiaries interacted indirectly with the hotels (which included only two Defendants) – which had filed their own summary judgment motion against the District. Rulings. The Court ruled on the issues presented as follows: (A) Standards. (1) Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (2) The court must view the pleadings and related documents “in the light most favorable to the non-moving party, and may only grant such a motion if an impartial finder of fact could not find for the non-moving party.” (3) However, “the court is not obligated to search the record, unaided by counsel, to determine whether summary judgment is proper.” (4) Rather, the moving party bears the initial burden of “clearly demonstrating the absence of any genuine issue of material fact.” (5) If the moving party does so, then the burden of establishing a genuine issue of material facts shifts to the non-moving party. (6) The non-moving party sustains that burden by producing “enough evidence to make out a prima facie case in support of its position.” (7) However, “mere conclusory statements and denials of the moving party’s allegations are insufficient to demonstrate a genuine issue of material fact.” (8) The rules of statutory interpretation are: (a) The language of a statute should be construed according to the “ordinary sense and plain meaning” of its words. (b) The Court is required to give effect to a statute’s plain meaning if the words are clear and unambiguous. (c) However, the literal words of the statute are not the sole index to legislative intent, but rather are to be “read in light of the statute taken as a whole, and are to be given sensible construction, one which would not work and obvious injustice.” (d) Often, “words are inexact tools at best, and for that reason there is wisely no rule forbidding resort to explanatory legislative history. (e) Thus, even were the words of the statute have “superficial clarity,” a review of the legislative history or an in-depth consideration of alternative instructions that could be ascribed to statutory language may reveal ambiguities that the court must resolve.” (f) The Legislature is presumed to have acted “rationally and reasonably, with an awareness of the goals of the statutory scheme as a whole,” so courts must “eschew interpretations that lead to unreasonable results, that create obvious injustice, or that produce results at variance with the policies intended to be furthered by the legislation.” (g) A statute is considered to be “ambiguous” if “it is capable of being understood in two or more different senses by reasonably well-informed persons.” (h) Where tax statutes are concerned, if the literal words are ambiguous, the terms are to be strictly construed against the government and in favor of the taxpayer, albeit “with some qualifications.” (i) At the same time, “tax laws ought to be given a reasonable construction without bias or prejudice against either the taxpayer or the state, in order to carry out the intention of the legislature and further the important public interest which such statutes subserve.” (j) Where a tax statute is ambiguous, its intent make be gleaned from its “legislative history and other tools of reasonable statutory interpretation.” (k) It is only when “the statute remains ambiguous after resorting to all of the normal tools of statutory construction [that the court] should … construe any remaining reasonable ambiguity against the … [Government] in favor of the taxpayers.” (l) When it is the construction of an administrative regulation, rather than a statute, that is at issue, D.C. courts give “particular deference to an agency’s interpretation of the regulation, unless its interpretation is unreasonable or in contravention of the language or legislative history of the statute and/or regulation.” (B) Findings Of Fact. In response to the contentions of Group A, the Court made the following basic Findings of Fact: (1) To the OTCs’ denial of the District’s argument that hotels sell rooms to them and they, in turn, re-sell them to transients via purchases on the websites, and are thereby subject to sales tax, the Court found that the parties’ disagreement regarding the procedural facts of these transactions “is merely one over the characterization of Defendants’ services, and does not reflect a genuine dispute about the operation of Defendants’ business model.” (2) The Court found that what actually occurs for the purpose of sales tax is the following: (a) “the defendant acquires the right to reserve and charge for payment for hotel rooms to consumers,” albeit at a “discount rate”; (b) “an OTC transaction is initiated when a transient submits a general request for hotel information on an OTC’s website, whereupon (c) the hotels respond to it with notice of available accommodations; (d) the OTC then reserves a room of the transient’s selection, (e) adds its discount rate, (f) receives payment from the transient, and (g) makes the final payment to the hotel. (3) Based on this process, the Court found that “there is no dispute between the parties that the OTCs, not the hotels, determine the amount of tax recovery, facilitation fee, profit margin fee, service fee, and other charges [and] that the OTCs … determine the total rate that the transient is charged for the transaction.” (4) Moreover, it is undisputed “that the OTCs arrange for and actually make the payment to the hotel for the accommodations and that the hotel “does not directly charge the transient for the room.” (5) Because the Court found that there were “no genuine issues of material fact as to whether this process resulted in a ‘sale’” to the OTCs, the only remaining issue was the applicability of the sales tax to those purchases, which is a matter of law. (C) Conclusions of Law. The Court pointed out that there were actually two gross sales tax statutes at issue during the time involved in this case – the previous statute, effective to April 2011, and the amended statute effective after that. The Court reviewed the laws applicable to each count of the Complaint as follows: (1) Non-Payment Under Previous Statute. (a) The District alleged that the Defendants had only made sales tax payments on the lower rates provided to transients but had not paid taxes on the difference between the hotels’ discounted charges and the rate the OTCs charge the transient, i.e., that they should have paid taxes on the “gross sales.” (b) In relevant part, the “gross sales tax” statue defines “retail sale” as including “the … charge for any room … by any hotel.” (c) In response to the parties’ competing arguments as to whether the OTCs, rather than the hotels themselves, were “selling” or “charging” for hotel rooms, the Court found that “the plain meaning of the statute is open to two reasonable, yet opposing, interpretations.” It therefore turned to the legislative history and comparisons with other tax statutes. (d) The gross sale tax statute imposes a tax “upon all vendors … for the privilege of selling certain selected services … defined as ‘retail sale.’” (e) It specifically imposes a tax on “the gross receipts from the sale of, or charges for, any room … furnished to a transient by any hotel … or other [such] place.” (f) It further defines a “vendor” as “a person or retailer … rendering services upon the receipts from which a tax is imposed under this chapter.” (g) Moreover, the D.C. Office of Tax and Revenue (OTR), like the IRS at the federal level, is the agency initially charged with administrative interpretation of the local tax laws, and it defines a vendor as any “person or retailer engaging in business in the District and making sales at retail.” (h) The Court concluded “that it is not the provision of the service itself that is taxable,” rather the statute “explicitly levies the tax on the transaction: the ‘sale or charge’ for the service.” (i) Thus, a vendor is one that renders a service for a charge or price, while the statute also expressly defines a “purchaser” as a person who receives the service, or, as the Court put it, “the end-user of the transaction.” (j) “In sum,” the Court concluded, “the taxes are levied on the overall monetary value of the transaction.” (k) The Court concluded “that the only natural reading of these statutory provisions, taken together, is that a vendor is the entity on the other side of the taxable sales transaction from the ultimate recipient of the taxable services” and, therefore, an OTC “which offers the room to the transient for a specified price, is on the vendor side of the transaction and the transient, who pays the OTC for the room is on the purchaser side of the transaction.” (l) Despite the OTCs’ arguments that they are not hotels, were not engaging in retail sales in the District, and therefore are not subject to taxation under this provision, the Court concluded as a matter of law that (i) in each transaction they were “making a retail sale that is taxable under this statute”; (ii) they are therefore “vendors” who were “selling to persons within the District of Columbia” under the statute; (iii) in the pertinent statute, the term “gross receipts” means “any transaction that is considered a retail sale”; and that (iv) with regard to services provided by hotels other than room accommodations, [a] “the cost of any ancillary services provided as part of the otherwise taxable sales transaction is includable within the sales price, … [b] therefore is a part of the gross receipts of the transaction … [and] [c] thus [is] subject to the tax,” because [d] “the statute is designed to ensure taxation applies to the entirety of the services being taxed.” (m) The OTR has ruled that a retailer “engages in business in the District” when participating in “any activity in connection with the selling, delivering, or furnishing in the District” of any property or service sold at retail. (n) Based on the foregoing, the Court concluded as a matter of law that the OTCs were engaging in business in the District of Columbia because their online activities were “directly associated with the selling or charging of hotel rooms that are physically furnished within the District.” (o) It further concluded that “this interpretation is consistent with the broad statutory language … applying the tax to ‘all vendors’ and not only those physically located within the District of Columbia.” (p) The Court reasoned that “any other interpretation would lead to absurd results” and “could enable a hotel to avoid taxes by simply creating a shell company to act as an intermediary between the customers and the hotel.” (q) On the question of whether the OTCs had an obligation to pay gross sales taxes to the District of Columbia under the previous gross sales tax statute, therefore, the Court formally held that they did. (2) Non-Payment Under Current Statute. (a) The gross sales tax statute was significantly amended in April 2011, to cover the following plenary class: “any person, other than the retailer, having any right, access, ability, or authority, through an Internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, distribute, broker, resell, or facilitate the transfer of rooms.” (b) However, ensuing subsections contained an ambiguity, just as had in the previous statute. (i) On the one hand, the amended statute defined “net charges” as those on “rooms … [that are] reserved, booked, or otherwise arranged for by a room remarketer,” and required taxation “based on the net sales or net charges received from the transient by the room remarketer.” (ii) On the other hand, taxes on “net sales” were defined in another subsection as “the gross receipts from the sale or charges for any room … received by a retailer from a room remarketer.” (c) The Court found that ”this language does not provide a plain meaning” and therefore it was required to discern the legislative intent from “other tools of reasonable statutory interpretation in order to discern the purpose of the statute.” (d) As a threshold matter, it found that the “statutory structure” shown by its legislative history was “particularly instructive.” That history shows that the stated purpose of the statue was “to clarify and mandate that online travel companies pay the full amount of tax on the amount paid by the occupant in relation to the tax in the sale or charge for any room … regularly furnished to transients.” (e) The statute’s accompanying fiscal impact statement expressly states that “the transient accommodations tax rate … would be applied to the total amount charged to the consumer by the room remarketer, instead of the amount charged to the room remarketer by the hotel.” (f) Thus, the Court concluded as a matter of law that “the legislative history is explicit in its intent to hold the amended sales tax applicable to OTCs in their transactions with transients.” (g) It further concluded that, after further amendment in September 2011, the current statute clarified the term “net charges” as being taxable “based on the net charges and additional charges received by the room remarketer,” i.e., the “excess of the sale or charges received from the transient by a room marketer over the net sale or net charges.” (h) However, the Court also found that these amendments contain yet another ambiguity, this one in the definition of the term “room remarketer”: (i) One subsection defines it as “any person other than the retailer, having any right, access, ability, or authority, through an Internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, [etc.] … rooms, the occupancy of which is subject to tax under this chapter.” (ii) Another subsection, however, defines the term as “any person, other than the operator of the hotel … or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration, having any right, access, ability, or authority, through an Internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket [etc.] … and also having any right, access, ability, or authority to determine the sale or charge for the rooms, lodgings, or accommodations.” (i) Even in the face of this ambiguity, the Court disagreed with the OTCs’ argument that they did not have “any right, access, ability, or authority to determine the sale or charge for the rooms.” (j) The Court reasoned that, even though “the hotel determines the net rate, or discount rate, that it charges to the OTCs, the OTCs decide how much more than the net rate to charge a transient” as a profit margin, which “may vary depending on a variety of factors.” (k) Thus, the Court concluded, “the OTCs, not the hotels, … have the ability to determine the sale or charge or the rooms.” (l) Therefore, since “the sales tax is designed to tax the transaction by which the rooms are sold to the transient …. the OTCs are considered room remarketers under both the definitions of the term contained in the gross sales tax law,” meaning that it “has applied to Defendants at all times,” the Court held. (D) Affirmative Defenses. After completing its Conclusions of Law, the Court then turned to consider the Group A Defendants’ affirmative defenses seriatim. (1) Laches. (a) This is the principle that “equity will not aid a plaintiff whose unexcused delay, if the suit were allowed, would be [unduly] prejudicial to the defendant.” (b) The party asserting the defense “much show that the delay was unreasonable and that it [unduly] prejudiced the defendant.” (c) If the delay is lengthy, however, only “a lesser showing of prejudice is required.” (d) When the defense of laches is sought to be applied against the Government, however, the District of Columbia operates on the principle of nullum tempus occurrit reipublicae (“no time runs against the state”), whereby “neither laches nor statutes of limitations will constitute a defense to suit by the sovereign in the enforcement of a public right.” (e) This rule “expresses a legitimate public policy of preserving public rights, revenues, and property from injury or loss, by the negligence of public officers.” (f) Although D.C. courts have allowed laches as a defense against the District, these cases have all concerned zoning enforcement actions. (g) Here, the Court found, the District was proceeding “as a public tax collector” with “a right of action directly related to its duty to perform a service to the public” and as such the nullum tempus principle applies against the doctrine of laches. (2) Statute of Limitations. (a) The Court found that the application of nullum tempus was even more apt for a straight statute of limitations defense in this regard, flatly ruling that “the District is immune from statutes of limitations in suits relating to a public function.” (b) Indeed, it ruled that “in the case of failure to file a tax return, the tax may be assessed, or a proceeding in court for the collection of the tax may begin without assessment, at any time.” (3) Dormant Commerce Clause. (a) Although the virtually unlimited power of Congress to regulate interstate commerce through the Commerce Clause, Article I § 8, cl. 3, has been recognized from Gibbons v. Ogden (1824) to Obamacare (2012), the implicit authority of the so-called “Dormant Commerce Clause” is little-known. (b) This judicial precedent holds that the Commerce Clause contains and inherent “negative command” which prohibits certain state and local taxation even when Congress has failed to legislate on the subject. (c) Thus, a local tax reaching interstate activity is permissible only if it (i) is applied to an activity with a substantial nexus with the taxing state; (ii) is fairly apportioned; (iii) does not discriminate against interstate commerce; and (iv) is fairly related to the services provided by the state. (d) The Court found that the District’s gross sales tax law does not violate any of these