Ludwig & Robinson PLLC v. Yelverton

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
STEPHEN THOMAS YELVERTON,
Debtor.
____________________________
LUDWIG & ROBINSON PLLC,
Plaintiff,
v.
STEPHEN THOMAS YELVERTON,
Defendant.
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Case No. 09-00414
(Chapter 11)
Adversary Proceeding No.
09-10023
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE MOTION
TO DISMISS AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
This addresses the plaintiff’s Motion To Dismiss Debtor’s
Affirmative Defenses and Counterclaims. 	For the reasons set
forth below, I will deny in part and grant in part the
plaintiff’s motion.
The document below is hereby signed.
Signed: November 17, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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I
On May 14, 2009, the debtor, Stephen Thomas Yelverton,
commenced a case in this court under chapter 11 of the Bankruptcy
Code (11 U.S.C.). 	Thereafter, the plaintiff instituted the
above-captioned adversary proceeding seeking to have the court
declare its claim non-dischargeable under § 523(a)(2)(A) of the
Bankruptcy Code. 	In his answer to the complaint, Yelverton
asserted several affirmative defenses and counterclaims.
As a preliminary matter, the plaintiff styles its motion as
a motion to dismiss both the affirmative defenses and the
counterclaims. 	While a motion to dismiss is a procedurally
proper response to a counterclaim, it is not the proper response
to Yelverton’s affirmative defenses. 	Rather, the plaintiff
should have moved to strike under Fed. R. Civ. Proc. 12(f).
Because, however, the motions operate substantively the same, I
elect to treat the plaintiff’s motion to dismiss the affirmative
defenses as a motion to strike. 	I will address the motion to
strike the affirmative defenses first and then address the motion
to dismiss Yelverton’s counterclaims.
II
Rule 12(f) of the Federal Rules of Civil Procedure permits
the court to strike from a pleading “any insufficient defense or
any redundant, immaterial, impertinent, or scandalous matter.” 	A
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court is granted “liberal discretion” to strike such filings as
it deems appropriate. 	Intex Recreation Corp. v. Team Worldwide,
Inc., 390 F. Supp. 2d 21, 24 (D.D.C. 2005); Pigford v. Veneman,
215 F.R.D. 2, 4 (D.D.C. 2003); Stanbury Law Firm v. IRS, 221 F.3d
1059, 1063 (8th Cir.2000). 	Though generally disfavored as an
extreme remedy, “a motion to strike a defense as insufficient
‘should be granted where it is clear that the affirmative defense
is irrelevant and frivolous and its removal from the case would
avoid wasting unnecessary time and money litigating the invalid
defense.’” Intex, 390 F. Supp. 2d at 24 (quoting Ass'n of Am.
Med. Colleges v. Princeton Review, Inc., 332 F. Supp. 2d 11, 22
(D.D.C. 2004)). 	In his answer, Yelverton asserts four
affirmative defenses.
First, Yelverton asserts that he is not liable on the lease
because the lease was between the plaintiff, Ludwig and Robinson
(L&R), and his law firm, Yelverton Law Firm (YLF), not him
personally. 	In its motion, L&R argues that the court should
strike this defense because the defense does not contradict its
allegations that Yelverton himself made fraudulent
representations regarding his and YLF’s purported ability and
intent to pay. 	It is damages for fraud that L&R seeks to declare
non-dischargeable, with the unpaid rent being the harm arising
from that fraud and for which damages are sought.
As I pointed out in my memorandum decision denying
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Yelverton’s motion to dismiss the complaint, the debtor does not
have to be a party to the lease to face liability for fraud in
the obtaining of the lease. 	Section 523(a)(2)(A) allows the
court to find non-dischargeability when the debtor indirectly
benefits from a transaction colored with fraud, see, e.g., Brady
v. McAllister (In re Brady), 101 F.3d 1165, 1172 (6th Cir. 1996);
HSSM #7 Limited P’ship v. Bilzerian (In re Bilzerian), 100 F.3d
886 (11th Cir. 1996); Ashley v. Church (In re Ashley), 903 F.2d
599, 604 (9th Cir.1990), or even when the debtor obtains no
benefit as long as the claimant transferred property to someone
on account of the debtor’s misrepresentations, see Muegler v.
