UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

JASON BUTLER, et al.,

Plaintiffs,

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

ENTERPRISE INTEGRATION CORPORATION, et al.,

Defendants.

MEMORANDUM OPINION

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.

1 ¶¶ 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

1 On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must, of course, accept well pleaded facts in the Complaint as true. Bell Atl. Corp. v. Twombly,

(2007).

2 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

3 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

4 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,

, 3d Am.

2 Ordinarily, “[t]he filing of an amended complaint will not revive the right to present by motion defenses that were available but were not asserted in timely fashion prior to the amendment of the pleading,” but “a . . . defense that becomes available because of new matter in the amended complaint may be asserted by motion.” 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1388 (3d ed. 2020); see also Keefe v. Derounian,

(N.D. Ill. 1946) (denying motion to dismiss amended complaint, which contained no new factual allegations or legal argument but which merely corrected jurisdictional information, because the court had already denied defendant’s motion to dismiss original complaint on the same grounds). That rule might serve to bar Defendants’ current Motion to Dismiss, as they already answered the Second Amended Complaint—at the very least, it would constrain the pending Motion to challenging only new material in the Third Amended Complaint. But Defendants’ answers to the Second Amended Complaint were unusually styled as “Responsive Pleadings to Plaintiffs’ Second Amended Complaint” and contained both short answers to the Complaint and brief, partially formed arguments to dismiss the Complaint for failure to state a claim. See, e.g., Def. Augustine’s Responsive Pleadings to Pls.’ 2nd Am. Compl., ECF No. 21. Perhaps because neither the Complaint nor Defendants’ responses were adequately pleaded, Judge Moss seems to have granted both Parties an opportunity to amend and refile their pleadings. See Minute Entry of Jun. 6, 2019 (orally granting Plaintiffs leave to file 3d Am. Compl.). And because Plaintiffs do not now argue that Defendants waived their opportunity to move to dismiss the Third Amended Complaint in its entirety by answering the Second Amended Complaint, the Court takes both operative filings at face value.

5 Compl. ¶¶ 82–87; and (V) fraudulent filing of tax returns,

, 3d Am. Compl.

¶¶ 88–96. Finally, they assert two standalone counts seeking specific types of relief: (VIII)

declaratory relief under the Declaratory Judgment Act,

, 3d Am. Compl.

¶¶ 112–13; and (IX) an accounting of EIC’s assets,

¶¶ 114–16. Subject-matter jurisdiction is

premised on diversity, though the Complaint raises at least two federal questions on its face.

.

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 benefit of all

inferences that can be derived from the facts alleged.” Atlas Brew Works, LLC v. Barr,

(D.D.C. 2019) (internal quotations and citations omitted). Although the Court

accepts all well pleaded facts in the Complaint as true, “[f]actual allegations must be enough to

6 raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly,

(2007). “While a complaint . . . does not need detailed factual allegations, a plaintiff’s obligation

to provide the grounds of his entitlement to relief requires more than labels and conclusions, and

a formulaic recitation of the elements of a cause of action will not do.”

at 554–55 (internal

quotations and citations omitted). The claim to relief must be “plausible on its face,” enough to

“nudge[ the] claims across the line from conceivable to plausible.”

.

The Court evaluates Counts II and V under a different standard because both include

allegations of fraud, see 3d Am. Compl. ¶¶ 67–73, 88–96, and fraud claims are subject to more

stringent review on a motion to dismiss. “In alleging fraud or mistake, a party must state with

particularity the circumstances constituting fraud or mistake.” Fed. R. Civ P. 9(b). “[T]he

‘circumstances’ that must be pleaded with specificity are matters such as the ‘time, place, and

contents of the false representations,’ such representations being the element of fraud about

which the rule is chiefly concerned.’” U.S. ex rel Totten v. Bombadier Corp.,

(D.C. Cir. 2002) (emphasis omitted) (quoting 5 Charles Alan Wright & Arthur R. Miller,

Federal Practice and Procedure § 1297 (2d ed. 1990)).

B. Motion to Disqualify

“The district court has wide discretion in the exercise of its duty to supervise members of

the bar appearing before it.” Koller ex rel Koller v. Richardson-Merrell Inc.,

(D.C. Cir. 1984), vacated on other grounds,

(1985). But “[d]isqualification

of an attorney is a serious step.” Derrickson v. Derrickson,

, 152 n.6 (D.C. 1988).

Lawyers practicing in this Court are subject to the District of Columbia Rules of Professional

Conduct. LCvR 83.15(a). The primary situations warranting disqualification are “(1) where an

attorney’s conflict of interests . . . undermines the court’s confidence in the vigor of the

attorney’s representation of his client, or . . . (2) where an attorney is at least potentially in a

7 position to use privileged information concerning the other side through prior representation, . . .

thus giving his present client an unfair advantage.” Koller,

(quoting Bd. of

Educ. of N.Y. City v. Nyquist,

(2d Cir. 1979)). “Unless an attorney’s

conduct tends to taint the underlying trial” as in one of those two categories, “courts should be

quite hesitant to disqualify an attorney.”

(quoting Nyquist,

). “Except in

cases of truly egregious misconduct likely to infect future proceedings, other means less

prejudicial to the client’s interest than disqualifying the counsel of [the Party’s] choice are

ordinarily available to deal with ethical improprieties by counsel.” Id. at 1056 (citations

omitted).

III. Analysis

A. Motion to Dismiss

The Complaint’s various counts fall into three general categories of allegations. Counts

I, II, VI, and VII are all common-law claims dealing with the alleged formation and breach of a

contract, or, in the alternative, a quasi-contract subject to some equitable remedy. Counts III, IV,

and V are separate torts, whether grounded in the common law or federal statutory causes of

action. Counts VIII and IX request specific remedies apart from the legal or equitable remedies

sought in the other counts. The Court takes them in that order.

1. Contract, Fraud, and Quasi-Contract Claims

a. Breach of Contract

The Complaint alleges that Butler, Price, and Augustine formed an oral contract

sometime between 2011 and 2014, in which Butler and Price agreed to secure government

contracts for EIC and then perform those contracts on EIC’s behalf without being paid. 3d Am.

Compl. ¶¶ 10–20. The profits from those contracts went to Augustine. Id. ¶ 26. In turn,

Augustine progressively sold his ownership stake in the company to Butler and Price, who would

8 eventually become co-owners after contributing roughly $600,000 in profits. Id. ¶ 18. The

Parties agree that there was no written contract, see Mot. at 4; Pls.’ Opp’n to Defs.’ Mot. to

Dismiss (“Opp’n”) at 9–11, so if any contract existed, it must have been oral.

“To prevail on a claim of breach of contract, a party must establish (1) a valid contract

between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty;

and (4) damages caused by the breach.” Tsintolas Realty Co. v. Mendez,

(D.C. 2009). Augustine and EIC argue that the Complaint fails on the first and third points,

contending that it does not adequately allege either the existence of a contract or a breach

thereof. See Mot. at 4.

“For a contract to be enforceable, there must be (1) an agreement to all material terms,

and (2) intention of the parties to be bound. In addition, mutuality of obligation must exist.”

Eastbanc, Inc. v. Georgetown Park Assocs. II, L.P.,

(D.C. 2008) (internal

quotations and citations omitted). “A contract must be sufficiently definite as to its material

terms (which include, e.g., subject matter, price, payment terms, quantity, quality, and duration)

that the promises and performance to be rendered by each party are reasonably certain.”

(quoting Rosenthal v. Nat’l Produce Co., Inc.,

(D.C. 1990)). “All agreements

have some degree of indefiniteness and some degree of uncertainty,” but “[a] contract is

enforceable if it is sufficiently definite so that the parties can be reasonably certain as to how

they are to perform” and its terms are “clear enough for the court to determine whether a breach

has occurred and identify an appropriate remedy.”

(internal quotations and citations omitted).

An oral contract’s elements are identical to those of a written contract. See Ashrafi v. Fernandez,

(D.C. 2018) (“[T]he elements of an oral contract are (1) an agreement to all

material terms and (2) intent of the parties to be bound.”)

9 Defendants throw every possible argument against the wall to see if any stick. First, they

contend that the agreement lacks consideration because Augustine stood to gain nothing. See

Mot. at 5. According to Defendants, “the plaintiffs would be producing value that they would

exchange for equivalent value,” such that “all of the benefit from the plaintiffs’ generation of

revenues, as alleged by the plaintiffs, apparently was to flow to the plaintiffs.”

But the

Complaint says no such thing. Butler and Price allege that they worked without full

compensation for their labor, instead permitting revenues from their contracts and labor to go to

Augustine. 3d Am. Compl. ¶ 14. In return, they obtained partial ownership of EIC, with their

share of the company increasing progressively as they slowly bought Augustine out of his stake

in the business.

¶¶ 17–18.

Second, Defendants argue that the agreement lacks mutuality of obligation because “the

plaintiffs seemingly could have walked away from this arrangement at any time without penalty

and demand[ed] their ‘equity.’” But the law of Louisiana (the state of EIC’s incorporation)

envisions just such an occurrence. See

(A) (“If a corporation engages

in oppression of a shareholder, the shareholder may withdraw from the corporation and require

the corporation to buy all of the shareholder’s shares at full value.”). Defendants provide no

legal authority to support their contention that no contract exists among business partners if it is

theoretically possible for one or more partners to abandon the partnership at a future date. It may

be the case that a partner who walks away may lose the benefit of the contract or may not be

entitled to compensation, but that’s not what the Complaint alleges. Instead, it claims that

Augustine affirmatively terminated Butler and Price, thereby depriving them of the benefits of

partial ownership of EIC. See 3d Am. Compl. ¶¶ 38–39.