requirements and thus is not prohibited under the Dormant Commerce Clause because: (i) A vendor’s physical presence in the District is not required; rather, the focus is on whether its taxable activities are performed in a market that it is seeking to establish and maintain here, thus establishing a nexus with the District, where, of course, the hotels at issue are located. (ii) The dormant application is designed “to ensure that each jurisdiction taxes only its fair share of an interstate transaction and requires that the tax be consistently apportioned, both internally and externally,” so that it will not place interstate commerce at a disadvantage as compared to intrastate commerce. (iii) The Court found that the District’s gross sales tax comports with this set of constitutional requirements because it found it to be “extremely consistent.” (iv) The Court further found that there was no discriminatory effect on interstate commerce pursuant to the Defendants’ argument that the District was enforcing the tax against them but not against certain other interstate vendors. This argument, it concluded, challenged “the enforcement of the statute and not its application,” ruling that “the statute itself does not discriminate against interstate commerce and … the present action does not foreclose the possibility of applying the law to other … [entities] in the future.” (v) Finally, the Court ruled that the tax statute is “fairly related” to services provided by the District because the OTCs’ customers who pay for hotel rooms here are likewise protected by the city’s police, fire, emergency, and other “usual, and usually forgotten, advantages conferred by the District’s maintenance of the civilized society.” (vi) Accordingly, the Court held that the gross sales tax law does not violate the Dormant Commerce Clause. (4) Equal Protection. (a) Extending from their argument as to the violation of the Interstate Commerce Clause, the OTCs contended that the District’s gross sales tax also denied them equal protection of the law because it was not applied to other Interstate vendors. (b) The Court ruled, however, that they “cannot assert an equal protection violation merely because the District has brought suit against them and not others.” (c) Traditionally, a party who charges discriminatory enforcement of a valid statute carries a heavy burden of proof” and to make a prima facie showing of “selective enforcement,” a defendant must establish that (i) others similarly situated were not prosecuted and (ii) the selective prosecution was “improperly motivated.” (d) Although it was true that other interstate vendors were not being taxed or sued for failure to pay same – at least at this time – the Court found that the District’s prosecution of these Defendants “was not impermissibly motivated,” but rather was dependent upon such variables as how best to use scarce governmental resources and whether success would yield sufficient revenue to make it worthwhile. (e) Accordingly, the Court ruled that the Defendants’ equal protection defense “does not meet the legal standard and therefore fails.” (5) Waiver. (a) The Defendants contended that the District’s conduct constituted a waiver in that it had accepted payments from the hotel retailers themselves with the knowledge that the amount of tax stated on the receipts and returns was based only on the discounted rate received by the hotels for the rooms. (b) But, the Court ruled that “a waiver is the unilateral, voluntary, and intentional relinquishment of a known right.” Thus, “mere silence or inaction … is insufficient … to support a showing of [intentional] waiver” and the Defendants, the Court found, had not provided any evidence to that effect – to say nothing more of the continuing application of the nullum tempus doctrine. (6) Internet Tax Freedom Act (ITFA). (a) The OTCs contended that the District’s gross sales tax violates this federal statute, which provides that a tax is impermissibly discriminatory against electronic commerce if it “imposes an obligation to collect or pay the tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means.” (b) The Court ruled, however, that the District tax law does not violate the ITFA but, instead, “eliminates the ability of online agents to evade the gross sales tax applicable to online travel services …. which applies regardless of the manner in which the reservation is made.” (7) Vagueness. (a) Finally, the Group A Defendants advanced as an affirmative defense that the imposition of the gross sales tax violates substantive due process because it is “unconstitutionally vague.” (b) The test for vagueness is whether a statute “gives a person of ordinary intelligence a reasonable opportunity to know what is prohibited.” (c) Moreover, “economic regulation is subject to a less strict vagueness test” because businesses “face economic demands” which are often unpredictable. (d) The Court found that, “although there are some provisions in the gross sales tax statute that could have been articulated with greater specificity, the purpose of the statute as a whole is clear when considered in conjunction with its statutory structure and legislative history.” (e) In any event, it concluded, “difficulty in determining whether certain marginal offenses are within the meaning of the language under attack as vague, does not automatically render a statute unconstitutional for indefiniteness.” (f) Accordingly, the Court concluded that the D.C. gross sales tax statute “is not unconstitutionally vague … [so as to] bar the Defendants’ liability” thereunder. (8) The Court also rejected this, as it had all other affirmative defenses raised by the Group A Defendants. (E) Negligence in Payments. (1) The District’s summary judgment motion sought penalties against all those in Group A for negligent failure to pay gross sales taxes and penalties, as provided by the current statute, which calls for same in the event of “failure to make a reasonable attempt to comply with the provisions of this title or to exercise ordinary and reasonable care in the preparation of a tax return without the intent to defraud.” (2) The Defendants argued that their more limited interpretation was reasonable enough to avoid the “negligence” charge – and, for once, the Court agreed that their position was “not unreasonable” because, again, it “was subject to two differing, but reasonable, interpretations.” (3) Since this presented, “at a minimum, a genuine issue of material fact,” the Court denied this aspect of the District’s motion for summary judgment. (F) Failure to File Tax Returns. (1) The District contended that the OTCs, as vendors, were (a) required by the tax statute to file both monthly and annual gross sales tax returns here, and (b) concomitantly, should pay penalties on the unpaid taxes. (2) The Defendants conceded that they had filed neither, arguing – again – that it was the hotels who were the vendors, not them, and they therefore had no duty to do so. (3) And, once again, the Court disagreed, ruling that the OTCs were “vendors making sales at retail under the gross sales tax statute” and were therefore required “at all times” to file such returns, particularly, as noted above, because the hotels would not know the total amounts that the OTCs billed transients. (4) The Court, however, did find some resonance in the Defendants’ argument that the filing requirements allowed of a showing of failure to do so “due to reasonable cause and not due to willful neglect,” although that term is not defined in the statute. It is, however, defined in analogous federal statutes which interpret it to mean “a conscious, intentional failure or reckless indifference” in the face of an obligation. (5) Here, again, the Court found some possible lenity in interpreting this aspect of the statute which gave rise to differing interpretations. (6) It therefore (a) granted the District summary judgment in part for the OTCs’ failure to pay the sales taxes, but (b) denied it in part as to whether the additional penalty should be assessed at this point based on “willful failure” to file. (G) Failure to State Tax Separately. (1) The statute requires vendors charging for hotel rooms to state separately from other charges any amounts collected for sales tax which must be imposed and collected on “any [and all] services that are part of the sale.” (2) Here, again, the OTCs admit that they did not sate the tax separately, although the District now seeks only to recover from them the sales taxes owed on the profit margins which they retained in excess of the discounted amounts that they paid to the hotels. (3) To the Defendants’ argument that this constitutes an impermissible “tax on a tax,” the Court responded that the District was not seeking to recover taxes on the amount on which taxes have already been paid, thus it is not a “double tax.” (4) The District’s cause of action, it concluded, was simply to seek a judgment for failure to state the taxes separately. (5) Since the facts on this issue were uncontested, the Court granted summary judgment to the District against all Defendants in Group A. (H) Non-OTC Defendants. (1) The Court then turned its attention to the summary judgment motion filed on their own behalf by the two Defendants that comprised Group B, styling themselves as “non-online travel companies.” (2) Their central argument was that they are “parent companies,” having no role in providing online services by subsidiaries or in controlling their actions, and therefore cannot be liable for the taxes claimed. (3) The District sought to rebut that contention by showing that these Defendants had made SEC filings in which they certified that each was, in fact, an online travel company “operating in the merchant model business” and therefore cannot deny same for tax purposes now. (4) Here, the Court agreed with these Defendants as well, pointing out that the District of Columbia has long followed the principle which is “deeply engrained in our economic and legal systems, that a parent corporation … is not liable for the acts of its subsidiaries” because “stock ownership, and the degree of control it allows, does not create liability beyond the assets of a subsidiary.” (5) In any event, the Court concluded, the fact that these Defendants have filed prior inconsistent statements with the SEC only shows that there is a material factual matter in dispute which cannot be resolved at the summary judgment stage. (6) For this reason, it denied both the District’s motion for partial summary judgment against these Defendants and the latters’ counter-motion for summary judgment against the District, noting that it was probable that an evidentiary hearing would be necessary to resolve this issue. Conclusions. Based on the foregoing, the Court (1) granted the District’s motion for partial summary judgment on Counts I and V on Failure to Pay Taxes Due against all Defendants in Group A; (2) granted in part and denied in part its motion for summary judgment on Count III on Failure to File and Count IV on Failure to State Taxes Separately as to those Defendants; (3) denied the District’s motion for partial summary judgment on Count II for Negligence Penalties; and (4) denied Group B’s motions for summary judgment against the District and vice-versa.
RECONSIDERATION OF PATERNITY ACKNOWLEDGEMENT
Abstract: One of the increasingly frequent issues in the area of paternity and support law is that of “revisiting” or “disestablishing” the voluntary acknowledgement of paternity by the putative father made without having had a DNA test or the adjudication of same at a later date with the legal father presenting DNA evidence showing conclusively that he could not be the biological father. Until July 2008, the relevant D.C. statute did not expressly address this issue. This Memorandum Opinion by the current Presiding Judge of the D.C. Family Court rules on the question of when a challenge to a voluntary acknowledgment of paternity may be made. The factual and procedural backgrounds to the case are summarized as follows: Facts. (1) The child in this case was born on July 7, 2008, soon after which the Respondent signed the birth certificate. (2) Three days later, he also signed a voluntary acknowledgment of paternity which, under the pertinent statute, created a “conclusive presumption” of paternity. Proceedings. (1) On January 14, 2009, the District of Columbia filed a petition against the Respondent to require him to provide financial support for the child. (2) A hearing was held on January 27, 2009, presided over by a Magistrate Judge. The self-acknowledged father was not present but the mother of the child acknowledged that, because she had had sexual relations with another man around the time of the child’s conception, she harbored reservations as to whether the Respondent was, in fact, the biological father. (3) The Government argued that, in light of the “conclusive presumption” which attaches under the statute to a voluntary adjudication of paternity, such “test results are irrelevant.” (4) Nevertheless, the Court sua sponte ordered that all parties undergo DNA paternity testing to resolve the issue scientifically. (5) On May 21, 2012, the test results, which biologically excluded the Respondent as the father of the child, were returned to the Court. (6) The Court thereupon dismissed with prejudice the petition against the Respondent. (7) The pertinent statute and Family Court rule provide that a final judgment of a Magistrate Judge may be reviewed, on proper petition, by an associate Judge of the Superior Court. The Government filed a petition for review in this case and this memorandum opinion ensued. Rulings. The Superior Court that ruled on the issues presented as follows: (A) Standards. (1) If appeal is sought from any final judgment or order of a Superior Court Magistrate Judge, the decision must first be reviewed by an Associate Judge of the Court; that ruling then becomes a final order of the Superior Court, subject to appeal to the Court of Appeals. (2) An Associate Judge of the Superior Court reviewing a Magistrate Judge’s final decision applies the same standard of review used by the Court of Appeals on appeal from a judgment or other order of the Superior Court. (3) Accordingly, a Magistrate Judge’s decision “may not be set aside except for errors of law unless it appears that the judgment or order is plainly wrong, without evidence to support it, or an abuse of discretion.” (4) The final order of a Magistrate Judge may be affirmed, reversed, modified, or remanded, in whole or in part. (B) The Statutes. (1) Several statutes (cited in Editor’s Note hereto) taken together, provide for the establishment of paternity by two means, as follows: (a) Voluntary Acknowledgement. (i) After a putative father has been given both oral and written notice of the alternatives to, legal consequences of, and the rights and responsibilities that arise from signing an acknowledgment of paternity, (ii) and then signs such an acknowledgment, complete all relevant information required therein, (iii) a “conclusive presumption” of paternity obtains. (b) Genetic Testing. (i) A second means of establishing paternity is by test results from a qualified laboratory recognized as such by regulations set forth by the U.S. Department of Health and Human Services, (ii) showing a probability of paternity of 99% or more, (iii) a result which also establishes a “conclusive presumption” of paternity. (2) The same statutes provide for the withdrawal or attempt to revoke an acknowledgment or adjudication of paternity, as follows: (a) Voluntary. (i) A signatory to a voluntary acknowledgement of paternity may rescind same within the earlier period of 60 days or the date of an administrative or judicial proceeding relating to the child in which the signatory is a party. (ii) Beyond that period, a voluntary signatory may file a motion pursuant to Domestic Relations Rule 60(b) on the basis of fraud, duress, or material mistake of fact, on which the movant has the burden of proof. (b) Testing. Genetic test results of less than a 99% probability of paternity will preclude any adjudication and conclusive presumption of same. (3) A proceeding to rebut the presumption of paternity must be commenced not later than two years after the birth of the child, after which time the presumption becomes conclusive. (4) In any such timely disestablishment proceeding, the movant must prove by “clear and convincing” evidence that the presumed father is not the child’s biological parent. (5) Nevertheless, even if evidence shows that the presumed father is not the biological parent, the Court may still find him to be the presumed father when (a) the conduct of the parties precludes the presumed parent from denying parentage; (b) it is in the child’s “best interest” to presumed paternity; and (c) the duration and stability of the child’s relationship with the presume father and the genetic parent require the presumption to continue. (6) These premises also apply, where pertinent, to proving the maternity of a child. (D) As Applied. The Reviewing Court (1) found that there was no evidence that the Respondent had attempted to rescind his voluntary acknowledgment of paternity executed in July 2008, within the 60 days permitted and therefore (2) held that the Magistrate Judge was without authority at the hearing in May 2012, beyond the two-year statutory limit to submit countervailing genetic test results, to order or make a final judgment based on subsequent DNA paternity testing, even though it conclusively excluded the Respondent. Conclusions. Accordingly, the Reviewing Court vacated the Magistrate Judge’s order and remanded the case “for further proceedings.”