Bennings, 413 F.3d 980, 983-84 (9th Cir. 2005); Deodati v. M.M.
Winkler & Assoc., 239 F.3d 746, 749 (5th Cir. 2001); Pleasants v.
Kendrick, 219 F.3d 372, 375 (4th Cir. 2000).
Regardless of which view prevails, Yelverton has not
asserted a valid defense. 	Under the indirect benefit view,
because Yelverton was the principal member of YLF he obtained an
indirect benefit as a matter of law. 	See 	Ashley v. Church (In
re Ashley), 903 F.2d 599, 604 (9th Cir. 1990); Simmons v. Wade
(In re Wade), 43 B.R. 976, 981–82 (Bankr. D. Colo. 1984).
Moreover, under the second view all that matters is that someone
received property on account of the debtor’s fraud. 	That
Yelverton was not a signatory to the sub-sublease is irrelevant.
For these reasons, the plaintiff’s motion to strike Yelverton’s
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first defense is granted.
Yelverton next asserts that he is not liable on the sub-
sublease because the term of the sub-sublease extended beyond the
term of the master lease underlying his sub-sublease. 	In its
motion to strike, L&R simply points to the term of the sub-
sublease as extending to September 30, 2008.
As a general rule, the rights of a sub-tenant cannot extend
beyond the rights of the tenant to the master lease. 	See,
Sanchez, v. Eleven Fourteen, Inc., 623 A.2d 1179, 1181 (D.C.
1993) (“It is, of course, fundamental that the rights of a
subtenant can, with at least one limited exception to be
mentioned, rise no higher than those of his sublessor.”). 	As I
explained in my decision denying Yelverton’s motion to dismiss,
however, D.C. Code § 42-3229 provides a limited exception to the
general rule in that if a lease is surrendered to be renewed, any
subleases of that lease remain enforceable as if they had been
renewed at the time the master lease was renewed. 	Importantly,
the applicability of this statute turns on whether L&R in fact
renewed the master lease.
Although in my decision denying Yelverton’s motion to
dismiss I found that dismissal was improper because the complaint
led to a reasonable inference that L&R did renew, that inference
did not establish conclusively that L&R did in fact renew.
Whether L&R renewed its master lease, thereby keeping the
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1 	If the lease had expired and YLF was nevertheless not
forced to vacate, YLF would have been obligated to pay L&R rent
for the holdover period.
2 	The lease’s integration clause states, in relevant part,
“This Sub-sublease contains all of the covenants, agreements,
terms, provisions, conditions, warranties and understandings
comprising the final and entire agreement between the parties
hereto, and they shall not be bound by any terms, statements,
conditions or representations, oral or written, express or
implied, not herein contained.”
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sublease effective by operation of § 42-3229, or was allowed to
remain in possession despite non-renewal, 1 are questions of fact
left unresolved by the complaint and to which Yelverton could
assert a defense to liability. 	Accordingly, at this stage it is
premature to strike his second defense.
Yelverton’s third affirmative defense is fraudulent
inducement. 	In his answer, Yelverton alleges that in order to
induce him to sign the lease L&R promised to refer clients to him
and YLF, and but for this promise, YLF would not have entered
into this lease. 	In its motion, L&R claims that this defense is
improper because it is barred by the lease’s integration clause 2
and because it fails to plead with particularity the facts
underlying the alleged fraud.
One of the requirements for any claim of fraud is that the
party have reasonably relied on the fraudulent misrepresentation.
One-O-One Enters. v. Caruso, 848 F.2d 1283, 1286 (D.C. Cir.