10 Third, Defendants suggest that the agreement lacks essential elements and material terms

because Augustine never promised to return Plaintiffs’ money in the event of a falling out. See

Mot. at 6. In Defendants’ words, “[t]here is no way for the court to fill in this missing term of

the alleged contract,” because “[a]ssuming stock actually had changed hands—which is not

alleged[—]the plaintiffs would have no right to be paid for that stock upon termination of their

services unless they had specifically agreed.”

Relying on REO Acquisition Group v. Federal

National Mortgage Association,

(D.D.C. 2015), Defendants argue that

“[w]ithout such a material term, the contract fails, and the complaint for breach of contract

should be dismissed.” Mot. at 6. But REO involved a dispute over how a buyer was going to

finance its purchase of a collection of foreclosed houses from the seller.

.

Fannie Mae believed that the contract’s terms required REO to pay cash up front, while REO

believed the contract permitted it to finance the purchase with secured transactions.

The

Court held that the question of how REO would pay for the properties was a material term of the

contract on which the parties had never agreed, and therefore there was no enforceable contract.

That’s not the case here, where the Complaint alleges that the Parties agreed on payment

terms and that Plaintiffs subsequently paid Defendants hundreds of thousands of dollars in

contract revenues that otherwise would have gone into their own pockets. 3d Am. Compl. ¶ 39.

The disconnect, instead, is on the question of remedies for a breach. The Complaint

seeks, first and foremost, “the value of the equity shares of Defendant EIC to which Plaintiffs are

entitled.” Id. at 18. It may be the case that Plaintiffs cannot recover “the value of their equity,”

but a Contract need not specify a remedy for breach at the outset. “If the terms of the contract

are clear enough for the court to determine whether a breach has occurred and to identify an

appropriate remedy, it is enforceable.” Affordable Elegance Travel, Inc. v. Worldspan, L.P., 774

(D.C. 2001). From the face of the Complaint, the Court can conceive of at least

two potential remedies: either money damages in the amount that Butler and Price allegedly

gave to Augustine to purchase equity, or specific performance of the contract through a transfer

of ownership rights to EIC. Plaintiffs expressed their preference for the latter option at a hearing

on the Motion. The Court takes no position at this stage of the litigation on whether these or

other remedies are appropriate, but does conclude that the Complaint adequately alleges the

contract’s essential terms.

Finally, Defendants contend that no shares ever changed hands, so Plaintiffs cannot prove

that a contract ever existed. See Mot. at 5–6. It may be true that the alleged contract’s

performance did not comply with Louisiana law; the Complaint contains little information about

the mechanics of executing the contract. But “[t]o state a claim, a complaint need not assert that

the alleged contract is legal in all respects; rather illegality is an affirmative defense,” and an

“affirmative defense such as illegality can be the basis for granting a Rule 12(b)(6) motion to

dismiss ‘only when the [defense] is established on the face of the complaint.’” Francis v.

Rehman,

(D.C. 2015) (quoting Hafley v. Lohman,

(8th Cir.

1996)). Plaintiffs may have difficulty proving that money or shares ever changed hands, thereby

enabling them to claim some stake in EIC—but that’s a question for summary judgment, not for

a motion to dismiss. The Court does note, however, that the Complaint alleges that Augustine

prepared, signed, and filed with the federal government documents representing that Butler and

Price each owned 20% of EIC in 2015. 3d Am. Compl. ¶ 32. It’s possible that such documents

may be enough to substitute for shares of stock.

12 b. The Statute of Limitations

Having established that the Complaint adequately alleges a contract and a breach, the

Court turns to Defendants’ alternative argument that any claim for breach is barred by the

applicable statute of limitations. See Mot. at 8. In the District of Columbia, Plaintiffs must bring

a claim for breach of contract within three years of the breach. See

(7);

Eastbanc,

(“A cause of action for breach of contract accrues, and the statute of

limitations begins to run, at the time of the breach.” (internal quotation omitted)). In Defendants’

view, any enforceable contract must have existed by 2011, and any potential breach must have

occurred immediately, as Plaintiffs never received any of the “trappings of ownership” and so

never received any benefit of the contract. See Mot. at 8. If that’s the case, then the statute

would have run in 2014—long before Plaintiffs filed their original Complaint on August 30,

2018.

The same arguments apply to Counts II, VI, and VII. See Halldorson v. Sandi Grp.,

, 154–55 (D.D.C. 2013) (“Under District of Columbia law, claims for

fraud/fraudulent inducement . . . are governed by a three-year statute of limitations.” (citing

(8) (prescribing a three-year limitations period for any claim “for which a

limitation is not otherwise specifically prescribed”))).

But that argument assumes the Complaint alleges an immediate breach. “Where an

injury is not readily determined, ‘[a]t the latest . . . a cause of action accrues for limitations when

the plaintiff knows or by the exercise of reasonable diligence should know (1) of the injury, (2)

its cause in fact, and (3) some evidence of wrongdoing.’” Slate v. Pub. Def. Serv. for D.C.,

(D.D.C. 2014) (quoting Beard v. Edmondson & Gallagher,

(D.C. 2002)); see also News World Comm’cns, Inc. v. Thompsen,

(D.C.

2005) (“A claim for unjust enrichment only accrues . . . when the enrichment becomes unjust;

13 the statute of limitations starts to run upon the occurrence of the wrongful act giving rise to a

duty of restitution[, in this case, refusal to pay for services already rendered].” (internal quotation

omitted)).

According to the Complaint, Butler’s corporate title at EIC was “President and Managing

Partner of the Business Unit.” 3d Am. Compl. ¶ 23. Price was also described as “Managing

Partner of the Business Unit.”

From 2014–2016, the two received no salary or payment as

independent contractors, an indication either that they were either working pro bono or that they

were co-owners of the business and were applying their share of the profits to the purchase of a

larger stake in the company.

¶¶ 29–30. Moreover, Augustine allegedly made representations

to the federal government that Butler and Price each owned 20% of the company. 3d Am.

Compl. ¶ 32. All those allegations would be consistent with Plaintiffs’ understanding that

Augustine was continuing to hold up his end of the bargain. As the Complaint alleges, it was

only in 2017 that Augustine breached the contract by purporting to terminate Butler and Price

from the company. 3d Am. Compl. ¶ 38. If that’s the case, then Plaintiffs timely filed suit.

“This Circuit has ‘repeatedly held that courts should hesitate to dismiss a complaint on

statute of limitations grounds based solely on the face of the complaint.’” Slate, 31 F. Supp. 3d

at 312–13 (quoting Firestone v. Firestone,

(D.C. Cir. 1996)). “[D]ismissal is

appropriate only if the complaint on its face is conclusively time-barred.” Id. at 313 (internal

quotation omitted). Further evidence about the timeliness of the claims may arise at summary

judgment, but at this point, the Court cannot conclusively determine that any count is time-

barred.

14 Because the Complaint adequately alleges a contract and breach, and because Plaintiffs

seem to have filed their suit within the applicable limitations period, the Court denies the Motion

to Dismiss as to Count I.

c. Fraudulent Inducement

Having successfully alleged the existence of a contract, the Complaint alleges in Count II

that Augustine committed fraud both at the outset (to induce Butler and Price into entering into

the contract) and throughout the ensuing years (to induce them to continue to perform their end

of the bargain), even though Augustine never intended to make good on his obligations. 3d Am.

Compl. ¶¶ 67–73.

Defendants begin by repeating their arguments about the lack of a contract in the first

place, arguing that they cannot be liable for inducing Butler and Price to bind themselves by a

contract that never materialized. See Mot. at 8; see also In re U.S. Office Prods. Co. Sec. Litig.,

(D.D.C. 2003) (“[If there is no] contract, no claims requiring

inducement to enter [a] contract can exist.”). 3 Defendants also argue that the claim is barred by

the statute of limitations for the same reasons as Count I. See Mot. at 9. Those arguments both

fail for the reasons stated above.

Defendants next contend that Plaintiffs cannot allege both a breach of contract and

fraudulent inducement because the latter claim necessarily requires rescission of the contract.

See

They argue that “the plaintiffs must elect either to void the contract or to sue for contract

damages and cannot have it both ways. Since they do not ask for the contract . . . to be voided,

3 Contrary to Plaintiffs’ argument in opposition to this point, see Opp’n at 11, fraudulent inducement is not an alternative to a breach-of-contract claim and cannot succeed absent the existence of an enforceable contract. But that error is not fatal to the claim given that the Complaint states a claim for breach of contract.

15 and since they claim precisely the same relief in both counts, their claim is duplicative of their

contract claim.”

(citing Carter v. Urban Serv. Sys. Corp.,

(D.D.C.

2018)). But this argument confuses the legal theory underlying the allegations. “Traditionally, a

person who was induced to enter into a contract by a misrepresentation has several common law

causes of action, including fraud in the inducement sounding in tort and rescission sounding in

contract. The distinction between these two may be important because each action requires a

different level of proof and allows for different remedies.” In re Estate of McKenney,

(D.C. 2008).

Although the Complaint does not explicitly state that Count II sounds in tort, the damages

Plaintiffs claimed to have suffered as a result of the alleged inducement, including “loss of

revenue and profits, diminution of business value, [and] loss of business opportunity,” can be

remedied only through money damages, not by rescission of the contract. 3d Am. Compl. ¶ 73.