D.C. FAMILY MEDICAL LEAVE ACT
D.C. WAGE PAYMENT COLLECTION ACT
Abstract: This is a case of first impression under the D.C. Family Medical Leave Act (FMLA) and the D.C. Wage Payment Claim Act (WPCA) determining whether someone who does not meet the formal requirements is entitled to the protection of either. The factual and procedural backgrounds to the case are summarized as follows: Facts. (1) In December 2010, the Plaintiff was employed as the Director of a senior care and rehabilitation facility located at Thomas Circle in northwest D.C. (2) In early June of the next year, she informed her superior that she was approximately six months pregnant. (3) Two months later, on August 8, 2011, when she was eight months pregnant, she informed her superior that she would need to take six weeks maternity leave following the birth of her child. (4) Eight days later, she informed the facility’s Human Resource Director that she had asked her doctor to complete the documentation for a FMLA leave request. (5) The next day, August 17, 2011, she was terminated, the employer expressly stating that the work limitation due to her pregnancy was a reason for so doing. (6) She had been employed with the Defendant for eight months and two days. Proceedings. (1) Plaintiff filed this suit containing multiple counts, two of which were: (a) wrongful termination by retaliation in violation of the rights granted by the FMLA and (b) failure to pay her for accrued leave time in violation of the WPCA. (2) The defenses on these counts were that: (a) under the FMLA (i) the Plaintiff did not meet the statute’s definition of an “employee” eligible for its benefits and (ii) therefore her actions were not protected by the statute; and (b) (i) under the WPCA there was a bona fide dispute as to the amount allegedly due and (ii) the Defendant’s personnel manual expressly provided that employees who are involuntarily terminated are not to be paid for unused personal time off. (3) The Plaintiff countered that (a) (i) where a retaliation allegation is made under the FMLA, the cause of action is proper because the statute does not contain limiting language on that issue and (ii) the Defendant was estopped from making that argument because the statute does require that an employer give at least five days’ notice that an employee is not eligible for FMLA leave, which was not done here; and (b) the Defendant’s internal operating procedures cannot trump the statutory obligation to pay wages and benefits due under the WPCA. (4) On the grounds stated, the Defendant filed a Rule 12(b)(6) motion to dismiss these two counts because neither stated a claim upon which relief could be lawfully granted. Rulings. The Court ruled on the issues presented as follows: (A) Standards. (1) As of 2011, the Court had adopted the federal standards for Rule 12(b)(6) motions under the Twombly (2007) and Iqbal (2009) rulings of the U.S. Supreme Court. (2) To survive such a motion under those standards the complaint “must contain sufficient factual matter, [when] accepted as true, to state a claim that is plausible on its face,” not just possible. (3) To be deemed plausible, a complaint “must provide more than just labels and conclusions, and a formulaic recitation of the elements” of any claim. (4) Rather, a plaintiff “must plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” (B) The FMLA. (1) Employee Definition. (a) The statute makes it unlawful for “any person to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided” therein. (b) To establish a prima facie case, for retaliation under the statute, a plaintiff must demonstrate that (i) s/he was engaged in a protected activity; (ii) the employer took an adverse employment action; and (iii) there was a causal connection between the two. (c) The statute defines “employee” as “any individual who has been employed by the same employer for [at least] one year without a break in service … and has worked at least 1,000 hours during the 12-month period immediately preceding the request for family or medical leave.” (d) The Plaintiff conceded that she did not meet this definition. She argued, however, that the statute nonetheless protects “the attempt to exercise” the right against retaliation, without limiting that protection to formal “employees.” (2) As Applied. (a) Noting that there was no local case law on the retaliation issue presented, the Court followed the well-settled principle that where, as here, there is a parallel federal statute “enacted for the same policy reasons,” it may look to that statute’s regulations and case law “as persuasive authority.” (b) In so doing it found a division among the federal courts. Two Circuits have held that (i) a plaintiff who does not meet the statutory definition of “eligible employee” cannot state a claim for retaliation under the federal statute and (ii) such a person also is not covered by the “attempt to exercise” a right which s/he did not have in the first place. (c) The Trial Court rejected the federal authorities cited by the Plaintiff, finding that the facts in each of those cases were afield from those here. (d) Accordingly, it ruled “that the anti-retaliation provision of the local statute “does not protect an ineligible employee such as Plaintiff, who was not entitled to any rights under the statute at the time of her leave request and would not have been entitled to such rights at the time her leave would have commenced.” (C) Estoppel. (1) The pertinent FMLA regulation requires that when an employee requests leave thereunder, “or when an employer acquires knowledge that an employee’s leave may be for a … qualifying reason” under the statute, should the employer determine that the employee is not eligible it must give the employee notice with five days after the employee makes the request or the employer receives knowledge of the possibility for same. (2) In this case it was undisputed that the Plaintiff informed her supervisor on August 8, 2011, that she would be following her doctor’s advice to take maternity leave. The statutory deadline for a qualifying employee under those circumstances would have been five days later, or August 13th. (3) It is also undisputed that the employer did not terminate the Plaintiff until August 17th, without ever having informed her of her ineligibility. (4) Plaintiff argued, therefore, that the Defendant was estopped from terminating her beyond the statutory deadline for notification. (5) The Defendant countered by arguing that the Plaintiff’s August 8th comments did not constitute a formal request for leave that would have triggered the ineligibility notice but that it was her August 16th statement that she had asked her doctor to fill out the FMLA leave application that did so – thus making the five-day notification no later than August 21st. Perforce, it argued, its termination four days earlier was timely – even if she qualified for the right, which it did not concede. (6) The Court addressed the issue of timeliness first. It found that “the plain language” of the pertinent regulation “indicates that an actual request for …. leave, rather than a mere indication of intent to request such leave, must be made by the employee before the employer’s duty to provide notice of eligibility is triggered.” (7) Nevertheless, the Court also found, the regulation does not define the term “request,” nor does it set out any specific procedure for making same. (8) The Court concluded, however, that “when the need for leave is foreseeable, employees are required to notify their employer of their intent … [to do so] before the employee wishes the leave to begin.” (9) It ruled that “to satisfy the notice requirement, employees do not need to expressly state that they are requesting … leave [under the FMLA], but they must provide enough information about the reason for the requested leave to allow the employer to determine whether it qualifies as … [FMLA] leave.” (10) The Court found it “unclear” whether the Plaintiff’s August 8th statement regarding her expected need for maternity leave was a “request,” although it indicated that it appeared to “suggest that … [her] statement may have been sufficient to trigger …. [the Defendant’s] duty to notify, because she provided enough information for … [Defendant] to determine that her leave was for … [FMLA]-qualifying reason.” (11) The Court decided, however, that it need not reach that issue because, even if it was sufficient, “Plaintiff must also demonstrate that equitable estoppel is an appropriate remedy for Defendant’s allege failure to timely notify her of ineligibility for … [FMLA] leave.” (12) As with the eligibility issue, the Court found that the authorities cited by the Plaintiff on the estoppel issue were inapposite, ruling that the Plaintiff’s concession that she was not eligible for FMLA leave could not be transformed into detrimental reliance on the failure to notify her of ineligibility. (13) Accordingly, the Court found that the Defendant was “not estopped from contesting Plaintiff’s eligibility” for leave. (D) The WPCA. (1) The wage payment statute requires that an employer pay an employee’s wages due not later than the working day following a discharge. (2) The term “wages” means “monetary compensation after lawful deductions, owed by an employer for labor or services rendered,” which has been held to include “vacation pay” where that is an benefit provided as a benefit of employment. (3) The statute also provides, however, that “in the case of a bona fide dispute concerning the amount of wages due,” an employer must give written notice to the employee of the amount which is admitted to be due and shall pay that amount “without condition,” but that the employee’s acceptance of that amount “shall not constitute a release as to the balance of … [the] claim.” (4) Although the statute does not define the term “bona fide dispute,” the Court observed that it “suggests that the dispute as to the amount of wages owed must be genuine and in good faith.” (5) It pointed out, however, that the U.S. District Court here (Sullivan, J.) has held that where an employer has timely paid the amount of wages due, “the employee does not retain any claims under the statute regarding the disputed wages” under the WPCA but that s/he could seek a remedy for the disputed balance under a breach of contract theory. (6) Although the Plaintiff did not deny that she had received full payment for her last week of wages, technically speaking, even the regular wages had not been paid by the end of the next day after termination, as the statute requires, but 15 days later. (7) The only exception to the next-day rule is where a collective bargaining agreement (CBA) is involved. (8) The Court therefore found that the Defendant was “not relieved of liability for Plaintiff’s unused personal leave” due to its untimely compliance with the WPCA. It then turned to consider what effect, if any, the terms of the Defendant’s personnel manual had on any unpaid leave time due. (E) Personnel Manual. (1) Citing this internal source, the Defendants argued that they genuinely believed that there was a “bona fide dispute” as to whether the Plaintiff was owed compensation for “leave time” because it expressly provides that no such compensation will be paid upon involuntary termination. (2) Because the Court was thus urged to consider materials outside the pleadings under the rubric of a Rule 12 dismissal motion, it treated the Defendant’s motion on this issue as a motion for summary judgment, pursuant to Rule 12(d). (3) The Plaintiff did not deny that she had received a copy of the personnel manual or contend that she had failed to read it. Rather, she argued that it could not control over the WPCA statute because the statute expressly states that “except as herein provided no provision of this chapter shall in any way be contravened or set aside by private agreement.” (4) What appears to be the lone case on the issue held that “in the absence of an agreement to the contrary, the fact that an employee was discharged for cause cannot operate to deprive him of earned vacation pay rights.” (5) These competing phrases – “except as herein provided” and “in the absence of an agreement to the contrary” – when superimposed, appear to allow for an employee to agree, upon appropriate circumstances, to an exception for the non-payment of leave time, the Trial Court ruled. (6) Pointing out that the WPCA statute does not require that an employer provide paid leave, but it must deliver on it if offered as a benefit of employment, the Court found that the personnel manual constituted such an agreement to which the Plaintiff submitted herself on accepting employment with the Defendant. (7) It reasoned that, although an employer is not required to provide paid leave, if it does so it may establish reasonable conditions on when it will be paid and when it will not. (8) “It would be incongruous,” the Court concluded, “to allow an employee to recover vacation pay under the statute if she would not be entitled to such pay under a breach of contract theory.” (9) Finding that the Defendant had met its burden to demonstrate that there was an agreement that restricted the Plaintiff’s ability to recover pay for accrued leave, the Court also found that there was no genuine issue of material fact on this count and granted the Defendant summary judgment as a matter of law, as interpreted herein. Conclusions. Accordingly, the Court ruled against the Plaintiff on both these counts, eliminating them from the case, but permitted her to proceed on the remaining counts.
