Opinion
Civil No. 99-8 (RMU/JMF)
March 25, 2002
REPORT AND RECOMMENDATION
Currently pending and ready for resolution are the Motion of Defendants Grant Thornton LLP and Burt K. Fischer to Dismiss the Complaint ("Mot. to Dis.") and Defendants' Motion for a Protective Order Limiting Discovery or, in the Alternative, for a Stay of Discovery Pending an Initial Status Hearing ("Mot. for P.O."). For the reasons articulated below, I recommend that defendants' motion to dismiss be denied and that defendants' motion for a protective order or a stay be denied as moot.
BACKGROUND
I. Introduction
Plaintiff Thompson, Cobb, Bazilio Associates, P.C. ("TCBA") is a D.C. corporation engaged in the practice of public accounting and management consulting. Complaint for Damages (Breach of Fiduciary Duty, Breach of Contract, and Unjust Enrichment) ("Compl.") ¶ 1. Defendant Grant Thornton, LLP ("Grant") is an Illinois limited liability partnership. Compl. ¶ 2. Defendant Burton K. Fischer ("Fischer"), an individual, is a former partner of Grant. Id. Plaintiff initially brought suit in D.C. Superior Court on October 23, 1998, but the action was subsequently removed to this court on January 5, 1999.
The 1990 Contract
On August 27, 1990, TCBA contracted with Grant "to prepare a proposal to be submitted to the RTC [Resolution Trust Corporation] for a contract . . . for due diligence services . . . and to perform post-award services . . . if and when Grant Thornton were selected as a qualified contractor." Compl. ¶ 5. Pursuant to the terms of the contract, TCBA was to invoice Grant "at rates to be determined on a Task Order basis, not to exceed those included in the proposal to the RTC." Compl. ¶ 6. Grant, in turn, was obliged to pay TCBA within five days of Grant's receipt of payment from RTC. Compl. ¶ 7.
Under Article IV — Payment and Invoicing, "TCBA shall submit invoices to Prime, together with such supporting documentation as Prime may reasonably require. Prime shall pay TCBA within five (5) days of payment by Client to Prime." Compl. at Exhibit A: Subcontract Agreement.
The Payment Problem
From February of 1992 to March of 1993, TCBA submitted invoices to Grant. As of March 1, 1993, at the conclusion of TCBA's work, Grant still owed TCBA $700,000. Compl. ¶ 11. After repeated attempts at obtaining payment from Grant, TCBA contacted RTC directly. "In April or May, 1993, an employee of the RTC informally notified TCBA that the RTC was willing to pay Grant Thornton the overdue TCBA amounts, but that Grant Thornton had declined the offer." Compl. ¶ 14. TCBA then learned from Grant that RTC was seeking compensation from Grant and its subcontractors, including TCBA, for certain overpayments. Compl. ¶ 15.
TCBA also learned that Grant intended to sue RTC and that Grant would not pay TCBA until it was paid by RTC. Id. Grant offered to represent plaintiff's interests against RTC free of cost in exchange for a waiver of all of plaintiff's claims against defendants and the understanding that plaintiff's claims against RTC would remain intact. Compl. ¶ 17. Plaintiff initially declined to sign the letter agreement but, when Grant conditioned payment in the amount of $162,533 on TCBA's acceptance of the terms of the agreement, TCBA complied. Compl. ¶ 18. On December 13, 1993, Grant sued RTC. The litigation continued into 1996. Compl. ¶ 22. Throughout the course of the litigation, TCBA made several unsuccessful attempts to participate — first by seeking to be included in settlement discussions and then by moving to intervene. Id. In July 1996, Grant contacted TCBA and asked it to submit sample language for possible inclusion in Grant's settlement agreement with the Federal Deposit Insurance Corporation ("FDIC"), RTC's successor. Compl. ¶ 27. Pursuant to the settlement agreement executed by FDIC and Grant, however, "the FDIC `represents and warrants that it has made no commitments . . . regarding payment of any monies to be made to TCBA by Grant Thornton or the FDIC upon this settlement . . .'" Compl. ¶ 33 (quoting Settlement and Release).
Hence:
Grant Thornton now refuses to pay TCBA any amounts on the outstanding invoices by which Grant Thornton fell short on its 25 per cent minimum commitment on the ground that Grant Thornton did not recover any damages in the Grant Thornton/RTC lawsuit.
Compl. ¶ 34.
