Butler v. Enter. Integration Corp.

• Decision Date: 06 May 2020
• Docket Number: Civil Action No. 1:19-cv-01074 (CJN)
• Citation: 459 F.Supp.3d 78
• Parties: Jason BUTLER, et al., Plaintiffs, v. ENTERPRISE INTEGRATION CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Columbia

459 F.Supp.3d 78

Jason BUTLER, et al., Plaintiffs,

v.ENTERPRISE INTEGRATION CORPORATION, et al., Defendants.

Civil Action No. 1:19-cv-01074 (CJN)

United States District Court, District of Columbia.

Signed May 6, 2020

Cormac Timothy Connor, Haris Hadzimuratovic, Zachary David Prince, Smith Pachter McWhorter PLC, Tysons Corner, VA, for Plaintiffs.

William M. Cusmano, William M. Cusmano, P.C., Arlington, VA, for Defendants.

MEMORANDUM OPINION

CARL J. NICHOLS, United States District Judge

Plaintiffs Jason Butler and Thomas Price assert that they are the rightful owners of Defendant Enterprise Integration Corporation ("EIC"). See generally 3d Am. Compl., ECF No. 28. Defendant Walter Augustine claims the company for himself. See generally Defs.’ Mem. in Support of Mot. to Dismiss for Failure to State Claims ("Mot."), ECF No. 29-1. Butler and Price filed this lawsuit, alleging a breach of contract, several quasi-contract alternative claims, and other torts arising out of their falling-out with Augustine. See generally 3d Am. Compl. Before the Court are Defendants’ Motion to Dismiss, ECF No. 29, and Plaintiffs’ Motion to Disqualify Defendants’ Counsel, ECF No. 39. The Court dismisses some counts in the Complaint, leaves others in place, and declines to disqualify defense counsel at this stage of the litigation.

I. Background

In 2011, Walter Augustine was the sole owner of EIC, a small government contracting firm incorporated in Louisiana and headquartered in the District of Columbia. 3d Am. Compl. ¶¶ 4, 7–9.¹ According to the operative Complaint, Butler reached out to Augustine that year to convey Butler's interest in purchasing the company. Id. ¶ 10. The two worked out a tentative deal: if Butler would use his high-level security clearance to obtain new business for EIC, Augustine would credit revenue from the new contracts toward an ownership stake in the company for Butler. Id. ¶¶ 1, 13. Butler was to join as a minority partner and to create a new division of EIC, entitled the "Business Unit." Id. ¶ 14. As the Business Unit generated profits, Butler's share of equity in the company would progressively increase. Id. Once that figure surpassed $600,000 (Augustine's rough valuation of the entire company), Butler would own the company outright, though the two envisioned Augustine remaining on as a senior consultant following completion of the sale. Id. ¶¶ 10–11, 14, 18. Augustine provided Butler with a spreadsheet laying out potential scenarios and timelines in which to accomplish the ownership transfer. Id. ¶ 15.

The following year, Butler brought Jason Price onboard, and in 2014, Butler and Augustine agreed to include Price as a partner. Id. ¶ 16. Butler and Price agreed to cap Price's equity, such that they would eventually achieve an 80/20 split between them, respectively. Id. ¶¶ 16, 17. That same year, Butler and Price left their other ventures and began to work for EIC full-time. Id. ¶ 20. Using their security clearances, Butler and Price obtained a "Top Secret Facilities" designation for EIC, enabling the company to bid on a class of government contracts previously unavailable to it because Augustine had no clearance of his own. Id. ¶¶ 21, 24.

The Business Unit obtained several profitable contracts—at a time when EIC had no other business. Id. ¶¶ 25–26. While Butler and Price handled the company's performance of those contracts, Augustine managed the books. Id. ¶ 27. As part of the company's bids on government contracts, EIC had to submit forms listing the company's ownership, such as Key Management Position Lists ("KMPL"). Id. ¶ 32. Augustine prepared and signed the documents; the ones he submitted in 2015 listed three partners and their respective stakes: Augustine (60%), Butler (20%), and Price (20%). Id. ¶ 33.

But whenever Butler and Price requested to inspect the company's financial records, either to assess the company's health or to measure their accrual of equity, Augustine provided only incomplete records and otherwise avoided or deflected their inquiries. Id. ¶ 28. Neither Butler nor Price was compensated for his efforts from 2014–2016; all revenues from their contracts went to EIC—and thereby into Augustine's pocket as Butler and Price slowly bought him out. Id. ¶ 30. In 2017 they received limited compensation to cover living expenses, but they did not receive the full value of the Business Unit's revenue that year. Id.

Things began to fall apart in 2017. Id. ¶¶ 36–41. After disputes arose between Augustine and Butler about the terms of the buyout, Butler contacted EIC's outside counsel, William Cusmano. Id. ¶ 36. Butler had first engaged Cusmano on EIC's behalf in 2014, and Cusmano continued to represent EIC on various legal matters over the ensuing years. See Butler Decl. ¶¶ 2–4, ECF No. 39-3. Cusmano was the only attorney Butler knew, so Butler approached Cusmano for advice about how to deal with Augustine. Id. ¶ 9. Cusmano heard Butler out and recommended that, if Augustine denied Butler's partial ownership, Butler should consider retaining counsel and pursuing legal remedies. Id. ¶ 11.