It would make little sense for Plaintiffs to seek rescission at this point, as they have already

performed their part of the alleged bargain and are seeking to force Defendants to perform on

their end. See Steiner v. Am. Friends of Lubavitch (Chabad),

(D.C. 2018)

(outlining standard for when a party may seek rescission) (quoting Restatement (Second) of

Contracts § 164 (Am. Law Inst. 1981)). Rescission is usually employed by defendants who are

being sued to force them to perform on a contract they allege they were deceived into entering in

the first place. See, e.g., Hercules & Co., Ltd. v. Shama Restaurant Corp.,

(D.C.

1992) (dismissing fraudulent inducement claim and enforcing arbitration award). Instead,

Plaintiffs seem to be seeking to “recover monetary damages in tort,” which they may only do if

they “establish[] all of the elements of common law fraudulent misrepresentation . . . by clear

16 and convincing evidence.” In re Estate of McKenney, 953 A.2d at 341–42 (citing Restatement

(Second) of Torts § 525 (Am. Law Inst. 1977) (internal quotation omitted)).

But the relationship between Plaintiffs’ claim for breach of contract and their allegation

of fraudulent inducement presents other problems beyond the question of rescission. To state a

claim for fraudulent inducement, the Complaint must allege that “(1) the defendant[s] made a

false representation, (2) the representation was in reference to a material fact, (3) the

defendant[s] had knowledge of its falsity, (4) the defendant[s] intended to deceive, (5) the

plaintiffs acted in reliance on the misrepresentation, and (6) the reliance was reasonable.” In re

U.S. Office Prods.,

(citing R&A, Inc. v. Kozy Korner, Inc.,

(D.C. 1996); Hercules,

). “Fraudulent inducement to enter a contract

requires [that the] misrepresentation or omission . . . pertain[] to an essential term of a contract

and the intent to convince a plaintiff to enter the contract.”

(citing Haynes v. Kuder,

, 1290 n.5 (D.C. 1991)). To comply with Rule 9(b), “the pleader [must] provide the

‘who, what, when, where, and how’ with respect to the circumstances of the fraud.” Anderson v.

USAA Cas. Ins. Co.,

(D.D.C. 2004) (quoting DiLeo v. Ernst & Young,

(7th Cir. 1990)).

Courts tend not to allow plaintiffs to allege fraudulent inducement alongside claims for

breach because “[t]here is a risk of turning every breach of contract suit into a fraud suit, of

circumventing the limitation that the doctrine of consideration is supposed . . . to place on

making all promises legally enforceable, and of thwarting the rule that denies the award of

punitive damages for breach of contract.” Desnick v. Am. Broad. Cos., Inc.,

, 1354

(7th Cir. 1995) (Posner, J.). In the District of Columbia, the claims may stand side-by-side in

one of three instances: (1) when the tort “exist[s] in its own right independent of the contract,

17 and any duty upon which the tort is based . . . flow[s] from considerations other than the

contractual relationship,” Choharis v. State Farm Fire & Cas. Co.,

(D.C.

2008); (2) when the defendant makes some statement “prior to” and “independent of the

contract” that deceives the plaintiff into agreeing to be bound by the contract, Ludwig &

Robinson, PLLC v. Biotechpharma, LLC,

(D.C. 2018) (quoting Marvin

Lumber & Cedar Co. v. PPG Indus.,

(8th Cir. 2000)); and (3) when the

promise to perform on the contract is itself fraudulent, “if at the time of its making, the promisor

had no present intention of carrying it out,” Va. Acad. of Clinical Psychologists v. Grp.

Hospitalization and Med. Servs., Inc.,

(D.C. 2005). Plaintiffs have not

provided any clarity about which of those categories they believe best fits their claim.

The Complaint alleges that in 2011 Augustine said he would sell equity in the company

to Plaintiffs without the intention of doing so, 3d Am. Compl. ¶ 68; that Plaintiffs agreed to the

deal because of that statement, id. ¶ 71; that Plaintiffs worked for several years in reliance on that

promise, id.; that they received subsequent reassurances of progressively accrued equity, id. ¶ 72;

and that Augustine eventually went back on his word and denied them what they had paid for

with money they otherwise would have kept for themselves, id. ¶¶ 38–39. Plaintiffs thus identify

two potential misrepresentations: (1) that Augustine agreed to the contract in 2011 but even then

did not intend to perform his obligations under the contract and (2) that Augustine lied about

Plaintiffs’ accrual of equity during the course of performance to keep them performing their

obligations under the contract.

Neither of those allegations falls under the category articulated in Ludwig. Plaintiffs do

not allege that Augustine misrepresented anything about the nature of EIC that might have made

the deal appear better than it really was. For instance, Augustine never claimed that EIC was

18 more valuable than he secretly believed it to be; that EIC had lucrative government contracts that

later turned out not to exist; or that he offered to sell the company when, in truth, someone else

owned shares that he had no legal right to convey to Butler or Price. Such statements would

constitute “fraud and misrepresentation in matters leading up to procurement of the contract”

rather than being subsumed within the contract itself and would thereby state a claim. Ludwig,

(quoting Choharis, 961 A.2 at 1088 n.11) (emphasis added); see also

at 111–

12 (“[Plaintiff] made no claim that, prior to [Plaintiff’s] taking out the policy, the insurance

company made misrepresentations about (for example) the scope of the offered coverage or the

financial strength of the company and its ability to meet its obligations under issued policies.”

(citing Choharis,

n.11)). But there is no such allegation in the Complaint.

The allegation that Augustine was lying when he entered the contract does fit squarely

within the rule of Virginia Academy. There, the D.C. Court of Appeals confirmed that the party

who breaches a contract may be held liable for fraudulent misrepresentation, in addition to

breach, “where the evidence shows that a promise was made without the intent to perform, or

that the promisor had knowledge that the events would not occur.” 878 A.2d at 1234 (quoting

Bennett v. Kiggins,

, 60–61 (D.C. 1977)). But it emphasized the difficulty of

holding the promisor liable when the only evidence of the promisor’s intent is the breach itself.

When a promise is made in good faith, with the expectation of carrying it out, the fact that it subsequently is broken gives rise to no cause of action . . . . Otherwise any breach of contract would call for such a remedy. The mere breach of a promise is never enough in itself to establish the fraudulent intent. It may, however, be inferred from the circumstances, such as the defendant’s insolvency or other reason to know that he cannot pay, or his repudiation soon after it is made, with no intervening change in the situation, or his failure to attempt any performance, or his continued assurances after it is clear that he will not do so.

19

at 1234–35 (quoting W. Page Keeton et al., Prosser and Keaton on the Law of Torts § 109

(5th ed. 1984)) (emphasis added).

The Complaint’s allegations, however, fit Prosser’s definition exactly. Plaintiffs claim

that “Defendants had no intention at the time they made the representations to Plaintiffs or any

time thereafter to tender to Plaintiffs an equity interest in Defendant EIC, therefore the

Defendants knew that their representations regarding Plaintiffs’ ability to earn equity in EIC

were false when they were made.” 3d Am. Compl. ¶ 69. The Complaint alleges no

circumstances that might tend to show that Augustine was lying when he agreed to the contract,

no indications that he knew performance would be impossible, and no allegation that Augustine

repudiated the contract immediately after making it. In fact, Plaintiffs allege that Augustine gave

every indication that he was performing on the contract until 2017, such as his signed

representations to both Plaintiffs and the federal government that Plaintiffs each owned 20% of

the company in 2014 and 2015. Id. ¶¶ 33–35. The first sign of Augustine’s intent to breach

came in 2017—six years after contract formation. Id. ¶¶ 36–41. “The mere breach of a promise

is never enough in itself to establish the fraudulent intent.” Va. Acad., 878 A.2d at 1234 (quoting

Prosser & Keaton § 109). 4

The Complaint’s allegations that Augustine continued to deceive Plaintiffs by giving

assurances throughout the years bear some resemblance to the facts of Ludwig. There, a

pharmaceutical company retained a law firm to handle intellectual property matters.

. The representation agreement included an hourly fee structure and permitted the firm to

4 Defendants briefly raise this argument. See Mot. at 8–9 (citing Va. Acad., 878 A.2d at 1235). In turn, Plaintiffs make no attempt to engage with the case law and merely restate the Complaint’s allegations corresponding with the elements of fraud. See Opp’n at 11–12. On this point (and others), the Parties’ briefing was largely unhelpful in applying D.C. law.

20 withdraw from the representation if the company failed to pay. Id. Of course, the company

never paid its bills, so the law firm threatened to withdraw. Id. at 107. The company assured the

firm of its ability to pay, representing that it could rely on an existing line of credit and revenue

from investments in its subsidiary company. Id. The parties agreed to modify the fee structure,

deferring some hourly fees in exchange for an additional sum to paid on contingency. Id.

Payment never came, so the Parties negotiated a second amendment containing an even larger

contingency payment. Id. The law firm eventually had to take the company to arbitration, where

it prevailed on its breach-of-contract claim and received a sizable award. Id. The firm then

pursued separate claims for fraud and conspiracy (which were unavailable in arbitration) in a

lawsuit. Id. at 107–08. The Superior Court dismissed the claims, holding, among other

conclusions, that the fraud claims were duplicative of the contract damages and therefore could

not stand as separate claims. Id. It relied on Choharis, which held that a tort allegation of fraud

“must exist in its own right independent of the contract, and any duty upon which the tort is

based must flow from considerations other than the contractual relationship. The tort must stand

as a tort even if the contractual relationship did not exist.”