This Lawsuit
On August 31, 1996, TCBA received by mail certain internal RTC documents dated May and June of 1993. The documents indicated that during Grant's negotiations with RTC, RTC had offered to pay TCBA directly but that Grant had rejected the offer. Id. at 11. Following TCBA's receipt of these documents, it filed suit, claiming that Grant committed (1) breach of the contract, (2) fraud and misrepresentation, and (3) breach of fiduciary duty. As stated above, TCBA claims that one provision of the settlement agreement "would permit Grant Thornton to deny payments to TCBA on the ground that Grant Thornton did not recover any damages in the litigation." Compl. ¶ 31. As TCBA sees it, Grant structured the settlement agreement to escape its liability to TCBA for the unpaid 1993 invoices.
In the motion referred to me for a report and recommendation, defendants now move to dismiss the entire complaint as time-barred. They also claim that the breach of fiduciary duty count fails to state a claim upon which relief can be granted.
Defendants also seek a stay of discovery pending resolution of their motions to dismiss and Fischer's motion to dismiss for lack of proper service. The motion seeking a stay is obviously moot if the court accepts this report and recommendation, which denies the defendants motion to dismiss.
DISCUSSION
Defendants' Motion to Dismiss Should Be DeniedStatute of Limitations
Defendants claim that all three counts are barred by the statute of limitations. Where jurisdiction is premised on diversity of citizenship, this court applies District of Columbia law. National Railroad Passenger Corp. v. Notter, 677 F. Supp. 1, 4 (D.D.C. 1987). In the District of Columbia, the statute of limitations for contract, fraud, and breach of fiduciary duty claims is three years. D.C. Code Ann. §§ 12-301(7); 12-301(8) (2001). See Primedical, Inc. v. Allied Investment Corp., No. CIV.A. 90-1802, 1994 WL 149139 at *3 (D.D.C. March 31, 1994) (applying D.C. Code Ann. § 12-301(8) (2001) to claim of breach of fiduciary duty; Smith v. Brown Williamson Tobacco Corp., 108 F. Supp.2d 12, 15 (applying D.C. Code Ann. § 12-301(8) (2001) to claims of fraud and deceptive trade practices).District of Columbia law requires a plaintiff to bring her cause of action within three years of its accrual, i.e., when the action that causes the injury occurs. Mullin v. Washington Free Weekly, Inc., 785 A.2d 296 (D.C. 2001). Since the complaint was filed in the Superior Court on October 23, 1998, and a three-year statute of limitations applies, only acts that occurred in the period from October 23, 1995, to October 23, 1998, are actionable. If an event occurred prior to October 23, 1995, it would be barred by the statute of limitations, unless the discovery rule or equitable estoppel applies.
The 1996 Injury
The injury about which plaintiff complains is the structuring of the settlement agreement in such a manner that none of the moneys paid by RTC were attributed to the subcontract between Grant and TCBA. Under this structure, TCBA is prevented from arguing that Grant received money from RTC and that it had to turn that money over to TCBA. This injury occurred upon the signing of the settlement agreement on August 21, 1996. Compl. ¶ 28. Since the signing occurred in 1996 and after October 23, 1995, no action, whether for breach, fraud or breach of fiduciary duty, accrued more than three years before the filing of the complaint, insofar as all claims are premised on the provisions of the settlement agreement. The question then presented is whether any claim for relief pled in this lawsuit accrued prior to the settlement agreement in 1996.
The 1993 RTC Communication
Grant argues that one of plaintiff's claims accrued when TCBA learned in April 1993 from an RTC employee that RTC was ready to pay Grant the overdue TCBA amounts, but that Grant had rejected the offer. A plaintiff cannot wait until he has every fact but must sue when he has sufficient information establishing a legal wrong. Cevenini v. Archbishop of Washington, 707 A.2d 768, 771 (D.C. 1998) (plaintiff must sue when she has (1) knowledge of an injury, (2) its cause, and (3) some evidence of wrongdoing).
But, viewing only the allegations of the complaint, it cannot be said that a cognizable legal wrong had occurred as soon as the RTC employee informally disclosed the 1993 offer because the complaint also pleads that Grant provided TCBA with good and sufficient reasons to disbelieve what the RTC employee had said.