D.C. FALSE CLAIMS ACT / QUI TAM SUIT
PUBLIC DISCLOSURE BAR / “DIRECT KNOWLEDGE” AND “ORIGINAL SOURCE” DOCTRINES DISTINGUISHED / STATUTE OF LIMITATIONS / FAILURE TO STATE A VALID CLAIM / CONSPIRACY TO FRAUDULENTLY OBTAIN FUNDS FROM THE DISTRICT / STATUTORY INTERPRETATION / FAILURE TO PLEAD FRAUD WITH PARTICULARITY
Abstract: The Trial Judge in this case wrote a careful, methodical, and detailed memorandum order which thoroughly treats the various arcane issues that arise in both commercial paper and qui tam litigation. The factual and procedural backgrounds to the case are summarized as follows: Facts. (1) The assignment and sale of securities instruments, such as mortgages and deeds of trust, is a common commercial practice, covered by Article 9 of the U.C.C. Traditionally, every such assignment or sale had to be individually filed in the local office of land records. As land sales increased dramatically, so did the escalation of filing costs to mortgage lenders, as did the number of errors in the records. (2) In 1994, the Defendant Company created an electronic recording system for mortgages and other commercial paper which enables such dealers to file the necessary documents more easily and to keep track of them as they may change hands. A comparatively modest fee (e.g. $50-$75) is charged for each filing. (3) In a questionable practice, for each transaction, the system designated the Company as the mortgagee of record or beneficiary, as nominee for the lender, on the original mortgage or deed of trust, thus giving it “naked title.” (4) The Relator, a resident of Nevada, has worked in the mortgage industry for nearly 40 years, with a focus on loan processing and chain of title analysis. In early 2009, he concluded that the system’s naming the Company as the mortgagee of record or nominated beneficiary for the lender was a false statement and that public recordation of such a document constituted a fraud, indented to avoid the recording of sequential assignments of interest each time a note changed hands. (5) In due course, he focused on the practice as an alleged fraud and filed qui tam suits in at least four other jurisdictions, all of which were dismissed (6) On or about April 30, 2010, he notified the Office of the D.C. Attorney General of his information “under seal,” according to him. (7) Ten days later, he filed this suit under the terms of the D.C. False Claims Act (FCA), which permits a private party, if s/he is an “original source” of the information at issue, rather than deriving it from information already in the public domain, to file a qui tam fraud suit as a relator for the benefit of the District, which then becomes the real party in interest if it pursues the cause of action. Such a relator becomes eligible for a portion of the recovery if the suit is successful. (8) This cause of action has a statute of limitations of (a) not more than six years after which the violation is committee, or (b) more than three years after the date when material facts are known, or reasonably should have been known, by the D.C. Attorney General’s Office, but (c) in no event longer than nine years after the date on which the violation is committed, whichever occurs first. Proceedings. (1) This action was filed on May 10, 2010, followed by two Amended Complaints during the next nine months. (2) On March 14, 2011, the D.C. Attorney General declined to exercise the statutory right to intervene and prosecute the action. (3) After service of process, the Defendants moved to dismiss on the grounds that (a) the Court lacked subject matter jurisdiction over the allegations because they had already been publicly disclosed prior to the filing of the suit and the Relator was therefore not the “original source” thereof; (b) the statute of limitations had already expired on the matter; (c) therefore, the suit did not set forth a claim upon which relief could properly be granted; and (d) fraud had not been pled with the particularity required by Rule 9(b). (4) The Relator opposed all these contentions, responding on the merits, and alternatively requested leave to amend for the third time. Rulings: The Court ruled on the issues presented as follows: (A) Standards. (1) Where a defendant challenges the court’s subject matter jurisdiction under Civil Rule 12(b)(1), the plaintiff has the burden of establishing same. (2) In making its determination, the court may consider facts and materials outside the pleadings without converting the motion into one for summary judgment. (3) Moreover, unlike dismissal motions on other grounds, the facts are not construed in favor of the plaintiff. (4) Although Rule 8(a) only requires a “short and plain statement of the claim showing that the pleader is entitled to relief,” that is simply a baseline requirement. (5) To survive a motion to dismiss, “a complaint must state a claim to relief that is plausible on its face,” not merely possible, which obtains “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” (6) Mere legal conclusions are insufficient, but a court should not dismiss a case simply because it does not believe that the plaintiff can prevail. The Court applied these standards to the four reasons that the Defendants’ advanced for dismissal of the suit, as follows: (B) Public Disclosure Bar. (1) To the Defendants’ contention that the Court lacked subject matter jurisdiction because the information in the complaint did not originally derive from the Relator, but was already in the public domain, the Relator responded that (a) there was no public disclosure, and, even if there had been, he was the original source for its publication, and/or (b) the Trial Court should declare a new and broader approach to such claims which, presumably, would be affirmed on appeal. (2) The Court examined the aspects of this defense as follows: (a) Generally. (i) The general rule is that “a qui tam action cannot be sustained where all the material elements of the fraudulent transaction are already in the public domain and the qui tam relator only comes forward with additional evidence incriminating the defendant.” (ii) It is insufficient that the relator supplies more detail than is already in the public domain; nor is it dispositive that a relator may have the ability to recognize the legal consequences of a publicly disclosed fraudulent transaction or merely uses his or her unique expertise or training to conclude that the material elements already in the public domain constitute a false claim. (iii) The key is “whether the public disclosure at issue is sufficient to set the government on the trail of the alleged fraud without the relator’s assistance.” (iv) The “public domain” includes (a) the general news media, (b) scholarly, scientific, and technical periodicals, and (c) trade journals, inter alia. (b) Particularly. (i) On this public disclosure score, the Defendants set forth in their motion scores of exhibits from public forums, including court decisions, newspaper, magazine, and journal articles, government reports, congressional testimony, and Internet sites on the subject, arguing that they demonstrate that this issue had long since been in the public domain and that the Relator could claim no incipient credit for the information. (ii) The Relator responded that most of this information, particularly the unregulated Internet, was simply not verifiable and was simply not information on which the court, or any other authority, could rely. (c) Rulings. (i) The Court rejected this argument, cleaving to the tradition of making a “broad” construction of the term to include all the foregoing sources, finding what it deemed the “sheer volume” of which, including the Internet sites, to be persuasive on the public disclosure front. (ii) It ruled that the controlling issue in this regard was not the “reliability” of these sources, but “whether the allegations were actually placed into the public domain and that the District would reasonably have had the information necessary to seek its own remedy pursuant to the False Claims Act.” (iii) The Court went through all seven of the Relator’s allegations, citing the number of publications regarding each, seriatim, as follows: (a) The formation of the Defendants’ system was motivated by financial self-interest (11 public sources); (b) Defendants’ misrepresentation of their role (8 public sources); (c) Defendant’s improperly assuming the role of nominee or beneficiary of the mortgages et al. (28 public sources); (d) Same with regard to assuming the role of beneficiary (8 public sources); (e) Defendants’ use of those designations to avoid recording assignments of interest as property changed hands (12 public sources); (f) Defendants’ utilization of these designations to profit from avoiding the payment of substantial sums in recordation fees (12 public sources); (g) A major negative result of such practices has been the creation of numerous difficulties in establishing a clear chain of tittle at the time of foreclosure (6 public sources); (h) Defendants initiated and conducted non-judicial foreclosures (8 public sources); and (i) Defendants designated non-company employees as officers to sign documents on its behalf (5 public sources). (iv) The Court found, although with some skepticism, that the Relator had informed the District of this alleged fraud in April 2010, prior to filing suit the next month. (v) The Court made a finite distinction between “direct and independent knowledge” by a relator and “original source” of the information. (vi) It found that, based upon his years of experience in this field and his realization of the alleged fraud, the Relator qualified as one having “direct and independent knowledge.” (vii) But it also pointed out that in order to be an “original source,” a relator “must show that s/he “did more than apply … expertise to [already] publicly disclosed information.” (viii) The Court further found, “as a matter of logic,” that the public disclosures of the information at issue had not been based on the Relator’s information because his first realization of the alleged fraud was “shortly after” January 2009 and he did not disclose it to the D.C. Attorney General’s Office until April 2010. (ix) On this basis, the Court ruled that the Relator “is not an original source of the allegations in the … complaint pursuant to the” FCA, which defines that term as [a] “an individual who has direct and independent knowledge of the information on which the allegations are based, [b] who voluntarily provided the information to the District before filing an action based on the information, and [c] whose information provided the basis or catalyst for the investigation, report, hearing, audit, or media disclosure which led to the public disclosure.” (x) Accordingly, the Court ruled that the Relator “cannot take shelter in the ‘original source’ exception to the jurisdictional public disclosure bar.” (xi) The Court also roundly rejected what it deemed the Relator’s “rather perplexing argument” that it “should ignore the precedent of its supervisory Court and strike its own path” in disregarding the surfeit of publications extant prior to the filing of this suit. (xii) Therefore, the Court concluded that it lacked subject matter jurisdiction to hear this matter because of the public disclosure doctrine. (C) Statute of Limitations. (1) The FCA prohibits the filing of a qui tam action (a) more than six years after the date on which the violation was committee or (b) more than three years after the date when material facts are known, or reasonably should behave been known, by the Office of the D.C. Attorney General, but (c) in no event longer than nine years after the date on which the violation is committed, whichever occurs first. (2) Since the Defendant Company began operating in 1996, and early reports of the Defendants’ practices had been published during 1994-97, the Court concluded that the District (and the Relator himself) “reasonably should have known” from these public disclosures that an FCA suit was actionable no later than 2008, even under the full nine-year limitations period, but he did not do so until 2010. (3) The Court found that, although the number of such putatively fraudulent transactions during that period may not be known, the material facts underlying this practice “do not depend on specific mortgage documents.” (4) It also rejected the Relator’s argument that the time period should have been tolled because the Defendants had “affirmatively concealed their fraudulent conduct.” (5) The Court found this concept inapplicable under the fraudulent concealment rule. (i) Under this rule, the limitations period is suspended when a defendant has “employed affirmative acts to … fraudulently concealed either the existence of the claim or facts causing the basis of a cause of action.” (ii) However, if the plaintiff “knew, or by the exercise of due diligence could have known, that s/he may have had a cause of action” the time will not be tolled. (iii) The Court could not find, it said, that the District (as the true plaintiff in interest) could not have known, upon exercising due diligence, that it may have had a cause of action despite to any concealment by the Defendants. (iv) The Court therefore concluded that the FCA statute of limitations “nonetheless bars this action,” thus depriving it of subject matter jurisdiction. (D) Failure to State a Claim. The Court analyzed this contention as to whether the Defendants’ statements or actions constituted a false statement, as follows: (1) The Defendants argued that styling themselves as a mortgagee, nominee, or beneficiary did not constitute a “false statement” under the FCA. (2) Although the weight of persuasive case law holds that the Defendants were correct on this score, at this stage of the case, the Court found that, drawing inferences in favor of the Relator, a sufficiently pled “colorable claim” had been made. (3) However, the Court found that, although all changes of title and interest were required to be publicly recorded, the Defendants can be deemed “lenders” under the common usage of the trade, and qualified for the “lender-to-lender” exception to the requirement to pay fees for “secondary market transactions.” (4) Moreover, the Court found, the transfers between members of the Defendants’ database “do not convey an economic interest in real property” and “are not the same as deeds denoting a transfer of an economic interest” therein. (5) Therefore, neither their self-designation nor their actions could be denominated as false or fraudulent, and accordingly the Relator’s complaint on this count “does not state a claim upon which relief may be granted, as a matter of law.” (E) Conspiracy/Continuing False Claims. (1) Although the Relator did not oppose the Defendants’ argument on the conspiracy and continuing false claims counts, the Court acceded to the stated preference of the Court of Appeals in such matters that, rather than simply dismissing them, a trial court should decide the case on the merits, rather than the “procedural missteps of the parties.” (2) Accordingly, the Court addressed the final two counts in the complaint, as follows: (a) The pertinent statute penalizes any person who “conspires to defraud the District by getting a false claim allowed or paid by the District, or (b) who “is a beneficiary of [even] an inadvertent submission of a false claim to the District, [who] subsequently discovers the falsity of the claim, and fails to disclose” same to the District. (3) The statue defines “claim” as “a request or demand for money, property, or service made to any employee, officer, or agent of the District, or to any contractor, grantee, or other recipient, whether under contract or not, if any portion of … [same] was provided by … the District, or if the District will reimburse such … [entity] or other recipient for any portion of the money or property which is requested or demanded.” (4) Noting that the foregoing makes illegal a “false claim” via a “demand or request for money, property, or services” from the District, the Court carefully pointed out that no such allegation was made by the Relator. Rather, the complaint asserts “the concealment of an alleged obligation to pay funds to the District. (5) It was clear to the Court that this particular statute did “not facially impose penalties for participation in a conspiracy to conceal an obligation to pay … or failing to disclose a later-discovered inadvertent concealment of an obligation to pay” fees or other funds to the District. (6) The Court interpreted this statute on the basis of what it did not say as much as on its express terms. “When the drafter of a statute includes particular language in one section … but omits it in another,” the Court ruled, “it is presumed that the drafter acts intentionally and purposely in the disparate inclusion or exclusion,” otherwise known as inclusio unius est exclusio alterius. (7) Accordingly, the Court found that these counts “must fail as a matter of law, as the cited provisions do not impose liability for the actions alleged …, even presuming the truth of those allegations.” (F) Pleading Fraud with Particularity. (1) Finally, the Court addressed the Relator’s claim that the specificity pleading requirement for fraud in Rule 9(b) should be relaxed in cases, such as this one, with “hypernumerous instances” of same. (2) The Court noted that the uniform holding under that rule is that false claims and anti-fraud statutes require that “complaints brought [there]under … must comply with Rule 9(b).” (3) Indeed, under D.C. law, “fraud is never presumed and must be particularly pleaded” with the “time, place, and content … of the fraud.” (4) At the same time, however, the Court agreed with the Relator that he “need not describe … the particular circumstances of each individual false claim [that ever took place] under this rubric. To hold a relator or plaintiff to this standard, the Court observed, “would make the filing of a qui tam complaint alleging pervasive and systemic false claims over a period of years, as in this case, so unwieldy and burdensome as to contravene the purpose of the False Claims Act.” (5) It concluded that Rule 9(b), therefore, “does not require a detailed description of each and every false claim where the fraud takes place over many years, involves numerous false claims, and the alleged scheme is sufficiently complex.” (6) Having said that, however, the Court also found that the Relator had made only “general allegations,” but had made “few distinctions between the acts of the various Defendants” and it therefore “cannot find that … [he] has set forth with particularity facts which would provide the Court and the Defendants with Rule 9(b) notice of the allegations … with respect to their various roles in the alleged fraudulent submissions, conspiracy, and continuing false claims.” The lapses, the Court pointed out, were that (a) he had not set forth which of the entities actually recorded the documents which reflect the false claims; (b) whether the Defendants (or which Defendants) were involved in the secondary mortgage market transactions; and, (c) perhaps most crucially, any substantial distinction between the roles of the Defendants in the alleged transactions resulting in the allegations of false claims. (7) Accordingly, the Court stated, it “would dismiss this action based on a failure to plead with particularity pursuant to … [Rule] 9(b).” (G) Leave to Amend. In view of the fact that the Court had ruled against the Relator on every argument advanced by the Defendants, resulting in a finding of lack of subject matter jurisdiction, it denied what it called his “rather unorthodox request” that he be granted leave to amend for the third time in this case,” which would be his fourth opportunity to set forth a proper complaint. (H) Conclusions. The Court’s conclusions were as follows: (1) The allegations in the Second Amended Complaint were “substantially similar or identical to those previously publicly disclosed and thus barred by the “public disclosure” doctrine applicable to the D.C. False Claims Act. (2) Although the Court found that the Relator qualified as a person with “independent knowledge” of the alleged fraud, it also found that he does not qualify as an “original source” under the statute. (3) This action was filed after the expiration of the FCA’s most expansive statutory limitation period. (4) The most recent complaint fails to state a valid claim upon which relief may be legally granted on all counts. (5) Moreover, it does not plead fraud with the requisite particularity under Rule 9(b). (6) Finally, the foregoing means that the Court does not have subject matter jurisdiction and the case must be dismissed with prejudice.