. The Superior

Court found that the continued misrepresentations merely concealed the company’s breach of the

contract and caused no independent harm that had not already been redressed by contract

damages.

.

The Court of Appeals reversed.

at 109–16. Because the company and the law firm

had an “open-ended engagement” and because the law firm had a contractual right to withdraw,

each representation that the company was about to pay up and had access to funds available for

that purpose constituted a separate “inducement” to keep the law firm at the table.

at 110–11.

The company knew that there was no existing line of credit and that it could not pay its bills, but

21 it continued to negotiate amendments to the fee agreement under false pretenses to prolong the

scheme.

Thus, while an action for breach of contract may have sufficed to give the law firm

the benefit of the original bargain, the firm needed a separate claim to account for the

independent harms caused by the misrepresentation: the additional work it did after threatening

to withdraw (twice) and the legal actions required to enforce the various amendments to the

contract.

Here, Plaintiffs do not allege that the misrepresentations in 2015 and 2016 induced them

to enter into a new bargain with Augustine or caused some new injury that would have arisen

“even if the contractual relationship did not exist.” Choharis,

. “[C]onduct

occurring during the course of a contract dispute may be the subject of a fraudulent . . .

misrepresentation claim when there are facts separable from the terms of the contract upon

which the tort may independently rest and when there is a duty independent of that arising out of

the contract itself, so that an action for breach of contract would reach none of the damages

suffered by the tort.”

(emphasis added). “Even a willful, wanton or malicious breach of a

contract . . . cannot support a claim for fraud.”

(internal quotation omitted). Augustine’s

alleged misrepresentations merely deceived Plaintiffs into thinking that they were getting the

benefit of the bargain; there was no separate harm. Misleading statements about a promisor’s

willingness or ability to perform (made during the course of performance) are not separately

actionable fraud, even when those statements prevent the promisee from discovering a breach.

Ludwig, 186 A.3d at 112–13 (citing EDCare Mgmt., Inc. v. DeLisi,

, 450–52 (D.C.

2012)). Any harm resulting from Augustine’s alleged statements is “wholly dependent” on the

contract and can be fully redressed through contract damages on the breach. Id. at 113.

22 Count II does not state an actionable claim for fraudulent inducement, whether under the

general pleading standards of Federal Rule of Civil Procedure 8(a) or the more exacting

standards for pleading fraud under Rule 9(b). At bottom, Plaintiffs’ allegations are the sort of

conclusory fraud claims that courts regularly reject as nothing more than an attempt to pile

punitive tort damages onto contract disputes. See, e.g., Shandong Yinguang Chem. Indus. Joint

Stock Co., Ltd. v. Potter,

(5th Cir. 2010) (“However, ‘failure to preform,

standing alone, is no evidence of the promissor’s intent not to perform when the promise was

made.’” (quoting Spoljaric v. Percival Tours, Inc.,

(Tex. 1986))). The

Court will dismiss the count.

d. Promissory Estoppel

Count VI argues that Augustine promised to bring Butler and Price on as business

partners, that they worked for EIC for several years in reliance on that promise, and that

Defendants are now estopped from retracting the promise. 3d Am. Compl. ¶¶ 97–102.

“Promissory estoppel provides a party with a remedy to enforce a promise where the formal

requirements of a contract have not been satisfied, often serving as a substitute for one of these

formal requirements, usually consideration.” Vila v. Inter-Am. Inv. Corp.,

, 279

(D.C. Cir. 2009) (citing Bender v. Design Store Corp.,

(D.C. 1979)).

“Therefore, when a contract fails for lack of consideration, courts will, in some circumstances,

enforce the promise where the promisee has detrimentally relied.”

Promissory estoppel and

unjust enrichment (Count VII) are variations on actions in quasi-contract, which function as

substitutes for contractual remedies “even though no intention of the parties to bind themselves

contractually can be discerned.” Bloomgarden v. Coyer,

(D.C. Cir. 1979).

23 Defendants seize on this point to argue that a Complaint cannot allege both breach of

contract and quasi-contract claims. See Mot. at 13. Defendants are correct that “courts tend not

to allow [such] action[s] to proceed in the presence of an actual contract between the parties.”

(quoting Vila, 570 F.3d at 280). They argue that the claims duplicate Count I and should

therefore be dismissed as cumulative. Id.

“There is, of course, no need to resort to [quasi-contract] when the evidence sustains the

existence of a true contract, either express or implied in fact.” Bloomgarden,

.

“One who has entered into a valid contract cannot be heard to complain that the contract is

unjust, or that it unjustly enriches the party with whom he or she has reached agreement.”

Jorden Keys & Jessamy, LLP v. St. Paul Fire and Marine Ins. Co.,

(D.C. 2005).

But in every case Defendants cite for that proposition, the existence of the contract was never in

dispute. See, e.g., He Depu v. Yahoo! Inc.,

, 193–94 (D.D.C. 2018)

(collecting cases), rev’d on other grounds

(D.C. Cir. 2020). Here, there is no

written contract, and Defendants have themselves contested that the Parties ever formed an

enforceable oral agreement. See Mot. at 4 (“The plaintiffs have successfully alleged neither a

breach of contract nor a contract in the first instance.”). By pleading quasi-contractual counts for

promissory estoppel and unjust enrichment, Plaintiffs acknowledge that they may be unable to

prove the existence of an enforceable contract and would thereby lose their claim for breach of

contract in Count I. See Opp’n at 11 (“While Plaintiffs cannot prevail on both contract and

quasi-contract claims, they may plead all of these counts in the alternative under the federal

rules.”). If it’s the case that Plaintiffs cannot prove the existence of a valid “contract in the first

instance,”

then they may rely on quasi-contractual theories of liability to seek restitution of

the benefits they allegedly conferred on Defendants in reliance on Defendants’ alleged

24 assurances. But if they’re able to prove that the Parties validly contracted, then Counts VI and

VII will drop out of the case.

Defendants also challenge the sufficiency of Count VI’s allegations. “In order to find a

party liable on a theory of promissory estoppel, there must be evidence of a promise, the promise

must reasonably induce reliance upon it, and the promise must be relied upon to the detriment of

the promisee.” Simard v. Resolution Tr. Corp.,

(D.C. 1994). Defendants

claim that the Complaint never alleges that Augustine promised “to tender the value of the

plaintiffs’ equity upon the termination of the plaintiffs’ services.” Mot. at 13 (internal quotation

and alterations omitted). But that’s not the promise alleged here. Instead, the Complaint alleges

that Augustine “represented to Plaintiffs that if Plaintiffs worked on behalf of Defendants and

generated revenue for the Business Unit, then Defendants would tender to Plaintiffs equity in

Defendant EIC commensurate with the revenue the Business Unit generated, less direct costs and

certain indirect costs.” 3d Am. Compl. ¶ 98. Tendering the value of that equity at termination

would have been a remedy for failure to transfer ownership, not the subject of the original

promise. Instead, the Complaint alleges that Augustine promised to sell a share of the company

to Plaintiffs, id. ¶ 98, that Plaintiffs worked without compensation for several years in reliance on

that promise, id. ¶ 99, and that they got nothing to show for their work in the end, id. ¶ 102. The

Complaint adequately states a claim for promissory estoppel.

e. Unjust Enrichment 5

Count VII, another quasi-contract count, alleges that Butler and Price reasonably

conferred a benefit on Augustine and EIC, that it would be unjust for Defendants to retain that

5 The Complaint labels Count VII as a claim for both unjust enrichment and quantum meruit. See 3d Am. Compl. ¶ 103. “Quantum meruit may refer to either an implied contractual or a quasi-contractual duty requiring compensation for services rendered.” New Econ. Capital, LLC

25 benefit, and that equitable principles demand that Defendants return the benefit to Plaintiffs. Id.

¶¶ 103–11. Beyond the same arguments Defendants raise above as to the statute of limitations

and duplication of the contract claim, see Mot. at 16, they contend that the Complaint fails to

state a claim for unjust enrichment because either (1) Plaintiffs received a benefit rather than

conferring one on Defendants, or (2) Plaintiffs were aware the arrangement carried some risk for

them, that they accepted the risk, that they ended up with the short end of the stick, and that it

would not be unjust to permit Defendants to retain the benefits of the agreement, see id. at 14–

15.

“Like promissory estoppel, unjust enrichment provides a party with a remedy to unwind

entanglements that may have arisen from a failed agreement, for instance, . . . where the

agreement is too indefinite to be enforced.” Vila, 570 F.3d at 280 (internal quotations omitted).

“For [Plaintiffs] to recover . . . , [they] must show that [Defendants were] unjustly enriched at

[their] expense and that the circumstances were such that in good conscience [Defendants]

should make restitution.” Thompsen,

(quoting Vereen v. Clayborne,

(D.C. 1993)). In other words, “[u]njust enrichment occurs when: (1) the plaintiff

conferred a benefit on the defendant; (2) the defendant retains the benefit; and (3) under the

circumstances, the defendant's retention of the benefit is unjust.”

v. New Mkts. Capital Grp.,

, 1095 (D.C. 2005) (internal quotation omitted). The latter theory “is more commonly known as a theory of unjust enrichment.” Vereen v. Clayborne,

(D.C. 1993). Although courts have articulated slightly different tests for stating a quasi-contractual quantum meruit claim, see Mot. at 14–15 (comparing cases), the two labels mean the same thing in this context. If anything, quantum meruit is a method for calculating the appropriate remedy for unjust enrichment. That clarification resolves arguments Defendants raise in their Reply brief discussing the lack of allegation of an implied-in-fact contract. See Defs.’ Reply to Opp’n to Mot. to Dismiss for Failure to State Claims at 11, ECF No. 32.