1988). 	Both this Circuit and the District of Columbia Court of
Appeals have recognized, however, that “where an agreement
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3 	Even if the integration clause were not in the lease,
Yelverton’s fraud claim would appropriately be stricken for
pleading failures. 	Fed. R. Civ. Proc. 9(b) requires that
allegations of fraud be pled with particularity. 	To meet this
requirement, the party alleging fraud must “state the time, place
and content of the false misrepresentations, the fact
misrepresented and what was retained or given up as a consequence
of the fraud,” and must “identify individuals allegedly involved
in the fraud.” 	Williams v. Martin-Baker Aircraft Co., 389 F.3d
1251, 1256 (D.C. Cir. 2004). 	Although Yelverton identifies the
content, fact misrepresented, and what was given up as a
consequence of the fraud, he does not identify the time or place
of the fraud, or the identity of the individuals involved in the
fraud.
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provides that it supersedes all previous understandings, any
prior representations are superseded, such that there are no
representations on which a plaintiff could reasonably base a
fraud claim.” 	Klayman v. Judicial Watch, Inc., 2007 WL 1034937,
*9 (D.D.C. April 3, 2007) (citing One-O-One Enters., 848 F.2d at
1286–87; see also Hercules & Co. v. Shama Rest. Corp., 613 A.2d
916, 929 (D.C. 1992) (adopting the One-O-One test set out by the
D.C. Circuit). 	Although the general rule is that the parol
evidence rule does not apply to fraudulently made parol
representations, because the lease contains an integration clause
and because any allegation of fraud requires reasonable reliance,
which cannot exist because of the integration clause, Yelverton’s
fraud in the inducement claim cannot succeed and is appropriately
stricken. 3
Yelverton’s final affirmative defense is that he suffered a
constructive eviction by L&R when L&R harassed Yelverton for a
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4 	In order to ultimately succeed on this claim, Yelverton
is going need to demonstrate an extreme level of harassment by
L&R. 	I have a hard time seeing how even a daily request that
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share of potential fees from YLF under a fee sharing agreement
that Yelverton claims does not exist. 	In its motion, L&R asks
the court to strike this defense, arguing that such a fee sharing
agreement did exist and providing a copy of that agreement with
its motion.
To assert a claim for constructive eviction Yelverton would
have to demonstrate “some wrongful act or omission by the
landlord [that makes] the premises . . . uninhabitable
(‘untenantable’) for the intended purpose.” 	Venture Holdings
Ltd. v. Carr, 673 A.2d 686, 691 (D.C. 1996) (citations omitted).
Importantly, “[a]lthough physical interference is not a necessary
element of a constructive eviction claim, . . . it is essential
that the tenant’s quiet enjoyment be disturbed by some wrongful
act or omission by the landlord.” 	Id. (citations and internal
quotations omitted). 	Under D.C. law, quiet enjoyment means an
assurance by the landlord that the tenant’s right to possession
would not be invaded by the landlord or by anyone with rights
superior to those of the landlord. 	Sobelsohn v. American Rental
Mgt. Co., 926 A.2d 713, 715 (D.C. 2007).
Depending on the level of harassment by L&R, regardless of
whether a fee sharing arrangement was in place, Yelverton could
have suffered a constructive eviction. 4 	The level of harassment
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Yelverton fulfill his obligations under the fee sharing agreement
would amount to a constructive eviction.
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Yelverton suffered, however, is by its nature fact dependent and
therefore inappropriate for me to rule on at this time.
Consequently, L&R’s motion to strike this defense is denied.
III
In addition to setting out several affirmative defenses,
Yelverton’s answer also asserts three counterclaims. 	In
response, L&R has filed a motion to dismiss, which I evaluate
under the traditional Fed. R. Civ. Proc. 12(b)(6) standard.
The purpose of a motion to dismiss is “to test the legal
sufficiency of the complaint.” 	Kingman Park Civic Ass'n v.
