Kelleher v. Dream Catcher, L.L.C.

STEPHEN KELLEHER Plaintiff, v. DREAM CATCHER, L.L.C., et al., Defendants.

Case No. 1:16-cv-02092 (APM)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

July 31, 2019

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Plaintiff Stephen Kelleher contracted with Defendant Dream Catcher to renovate his home in Washington, D.C., in July of 2014. Dream Catcher never completed the work, forcing Plaintiff to hire other contractors to finish the job. Plaintiff contends that Dream Catcher breached the contract by missing deadlines and ultimately abandoning the project. Dream Catcher and its owners, Defendants Heidi Schultz and Cesar de Armas, maintain that events outside of their control caused delays on the project, and that Plaintiff prohibited Dream Catcher from completing the work. Defendants Schultz and De Armas also assert that they cannot be held liable for any corporate debts of Dream Catcher, which is now insolvent.

Defendants have moved for summary judgment only on the question of whether Plaintiff can pierce the corporate veil, while Plaintiff seeks summary judgment as to all claims. For the following reasons, Defendants' Motion is denied, and Plaintiff's Motion is granted in part and denied in part.

II. BACKGROUND

A. Factual Background

Defendant Dream Catcher LLC ("Dream Catcher") was a District of Columbia limited liability entity incorporated in April 2014 and dissolved in December of 2015. Defs.' Mot. for Summ. J., ECF No. 57 [hereinafter Defs.' Mot.], Defs.' Stmt. of Undisputed Material Facts, ECF No. 57 at 4-6 [hereinafter Defs.' Facts], ¶¶ 1, 24; Pl.'s Opp'n to Defs.' Mot. for Summ. J., ECF No. 60 [hereinafter Pl.'s Opp'n], Pl.'s Opp'n Facts, ECF No. 60 at 1-10 [hereinafter Pl.'s Opp'n Facts], ¶¶ 1, 24; Pl.'s Mot. for Partial Summ. J., ECF No. 58 [hereinafter Pl.'s Mot.], Pl.'s Stmt. of Undisputed Material Facts, ECF No. 58-1 [hereinafter Pl.'s Facts], ¶ 48; Defs.' Opp'n to Pl.'s Mot. for Partial Summ. J., ECF No. 61 [hereinafter Defs.' Opp'n], Defs.' Opp'n Facts, ECF No. 61-1 [hereinafter Defs.' Opp'n Facts], ¶ 48. Defendants Cesar de Armas and Heidi Schultz, who are married, were the sole members of Dream Catcher. Defs.' Facts ¶ 2; Pl.'s Opp'n Facts ¶ 2; Pl.'s Facts ¶ 43; Defs.' Opp'n Facts ¶ 43. Dream Catcher's business address was the personal home maintained by the couple and their family. Pl.'s Facts ¶¶ 44, 46, 47; Defs.' Opp'n Facts ¶¶ 44, 46, 47.

On July 14, 2014, Plaintiff Stephen Kelleher entered into a contract with Dream Catcher ("the contract") to renovate his home in Washington, D.C. Pl.'s Facts ¶¶ 2-3; Defs.' Opp'n Facts ¶¶ 2-3. Plaintiff paid Dream Catcher approximately $175,000 for this work, including a $44,000 payment for cabinets, a skylight, and other materials. Pl.'s Facts ¶¶ 13, 37; Defs.' Opp'n Facts ¶¶ 13 (not disputing the amount of the $44,000 payment or its purpose), 37; Pl.'s Mot., Ex. 2, ECF No. 58-6 [hereinafter Pl.'s Ex. 2], at 2. The parties agreed that the work would be substantially completed within "approximately 3 months" of July 21, 2014, with delays permitted for certain specified causes. Pl.'s Facts ¶ 4; Defs.'s Opp'n Facts ¶ 4 (not disputing the content of the contract);Pl.'s Mot., Ex. 1, ECF No. 58-5 [hereinafter Pl.'s Ex. 1], at 2. The contract also included an express warranty for all labor and materials used in the project. Pl.'s Facts ¶ 5; Defs.' Opp'n Facts ¶ 5; Pl.'s Ex. 1 at 8.

Nearly a year later, the project remained incomplete. In early June of 2015, De Armas and Plaintiff arranged to meet with the project architect to determine "what it would take for [De Armas] to complete the job." Pl.'s Facts ¶ 14; Defs.' Opp'n Facts ¶ 14. De Armas did not show up for the meeting. Pl.'s Facts ¶¶ 7-8, 15; Defs.' Opp'n Facts ¶¶ 7-8, 15. Plaintiff then noticed his intent to terminate the contract and gave Defendants an opportunity to cure asserted deficiencies, but Defendants never responded. Pl.'s Facts ¶¶ 21-25; Def.'s Opp'n Facts ¶¶ 21-25. Plaintiff formally terminated the contract in August 2015. Pl.'s Mot., Pl.'s Ex. 47, ECF No. 58-13. Plaintiff then hired a replacement contractor, to whom he paid an additional $123,824.41 for construction and renovation work and to complete work left outstanding by Dream Catcher. Pl.'s Facts ¶¶ 29, 37; Defs.' Opp'n Facts ¶¶ 29, 37.