CRIMINAL LAW AND PROCEDURE
D.C. INNOCENCE PROTECTION ACT / STANDARDS / SECTION 23-110 INEFFECTIVE ASSISTANCE OF COUNSEL MOTION / STRICKLAND STANDARD / CONTEMPORARY STANDARDS AT THE TIME OF TRIAL / RECANTATION / BRADY EXCULPATORY ISSUES / MATERIALITY
Abstract: In one of the most notorious and brutal local murder cases in the last part of the 20th Century, recent motions to re-open the case based on various grounds, demonstrated the finest efforts each of defense lawyers zealously advocating their clients’ interests, prosecutors even-handedly defending the convictions, and a wise Judge who refused to have judicial integrity subsumed by the passionate arguments of the hour, instead methodically applying the elements of the legal principles at issue. The factual and procedural backgrounds to this case are summarized as follows: Facts. (1) At around 4:00 p.m. on the rainy afternoon of October 1, 1984, Catherine Fuller, a diminutive 38-year-old mother of six, who lived near the intersections of 8th and H Streets, N.E., made the fatal decision to go out to purchase groceries for her family. She carried $50 cash, which she folded into one of her inner garments for safekeeping. (2) She made the mistake of walking past what was then a park (now a large drug store) on the southeast corner of 8th and H Streets. A dozen or so males were “hanging out” at the park, talking about “getting paid,” a slang term for robbery. (3) As Mrs. Fuller walked past them, they quickly decided to rob her. They broke up into two groups and pursued her. As she turned onto 8th Street, one group followed up behind her and coerced her into an alley, while the other moved ahead to cut her off in a pincer movement at the 9th Street end of the alley. (4) Five members of the pursuing group began to punch and kick her and one of them felled her with a blow to the head with a wooden plank. (5) They carried her to the front of an abandoned garage in the alley, where the beating continued. Her garments were partially torn away and her money stolen before she fell into unconsciousness. (6) They dragged her into the garage, where one took a ring from her finger and the rest of her clothes were torn off. (7) Two of them held her legs apart while another took a length of discarded pipe and shoved it approximately a foot into her rectum, also shattering her liver. (8) They left her on the concrete floor of the garage where, after two hours of trauma and exposure, she died, according to the autopsy report, of multiple broken bones, the anal intrusion, and internal bleeding. Her body was discovered that same evening by a street vendor who had gone into the alley to relieve himself. (9) Numerous eyewitnesses placed the Defendants at the crime scene in the alley and they were later arrested and indicted. Proceedings. (1) One of the Defendants (Yarborough) gave two inculpatory statements, one written and one videotaped. His trial lawyer filed a motion to suppress, both on grounds of violation of the Miranda
rule and coercion, which included physical violence. (2) The Trial Court denied the motion, but only the written statement – which the Court ordered redacted as to any references to other co-defendants – was used at trial, and the jury was instructed that it could only be used against the declarant. (3) After a lengthy trial in December 1985, in which the Government relied heavily on co-operating witnesses from the group who had pled guilty to lesser charges, eight of the ten accused were convicted of, inter alia, kidnapping, robbery, and felony murder. (4) In 1988, all convictions were affirmed on appeal, the Court finding that the evidence against the Appellants was “overwhelming.” (5) The Trial Judge died in 1992, and all further matters in the case were assigned to other Judges. Seven years after the trial, in 1995, Defendant Yarborough, acting pro se, filed a post-trial Section 23-110 motion alleging ineffective assistance of trial counsel during the pre-trial suppression hearing, arguing that counsel had not called to the attention of the Trial Court his very low intelligence and educational level. The motion was denied, with the successor Judge expressly ruling that he had failed to show the requisite prejudice under the Strickland rule (1984). (6) During the 25 years since the trial, one of the Defendants died in prison and another was paroled; the remaining Defendants are still serving their sentences. (7) In December 2011, they filed a motion under the D.C. Innocence Protection Act (IPA), asserting that they were actually innocent of the crimes, and contending that (a) before trial the police had literally beaten confessions and inculpatory statements out of certain witnesses; (b) at the time of trial, the Government deliberately failed to convey this and other materially exculpatory evidence to the collective defense lawyers, in violation of the Brady rule; and, finally, (c) one Defendant raised a Section 23-110 claim anew, based on ineffective assistance of counsel during the pre-trial motions stage of the original case. (8) Further, their affirmative evidence consisted of advancing the contention that the erstwhile co-defendants who testified against them during the trial (a) were coerced by the police to lie and (b) have now recanted their testimony as false, and was based entirely on news reports rumors, and information fed to them by the Government. (10) This motion was assigned to the author of this opinion, who, after having served 34 years, was by then the most senior active Judge on the Superior Court. He held a 23-day evidentiary hearing from late April to mid-May 2012, at which the Court took testimony regarding all of the Defendants’ claims. Rulings: The Court set forth three basic rubrics in making its rulings: (1) the linchpin of the entire matter would depend on whether the Court believed the recantations of the former Government co-operating witnesses; (2) certain decisions would be made on the basis of standards relevant to the time period of the trial; and (3) issues that had already been fully litigated would not be reconsidered. It then ruled on the issues presented as follows: (A) Ineffective Assistance. (1) The Court began with a review of the lone ineffective assistance of counsel claim. At the outset, it pointed out that a person convicted of a crime is afforded only one Section 23-110 motion, in which all claims must be made. This is due to the practice of conserving judicial resources so as not to allow seriatim piecemeal claims to be raised by those who have been convicted, known as the “abuse of the writ” doctrine. (2) To this Defendant’s claim that his unsuccessful motion before another Judge seven years earlier had been pro se, without counsel, and the ironic product of the very subject thereof, i.e., his limited intelligence and education, the Court pointed out that there are no exceptions to the general one-motion rule in this regard. (3) However, the Court ruled, although ordinarily it would decline to consider a successive 23-110 motion, because “the question was not entirely free from doubt,” it decided to address the issue de novo. (4) Under the well-known Strickland standard (1984), to succeed on such a motion a defendant must show (a) counsel’s performance was so deficient that it fell below an objective standard of reasonableness, and (b) the deficient performance was so prejudicial that, but for counsel’s errors, the result of the proceeding would probably have been different. (5) The threshold rule is that counsel should be given “sufficient latitude to make tactical decisions and strategic judgments involving the exercise of professional abilities.” (6) In so doing, a court should “strongly presume” that counsel “rendered adequate assistance and made all significant decisions in the exercise of professional judgment,” without second-guessing counsel’s conduct. (7) The rule is that “a reasonable tactical decision will not support a claim of ineffective assistance of counsel.” (8) Thus, “a new trial should not be ordered because the court or another attorney, with hindsight, might have chosen a different course.” (9) To establish the prejudice to the case in a Strickland analysis, the defendant must demonstrate “a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different.” (10) In turn, a “reasonable probability” is one “sufficient to undermine confidence in the outcome” and requires a “’substantial,’ not just ‘conceivable,’ likelihood of a different result.” (11) In the context of this issue, which involved counsel’s conduct in prosecuting a suppression motion, the defendant’s burden to show prejudice is to demonstrate “that the motion, if properly litigated, would have been granted and, had the evidence been suppressed, it is probable that the outcome of the trial would have been different.” (12) To support his claim, this Defendant presented the testimony of two Ph.D. psychologists. (a) One had examined him and determined that his IQ was approximately 70, which put him in the bottom one percent, meaning that he is more suggestible than 99% of the population. (b) The other, who was also a J.D. and an expert in criminology as well, testified that, although a relatively small number of confessions are false, they prove that false confessions do occur. Their common features include harsh interrogation techniques, threats or promises of leniency or other reward to produce a confession, all of which are particularly effective on the mentally retarded. He concluded that “there is a heightened risk of a false confession” in this case. (13) The Court, however, concluded that “a heightened risk of a false confession is not the same as a likelihood that the confession is false.” It found that, other than the latter expert’s “own intuition,” he had produced no evidence that this had occurred with regard to this Defendant. (14) The Court ruled that “reasonably competent representation in 1985 did not require every defense attorney to develop the kind of sophisticated psychological testimony … [on which this Defendant] now relies …, much less the largely inadmissible expert testimony on false confessions.” (15) Moreover, even assuming that this additional evidence of the Defendant’s “low intellectual functioning and educational level might have marginally aided the presentation of the motion,” the Court ruled that “it cannot be said that an otherwise competent defense attorney in 1985 was performing below the constitutional minimum standard by focusing on … heavy handed police interrogation techniques rather than on his client’s individual vulnerability.” (16) The Court also found that such evidence would not have changed the outcome on the motion to suppress because, although Yarborough did lie about certain things in his statement to the police, he did not lie about being present at the scene of the murder; indeed, the evidence “overwhelmingly put him there,” the Court pointed out. His falsehoods were that he did not participate in the attack, robbery, and murder of the victim, but that he was only an observer. (17) Such a self-serving lie, the Court observed, “was not the statement of a helpless mentally vulnerable young man being fed facts by the police and parroting them back to please his interrogators.” Rather, “it was the voluntary admission of a conniving youthful offender trying to distance himself as far as possible from the crime while not denying that he was there, which he [also consciously] assumed the police already knew,” the Court concluded. (18) In view of that deviousness, the Court was confident that “no amount of psychological testing or social science research was likely to convince the [trial] court that this false exculpatory statement should be suppressed, particularly where the Judge did not believe the Defendant’s claim about physical coercion in the first place.” (19) The capstone for this conclusion was the reviewing Court’s observation of Yarborough’s testimony pursuant to his current motion, which it found self-contradictory, filled with “extraordinary claims,” particularly regarding the alleged police violence perpetrated upon him prior to his statement, contained other “outlandish allegations” that were contradicted by the testimony of police witnesses who had been present at the interrogation, and overall, was “patently incredible.” (20) Finally, the Court noted that “all of this was litigated at the trial in 1985,” and the Trial Judge had ruled that a valid Miranda waiver had been obtained – a ruling which the Court of Appeals affirmed. (21) Finding that his testimony at the hearing on this motion “cannot be credited” and that “the type of evidence he now faults his lawyer for not putting on [at the original suppression hearing] would not have changed the outcome of the motion … or the outcome of the trial,” the Court concluded that Defendant Yarbrough “has not shown either deficient performance or prejudice under the Strickland standard,” and his Section 23-110 