26 Defendants argue that the Complaint mischaracterizes the nature of Plaintiffs’

relationship to EIC. Rather than working to generate revenue and thereby purchase equity in the

company, Defendants claim that the Plaintiffs merely worked for an “opportunity” to buy the

company, “and it didn’t work out.” Mot. at 15. “Although [Plaintiffs] assert that they expected

to buy the company, the relationship ended before that happened.” Id. at 14. Of course, the

Complaint does not assert that Butler and Price “expected to buy the company” at some time

after they began working at EIC; it alleges that they were buying the company by foregoing

salaries and directing revenue from their contracts to Augustine. 3d Am. Compl. ¶ 106.

Although Defendants characterize the affair as a “scheme meant to benefit . . . the plaintiffs, not

the defendants,” Mot. at 14, that argument neglects the significant, uncompensated work that

Butler and Price allegedly rendered for Defendants’ benefit, 3d Am. Compl. ¶ 106. Moreover,

Defendants claim that “[h]ad [Plaintiffs] wished to protect their ‘equity,’ they could have [done

so] with a specific agreement. They did not.” Mot. at 14. That’s a textbook reason for quasi-

contract theories of equity jurisprudence.

Even assuming that there was no contract, Butler and Price allege that they worked for

EIC for free for several years with the understanding that they were being paid in the form of

equity. 3d Am. Compl. ¶¶ 105–06. Defendants allegedly accepted the benefit of Plaintiffs’ work

and even led them to believe that they were accruing equity by filing forms with the federal

government listing Butler and Price as equity partners. Id. ¶¶ 107–09. If Plaintiffs cannot

recover under a breach-of-contract theory, they still may be eligible for restitution of the value of

their work under a theory of unjust enrichment. Id. ¶ 111. Count VII properly states a claim for

unjust enrichment.

27 2. Remaining Tort Claims

Moving on from the Complaint’s contract and quasi-contract counts, the Court turns to

Plaintiffs’ other tort claims: invasion of privacy (Count III), a Stored Wire and Electronic

Communications Act violation (Count IV), and fraudulent filing of tax returns (Count V).

a. Invasion of Privacy

Count III alleges that after Augustine purported to terminate Plaintiffs, he (or his agent)

accessed Butler’s and Price’s corporate e-mail accounts and corresponded with Butler’s business

contacts without revealing to the recipients that he wasn’t Butler (or that Butler no longer

worked at EIC). Id. ¶¶ 74–81. Count III claims that Augustine “thus appropriated Butler’s name

for [his] own benefit, capitalizing on the reputation Butler had earned through his hard work for

[his] own benefit and without permission.” Id. ¶ 78.

Defendants’ primary argument on this front is that the Complaint lacks any allegation

that Augustine published Plaintiffs’ private information or otherwise defamed Plaintiffs. See

Mot. at 9–10. This line of reasoning confuses invasion of privacy with defamation. Defendants

can be forgiven for the confusion, as the Complaint labels Count III “Defamation (Invasion of

Privacy).” 3d Am. Compl. ¶ 74. The label is a misnomer.

The concept of a common-law right to privacy grew to some extent out of protections

against defamation beginning in the late nineteenth century. See William L. Prosser, Privacy,

, 383–384 (1960) (citing Samuel D. Warren and Louis D. Brandeis, The Right

to Privacy,

(1890)). Although the distinctions between the two causes of

action were “well known” by the mid-twentieth century, “there have been overlappings from the

beginning.” John W. Wade, Defamation and the Right of Privacy,

, 1094

(1961). It was Prosser who developed and classified the various causes of action courts

eventually recognized to vindicate privacy rights: intrusion upon seclusion, public disclosure,

28 false light, and commercial appropriation. See Kenneth S. Abraham and G. Edward White, The

Puzzle of Dignitary Torts,

, 338–40 (2018); compare Restatement

(Second) of Torts ch. 28 (classifying causes of action for defamation) with

ch. 28A

(classifying causes of action for invasion of privacy); see also Haynes v. Alfred A. Knopf, Inc.,

(7th Cir. 1993) (Posner, J.) (collecting cases).

Defendants’ arguments that the Complaint does not state a claim for defamation, while

understandable in light of the Complaint’s imprecise labeling, are therefore unavailing. See Mot.

at 9 (“The defendants are at a loss as to what the plaintiffs plausibly suggest could be

defamatory.”). Although Plaintiffs used the term, they clearly do not allege defamation.

Defendants’ arguments against a claim for invasion of privacy fare no better. Under D.C.

common law, “[o]ne who appropriates to his own use or benefit the name or likeness of another

is subject to liability to the other for invasion of his privacy.” Tripp v. United States,

, 40–41 (D.D.C. 2003) (quoting Restatement (Second) of Torts § 652C) (citing

Vassiliades v. Garfinckel’s,

(D.C. 1985)). “[T]he interest protected by this

proposition is in the nature of an individual property right in the exclusive use of one's own

identity in so far as the use of one's name or likeness may be of benefit to him . . . or others.”

(emphasis removed) (quoting Restatement (Second) of Torts § 652C, cmt. a). “The common

form of invasion of privacy under [this rule] is the appropriation and use of the plaintiff's name

or likeness to advertise the defendant's business or product, or for some similar commercial

purpose.” Id. (quoting Restatement (Second) of Torts § 652C, cmt. b). “Incidental use . . . for a

purpose other than taking advantage of a person's reputation or the value associated with his

name will not result in actionable appropriation.” Vassiliades,

.

29 As Judge Sullivan noted in his extensive treatment of the difference between various

forms of invasion of privacy in Tripp, the D.C. Court of Appeals has recognized a cause of

action for misappropriation of likeness, but “[n]either D.C. case law . . . nor federal case law

interpreting it provide much guidance” on the subject.

. Not much has

changed since Judge Sullivan made that observation. See, e.g., Teltschik v. Williams & Jensen,

PLLC,

(D.D.C. 2010) (dismissing count for failure to state a claim).

The cases do establish, however, that Defendants’ sole argument against Count III is

misdirected. Defendants contend that Count III fails to state a claim because it does not allege

that Augustine ever published Butler’s private information to third parties. See Mot. at 10 (“The

plaintiffs claim no revelation of a private fact. There is alleged no publication of fact,

defamatory or private.”). Defendants rely on Smith v. Clinton,

, 242–43

(D.D.C. 2017), but Smith dealt with the torts of defamation and placing a person in a false light.

False light, although also falling under the category of invasion of privacy, is distinct from

misappropriation of likeness and therefore has different elements. Compare Restatement

(Second) of Torts § 652C (misappropriation of likeness) with id. § 652E (false light). The same

goes for the Defendants’ other citations, which all involved either other forms of invasion of

privacy or defamation. See Defs.’ Reply to Opp’n to Mot. to Dismiss for Failure to State Claims

(“Reply”) at 5, ECF No. 32 (citing Armstrong v. Thompson,

, 188–89 (D.C. 2013)

(false light and publication of private facts (citing Restatement (Second) of Torts § 652E));

Randolph v. ING Life Ins. & Annuity Co.,

, 710–12 (D.C. 2009) (public disclosure

of private facts and intrusion upon seclusion (citing Restatement (Second) of Torts §§ 652B,

652D)); Steinbuch v. Cutler,

(D.D.C. 2006) (defamation); Conejo v. Am.

Fed’n of Gov’t Emps. AFL-CIO,

, 32–33 (D.D.C. 2019) (false light (citing

30 Armstrong, 80 A.3d at 188–89))). None of those cases considered actions for misappropriation

of likeness or had reason to consider the elements or illustrations set out in § 652C of the

Restatement or the corresponding section of the D.C. Court of Appeals’ opinion in Vassiliades.

See 492 A.2d at 592–93.

To be sure, language in Armstrong (taken from comments in Randolph) unequivocally

states that “the ‘publicity’ requirement for a publication of private facts claim is the same for all

invasion of privacy torts.”

. But neither of those opinions had any occasion to

consider misappropriation of name or likeness, and such generic language does not alter the

elements of the tort as laid out in the Restatement and adopted in Vassiliades.

Misappropriation of likeness does not require publication of private information; it

requires only that the tortfeasor “appropriate[] to his own use or benefit the name or likeness of

another.” Restatement (Second) of Torts § 652C. To be sure, the typical case involves “[u]sing

a celebrity’s . . . name or picture in advertising without his consent,” Haynes,

, but

publication is not an absolute requirement so long as the Complaint alleges that Defendants’ use

of Butler’s name was to Defendants’ “benefit,” Restatement (Second) of Torts § 652C. The

Restatement’s illustrations bear this out:

A, a private detective, seeking to obtain information as to the relations of B's wife with C, impersonates B, and so induces others to disclose to him confidential information that they would not otherwise have disclosed. A has invaded B's privacy.

Id., cmt. b., illus. 3. In this scenario, it is enough that A use B’s name to obtain information of

commercial value to him. There is no publication requirement.

“[W]here the D.C. Court of Appeals has denied plaintiffs relief on a misappropriation of

name or likeness theory, it has relied heavily on the lack of ‘value’ associated with mention or

use of the plaintiff’s name or likeness.” Tripp,

. The Complaint clearly

31 alleges that Butler’s name, while it may not have had any value to the general public, had

commercial value to Defendants because it was Butler who had developed the particular business

contact with whom Augustine allegedly corresponded. 3d Am. Compl. ¶ 78. To the extent that

Defendants were attempting to bolster’s EIC’s business by trading on Butler’s reputation in the

relevant business community, without Butler’s knowledge or permission, they would be liable

for misappropriation of name or likeness.

