Martin v. Santorini Capital, LLC

236 A.3d 386

Charles M. MARTIN, Appellant,

v.SANTORINI CAPITAL, LLC, et al., Appellees.

Nos. 18-CV-1178

19-CV-490

District of Columbia Court of Appeals.

Submitted October 2, 2019

Decided August 27, 2020

Charles M. Martin, pro se.

Roger C. Simmons was on the brief for appellees Santorini Capital, LLC, Steven S. Snider, R. Michael Kuehn, Jeffrey Mertz, and William Leahy.

Lindsay A. Thompson, Washington, and Thomas F. Murphy, were on the brief for appellee Richard L. Sugarman.

Before Blackburne-Rigsby, Chief Judge, Beckwith, Associate Judge, and Ruiz, Senior Judge.

Blackburne-Rigsby, Chief Judge:

Appellant Charles M. Martin appeals the trial court's dismissal of his complaint alleging various wrongdoings by Santorini Capital, LLC ("Santorini"), its members Steven S. Snider and R. Michael Kuehn, its employee Jeffrey B. Mertz, and its attorneys William F. Leahy and Richard L. Sugarman. For the most part, appellant's complaint alleged that appellees’ wrongful actions caused harms to the ownership interests in several real properties, which were owned by several limited liability companies ("LLCs"). However, he named himself in his individual capacity as the plaintiff. Rule 17(a)(1) of the Superior Court Rules of Civil Procedure requires that actions "must be prosecuted in the name of the real party in interest." Although appellant owned and controlled the LLCs, corporate law recognizes that the LLCs own the real properties at issue, not appellant, and therefore they are the real parties in interest. Because appellant failed to prosecute these claims on behalf of the real parties in interest, i.e., the LLCs, and because appellant did not substitute those parties into the case within a reasonable time, we conclude that the trial court did not err in dismissing those causes of action to the extent that appellant's complaint alleged damages to the ownership interests in the real properties. The trial court erred, however, in dismissing his breach of contract claim to the extent that his claim alleged a direct harm to himself that was independent of any injury to any LLC's ownership interests. The trial court also properly dismissed appellant's intentional infliction of financial distress and defamation claims for failure to state a claim. In turn, the trial court also properly dismissed lis pendens notices that appellant filed on the real properties at issue. We therefore affirm in part, reverse in part, and remand for further proceedings.¹

I. Factual and Procedural History

Appellant's complaint makes the following allegations. Between November 2016 and March 2017, Santorini issued approximately nine loans to LLCs owned and controlled by appellant for the purposes of purchasing, renovating, and selling several pieces of real property that those LLCs owned.² Appellant guaranteed each of the loans in his individual capacity. The LLCs subsequently defaulted on the loans, and, in May 2018, Santorini – through counsel Sugarman – filed foreclosure notices on the relevant LLC-owned real properties. To prevent foreclosure and ensure loan repayment, the LLC-property owners, appellant, and Santorini entered into a Loan Modification Agreement on June 20, 2018 (the "Agreement"). Pursuant to the Agreement, the LLCs and appellant (as guarantor of the loans) agreed to repay the loan balance of $2,900,000 to Santorini by October 30, 2018, and to pay $50,000 in interest to Santorini every month between August 1 and October 1, 2018. In addition, each LLC agreed to execute a deed in lieu of foreclosure in Santorini's name against the property under its control. Santorini, in turn, made additional promises to each LLC that were specific to its respective property, described in relevant part below. Appellant signed the Agreement in his personal capacity as the "Individual Guarantor" and on behalf of each LLC as its "Authorized Member."

The complaint further alleges that appellees breached the Agreement with respect to three LLC-owned real properties. First, Snider and Kuehn forced a tenant to leave one real property (owned by "CMSEP – 601 Atlantic St. SE, LLC"), which made it impossible for that LLC to sell the real property to that tenant and make specified modifications to the contract of sale, as provided for in the Agreement. Second, Santorini failed to reduce and amend an Indemnity Deed of Trust ("IDOT") on a second property (owned by "P3DC – 1668 Tamarack St. NW, LLC"), as required by the Agreement. Third, after appellant paid off the debt for a third property (owned by "CSFB – 5000 Marlboro Pike, LLC"), Santorini failed to issue a debt satisfaction letter, as required by the Agreement.