motion was denied anew. (B) The IPA Claim. (1) As the title of the statute indicates, the goal of a movant thereunder is to prove his or her innocence, which may be done in one of two ways: (a) to have a conviction vacated, a movant must prove “actual innocence” by the clear and convincing evidence standard, or (b) to obtain a new trial, the movant must prove by a preponderance of the evidence that s/he is actually innocent. (2) The court may consider “any relevant evidence,” but it must consider the following: (a) the new evidence; (b) how it demonstrates actual innocence; (c) why it is not cumulative or merely impeaching; and (d) if the conviction resulted from a trial, and if the movant asserted a theory of defense inconsistent with the current claim of innocence, the specific reason s/he asserted an inconsistent theory at trial. (3) At the outset of its consideration of the IPA motion, the Court noted that the Movants did not actually present any “new” evidence; rather, they were relying entirely on the recantation of the testimonial evidence by four Government witnesses, Messers. A-D. The Court considered them as follows: (4) Witnesses A and B. (a) With regard to the first two, the Court noted that in order to accept their current assertions ostensibly in favor of the Movants, it “must begin by suspending … disbelief” that both of them had pleaded guilty to lesser, but still serious, charges, and had accepted lengthy sentences as the result of police coercion, but are now making truthful assertions to the contrary. (b) Moreover, implicit in their current positions is the premise that each is “a witness who has demonstrated a willingness to lie under oath,” leaving the court to determine which of their version of events is the lie. (c) It is for this reason, the Court pointed out, that “courts are uniformly skeptical of witnesses who come forward long after their testimony to say that everything they previously said under oath is a lie.” Because “witnesses offering recantations are often facing radically different pressures than they were at the time of the ... trial,” to do so “upsets society’s interests in the finality of convictions, is very often unreliable and given for suspect motives, and most often serves merely to impeach cumulative evidence, rather than to undermine confidence in the accuracy of the conviction.” (d) Against this backdrop of traditional skepticism, the Court noted its ability to have seen firsthand the testimony and demeanor of A and B at the hearing on the IPA motion and to compare them with their videotaped interrogations 27 years earlier, as well as having the opportunity to compare it with the completed record testimony of other trial witnesses who had placed some or all of them at the scene of the murder. (e) It found their current assertions that (i) they were not there and (ii) that they had been forced by the police to name others as the perpetrators, to be “nothing short of preposterous.” Not only was their presence corroborated by “too many other witnesses,” but both were also “extensively cross-examined at trial by ten seasoned defense counsel over the course of several days” and they never deviated from their original versions of events. (f) The Court found that “it is exceedingly unlikely that any juror would have concluded that … [they] were not on the scene or that they were not accurately reporting at least most of what they saw, heard, and did that day.” (g) Although they were both currently out of prison and the motives for their 180-degree turn on their previous testimony “cannot be known,” the Court concluded that “whatever their current motivation may be,” it did “not credit their recantations,” which therefore did not help the Movants in proving their actual innocence. (5) Witness C. (a) The Court found that the testimony of this witness was “even less helpful” to the Movants because of her frequent assertions of lack of memory on key facts, including several regarding the savage anal assault on the victim. At the IPA hearing, she repeatedly asserted simply that she had lied at the trial but could not remember anything else. (b) Again, the Court noted that although her motives for trying now to help the Movants were “unclear,” the fact of her repeated contentions of lack of memory “makes her current testimony relatively useless and adds nothing to … [the Movant’s] claims of innocence.” (6) Witness D. (a) The Court noted with surprise that the testimony of the final recanting witness at the IPA hearing, far from benefitting the Movants, “actually supported the Government.” (b) This was because, instead of recanting his trial testimony, he actually recanted a June 2009 affidavit which he had given defense counsel in which he had recanted same. Instead, at the hearing he affirmed his original trial version that he specifically remembered seeing several of the Defendants near the park which the victim had passed that afternoon and saw them watching her cross the street, then pursue her. (c) Whatever else could be said of his putative “recantation,” the Court concluded, “it certainly cannot be said that his testimony helps” the Movants meet their burden of proving “actual innocence. (7) After considering all of the foregoing, the Court concluded that the Movants had “not come close to demonstrating actual innocence.” It ruled that “they have not proved by clear and convincing evidence that they are actually innocent, and just as surely they have not established their innocence by a preponderance of the evidence” so as to merit a new trial. Accordingly, they were “not entitled to relief under the Innocence Protection Act.” (C) The Brady Issues. (1) In the final category of Movants’ claims, the Court addressed the Brady issue. In comparison to the Section 23-110 and IPA claims, the Court noted that the claim that the Government had withheld exculpatory evidence was “not so easily dismissed.” (2) To begin with, in terms of the Government’s obligation to disclose exculpatory evidence in this particular case, the Court pointed out that it was not just “any murder.” In addition to the notorious brutality of the case, which “inflamed the passions of the entire community,” it involved a team of nine police detectives and other officers, interviews with more than 400 witnesses, the arrests of 17 people, 13 indictments, and ten co-defendants at trial, which it took two Assistant U.S. Attorneys to prosecute. (3) The Court pointed out that, with the benefit of hindsight, one could go back through Government files in any criminal case and find materials that could arguably be defined as Brady and that “in an investigation this complex and extensive, it is almost inconceivable that mistakes would not be made.” (4) The Court also noted that “information that would be disclosed today under Justice Department guidelines and relatively recent caselaw would not have been routinely turned over to the defense in 1985.” (5) The elements of a valid Brady claim are that the information at issue must (a) have been withheld by the prosecution; (b) be favorable to the defendant; and (c) be material to guilt or punishment. (6) Such evidence is “material” if “there is a reasonable probability that, had … [it] been disclosed to the defense, the result of the proceeding would have been different.” (7) Materiality is shown “if, in the context of the entire case, the non-disclosure undermines the court’s confidence in the outcome of the trial.” (8) The Court addressed the undisclosed Brady issues seriatim, as follows: (a) A woman reported to the police that she had witnessed a male friend, who lived adjacent to the alley at the time, acting alone, abduct and murder the victim. Two weeks prior to trial, the male friend shot and killed her. This information was not disclosed by the Government. (b) Three witnesses who were in the alley shortly after the murder saw two men acting suspiciously and reported that observation to the police shortly after they arrived on the scene, after which the two men fled. Both were identified and one of the two men had recently been charged with two purse snatchings in the neighborhood. The Government did not disclose either the names of the two men or the witnesses who had seen them. (9) At the 2012 hearing, the Defense argued that the information about these three men could have provide a “counter-narrative” at trial for the argument that the victim had been killed by one or a combination of these men, rather than a mob composed of the Defendants. (10) The Court’s appraisal of this non-disclosed evidence was as follows: (a) As to the woman’s report that her male friend committed the murder, the Court found that: (i) There was “little question” that it was favorable to the Defense and had not been disclosed. (ii) At the hearing, the Government conceded that at a trial today, it would have done so. (iii) The Court ruled, however, that the third Brady element, i.e., that had it been introduced at trial, there was no “reasonable probability that … the result of the proceeding would have been different.” (iv) Moreover, the Court found not only was her testimony “riddled” with internal inconsistencies, but also that her accusation against her friend had been “thoroughly discredited” in that the jury would have had “to believe that …, acting alone, [he] attacked and murdered Mrs. Fuller, in the face of numerous eyewitness accounts [among hundreds] and other evidence proving that [the] crimes were committed by a large group of young men acting in concert.” (v) The Court concluded that even had this witness lived to tell her story, “any reasonable jury, in light of all the evidence, would surely have rejected it. (vi) For these reasons, it ruled that this testimony failed the “materiality” aspect of the Brady rule and therefore did “not undermine the Court’s confidence in the outcome of the trial.” (b) (i) As to the second undisclosed Brady witness, although three eyewitnesses at the scene of the murder identified him as also being present, no other witness identified him via subsequent photo spreads. (ii) The Court did not find this “identification” any more persuasive than that of the first Brady witness. Indeed, it likewise found it to be immaterial but also “arguably not even favorable to the accused.” Although this suspect lived near the alley, no other witness put him near the scene of the murder. Moreover, even if he was there, he could have been a bystander, and his presence would prove nothing as to the innocence of the Movants. (iii) This evidence, the Court also concluded, “does not override the overwhelming evidence of the guilt” of the Movants or undermine its confidence in the guilty verdicts. (c) The Court also came to the same conclusions as to numerous other “subsidiary Brady claims” advanced by the Movants, including putative lies to the police, drug use, lack of recall, and eyewitnesses present in the park who did not mention seeing any of the accused. (D) Conclusions. (1) Having heard and reviewed all of the testimony, the putative recantations of Government trial witnesses, and the theories and arguments from the various Defense Counsel at the hearing in this matter, the Court was “convinced that the totality of evidence pointing to the guilt of … [the Movants herein] in the abduction and murder of Catherine Fuller … remains … ‘overwhelming.’” (2) Because one Defendant, Mr. Yarborough, was ruled not to be entitled to post-conviction relief on ineffective assistance of counsel grounds, the Court ruled that he was also not entitled to the relief sought by the others on separate grounds, either. (3) In addition to that, although it is clear that his statement could not have been used against the other Defendants at trial on a Bruton basis, in the context of this hearing for purposes of the comparison of relevant evidence, his statement actually provides corroborative evidence of the Movants’ collective guilt, which is buttressed by that provided by at least 10 other witnesses. (4) In any event, it certainly does nothing to help prove their “actual innocence,” the Court found. (5) By the same token, although the Government “should have disclosed certain pieces of information back in 1985 that were arguably favorable to the accused,” the Court ruled that “none of the undisclosed information was material under Brady … because none of it – viewed separately or cumulatively – would have made any difference in the outcome of the trial.” (6) This is because, the Court ruled, “it is not enough to show that the Defendants could have used the undisclosed evidence to construct … counter-narratives.” Rather, the materiality element of Brady requires that they show a “reasonable probability” that the undisclosed evidence would have produced a different verdict.” (7) Under that standard, the Court’s ultimate conclusion was that, “based on the entire voluminous record in this case, … [the Movants’] Brady claims, like their innocence claims, must fail.”