The paragraph of the complaint directly following the paragraph about the RTC informal communication explains that Fischer told Thompson, TCBA's president, that RTC was making claims against Grant and its subcontractors, including TCBA, for "overpayments" on the contract. Fischer then told Thompson that Grant was probably going to have to sue RTC for past due invoices and that RTC would probably counterclaim against Grant. Fischer told Thompson that TCBA should join in the lawsuit and that Grant would not pay TCBA until RTC paid Grant. Compl. ¶ 15.
If TCBA knew in 1993 that RTC was making the funds available to Grant unconditionally, then Grant `s refusal to accept them and in turn pay TCBA may well have been an actionable wrong under various legal theories. But, the complaint pleads that Fischer told TCBA that RTC, far from making an unconditional payment, was insisting that Grant and its subcontractors, including TCBA, had over billed, that RTC would not pay the outstanding invoices, and that Grant was going to have to sue to get what both it and TCBA were owed. Paragraph 15 suggests that either the RTC employee who informally told TCBA that RTC was ready to pay was mistaken or RTC had since changed its position and would now deduct "overpayments" by both Grant and TCBA. In either event, the informal RTC communication was subsequently discounted, if not contradicted, by what Fischer said. This refuted communication could hardly be deemed to have given notice to TCBA that Grant was unreasonably refusing RTC's offer or that RTC was ready to pay every penny due TCBA.
Finally, it would hard to imagine a better case for the application of the discovery rule, which tolls the accrual of the statute of limitations until the discovery of the wrong if a court concludes that it would have been impossible or unreasonable for the plaintiff to have known of the injury, its cause, and some wrongdoing when the injury in fact occurred.See, e.g., Ray v. Queen, 747 A.2d 1137, 1140 (D.C. 2000); East v. Graphic Arts Industry Joint Pension Trust, 718 A.2d at 156; Capitol Place I Associates LP and 555 N.J. Ave, Inc. v. George Hyman Constr. Co., 673 A.2d 194, 199 (D.C.); Colbert v. Georgetown Univ., 641 A.2d 469, 472 (D.C. 1994) (en banc).
As I have just explained, whether TCBA is wronged in 1993 is a function of the truthfulness of Fischer's statement, which contradicts the informal statement of the RTC official. But, Grant never claims that TCBA knew in 1993 that Fischer was not telling the truth. In fact, TCBA claims that it learned of Fischer's prevarication in 1996. Compl. ¶ 35. On the allegations of the complaint, at least, the discovery rule is a perfect fit. If, on the other hand , discovery discloses more certain information that TCBA had sufficient reason to know that Fischer was lying when he spoke to Thompson in 1993, then defendants may renew their motion, claiming whatever they can to establish that, when Fischer spoke in 1993, TCBA had no good reason to believe him.
D. The 1993 Thompson-Fischer Meeting
The next act that occurred prior to October 23, 1995 was the meeting that occurred sometime between November 1, 1993 and December 19, 1993, at which Fischer advised Thompson that Grant had received a partial payment from RTC of $162,533, which was due TCBA. Compl. ¶ 18. Fischer, however, did not turn over the $162,533, but held it hostage until TCBA signed the letter agreement at some point in December 1993. This was the same letter agreement that TCBA had refused to sign in November 1993.Id. ¶ 20. At that point, presumably, TCBA received the $162,533.
Although Fischer's holding the check hostage may have been an actionable breach of Grant `s obligation to pay TCBA within 5 days, this breach was cured the moment TCBA got the check. An earlier cured breach does not preclude a lawsuit based on a later-occurring breach. Additionally, Fischer's demand was an offer of proposed novation of the original contract and it is impossible for an offer to modify a contractual term to constitute a breach of the contract. If that were true, a contract could never be changed without the party proposing the change being in breach of the provision it is trying to change.
The Filing of the Complaint in Civil Action 93-2548
The only other act that occurred prior to October 23, 1995, is the filing of the complaint in 93-2548, the lawsuit filed in this court that was settled by RTC and Grant in a way that Thompson considers unfair to its interests. TCBA characterizes the complaint in 93-2548 as follows:
On or about December 13, 1993, Fischer, on behalf of Grant Thornton sued the RTC. An Amended Complaint was filed on or about February 17, 1994. On or about March 4 and October 19, 1994, the RTC filed counterclaims against Grant Thornton. Most of the issues raised by the Amended Complaint and Counterclaims dealt with Grant Thornton's own claims against the RTC and the RTC's professional liability claims against Grant Thornton and bore no relationship to amounts owed to TCBA.
Compl. ¶ 21.