Cusmano pulled Augustine, Butler, and Price into a discussion about how to complete Augustine's sale of the company to Butler and Price. See Cusmano's Email of Sep. 6, 2017, ECF No. 39-4 at 2–3. The four traded emails back and forth over the next ten days, with Cusmano offering to structure various purchase agreements that would satisfy all Parties. See generally Email Correspondence, ECF Nos. 39-4, 39-5. Those negotiations collapsed, and Augustine terminated Butler's and Price's employment on September 15, 2017. See Butler's Email of Sep. 13, 2017, ECF No. 39-5 at 1 ("I'm out.") ; 3d Am. Compl. ¶ 38. Augustine denied both the existence of any purchase agreement and that either Butler or Price had accrued any ownership stake in EIC. Id. ¶ 39.

Augustine then shut down Butler and Price's access to their documents, contact lists, and email accounts stored on EIC's computer systems. Id. ¶¶ 50–51. Augustine continued to access Butler's email account and, on at least one occasion, read an email from one of Butler's business contacts (intended for Butler) and responded to it (from Butler's account) without disclosing that Butler no longer worked at the company. Id. ¶¶ 52–59.

Finally, the Complaint alleges that Augustine was responsible for preparing and filing EIC's tax returns. Id. ¶ 42. For tax years 2014–2016, however, Augustine failed to file any corporate returns on EIC's behalf whatsoever. Id. For tax year 2017, Augustine filed IRS Form 1099s characterizing Butler and Price as independent contractors rather than partial owners. Id. ¶ 45.

Butler and Price originally filed suit in the United States District Court for the Eastern District of Louisiana. See generally Compl., ECF No. 1. Plaintiffs amended their Complaint twice before that court transferred the case to this district. See generally 1st Am. Compl., ECF No. 14 ; 2d Am. Compl., ECF No. 17 ; Transfer Order, ECF No. 18. Upon transfer, both Parties obtained new counsel local to the Washington area. Defendants EIC and Augustine retained William Cusmano—the same attorney who had previously represented EIC in other legal matters and who was at the heart of the failed negotiations among Butler, Price, and Augustine to settle the matter without resorting to litigation. See, e.g. , Def. Augustine's Answer to Pls.’ 2d Am. Compl., ECF No. 21 (filed by William Cusmano).

Defendants answered the Second Amended Complaint. Id. Plaintiffs then obtained leave to file a Third Amended Complaint, which Defendants then moved to dismiss in its entirety for failure to state a claim and as barred by the applicable statute of limitations. See generally Mot.² The operative Complaint contains nine counts, which fall into three broad categories of claims. First, Plaintiffs bring four common-law counts alleging a breach of the contract and related fraud or, in the alternative, some form of quasi-contractual claim: (I) breach of contract, 3d Am. Compl. ¶¶ 60–66; (II) fraudulent inducement, id. ¶¶ 67–73; (VI) promissory estoppel, id. ¶¶ 97–102; and (VII) quantum meruit (unjust enrichment), id. ¶¶ 103–11. Second, they lodge three counts alleging related torts: (III) defamation (invasion of privacy), id. ¶¶ 74–81; (IV) a violation of the Stored Wire and Electronic Communications Act, 18 U.S.C. § 2707, 3d Am. Compl. ¶¶ 82–87; and (V) fraudulent filing of tax returns, 26 U.S.C. § 7434, 3d Am. Compl. ¶¶ 88–96. Finally, they assert two standalone counts seeking specific types of relief: (VIII) declaratory relief under the Declaratory Judgment Act, 28 U.S.C. § 2201, 3d Am. Compl. ¶¶ 112–13; and (IX) an accounting of EIC's assets, id. ¶¶ 114–16. Subject-matter jurisdiction is premised on diversity, though the Complaint raises at least two federal questions on its face. Id. ¶ 5.

While the Motion to Dismiss was pending, Plaintiffs filed a Motion to Disqualify Defense Counsel William Cusmano. See generally Pls.’ Mot. to Disqualify Defs.’ Counsel, ECF No. 39. The Motion argues that Cusmano cannot now represent Defendants EIC and Augustine because (1) Cusmano represented Butler individually against Augustine earlier in this same dispute; (2) Cusmano previously represented all three alleged owners together in their capacities as EIC shareholders, so he cannot now represent one of them (and the company) against the other two; and (3) Cusmano is a necessary witness and therefore cannot represent any party in this litigation. See generally Pls.’ Mem. in Support of Pls.’ Mot. to Disqualify Defs.’ Counsel ("DQ Mot."), ECF No. 39-1.

II. Legal Standard

A. Motion to Dismiss

"A pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "When evaluating a motion to dismiss [under Federal Rule of Civil Procedure 12(b)(6) ], the Court must treat the complaint's factual allegations as true and afford the plaintiff the...