TORT LAW / WRONGFUL DEATH
PHARMACIST MALPRACTICE / DUTY TO WARN / LEARNED INTERMEDIARY DOCTRINE DEFENSE HELD INAPPLICABLE
Abstract: The factual and procedural backgrounds to this case are summarized as follows: Facts. (1) The Plaintiff in this case is the estate of the decedent who, for the last year of his life, had done business with a Drugstore which was part of a well-known chain operating in the District. (2) During that year, his physician had prescribed two drugs for him, one for depression and the other for attention deficit hyperactivity disorder (ADHD), both of which he repeatedly filled at the Drugstore. (3) These drugs, when taken together, however, are “contraindicated,” i.e., known to cause serious adverse effects in some patients. The Drugstore used a computerized system that informs the pharmacists of the customer’s prescription history. In this case, it also alerted to the facts that both these contraindicated prescriptions were being filled simultaneously and that they should not be filled without first contacting the customer’s physician to confirm the prescriptions. No such inquiry was ever made, however. (4) After the customer took the drugs together for several months, he died of sudden heart failure in January 2011. Proceeding. (1) The estate filed this suit against the physician, his clinic, and the Drugstore, asserting a duty to warn. (2) The Drugstore contended that (a) it had no duty to warn and (b) in line with the District’s recognition of the “learned intermediary” doctrine (i.e., in this case as the party between the drug manufacturer and the physician), that duty rested with the latter. It therefore moved to dismiss under Rule 12(b)(6). (3) The Plaintiff countered that there is a duty to warn in the face of a known contraindication, and that the Drugstore may not rely to the doctrine as a defense. Rulings. The Court ruled on the issues presented as follows: (A) Standards. (1) Because a motion to dismiss challenges the legal sufficiency of a claim, the court must examine the complaint to determine if it sets forth sufficient information that would permit inferences to be drawn that indicate that the necessary elements of the claim have been properly set forth. (2) In that regard, Civil Rule 8(a) requires only that a complaint set forth a “short and plain” statement of the facts relied upon. (3) The court is required to accept the facts set forth in the complaint as true, construing all the facts and inferences in favor of the plaintiff. (4) At the same time, however, a complaint must include “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Thus, “naked assertions devoid of further factual enhancement will not suffice, and the court is not bound to accept as true a legal conclusion couched as a factual allegation.” (5) Rather, to survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face,” not merely possible. (6) A claim is deemed to have facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” (7) A court may not dismiss a complaint simply because it does not believe that the plaintiff will prevail on the claim. (8) Dismissal for failure to state a claim is warranted “only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the claim.” (B) Duty to Warn. (1) Where pharmacists are concerned, the majority of jurisdictions do not impose a general duty to warn customers of the potential adverse effects of their medications. Various jurisdictions do not even impose such a duty as to pregnant women, warnings of side effects, or adverse reactions. (2) Those jurisdictions with partial requirements obligate the pharmacist to warn the customer or notify the prescribing physician only under certain circumstances, such as when the patient’s medical history or current medicine regime shows that a prescribed drug is contraindicated, inadequacies in instructions, or prescriptions in obviously lethal doses. (3) Generally, however, case law holds that a pharmacist has a duty to exercise the degree of “ordinary care, skill, thoughtfulness, and diligence” that “a reasonable, prudent person” would in the performance of duties which “ordinarily characterizes the profession.” (C) Learned Intermediary Doctrine. (1) This doctrine acts, in certain circumstances, to insulate an intermediary distributor from liability to a purchaser that should be applied to the manufacturer or the provider, in this case to insulate a pharmacy from liability to a customer that should lie with the drug manufacturer or the physician. (2) In general, courts are reluctant to hold pharmacies liable for injuries caused by drugs that were accurately dispensed according to the terms of a facially valid prescription. (3) Rather, according to persuasive case law from other jurisdictions, “it is only the physician who can relate the propensities of the drug to the physical idiosyncrasies of the patient.” The consensus opinion is that “to impose a general duty to warn on pharmacists would encourage … [them] to ‘second-guess’ the prescribing physician’s decisions” and “would intrude … [the pharmacist] into the doctor-patient relationship.” (4) Although the D.C. Court of Appeals recognized the doctrine in the Payne case (1985), applying it to certain products liability cases, it has never applied it to pharmacists. Its observation was that “the adequacy of the manufacturer’s warnings must be evaluated in relation to” the service provider, not the customer/plaintiff. (5) The Court’s rationale was that where “advertising did not induce purchase of the product, but the product was recommended by an intermediary who is a [learned] professional, the adequacy of the instructions must be judged in relationship to the professional.” Again, however, the Court has never applied that rationale to pharmacists. (6) Because there is no binding D.C. precedent and the general rule throughout the nation is that a pharmacist has no duty to warn a customer of the potential risks of a given medication, the Trial Court herein was “not convinced that that a pharmacy fits within the [defensive] framework of the learned intermediary doctrine” as locally recognized. (7) In this case, taking the allegations as true, as it was required to do at this stage, the Court found that the Plaintiff had adequately pled that the pharmacy knew through its computer system that there could be a serious adverse interaction between the two drugs that had been prescribed to the decedent. (8) It further found a basis to believe that it therefore had a duty to warn him, or to notify his physician, of the contraindication suggesting “a specific, defined, and foreseeable harm about which the pharmacists knew or should have known.” (9) The Court therefore declined to extend the defense of the learned intermediary doctrine to pharmacies, finding “it inappropriate to apply the doctrine to the instant case (at this stage) because the sound policy reasons underlying the doctrine do not appear …. to pertain to this case and should not be applied.” (D) Conclusion. Accordingly, the Defendants’ motion to dismiss was denied.
CIVIL PROCEDURE / PERSONAL JURISDICTION / LONG-ARM STATUTE / APPLICABILITY TO CORPORATE DIRECTORS / “FIDUCIARY SHIELD” DOCTRINE / “MORE THAN AN EMPLOYEE” EXCEPTION / “SPECIAL INTEREST” STANDING / “DERIVATIVE CLAIM” STANDING / FAILURE TO STATE A CLAIM UNDER RULE 12(b)(6)
BREACH OF FIDUCIARY DUTY / BREACH OF CONTRACT / PROMISSORY ESTOPPEL / UNJUST ENRICHMENT
Abstract: This Memorandum Opinion even-handedly addresses a bewildering maze of civil procedure, personal jurisdiction, corporate law, trust law, and civil procedure, breach of contract and fiduciary duty, and various other issues swirling around one of the more controversial institutions in the world, the Unification Church. It is a tour d’ force of legal reasoning which applies neutral precepts of law to a heated dispute among persons and entities who managed to find their way into the judicial system of the District of Columbia from places as far away as South Korea and Japan. The factual and procedural backgrounds to the case are summarized as follows: Facts. (1) The Unification Church, founded in South Korea, by the Rev. Sun Myung Moon in 1954, has since become a complex international organization, with divisions and offices in various cities, including the District of Columbia. (2) The central tenet of the Church is what it calls the “Divine Principle,” a theological belief in “returning resurrection,” which posits that departed souls can expiate their sins and achieve spiritual salvation by returning to earth and cooperating with living people to do good deeds, citing Hebrews 11:40 (“God having provided some better thing for us, that they without us should not be made perfect.”). (3) In 1971, Rev. Moon moved to the United Sates to develop the Church here. Five years later, he directed the opening of a Church bank account in the District to be used for the benefit of its activities. (4) In 1977, Rev. Moon directed that a non-profit corporation be established in the District to implement the purposes of the Church. From the establishment of the corporation to 2006, hundreds of millions of dollars were deposited into the account and those funds were used pursuant to the directives of the corporation’s board of directors. (5) In 2006, the Rev. Moon designed his son Preston as a Director of the Church and of the corporation. (6) Two years later, Rev. Moon, then 86, designated another son, Sean, as the new leader of the Church. Shortly after that appointment, Preston, allegedly disappointed at having been passed over, began to take steps to re-organize the trust. (7) Members of the board of directors of the corporation, including the individual Plaintiffs, were voted out of office and replaced with others loyal to Preston. The reconstituted board then amended the articles of incorporation to remove all references to the Church and its mission to disseminate the Divine Principle. Properties were purchased with trust funds and titled in the names of other corporations that were wholly owned by Preston and payments for “consulting” services were similarly paid out to one of his subsidiaries. Proceedings. (1) In May 2011, the Plaintiffs, two persons acting as officers on behalf of several entities – termed “providential organizations” -- that are closely associated with the Church and which are putative beneficiaries of the trust fund, filed this suit to gain control of the corporation and the bank account and wrest it away from Preston Moon and five other Church officials on the grounds of breach of fiduciary duty, ultra vires acts, breach of contract, breach of fiduciary duty, breach of trust, and unjust enrichment. They also sought injunctive relief against further dissipation of assets and disgorgement of the proceeds of previous actions. (2) The Defendants’ responses were that all actions had been approved by a duly-elected board of directors which took the necessary steps to deal with modern issues facing the Church. They also asserted that the Plaintiffs have no standing to challenge how the corporation is run or how its donations are distributed, because the corporation was originally established “without owners,” i.e., no person, group, or entity has an ownership interest in it, thus leaving it self-governing by its board. (3) Based on these premises, in July 2011, the Defendants filed a Motion to Dismiss pursuant to Rule 12(b)(1), challenging the Court’s personal jurisdiction, and Rule 12(b)(6), challenging the sufficiency of the claim. Rulings: The Court ruled on the issues presented as follows: (A) Standards. (1) The plaintiff bears the burden of proving that the court may assert personal jurisdiction over the defendant. (2) Where multiple non-resident defendants are named, personal jurisdiction must be shown as to each. (3) In so doing, “bare allegations and conclusory statements are insufficient” and the plaintiff must allege “specific facts connecting the defendant with the forum.” (4) The District’s long-arm statute allows the court to exercise personal jurisdiction over a non-resident if that person has, inter alia, “transacted any business” here. (5) That concept is coincident with the maximum authority allowed under the Due Process Clause of the Fifth Amendment. (6) The business transacted need not be “extensive” to subject the defendant to personal jurisdiction here; in fact, a non-resident need not even have been present in the District to fall under that provision. (7) The critical inquiry is “whether the business transacted within the District … can be reached jurisdictionally without offending due process.” (8) That determination is made by showing “that a defendant has sufficient minimum contacts with the forum so that the exercise of personal jurisdiction would not offend traditional notions of fair play and substantial justice.” (9) A defendant must have “purposely directed” its activities at the forum state’s residents, such that it would “reasonably anticipate being hauled into court there.” (10) Thus, “the minimum contacts principle requires … [the court] to examine the quality and nature of the non-resident defendant’s contacts with the District and whether those contacts are voluntary and deliberate or only random, fortuitous, tenuous, and accidental.” (11) Where individual officers, directors, and employees of a corporation are concerned, the court does not automatically have personal jurisdiction over them simply because of that status or because it has jurisdiction over the corporation itself. (12) Under the “fiduciary shield doctrine,” where there are no allegations that a non-resident defendant’s contacts were for the purpose of transacting business individually, but only in that person’s official capacity in order to perpetuate a corporation’s business, such a defendant cannot be sued individually under the “transacting business” section of the long-arm statute. (13) This principle, however, is not absolute or a per se rule, but simply holds that “an individual’s role as a corporate officer, without more, is not a sufficient basis for exercising personal jurisdiction over the officer in his [or her] individual capacity.” (14) But if the non-resident defendant is found to be “more than an employee” of the corporation, s/he may not be protected by the “fiduciary shield,” as where s/he “set company policies and procures, was active in day-to-day operations, and maintained active involvement and supervision of all aspects of the company.” (15) Thus, if a court finds the “more than an employee” exception applies, it can impute the corporation’s contact with the District to the individual defendants who control the corporation, even if those defendants are not personally transacting any business here. (16) Although the D.C. Court of Appeals has never formally adopted the “more than an employee” exception, it has favorably referenced it in several opinions and has been applied by the U.S. District Court here. (17) Pleadings are construed “so as to do substantial justice.” (B) Personal Jurisdiction. (1) The Court found that it had jurisdiction over the corporation because it was organized under D.C. law. (2) Because, however, none of the individual Defendants was a resident of the District, the Court could exercise personal jurisdiction over them under the “transacting business” section and the “causing harm” section of the District’s long-arm statute. (3) As directors of the corporation, they had participated in business transactions by filing amended articles of incorporation, managing and selling properties, and operating or managing other businesses here, as well as engaging in conduct which the Plaintiffs alleged caused injury to them and to the corporation in the District. (4) Similarly, the Plaintiffs alleged that the individual Defendants “subverted the mission” of the Church by changing the articles of incorporation and personally participated in a “scheme to dissipate” the Church’s assets, all of which occurred in the District of Columbia. (5) By voluntarily becoming members of a D.C. non-profit corporation, they accepted all the rights, obligations, and protections that local laws provide. (6) The Court therefore ruled “that Plaintiffs have alleged sufficient facts to demonstrate that the individual Defendants have ‘purposely availed’ themselves of the laws of the District of Columbia and should, therefore, be subject to this Court’s jurisdiction” under the long-arm statute. (C) Standing. Having found jurisdiction over the Defendants, the Court then addressed the standing of the Plaintiffs to sue them, addressing two types of standing pertinent to this case, as follows: (1) Special Interest Standing. (a) A charitable trust is formed for the benefit of the public, and persons who administer such a trust are conduits through whom such benefits flow and do not derive any personal benefit from the trust assets. (b) Ordinarily, therefore, only a state official, such as the Attorney General, has standing to bring an action to enforce its terms to ensure that the trust property is put to proper use for the community at large. (c) This is because the designated communal beneficiaries consist of a large and constantly shifting class and allowing individual members to bring justiciable claims would result in recurring burdens on the trust res and multiple and vexatious law suits. (d) There is, however, a “special interest exception” to this rule where performance of the trust for the benefit of an individual is distinguishable from that for the public at large. (e) Such a “special interest” must be vindicated on behalf of “a clearly identified intended beneficiary,” not merely a possible beneficiary. (f) Also to be taken into consideration is “the nature of the challenge to the trustee’s acts.” (g) That determination turns on whether the claim flows from either (i) “an ordinary exercise of discretion” by the trustee, which is not actionable by a special interest beneficiary or (ii) an action by the trustee which constitutes a “basic change affecting the interests of the entire class” of affected beneficiaries, which may not be brought by a special interest beneficiary. (h) Put another way a beneficiary who is identified with “particularity” may sue, but one who is only