De Armas and Schultz dissolved Dream Catcher in December 2015. Pl.'s Facts ¶ 49; Defs.' Opp'n Facts ¶ 49. At that time, the company's initial financing—a $50,000 business line of credit for which Schultz was a personal guarantor, and a $55,000 second mortgage on Schultz's Washington, D.C. home—was fully expended. Defs.' Facts ¶¶ 4, 20; Pl.'s Opp'n Facts ¶¶ 4, 20; Pl.'s Facts ¶¶ 78, 79; Defs.' Opp'n Facts ¶¶ 78, 79. Dream Catcher also had outstanding debts, including back wages, which Schultz eventually paid with proceeds from the sale of her home. Pl.'s Facts ¶¶ 75-79; Defs.' Opp'n Facts ¶¶ 75-79.

Dream Catcher undertook three construction projects in its short life: the Kelleher project, another residential renovation in Alexandria, Virginia, and a restaurant renovation in Washington, D.C. Pl.'s Facts ¶¶ 57-58; Defs.' Opp'n Facts ¶¶ 57-58. Dream Catcher completednone of the three projects, and each owner told Dream Catcher not to return to complete the work. Pl.'s Facts ¶¶ 72-74; Defs.' Opp'n Facts ¶¶ 72-74.

B. Procedural Background

Plaintiff originally brought this suit in D.C. Superior Court in May 2016. See Notice of Removal, ECF No. 1 [hereinafter Notice of Removal], First Compl., ECF No. 1-1. Defendants removed to this court in October 2016. See Notice of Removal.

This court previously granted in part and denied in part Defendants' Motions to Dismiss, leaving in place Plaintiff's claims for (1) breach of contract, (2) breach of warranty, (3) unjust enrichment, (4) breach of implied covenant of good faith and fair dealing, and (5) unlawful trade practices. See Am. Compl., ECF No. 13; see also Kelleher v. Dream Catcher, L.L.C., 263 F. Supp. 3d 322 (D.D.C. 2017). The question of whether Plaintiff can pierce the corporate veil to hold individual defendants De Armas and Schultz liable for Dream Catcher's actions also remains before the court. Kelleher, 263 F. Supp. 3d at 324-26.

III. LEGAL STANDARD

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A "genuine dispute" of a "material fact" exists when the fact is "capable of affecting the substantive outcome of the litigation" and "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Elzeneiny v. District of Columbia, 125 F. Supp. 3d 18, 28 (D.D.C. 2015). In assessing a motion for summary judgment, the court considers all relevant evidence presented by the parties. Brady v. Office of Sergeant at Arms, 520 F.3d 490, 495 (D.C. Cir. 2008). The court looks at the facts in the light most favorable to the nonmoving party and draws all justifiable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S.242, 255 (1986). If the court determines "no reasonable jury could reach a verdict in [his] favor," then summary judgment is appropriate. Wheeler v. Georgetown University Hosp., 812 F.3d 1109, 1113 (D.C. Cir. 2016). Courts are "not to make credibility determinations or weigh the evidence." Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006).

IV. DISCUSSION

A. Piercing the Corporate Veil

The court begins with the question of whether Plaintiff can pierce the corporate veil, an issue on which both parties move for summary judgment. See Defs.' Mot. at 8-12; Pl.'s Mot., Pl.'s Mem. For Summ. J., ECF No. 58-2 [hereinafter Pl.'s Mem.], at 5-6. For the following reasons, the court denies both parties' motions on this issue.

"The general rule is that a corporation is regarded as an entity separate and distinct from its shareholders." Lawlor v. District of Columbia, 758 A.2d 964, 975 (D.C. 2000). However, the D.C. Circuit has found it appropriate to pierce the corporate veil when "the corporation, rather than being a distinct, responsible entity, is in fact the alter ego or business conduit of the person in control." Labadie Coal Co. v. Black, 672 F.2d 92, 97 (D.C. Cir. 1982). Courts generally inquire as to (1) "whether corporate formalities have been observed," (2) "whether there has been commingling of corporate and shareholder funds, staff and property," (3) "whether the corporation is adequately capitalized," (4) "whether a single shareholder dominates the corporation," and (5) "whether the corporate form has been used to effectuate a fraud." Ruffin v. New Destination, LLC, 773 F. Supp. 2d 34, 40 (D.D.C. 2011) (quoting Lawlor, 758 A.2d at 975). No single factor is dispositive. Lawlor, 758 A.2d at 975. The question of whether the corporate veil should be pierced is generally one for a jury. See Vuitch v. Furr, 482 A.2d 811, 816 n.6 (D.C. 1984).

1. Corporate Formalities Observed

The court begins with the first factor: whether Defendants disregarded corporate formalities. In support of this factor, Defendants emphasize that Dream Catcher was duly formed, maintained separate financial accounts, kept separate business records, and hired and paid employees. See Defs.' Mem. at 9. The evidence, however, is at best ambiguous as to Defendants' corporate practices.

The evidence supports Dream Catcher's separate legal existence, see Defs.' Facts ¶¶ 1-2; Pl.'s Opp'n Facts ¶¶ 1-2, as well as corporate bank accounts for the company. See Defs.' Reply to Pl.'s Opp'n to Defs.' Mot. for Summ. J., ECF No. 63 [hereinafter Defs.' Reply], Defs.' Ex. A, ECF No. 63-1 (attaching banking records). But Defendants' management and maintenance of business records remains unclear. See TAC-Critical Sys., Inc. v. Integrated Facility Sys., Inc., 808 F. Supp. 2d 60, 67 (D.D.C. 2011) (finding uncertain whether defendants followed corporate formalities where questions remained about corporate...