One of Defendants’ arguments here, however, does have merit. In addition to alleging

that Augustine accessed Butler’s email and corresponded with at least one of his business

contacts, the Complaint also claims that “Defendants may have also actively impersonated Price

since Price’s departure from EIC, thus appropriating Price’s name for their benefit as well.” Id.

¶ 79. This allegation seems to be mere conjecture and does not “raise a right to relief above the

speculative level.” Twombly,

. The Court therefore grants the Motion to Dismiss

as to the allegation that Augustine misappropriated Price’s likeness and dismisses that portion of

the Complaint without prejudice. The rest of Count III remains in place.

b. Stored Wire and Electronic Communications Act Violation

Count IV alleges a single violation of the Stored Wire and Electronic Communications

Act, 18 U.S.C. §§ 2701–13. 3d Am. Compl. ¶¶ 82–87. The Act criminalizes “intentionally

access[ing] without authorization a facility through which an electronic communication service

is provided” or “intentionally exceed[ing] an authorization to access that facility” and “thereby

obtain[ing], alter[ing], or prevent[ing] authorized access to a wire or electronic communication

while it is in electronic storage in such system.”

(a). The Act also creates a

civil cause of action permitting victims to sue offenders for equitable relief, damages, and

attorney fees.

§ 2707.

32 The Complaint alleges that Augustine “intentionally accessed Butler’s former EIC email

account without authorization” (“or exceeded any authorization Augustine may have had”) about

a year after Butler left the company. 3d Am. Compl. ¶ 84. But it does not allege the existence of

any agreement between Butler and the company that Butler’s email account was his alone, that

the company would have no access to data stored on its own servers, or that EIC was some sort

of partnership that dissolved upon his termination and that caused Butler to retain a property

right in his email account. The very fact that the Complaint names EIC as a Defendant in this

action renders the allegation a non sequitur. “For [Plaintiffs’] claim to stand, it would require the

Court to assume that, paradoxically, [EIC] is the [electronic communications] facility at issue,

yet that facility has limited access to itself.” State Wide Photocopy, Corp. v. Tokai Fin. Servs.,

Inc.,

(S.D.N.Y. 1995).

Plaintiffs cite no cases supporting the proposition that a company cannot access its own

email servers. The cases they do cite merely establish that e-mail servers are protected

communications facilities under the Act and that hackers may not access them without

authorization. See Opp’n at 15–16 (citing, e.g., Hately v. Watts,

(4th Cir.

2019); In re Google Inc. Cookie Placement Consumer Privacy Litig.,

, 147–48 (3d

Cir. 2015)). It cannot be the case that federal law prohibited EIC from accessing its own email

servers absent some contract that protected those accounts individually. See Walker v. Coffey,

No. 19-1067,

, at *8 (3d Cir. Apr. 16, 2020) (holding that an employee’s

“work emails . . . fall outside of the scope of the [Stored Communication Act’s] protection”

when voluntarily disclosed by employer). The Court therefore dismisses Count IV without

prejudice.

33 c. Fraudulent Filing of Tax Returns.

Count V alleges two separate predicate facts to support its allegation that Defendants

violated

, which punishes the fraudulent filing of tax returns. First, the

Complaint alleges that Augustine willfully failed to file returns on EIC’s behalf for tax years

2014, 2015, and 2016, thereby misrepresenting Butler and Price’s status as EIC’s partial owners

and subjecting them to IRS audit or penalty (and potentially affecting their security clearances).

3d Am. Compl. ¶¶ 93–95. Second, it claims that Augustine willfully mischaracterized Butler

and Price as independent contractors rather than owners for tax year 2017, reporting their limited

income from that year on a Form 1099 and thereby omitting any mention of the company’s gains

and losses, which were supposed to have been passed through to them as owners of an S

Corporation under the Tax Code. 3d Am. Compl. ¶¶ 89–92.

The statute creates a civil cause of action against “any person [who] willfully files a

fraudulent information return with respect to payments purported to be made to any other

person.”

(a). Courts in this Circuit have had little occasion to interpret the

statute, so the Court looks to opinions from other Circuits as persuasive authority.

As to Defendants’ first argument, the Second Circuit has held that the text of the statute

“plainly does not encompass an alleged failure to file a required information return.” Katzman v.

Essex Waterfront Owners LLC,

(2d Cir. 2011) (per curiam). Congress’s use

of the term “willfully files” plainly excludes liability for one who files nothing.

The Second

Circuit also pointed out that there are other provisions of the Internal Revenue Code that punish a

failure to file a required return, but those sections do not create a private right of action.

. Tellingly, Plaintiffs cite to no contrary cases to support their argument. See Opp’n at 17.

The Court agrees with the Second Circuit’s analysis.

34 As to the second argument, courts are split on whether intentionally filing the wrong form

that includes the right amount can constitute a violation of the statute. Compare Liverett v.

Torres Advanced Enter. Sols. LLC,

(E.D. Va. 2016) (Ellis, J.) (holding

that both the text and structure of the statute preclude liability for misclassification) with Leon v.

Tapas & Tintos, Inc.,

(S.D. Fla. 2014) (finding, without explanation,

that willful misclassification violates the statute). Judge Ellis’s exhaustive textual analysis of the

ambiguities in the statute has become the dominant view since he issued his ruling in Liverett;

indeed, the Court cannot find a single post-Liverett decision that went the other way on a similar

set of facts. See Evans v. United Parcel Service, Inc., No. 19 CV 4818,

, at *3

(N.D. Ill. Feb. 18, 2020) (collecting cases); cf. Greenwald v. Regency Mgmt. Servs., LLC,

, 270–71 (D. Md. 2019) (distinguishing Liverett on the facts of the case). The Court

agrees with Judge Ellis’s authoritative opinion: Plaintiffs cannot state a claim against

Defendants under § 7434 merely for mischaracterizing them as independent contractors rather

than employees or owners and thereby filing the wrong tax form.

But the Complaint goes farther, alleging that “the Form 1099s did not accurately report

all income or losses related to Plaintiffs’ ownership interests in EIC.” 3d Am. Compl. ¶ 91. This

allegation may be enough to distinguish Liverett. In Greenwald, Judge Russell declined to

follow Liverett because the Plaintiffs “d[id] not allege that Defendants misclassified them as

independent contractors” but rather claimed, among other allegations, “that Defendants willfully

underreported the amounts [they were actually paid] on their W-2s, 1099s, or both in an effort

[to] defraud tax authorities by reducing their tax obligations.” 372 F. Supp. 3d at 270–71. Judge

Russell concluded that such conduct fell within the statute’s ambit. Id. See also Czerw v.

Lafayette Storage & Moving Corp., No. 16-CV-6701-FPG,

, at *3 & n.2

35 (W.D.N.Y. Nov. 9, 2018) (“[B]ecause Plaintiff alleges that the Form 1099-MISC incorrectly

states the amount paid to him, . . . the Court need not address whether the alleged

misclassification supports a claim under § 7434.); Chin Hui Hood v. JeJe Enters., Inc.,

(N.D. Ga. 2016) (“[The distinction] matters not in this action, because

Plaintiff provides evidence of both [misclassification and underreporting].”).

Those situations, however, do not quite match the allegations here. Plaintiffs do not deny

that the 2017 Form 1099s accurately reflect the cash payments EIC made to them during that tax

year. Instead, they claim that those cash payments do not reflect a complete accounting for their

income and losses as owners. This case seems to pose a slightly different question than those

listed above, which courts do not seem to have faced before: does § 7434 govern a situation in

which a company allegedly mischaracterizes a plaintiff as an independent contractor and files a

Form 1099 that accurately reports cash payments made to the plaintiff when the plaintiff alleges

that he is neither a contractor nor an employee but rather an owner, entitled to claim the

company’s own gains and losses as his own for the purposes of documenting his income?

That seems to be a question of first impression among the courts that have addressed the

statute’s application. “Congress’s goal in enacting § 7434 was to give redress to taxpayers

aggrieved by the filing of information returns that fraudulently misrepresent the amount paid to

the taxpayer.” Liverett,

. Although this case involves a 1099 that

correctly stated the amount of cash EIC distributed to Plaintiffs, Plaintiffs allege that EIC was

required to file other forms documenting both cash distributed and the corporation’s gains and

losses, which, because EIC is an S Corporation under the Tax Code, pass through the corporation

and affect shareholders’ tax liabilities. See 3d Am. Compl. ¶¶ 8, 45; see also

.

That is, EIC allegedly properly reported the amounts it distributed to Butler and Price, but it

36 willfully neglected to report the amount of corporate gains and losses that should have passed

through the corporation to Butler and Price as shareholders, pro-rated according to their interests

in the firm. Those allegations come within the terms of the statute, which creates liability for

anyone who “willfully files a fraudulent information return with respect to payments purported to

be made to” Plaintiffs.

(a) (emphasis added).

Such an allegation makes this situation closer to the circumstances of Greenwald and

distinguishes it from the rule in Liverett. In Greenwald, “Plaintiffs . . . allege[d] that the amounts

Defendants reported were incorrect—and that this misreporting was willful.”