On August 1, 2018, appellant filed the complaint, naming himself in his individual capacity as plaintiff, against Santorini, Snider, Leahy, Kuehn, Mertz, and Sugarman. He alleged nine claims: breach of contract, i.e., the Agreement, against all appellees except Sugarman (Count 1); tortious interference with contract against appellees Kuehn and Snider for their actions affecting the property owned by "CMSEP – 601 Atlantic St. SE, LLC" (Count 2); wrongful foreclosure against all appellees based on foreclosure notices issued in May 2018 against all the properties (Count 3); fraud against all appellees arising out of an alleged scheme to obtain the real properties by making false representations in the Agreement (Count 4); fraudulent inducement against all appellees based on the transference of real property deeds in lieu of foreclosure (Count 5); unjust enrichment against all appellees for retaining the real properties (Count 6); conspiracy to commit fraud against all appellees (Count 7); intentional infliction of financial distress against all appellees (Count 8); and defamation against all appellees (Count 9). On August 10, 2018, appellant filed lis pendens notices on the real properties at issue.

On September 4, 2018, Leahy filed a motion to dismiss for failure to state a claim for relief under Super. Ct. Civ. R. 12(b)(6), specifically arguing that appellant lacked standing as to Counts 1 through 7. Sugarman filed a motion to dismiss on September 5, 2018. On September 20, 2018, Santorini filed an Emergency Motion to Cancel and Release Lis Pendens Notices.

On November 1, 2018, the trial court issued an Omnibus Order granting the motions to dismiss filed by appellees Leahy and Sugarman, sua sponte dismissing the complaint as to the remaining defendants, and granting Santorini's motion to cancel and release the lis pendens notices. The court dismissed Counts 1 through 7 without prejudice as to all appellees, reasoning that appellant lacked standing to assert these claims in his individual capacity. The court noted that appellant's alleged injuries – monetary losses, deprivation of real properties, inability to use and invest real properties, and inability to direct funds and gains – "accrued in the first instances to the LLCs." Grounding its analysis in constitutional standing and corporate law, the court found that appellant's membership in or controlling interest in the LLCs or role as guarantor to the loans did not vest him with standing to assert claims in his individual capacity for harms directly sustained by the LLCs. The court then dismissed Count 8 with prejudice because intentional infliction of financial distress is not a viable cause of action under District of Columbia law, and dismissed Count 9 without prejudice for failure to state a claim because appellant's defamation claim failed to attribute any defamatory statement to any of the named defendants. As a result of its dismissal of the complaint, the court granted Santorini's motion to release the lis pendens notices. This appeal followed.

II. Legal Framework

Rule 17(a)(1) of the Superior Court Rules of Civil Procedure requires that an action be "prosecuted in the name of the real party in interest." Varnum Props., LLC v. District of Columbia Dep't of Consumer & Regulatory Affairs , 204 A.3d 117, 121 (D.C. 2019) (quoting Super. Ct. Civ. R. 17(a)(1) ). The "real party in interest" is the person or entity "holding the substantive right sought to be enforced, and not necessarily the person who will ultimately benefit from the recovery." Id. (quoting United States ex rel. Spicer v. Westbrook , 751 F.3d 354, 362 (5th Cir. 2014) ). Substantive law determines whether a party holds the right to be enforced. Id. at 121-22. Rule 17(a)(3) prohibits dismissal of a complaint based on a failure to prosecute an action in the name of the real party in interest, however, "until a reasonable time has been allowed for substitution of that party." Estate of Raleigh v. Mitchell , 947 A.2d 464, 473 (D.C. 2008) (citation omitted). When property belongs to a corporation and harms are alleged to the ownership interests in that corporation's property, generally the corporation is the real party in interest that must prosecute an action seeking to redress claims based on those harms because the corporation possesses the actionable right that may be sued upon. See id. at 470-72 ; Varnum Props. , 204 A.3d at 122.³

Rule 17 ’s real-party-in-interest requirement is "essentially a codification of th[e] nonconstitutional, prudential limitation on standing." Varnum Props. , 204 A.3d at 121 n.7 (quoting Rawoof v. Texor Petroleum Co. , 521 F.3d 750, 757 (7th Cir. 2008) ). In every case, this court applies the constitutional limitation on standing – requiring that a plaintiff plead a "case or controversy" – as well as any applicable prudential limitations on standing. Friends of Tilden Park, Inc. v. District of Columbia , 806 A.2d 1201, 1206 (D.C. 2002). Prudential concerns impose judicially created limits on standing aside from those imposed by the Constitution, including among others "the general prohibition on a litigant's raising another person's legal rights." Grayson v. AT & T Corp. , 15 A.3d 219, 233-35 (D.C. 2011) (en banc) (quoting Allen v. Wright , 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984) ). Pursuant to...