Williams, 348 F.3d 1033, 1040 (D.C. Cir. 2003). 	In deciding a
motion to dismiss, although the court “must construe the
allegations and facts in the complaint in the light most
favorable to the plaintiff . . . ,” Gustave-Schmidt v. Chao, 226
F. Supp. 2d 191, 195 (D.D.C. 2002), the complaint must
nevertheless plead “enough facts to state a claim to relief that
is plausible on its face,” Bell Atlantic Corp. v. Twombly, 550
U.S. 544 (2007), and “the court need not accept inferences drawn
by plaintiffs if such inferences are unsupported by the facts set
out in the complaint . . . . [nor must it] accept legal
conclusions cast in the form of factual allegations.” 	Kowal v.
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MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
In deciding a motion to dismiss, “the Court may only consider the
facts alleged in the complaint, documents attached as exhibits or
incorporated by reference in the complaint, and matters about
which the Court may take judicial notice.” 	Gustave-Schmidt, 226
F. Supp. 2d at 196.
Yelverton’s first counterclaim is for malicious interference
with contractual relations and prospective contractual relations,
which he alleges occurred when L&R demanded a share of fees from
his clients where there was no fee sharing agreement in place.
In its motion, L&R argues that dismissal is proper because
Yelverton has not pled the elements or any facts supporting the
allegation.
To state a claim for intentional interference with
contractual relations Yelverton must allege 1) the existence of a
contract; (2) knowledge of the contract; (3) intentional
procurement of a breach of the contract; and (4) damages
resulting from the breach. 	Futrell v. Dept. of Labor Fed. Credit
Union, 816 A.2d 793, 807 (D.C. 2003). 	Even taking a liberal view
of his counterclaim, Yelverton has not alerted the court or the
plaintiff as to what specific contracts L&R interfered with,
whether L&R knew of those contracts, and what damages he
suffered. 	Moreover, Yelverton has not pled that any contracts
were breached as a result of L&R’s alleged interference. 	Because
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Yelverton’s pleading is insufficient in these regards, L&R’s
motion to dismiss the first counterclaim is granted without
prejudice to Yelverton submitting an amended answer providing
more detail on this cause of action.
Yelverton’s second counterclaim is for fraudulent
inducement. 	For the same reasons I explained when striking his
fraudulent inducement defense——because the lease had an
integration clause——Yelverton cannot state a counterclaim for
fraudulent inducement and L&R’s motion to dismiss this claim is
granted.
Finally, Yelverton asserts a complaint for replevin for the
return of personal property that remained in the sub-subleased
office space after Yelverton vacated. 	In its motion to dismiss,
L&R claims that it has not retained Yelverton’s property, but has
instead requested that he remove it. 	Attached to its motion, L&R
included an email from Robert Ludwig, Jr. to Yelverton and Wade
Atkinson asking Yelverton to remove his property from the office.
Because L&R has made requests to have Yelverton remove the
property and represents that it would allow him access to remove
his personal effects, Yelverton’s replevin claim must fail and
L&R’s motion to dismiss this claim is granted.
IV
It is accordingly
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ORDERED that the affirmative defense that only YLF was
liable on the lease (Ans. ¶ 3) and the affirmative defense of
fraudulent inducement (Ans. ¶ 5) are STRICKEN. 	It is further
ORDERED that the counterclaim for malicious interference
with contractual relations and prospective contractual relations
(Ans. ¶ 7), the counterclaim for fraudulent inducement (Ans. ¶
8), and the counterclaim for replevin (Ans. ¶ 9) are DISMISSED
without prejudice to renewal of the replevin counterclaim if L&R
fails to permit Yelverton to retrieve his personal effects. 	It
is further
ORDERED that Yelverton is granted leave within 14 days of
the entry of this order to file an amended answer to attempt to
assert a valid claim for interference with contractual relations
(present or prospective).
[Signed and dated above.]
Copies to: All counsel of record; Office of the United States
Trustee.
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