. From the face of the Complaint, it’s unclear exactly what benefits Defendants stood to gain

from the alleged misreporting or what damages Plaintiffs could have possibly suffered—those

questions and others may pose stumbling blocks to Plaintiffs. It is also not clear that Plaintiffs

will be able to prove that EIC acted willfully rather than negligently. But Plaintiffs have at least

“nudged their claims across the line from conceivable to plausible.” Twombly,

.

Finally, Defendants briefly argue that the Complaint fails to meet the heightened pleading

standard of Federal Rule of Civil Procedure 9(b). See Reply at 8–9. As mentioned above, “Rule

9(b) requires that the pleader provide the ‘who, what, when, where, and how’ with respect to the

circumstances of the fraud.” Anderson,

(quoting DiLeo,

).

The Complaint meets that threshold. It alleges that Augustine and EIC willfully classified Butler

and Price as independent contractors rather than shareholders when they filed EIC’s 2017 tax

returns with the IRS by filing Form 1099s instead of a Form 1120 Schedule K or other document

that was required to record Butler’s and Price’s shares of the corporation’s gains and losses for

that tax year. See 3d Am. Compl. ¶¶ 42–49, 88–96. These allegations suffice under Rule 9(b).

37 The Court therefore partially dismisses Count V as it applies to Defendants’ alleged

failure to file tax returns in 2014, 2015, and 2016. It leaves the rest of Count V in place.

3. Specific Remedy Counts

Beyond the seven counts alleging substantive legal claims, the Complaint contains two

counts requesting that the Court grant specific remedies to assist Plaintiffs in their quest to gain

ownership of EIC. Count VIII seeks “an order declaring that Butler and Price are shareholders

of EIC, in accordance with the oral transfer of company ownership made to Butler and Price by

Augustine, as well as the amount and value of those shares” under the Declaratory Judgment

Act,

, and Federal Rule of Civil Procedure 57. 3d Am. Compl. ¶¶ 112–13.

Count IX in turn seeks a Court-ordered accounting of EIC’s financial records so that Plaintiffs

can determine how much of EIC they own and what their stakes are worth.

¶¶ 114–16.

a. Declaratory Relief

Defendants argue that a separate count seeking declaratory relief is duplicative of the

other counts because it would declare relief already “subsumed in [the] other claims.” Rodriguez

v. Lab. Corp. of Am. Holdings,

(D.D.C. 2014). Under the Declaratory

Judgment Act, the Court may resolve “a case of actual controversy within its jurisdiction” by

“declar[ing] the rights and other legal relations of any interested party seeking [a] declaration,

whether or not further relief is or could be sought.”

(a). After ensuring that the

claim states an actual case or controversy, MedImmune, Inc. v. Genentech, Inc.,

(2007), the Court “must still consider whether it is appropriate to exercise its discretion to

grant declaratory relief.” Gibson v. Liberty Mut. Grp., Inc.,

(D.D.C.

2011).

“In the D.C. Circuit, two criteria are ordinarily relied upon: 1) whether the judgment will

serve a useful purpose in clarifying the legal relations at issue, or 2) whether the judgment will

38 terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the

proceeding.” Glenn v. Fay,

(D.D.C. 2016) (citing President v. Vance,

, 364 n.76 (D.C. Cir. 1980)). “Ultimately, the purpose of the Declaratory Judgment

Act is to ‘allow the uncertain party to gain relief from the insecurity caused by a potential suit

waiting in the wings.’”

(quoting The Hipage Co., Inc. v. Access2Go, Inc.,

(E.D. Va. 2008) (quoting United Capitol Ins. Co. v. Kapiloff,

(4th

Cir. 1998))).

Regardless of whether the case satisfies the first criterion, it certainly does not satisfy the

second one. Unlike in Gibson, Count VIII does not pose distinct legal or factual questions but

merely incorporates the questions already raised in Count I. In Gibson, there was “no dispute

over the existence of [an insurance] policy or the nature of the parties’ legal relationships;” the

only questions were “purely factual ones regarding proper compliance with the policy.”

. Those were not legal questions appropriate for a declaratory judgment but rather

“purely factual ones . . . best reserved for the finder of fact.”

Here, in contrast, the Parties

dispute the existence of the contract and the legal nature of their relationship. See supra Section

III.A.1.

It’s conceivable that a declaration, on its own, would serve to clarify the nature of the

relationship and the resulting duties of the Parties. But judgment on the substantive counts

would defeat the need for a declaration. As in Gibson, “[i]f Plaintiffs succeed in proving that

Defendants [breached the contract], then Plaintiffs will prevail under [the separate breach-of-

contract count].”

. The counts for declaratory relief, therefore, would “add

nothing to [Plaintiffs’] suit.”

The Court dismissed those counts and permitted the breach-of-

contract count to move forward.

This case is no different. Judgment on Count I (breach of

39 contract) will clarify the nature of the Parties’ relationship and permit them (and the Court) to

determine who owns what percentage of EIC. Declaratory relief would serve no additional

purpose, so the Court dismisses Count VIII.

b. Accounting

The Complaint’s final count requests that the Court order an accounting “of corporate

assets and financial records” to permit “Plaintiffs, as owners of EIC, to know the percentage of

their ownership interest and the value thereof.” 3d Am. Compl. ¶¶ 114–16. Defendants argue

that equitable requests for an accounting cannot be stand-alone claims; if anything, accounting is

merely one available form of relief at the end of litigation once the Court has determined liability

on the contract claims. See Mot. at 17.

“An accounting is ‘a detailed statement of the debits and credits between parties arising

out of a contract or fiduciary relation.’” Bates v. Nw. Human Servs., Inc.,

(D.D.C. 2006) (quoting Union Nat’l Life Ins. Co. v. Crosby,

, 1178 n.2

(Miss. 2004)). A request for an accounting is “not, strictly speaking, . . . a stand-alone claim at

all.” Haynes v. Navy Fed. Credit Union,

(D.D.C. 2014) (internal quotation

omitted). But it is not unusual to leave such counts in place at the Motion-to-Dismiss stage and

then to resolve them only at summary judgment or later, depending on whether Plaintiffs can

establish both liability on the breach of contract and insufficiency of legal damages. See Bates,

(denying motion to dismiss accounting count); Armenian Assembly of

Am., Inc. v. Cafesjian,

(D.D.C. 2010) (denying summary judgment on

accounting claim after denying judgment on contract claim); Haynes,

(granting summary judgment for Defendant on accounting claim, along with judgment on

40 breach-of-contract claim, because accounting “is a remedy premised on a breach of fiduciary

duty or contract that Plaintiff does not establish”).

At this time, it is unclear whether an accounting might be necessary to determine who

owns what percentages of EIC. It may be the case that Plaintiffs will not be able to establish

liability, obviating the need for an accounting. But if Plaintiffs are successful on their other

claims, a court-ordered accounting may be the only way to determine the company’s ownership.

That is especially appropriate because Plaintiffs have alleged that Augustine hid the company’s

books from them to keep them in the dark about both general financial status and their own

equity. 3d Am. Compl. ¶¶ 9, 27–28; see also Cafesjian,

(involving dispute

over access to corporate records); Bates,

(citing P.V. Props., Inc. v. Rock

Creek Vill. Assocs.,

(Md. Ct. Spec. App. 1988) (“An accounting may be had

where one party is under an obligation to pay money to another based upon facts and records

which are known and kept exclusively by the party to whom the obligation is owed.”)).

B. Motion to Disqualify Defense Counsel

Some months after Defendants moved to dismiss the operative Complaint, Plaintiffs

responded with a Motion to Disqualify Defendants’ Counsel, William Cusmano. See generally

DQ Mot. They argue that Cusmano’s continued representation in this matter violates D.C. Rules

of Professional Conduct 1.7, 1.9, 1.13, 1.18, and 3.7.

at 1–2. Plaintiffs contend that those

alleged violations, taken together, establish three reasons for disqualifying Cusmano: (1)

Cusmano represented Butler in his individual capacity in the early stages of this ownership

dispute, so that he cannot now represent Augustine on the other side of the same controversy, see

at 13–17; (2) Cusmano allegedly represented the three purported owners together as a group

(in his capacity as EIC’s outside counsel) and therefore is barred from representing the company

against two of its alleged shareholders, see

at 11–13; and (3) Plaintiffs intend to subject

41 Cusmano himself to discovery, including a deposition, and they contemplate calling him as a fact

witness at trial, so he cannot represent a party in the same litigation. See

at 17–20.

1. Plaintiffs Have Not Demonstrated that Cusmano was Butler’s Attorney

According to Plaintiffs, EIC had three owners in 2017: Augustine, Butler, and Price. See

Butler Decl. ¶ 7. 6 It is undisputed that Butler was the first of the three to reach out to Cusmano

regarding the brewing dispute over Butler and Price’s role within the company.

¶¶ 7–9;

William Cusmano Decl. ¶¶ 6, 8–9, ECF No. 40-2. Butler states that before Cusmano brought in

Price and Augustine for further discussions, Butler and Cusmano had private conversations in

which Butler laid out his position on the matter and sought Cusmano’s legal advice. Butler Decl.

¶¶ 10–15. According to Butler, Cusmano heard him out and expressed surprise that there was

any uncertainty regarding Butler and Price’s partial ownership of EIC. Id. ¶ 10. Cusmano

recommended that Butler raise the matter with Augustine and, in the event the Parties could not

reach a solution, that Butler and Price pursue legal remedies. Id. ¶ 11. Butler insists that he

shared confidential information about his position with Cusmano. Id. ¶ 15. 7

For his part, Cusmano admits to speaking individually with Butler generally but denies

that he ever received confidential information or gave legal advice to Butler as an individual.