Grant seizes upon that paragraph and deems it proof that TCBA had sufficient information to trigger TCBA's obligation to sue Grant upon the filing of the Amended Complaint in 93-2548:
The Letter Agreement was executed by TCBA's president on December 19, 1993. TCBA now claims that it thought that the Agreement obligated Grant Thornton to represent TCBA's interests before the RTC. (Cplt. ¶ 37). Despite Grant's purported promise to pursue TCBA's claims, TCBA alleges that on February 17, 1994, Grant Thornton filed an Amended Complaint against the RTC that "bore no relationship to amounts owed to TCBA." (Cplt. ¶ 21). Therefore, as of February 17, 1994 TCBA knew or reasonably should have discovered the fraud it alleges here: although Grant told TCBA that it was representing its interests against the RTC, Grant instead was pursuing its own agenda.Memorandum of Law of Defendants Grant Thornton LP and Burt K. Fischer in Support of their Motion to Dismiss the Complaint at 8.
The impression thus created is that the complaint filed in 93-2548 represented Grant's abandonment of any claim for funds from RTC based on TCBA's invoices to Grant, meaning that Grant was surrendering to RTC the right to claim what was due Grant on behalf of TCBA. In fact, as shown, paragraph 21 of the complaint is not the blanket statement that defendants would have this court believe. Grant's selective quoting creates the incorrect impression that the Amended Complaint abandoned Grant's claims against RTC for the invoices TCBA had submitted to Grant. This paragraph simply states that the Amended Complaint in 93-2548 dealt with many more issues than TCBA's derivative entitlement to money RTC would have to pay Grant.
More to the point, I have examined the Amended Complaint in 93-2548 and there is not a word in it that could possibly be construed as an abandonment by Grant of any claim it had against RTC, including the claim based on TCBA's invoices. To the contrary, the Amended Complaint comprehensively sets forth Grant's entire claim against RTC, which I have to presume included the amounts invoices by TCBA. Additionally, in the period from February 17, 1994, to the commencement of the settlement negotiations in 1996, Grant aggressively pursued that entire claim and abandoned none of it. Thus, because TCBA's claims were a part of the entire claim, Grant did nothing that could possibly be considered an actionable breach of the obligation it undertook in the November 1, 1993 letter agreement.
I therefore conclude on this record that the statute of limitations does not bar any of TCBA's claims for relief.
Count III of the Complaint States A Claim Upon Which Relief Can Be Granted
Grant argues that the fiduciary duty count fails to state a claim upon which relief can be granted. But it must be remembered that a motion may be granted under Fed.R.Civ.P. 12(b)(6) only if the court, having deemed all of the allegations of the complaint to be true and reading them in a light most favorable to plaintiff, finds that there are no set of facts that would permit it to award relief to the plaintiff. Gilvin v. Fire, 259 F.3d 749, 755 (D.C. Cir. 2001). Indeed, the standard is so forgiving that the court of appeals has indicated its agreement with Judge Easterbrook's comment that the statement "I was turned down for a job because of my race" states a claim upon which relief can be granted.Sparrow v. United Air Lines, 216 F.3d 1111, 1115 (D.C. Cir. 2000). Under that logic, TCBA's claim of the existence of a fiduciary relationship sufficiently pleads a claim; it remains to be seen whether one does exist.
Even if the standard were less forgiving, the existence of a fiduciary relationship is, by its very nature, a fact-bound inquiry bearing on the relationship between the parties and the specific facts and representations that are claimed to be the basis of that relationship.Firestone v. Firestone, 76 F.3d 1205, 1210 (D.C. Cir. 1996); Church of Scientology Int'l v. Eli Lilly Co., 848 F. Supp. 1018, 1027 (D.D.C. 1994). If, as these cases hold, the existence of a relationship can raise a genuine issue of fact despite the protestation that it did not exist, then, a fortiorari, the assertion that it exists is sufficient to at least engender discovery and fact finding.
CONCLUSION
For the foregoing reasons, I recommend that Motion of Defendants Grant Thornton LP and Burt K. Fischer to Dismiss the Complaint [#3] be denied. I also recommend that Defendants' Motion for a Protective Order Limiting Discovery or, in the Alternative, for a Stay of Discovery Pending an Initial Status Hearing [#23] be denied as moot.
Failure to file timely objections to the findings and recommendations set forth in this report may waive your right of appeal from an order of the District Court adopting such findings and recommendations. See Thomas v. Arn , 474 U.S. 140 (1985).