333 8 th St. NE, LLC v. Turnkey Title, LLC
| Docket Number | Civil Action 23-941 (JEB) |
| Decision Date | 28 August 2023 |
| Parties | 333 8TH STREET, NE, LLC, et al., Plaintiffs, v. TURNKEY TITLE, LLC, Defendant. |
| Court | U.S. District Court — District of Columbia |
This case concerns a real-estate transaction derailed by the intervening crimes of a third party. Plaintiff J. Michael Hannon owned a property on 8th Street in Washington, D.C and vested title in an eponymous LLC. In October 2022, after years of investments, he entered into an agreement to sell it at a profit to another individual. At the eleventh hour, an unknown fraudster impersonating the seller's agent deceived the buyer's settlement agents into wiring the funds to the wrong bank account and then absconded. Having lost over half a million dollars, Hannon and his LLC sued the agents' employer, Turnkey Title, for negligence, breach of fiduciary duty, and violations of state consumer-protection laws, requesting both compensatory and punitive damages. Defendant now moves to dismiss Hannon for lack of standing and the LLC for failure to state a claim and to join a necessary party.
While the Court agrees that Hannon is not a proper Plaintiff, it believes that the LLC may otherwise proceed. Defendant's Motion, accordingly, will be granted in part and denied in part.
The Court draws the facts from the Amended Complaint (and associated exhibits), as it must at this stage. Hannon is a Florida resident who operates a law firm in the nation's capital. See ECF No. 12 (Am. Compl.), ¶¶ 7, 11. On July 17, 2015, he purchased a property in a residential neighborhood on Capitol Hill - 333 8th Street Northeast - but titled it in a wholly owned shell company called “333 8th Street, NE, LLC,” the second Plaintiff in this matter. Id., ¶ 9. He used the property not only as an office for his firm, but also as a part-time abode and an investment asset. Id., ¶ 11. Over the years, he expended a quarter-million dollars of his personal funds in maintenance and improvements, hoping to eventually sell it at a higher price and put the proceeds toward his retirement. Id., ¶¶ 13-14.
In 2022, Hannon decided to sell the property to one John King for $1.15 million. Id., ¶¶ 15-16. Plaintiff hired a title company, Legacy Settlement Services, and a real estate agent, Catherine Arnaud-Charbonneau. Id., ¶¶ 18-19. King hired Defendant Turnkey Title, LLC - another title company - to assist in wiring proceeds from the transaction to 8th Street's bank. Id., ¶ 8. Hannon “executed all documents necessary for the listing, sale and settlement of the sale of the property,” and closing took place on October 27, 2022. Id., ¶¶ 15-16. But just before the deal crossed the finish line, an unknown fraudster inserted himself into the transaction and deceived Turnkey into wiring an amount of roughly half the property's purchase price to the wrong bank account. Id., ¶¶ 20, 26-27. (There is no allegation that King bears any blame.)
The chain of events leading to this debacle began on the morning of closing day. Turnkey needed to disburse $584,293.62 to 8th Street in connection with the sale. Id., ¶ 20. Morgane Barry, a settlement agent from Plaintiffs' title company, notified Turnkey employee Tammy Economes via email that she would be “getting over the sellers['] banking information for a wire shortly,” and Economes thanked her. See ECF No. 12-1 (Legacy-Turnkey Email Thread) at 19-21. The fraudster, at this point, intervened in two ways. First, he responded to Economes from a spoofed email address impersonating Barry and attached fake instructions directing that funds should be wired to Hannon via a Morgan Stanley bank account through Wells Fargo. See ECF No. 12-4 (Turnkey-Fraudster Email Thread) at 4, 8. When Economes responded that she required account information for 8th Street (and not Hannon), the fraudster sent new instructions listing 8th Street as the account owner but still providing the same ABA and bank account numbers. See ECF No. 12-6 (Fraudulent Wire Instructions); Am. Compl., ¶ 29d. Turnkey, none the wiser, disbursed the funds to that account later that afternoon. See ECF No. 12-3 (Wire Confirmation).