identified “categorically” may not. (i) On the same “particularity” theory, more than one beneficiary may sue if its members are limited in number and they are challenging “an extraordinary measure threatening the existence of the trust.” (j) Here, the Court found that the Plaintiffs are not “members of a class of potential beneficiaries that is sharply defined and limited in number.” Rather, their complaint sounds in generalized terms, summed up in the allegation that the trustees are not acting to perpetuate the dissemination of the Divine Principle. This contention, the Court found, opens the class of beneficiaries to an “extremely broad” group. (k) Nevertheless, taking into consideration the “extraordinary measure” taken by the trustees which arguably “threatens the existence of the trust” which, without oversight, “could amount to a complete overhaul” thereof and “subvert all of its originally intended purposes,” the Court concluded that the Plaintiffs herein “individually and collectively are exactly the type of parties for which ‘special interest’ standing is reserved.” (l) The Court ruled that because the Plaintiffs are not merely members of the Church, but “are entities and individuals that have … a significant interest in … [the Church]’s dealings,” noting that they included the primary donor to the trust, principal intended beneficiaries, allegedly wrongly-ousted officers and directors, they qualified for the “special interest” exception, distinguishable from the public at large, for standing purposes. (2) Derivative Claim Standing. (a) A stockholder derivative suit is one in which one or more shareholders sue in the name of the corporation to enforce a legal right or prevent a wrong to the corporation, typically at the hands of its officers, because it has refused to do so. (b) The D.C. Nonprofit Corporation Act provides that only “members” of such a corporation have standing to bring a derivative suit and, because the corporation at issue here was organized as a non-member corporation, only the Attorney General could bring a derivative suit. (c) Further, Civil Rule 23.1 requires that a plaintiff seeking derivative standing must allege that s/he was a shareholder or member at the time of the challenged transaction. (d) In this case, none of the Plaintiff alleged that they were shareholders or members of the corporation. (e) Their argument, however, was that their cause of action was not a traditional derivative claim but a “quasi-derivative” one. (f) The threshold qualification for such a claim is that a plaintiff has a “special interest” in the governance of the corporation which gives it standing as the corporation’s “legal representative.” (g) The D.C. Nonprofit Corporation Act does not specifically identify those individuals and entities that have standing to bring a derivative claim as a “legal representative.” Although the statute does not define that term, case law requires that a “broad definition” be applied. (h) The Court, however, distinguished between a derivative action, which is brought on behalf of the corporation itself, and a person with “special interest standing,” who is seeking to secure an “individualized interest,” principles which it found to be contradictory. (i) The Court therefore ruled that Plaintiffs lack standing to bring a derivative action on the Church’s behalf and it was dismissed from the suit as a Plaintiff. (D) Contract Standing. (1) One of the Plaintiffs was the Japan-based church entity which was the largest contributor to the trust. Its cause of action was a breach of contract, alleging that the Defendants had misappropriated the funds in the trust. (2) The defense was that, absent denomination as a “restricted gift” with rights reserved, a contributor has no standing to sue over the disposition of donated funds and that only the Attorney General may sue to enforce conditions placed on a charitable trust. The Plaintiffs responded that these donations were, in fact, “restricted” to perpetuating the genuine work of the Church. (3) The Court pointed out that the relevant D.C. statute “explicitly provides settlors and persons with special interest standing to enforce the purpose of a charitable trust.” (4) Accordingly, the Court ruled that the contract-based claims “should not be dismissed on the ground that the … [major contributor] lacks standing to bring such claims.” (E) Rule 12(b)(6) Dismissal. (1) Such a motion challenges the legal sufficiency of a complaint; it is to be construed liberally so as to do “substantial justice.” (2) The only requirement under Rule 8(a) is that a “short and plain statement” of the facts alleged be set forth. (3) Although detailed allegations are not required, a complaint must set forth “more than an unadorned, ‘the-defendant-unlawfully-harmed-me’ accusation. Thus, “naked assertions devoid of further factual enhancement will not suffice. (4) The court must accept the well-pleaded allegations of the complaint as true and construe all facts and inferences in favor of the plaintiff. (5) At the same time, however, the court is not required to accept as true a mere legal conclusion couched as a factual allegation. (6) The factual allegations “must raise a right to relief above a speculative level” to that which “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” (7) A Rule 12(b)(6) motion should be granted “only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of its claim.” The Court applied these premises to the remaining claims as follows: (F) Breach of Trust. (1) The Plaintiffs alleged that Rev. Moon had created an “oral charitable trust” for the benefit of the Church and that the Japanese entity had become a settlor of the trust by means of its major contributions thereto. (2) Defendants argued that there were insufficient allegations to show even the intent to create a trust, let alone to determine the distribution of the funds therein. (3) The Court relied on the Restatement (Second) on Trusts, which defines a trust as a “fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.” (4) Under D.C. law, a trust is created only if (a) the settlor has the capacity to create a trust; (b) the settlor indicates an intention to create the trust; (c) the trust has (i) a definite beneficiary or (ii) is a charitable trust; (d) the trustee has duties to perform; and (e) the same person is not the sole trustee and the sole beneficiary. (5) There is no requirement that the trust be evidenced by a written instrument, but the creation of an oral trust, as well as its terms, must ultimately be established by clear and convincing evidence. (6) The sole challenge under these requirements was to Rev. Moon’s intent in creating the bank account and the Defendants contend that the evidence of any such intent was “wholly inadequate” in that there was no allegation of specific words or terms to that effect and that the mere creation of a bank account does not constitute the creation of a trust,
i.e., that this was merely an unacceptable “legal conclusion” by the Plaintiffs. (7) The Court rejected the Defendants’ contentions in this regard, noting that at this stage of the case, the Plaintiffs were not required to meet the “clear and convincing evidence” standard, but merely to have alleged “sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.” (8) Moreover, a trust can be evidenced by written or spoken language “or by conduct, in light of all the surrounding circumstances.” (9) Among the circumstances that may be considered are (a) the imperative, as distinguished from the precatory, nature of the words used by the settlor to create a trust; (b) the definiteness of the trust property; (c) the certainty of the identity of the trust beneficiaries; (d) the relationship between, and financial positions of, the parties; (e) the motives which may reasonably be supposed to have influenced the settlor in making the disposition, and (f) whether the result reached in construing the transaction as a trust would be such as a person in the situation of the settlor would naturally desire to produce. (10) The Court found that Rev. Moon opened the bank account in the name of the Church, rather than in his own or another person’s name, and that the “reasonable inference” was that he did so with the intent to create a “fiduciary relationship” with respect thereto for the benefit of Church activities. (11) To the Defendants’ argument that there was no evidence that Preston Moon ever accepted the role of trustee in the first place, the Court pointed out that the pertinent D.C. statute provides that “a person designated as trustee accepts the trusteeship … if the terms of the trust do not provide a method [for doing so] … by accepting delivery of the trust property, exercising powers, or performing duties as trustee, or otherwise indicating acceptance of the trusteeship.” (12) The Court therefore concluded that the Plaintiffs had pled sufficient facts from which it could “reasonably infer” that the Rev. Moon had intended to form a trust. Although, it noted, this might not be sufficient to carry the day at trial, it was adequate at this stage of the case when allegations in the complaint and inferences drawn therefrom must be accepted as true. (G) Breach of Fiduciary Duty/Ultra Vires. (1) Plaintiffs alleged that the Defendants, as members of the Church’s board of directors, owed duties of obedience, loyalty, and care and a further duty not to take any action in contravention of its established mission and purpose, and that they breached those duties by (a) amending the articles of incorporation; (b) violating the Church’s long-standing custom and practice as to the appointment and removal of directors; (c) engaging in self-dealing by diverting assets away from that established purpose and to their personal pursuits; and (d) ceasing to use the Church’s assets to support its mission and activities. (2) The Defendants responded that this count should be dismissed because the complaint did not allege facts sufficient to establish that they owed any fiduciary duty to the Plaintiffs themselves, rather than to the Church. (3) They further argued that, by definition, ultra vires acts are those taken without authorization, whereas all those set forth in the complaint were ratified by the existing board of directors. (4) Plaintiffs responded that these actions had harmed them in their personal capacities, in addition to their interests in the corporation, because they were taken outside the authorization of the original articles of incorporation. (5) Moreover, where a charitable corporation is concerned, they argued, individual defendants may be held liable for breaches of their duty of loyalty to administer the trust in the interests of the beneficiaries. (6) The Court found that at this point is that the Plaintiffs had made sufficient allegations in the complaint, which clearly set forth the contentions that (a) the Defendants owed Plaintiffs a fiduciary duty; (b) they breached that duty; and (c) the breach proximately caused that injury. (7) The Court further found that the Plaintiffs had sufficiently pled at least one ultra vires act, which ostensibly violated a local statute which provides that no loans shall be made by a corporation to its directors or officers and those directors who vote to approve such a transaction shall be jointly and severally liable to the corporation for the amount thereof. (8) The Court’s conclusion was that the Plaintiffs therefore had legal standing to bring this claim. (H) Breach of Duty as Agent. (1) The lead Plaintiff in the case, the Family Federation, is the administrative religious entity that directs the Church worldwide, including the appointment and removal of leaders of the “providential organizations.” The Plaintiffs contended that Preston Moon was an agent of the Federation and that by acting in contravention of the purposes of the Church he had breached his fiduciary duty as an agent to the Federation as well. (2) The Defendants denied any such agency and, again, argued that the complaint did not sufficiently demonstrate same and that Preston had never consented to be such an agent. (3) Once again the Court pointed out that under D.C. law there is a two-fold test for determining the existence of an agency relationship: (a) the parties’ consent to establish it and (b) whether the activities of the agent are subject to the principal’s control. (4) Factors relevant to this two-part test are: (a) the selection and engagement of the servant; (b) the payment of wages; (c) the power to discharge; (d) the power to control the servant’s conduct; and (e) whether the work is part of the regular business of the employer. Of these factors, the element of control is the most important. (5) A court will also look both at the terms of any contract and the actual course of dealings between the parties in which “conduct or words by a person which cause the other reasonably to believe that the person desires him to act on his account and subject to his control are sufficient to establish such authority.” (6) The Court found that the “course of dealings” showed that the heads of all the Church’s providential organizations were subject to appointment and removal by the head of the Federation, a hierarchical structure that had been in place for decades, thus making him “well aware” that he served it in an agency capacity. (7) Although acknowledging that this was “an extremely close call,” the Court concluded that, however the evidence might turn out at trial, “it is undeniable that Plaintiffs have pled facts to indicate that” the Church and the providential heads “operated in accordance with … directives” from Rev. Moon and the Federation, plus bringing them, Preston Moon included, knowingly and voluntarily under the implied control thereof, and thereby making them agents subject to trial on this count of the complaint. (I) Breach of Contract. (1) Plaintiffs also alleged that Preston Moon’s violation of the original articles of incorporation breached a contractual promise in not applying the donations to the purposes for which the Church was established but diverting them to his own interests. (2) The well-settled elements for a breach of contract claim are (a) the existence of a valid contract, meaning lawful subject matter and agreement on all material terms, between the parties; (b) consideration; (c) intent to be bound by an obligation or duty arising out of the contract; (d) a breach of the contract; and (e) damages caused by the breach. (3) The Court found the Plaintiffs’ allegations on this issue were less than precise, but presumed in a light most favorable to them that they were alleging an “implied-in-fact” contract based on the long-standing course of dealings between the parties and memorialized by various correspondence between their representatives. (4) An implied-in-fact contract is a valid contract, “differing from other contracts only in that it has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of the parties in the milieu in which they dealt.” (5) Noting that the nature of the contract was “not necessarily important,” the Court found that the question on this count was whether elements of a contract and breach had been properly pled. It found that, “at this stage,” such an agreement, its violation, and resulting damages satisfactorily showed, if proven, the Plaintiffs’ entitlement to relief. (J) Promissory Estoppel. (1) The elements of promissory estoppel are (a) a plaintiff suffered an injury; (b) in reliance to its detriment on a promise by a defendant; and (c) enforcement of the promise is necessary to prevent injustice. (2) The defense was that there could be no damage to a contributor to the trust because such contributions did not carry any implication of control over them but, indeed, an abandonment of any right to reclaim them. Therefore, there could be no injustice involved. (3) The Court found that the Defendants’ argument that damages are not available under this theory to be “misplaced,” concluding that there had been “a promise which reasonably leads the promisee to rely on it to his detriment” with unavoidable injustice. (4) It concluded that “at this stage of the proceeding … that Plaintiffs have set forth facts by which the Court can infer each element of … a claim for promissory estoppel.” (K) Unjust Enrichment. (1) Under D.C. law, unjust enrichment occurs when (a) the plaintiff conferred a benefit on the defendant; (b) the defendant retained the benefit; and (c) under the circumstances, the defendant’s retention of the benefit is unjust. (2) On this count, the Plaintiffs alleged that the Defendants had retained funds for their own benefit “which in justice and equity belong to another.” (3) The Defendants repeated their argument that the contributors relinquished all claims and control over the donations and therefore they could not be deemed to have retained a monetary benefit that rightfully belongs to the Plaintiffs. (4) The Court, however, found that all the circumstances sufficiently indicated that the Church had used the trust money to fund its religious endeavors and that allegations of the misdirection of those funds, resulting in harm to the Plaintiffs, were sufficient to give rise to an entitlement to relief on a claim of unjust enrichment. (L) Conclusions. (1) The Court ruled that it had personal jurisdiction over the corporation at issue herein because it was a D.C. corporation. (2) It also ruled that it had personal jurisdiction over the Defendants under the long-arm statute. (3) It further ruled that the Plaintiffs had “special interest” standing to sue regarding the trust and also had standing under the contract claim. (4) The assertion of standing to sue under a “quasi-derivative” corporate claim, however, was disallowed. (5) The Court denied the Defendants’ motion to dismiss, finding that, at this point in the case, there was a sufficient pleading to support the establishment of a trust and one of the Defendants as the trustee, and that breach of that trust had been properly pled as well. (6) It ruled that both agency and breach of duty thereunder had been well-pled. (7) It also declined to dismiss the counts on ultra
vires, breach of contract, promissory estoppel, and unjust enrichment.