Second, the fraudster gained access to Economes's Turnkey email account and used it to mislead Plaintiffs' agents. When the real Barry followed up with the real wiring instructions (which specified a wire to Hannon's Morgan Stanley bank account through Citibank), the fraudster responded from Economes's email account that “[t]here was a delay in disbursement.” Legacy-Turnkey Email Thread at 15-17; see also Am. Compl., ¶ 22. Three days later, on October 31, the fraudster told Barry that she could expect to receive the wired funds and signed closing documents in a matter of hours. See Legacy-Turnkey Email Thread at 10-14. The funds, of course, never arrived. On November 2, Barry informed another of Turnkey's employees that Hannon had not yet received his proceeds and requested a copy of the wire confirmation. See Legacy-Turnkey Email Thread at 3. The employee forwarded a wire confirmation showing that the funds were disbursed to the wrong account. See Am. Compl., ¶ 26.
Upon further investigation, the parties realized that they had been defrauded. Id., ¶¶ 26, 30. Turnkey later referred the matter to federal law-enforcement authorities. Id., ¶ 30. The funds, no surprise, were promptly transferred out of the fraudster's Wells Fargo account and into another unknown account presumably beyond the reach of law enforcement. Id., ¶ 31. They were never recovered. Id.
Convinced that these events should have been entirely avoidable with reasonable security measures and that the fraudster's emails were riddled with obvious indicia of fraud, Plaintiffs sued Turnkey on April 6, 2023. See ECF No. 1; Am. Compl., ¶¶ 28-31. They allege negligence (Count I); breach of fiduciary duty (Count II); violations of the District of Columbia Consumer Protection Procedures Act (CPPA), D.C. Code § 28-3901 et seq. (Count III); and violations of the Maryland Consumer Protection Act (CPA), Md. Code, Com. Law § 13-301 et seq. (Count IV). Id., ¶¶ 32-62. In addition to monetary compensation for the loss of $584,293.62, Plaintiffs seek punitive damages. Id., ¶ 36. Turnkey has now moved to dismiss. See ECF No. 13 (Def. MTD).
A complaint must be dismissed if the court lacks subject-matter jurisdiction. See Fed.R.Civ.P. 12(b)(1). In general, courts must first address jurisdictional arguments before turning to the merits. See Sinochem Int'l Co. v. Malaysia Int'l Shipping Co., 549 U.S. 422, 430-31 (2007). A plaintiff bears the burden of proving that a court has subject-matter jurisdiction to hear her claims. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992); U.S. Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000). A court has an “affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority.” Grand Lodge of the Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13 (D.D.C. 2001).
Rule 12(b)(6), conversely, provides for the dismissal of an action where a complaint fails “to state a claim upon which relief can be granted.” In evaluating a defendant's motion to dismiss, the court must “treat the complaint's factual allegations as true and must grant plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.'” Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979)) (citation omitted); see also Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1250 (D.C. Cir. 2005). Although “detailed factual allegations” are not necessary to withstand a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plaintiff must put forth “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
Federal Rule of Civil Procedure 12(b)(7) also outlines a standard for dismissal for “failure to join a [necessary] party under Rule 19.” The burden is on the defendant to show that joinder is required, see Citadel Inv. Grp., LLC v. Citadel Cap. Co., 699 F.Supp.2d 303, 317 (D.D.C. 2010), and courts have generally been reluctant to grant Rule 12(b)(7) motions, finding that “dismissal is warranted only when the defect is serious and cannot be cured.” Direct Supply, Inc. v. Specialty Hosp. of Amer., LLC, 878 F.Supp.2d 13, 23 (D.D.C. 2012) (citation omitted). As with Rule 12(b)(6) motions, a court must accept the allegations contained in the plaintiff's complaint as true for the purpose of the Rule 12(b)(7) inquiry. See 16th & K Hotel, LP v. Commonwealth Land Title Ins. Co., 276 F.R.D. 8, 12 (D.D.C. 2011).
Defendant offers different rationales for the dismissal of each component of this suit: Hannon lacks standing, the negligence and breach-of-fiduciary-duty claims insufficiently allege proximate cause, and 8th Street does not qualify as a “consumer” for purposes of its CPPA and CPA causes of action. Defendant further seeks dismissal of the action for failure to join a necessary party (the fraudster) and argues that the prayer for punitive damages is unsupported by Plaintiffs' allegations. The Court addresses each argument in turn.
Turnkey first contends that Hannon (but not 8th Street) lacks standing because he was not a party to the real-estate transaction; title to the property, after all, was in 8th Street's name only. Before addressing this contention, a brief clarification is in order....
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