6 The Parties attached several exhibits to their briefs on the Motion to Disqualify, including declarations and records of correspondence between Cusmano and the Parties dating to 2017. The Court did not consider those materials in its decision on the Motion to Dismiss so as to avoid converting the Motion into a Motion for Summary Judgment. See Fed. R. Civ. P. 12(d). 7 At the hearing on the Motion, Plaintiffs indicated that the confidential information included discussions on the possibility of merging EIC with other companies Butler and Price controlled. The Parties have relied on emails between and among the Parties discussing those companies and their interactions with EIC, so it is unclear to the Court whether that information (or any other information from those allegedly privileged conversations) ever was or would still be subject to attorney-client privilege if Cusmano and Butler had indeed created an attorney-client relationship.

42 Cusmano Decl. ¶¶ 4–5. In Cusmano’s view, he was consulting with an employee of a company

that regularly engaged his services, and he believed that he was acting as EIC’s counsel, not as

Butler’s personal attorney. Id.

Shortly thereafter, Cusmano began to facilitate discussions among the three purported

partners to find a solution. Butler Decl. ¶¶ 17–18. The four traded a series of emails in which

Cusmano attempted to find vehicles for structuring a transfer of shares from Augustine to Butler

and Price in exchange for cash payments, but the Parties failed to reach an agreement and

negotiations broke down. See generally Email Correspondence, ECF Nos. 39-4, 39-5. Cusmano

then dropped out of the matter for two years, reappearing after the District Court in Louisiana

transferred the matter to this Court, when EIC and Augustine engaged Cusmano to represent

them in litigation. See, e.g., Def. EIC Corp.’s Answer to Pls.’ 3d Am. Compl., ECF No. 22 (filed

by William Cusmano).

Lawyers who practice before this Court must comply with the District of Columbia Rules

of Professional Conduct. See LCvR 83.15(a). Rule 1.9 provides that

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent.

In Plaintiffs’ eyes, Cusmano formerly represented Butler in his individual capacity in preparation

for negotiations with Augustine over EIC’s ownership—the same question underlying this suit—

and Cusmano is now in a position to take advantage of confidential information Butler conveyed

to him for Defendants’ benefit. See DQ Mot. at 13–14. Defendants (and Cusmano) argue that

Cusmano was EIC’s counsel throughout the events in question and that he made that fact clear to

everyone involved in the matter, so he cannot now be precluded from continuing his

43 representation of EIC in the same matter. See Defs.’ Mem. in Opp’n to Pls.’ Mot. to Disqualify

Counsel (“DQ Opp’n”) at 10–20, ECF No. 40-1.

Plaintiffs bear the burden of establishing the existence of a prior attorney-client

relationship and that “the current litigation is substantially related to the prior representation.”

Derrickson, 541 A.2d at 151–52; see also D.C. R. Prof’l Conduct 1.9, cmt. 2 (incorporating

“substantial relationship” test expressed in Brown v. D.C. Bd. of Zoning Adjustment,

(D.C. 1984) (en banc)). In particular, Plaintiffs must demonstrate that Butler and Cusmano,

“explicitly or by their conduct, manifest[ed] an intention to create the attorney[-]client

relationship.” In re Ryan,

(D.C. 1996) (quoting Nolan v. Foreman,

, 739 n.3 (5th Cir. 1982)). Courts consider various factors in evaluating this question,

including “whether the client perceived that an attorney-client relationship existed, whether the

client sought professional advice or assistance from the attorney, whether the attorney took

action on behalf of the client, and whether the attorney represented the client in proceedings or

otherwise held h[im]self out as the client's attorney.” Teltschik,

.

“[N]either a formal agreement nor the payment of fees is necessary to create a[] . . .

relationship,” but the presence of either factor is indicative. Derrickson,

.

Here, Butler avers that he sought professional advice from Cusmano, who brought his

concerns to Augustine and advocated on his behalf. See Butler Decl. ¶¶ 12–14. It is undisputed

that Butler did not pay Cusmano and that there was no formal representation agreement. Id.

¶ 17; DQ Opp’n at 20. It is conceivable that Butler may have subjectively understood himself to

be engaging Cusmano as his personal attorney for some short period of time, though even he

acknowledges that only a few days later Cusmano “transitioned to representing EIC” when

Cusmano began brokering a deal between all Parties. Butler Decl. ¶ 17.

44 But “the attorney-client relationship does not rest on the client’s view of the matter;

rather, [the Court] consider[s] the totality of the circumstances to determine whether an attorney-

client relationship exist[ed].” In re Fay,

(D.C. 2015) (citing In re Lieber,

(D.C. 1982)). Cusmano’s conduct upon being engaged by Butler (as Butler

himself describes it), while somewhat consistent with the existence of an individual attorney-

client relationship, is equally consistent with Cusmano’s role as EIC’s counsel. Butler admits

that it was he who first hired Cusmano as EIC’s outside counsel in 2014 and who directed the

course of Cusmano’s corporate representation. Butler Decl. ¶¶ 2–5. Augustine, in turn, was

responsible for handling payments. Id. ¶ 6. The same course of events occurred two other times

following Cusmano’s 2014 representation and before Butler contacted Cusmano (for the fourth

time) in 2017 about this matter. Id. ¶¶ 4.

Contemporaneous documentary evidence confirms Defendants’ version of the events.

Butler avers that he initiated discussions on the issue with Cusmano in September 2017, just as

he had in earlier instances when EIC retained Cusmano’s legal services. Id. ¶ 7. The first

document related to this event is an email dated September 6, 2017, in which Cusmano related

that he had had private conversations with both Butler and Augustine to feel out their respective

positions and proposed “various scenarios for [Butler] buying out [Augustine’s] ownership

interest in EIC.” William Cusmano’s Email of Sep. 6, 2017, ECF No. 39-4 at 2. Tellingly, in

concluding that short message, Cusmano indicated that “[Augustine] just called and said that he

wanted to talk more to [Butler] before these plans proceed, and he instructed me to stand down

for now.” Id. (emphasis added). This phrasing indicates that it was Augustine, not Butler, who

was directing Cusmano’s activities—behavior that is entirely inconsistent with the notion of

Cusmano acting as Butler’s attorney.

45 This correspondence continued for another several days until negotiations broke off on

September 15. See generally Email Correspondence, ECF No. 39-5. There is no indication in

any of these documents that Cusmano represented Butler against Augustine; his position at the

time appears to have been that of a neutral broker trying to arrange a transaction that would

benefit all involved players. Id. And when Cusmano wrote up a short summary of the Parties’

positions and scenarios that might accomplish the Parties’ goals, attaching the document to an

email sent on September 11, 2017, he included the following disclosure at the outset:

As an introductory reminder, Cusmano is the lawyer for the company. Assuming that one goal of the transaction is to leave EIC intact, Cusmano likely can represent the company and paper the deal. The individual principals should consider their own counsel and particularly [Augustine], since his status will change more than anyone’s. Separate counsel for [Butler] or [Price] probably is less of an issue, since they will be principals of the surviving entity, but no one involved is discouraged from obtaining his own counsel.

William Cusmano’s Ltr. of Sep. 13, 2019 at 4–5, ECF No. 40-3 (emphasis added) (providing

original attachment to Plaintiffs’ counsel); see also William Cusmano’s Email of Sep. 11, 2017,

ECF No. 39-5 at 7 (attaching talking points and describing attachment). This information, given

to Butler no more than ten days after he purported to establish an attorney-client relationship

with Cusmano, should have removed any confusion over Cusmano’s role.

While Butler insists that Cusmano represented both Butler as an individual and the

company at different points in time, he has provided no evidence of such a relationship beyond

his own subjective impression, which is insufficient to establish the relationship’s existence—at

least not enough to support the extraordinary remedy of disqualification. See Headfirst Baseball,

LLC v. Elwood,

(D.D.C. 2013) (“[The Parties’] declarations and their

content that support the existence of the relationship provide far less than what other courts have

accepted as evidence establishing an attorney-client relationship.”).

46 Finally, Plaintiffs briefly argue that even if Butler and Cusmano did not form a privileged

relationship, Rule 1.18 covers situations in which “a lawyer . . . has had discussions with a

prospective client” and has “received a confidence or secret from the prospective client.” D.C.

R. Prof’l Conduct 1.18(b), (c). The Rule forbids the lawyer from “represent[ing] a client with

interests materially adverse to those of [the] prospective client in the same or a substantially

related matter.” Id. 1.18(c). Plaintiffs liken Butler and Cusmano’s initial discussions to those of

a prospective client seeking out an attorney, even if the relationship did not later arise. See DQ

Mot. at 15–16. But that argument assumes that Butler was a potential client rather than an

existing client in his capacity as an EIC employee (or owner). The totality of the circumstances,

as discussed above, indicates that Cusmano was the corporation’s lawyer, and that his

interactions with Butler occurred in the course of that representation. Rule 1.18 therefore does

not apply to the situation.

It is sometimes true that “in the absence of warning from the lawyer, a constituent of an

organizational client may reasonably rely on the lawyer’s apparent willingness to provide legal

services for the constituent in addition to the entity, thus creating an implied client-lawyer

relationship.” Restatement (Third) of the Law Governing Lawyers § 14, cmt. f (Am. Law. Inst.

2000). But the overwhelming evidence in the record shows that Cusmano repeatedly gave such

warnings and that, within a few days of initial discussions, Cusmano and Butler included Price

and Augustine on the conversation and shared with them the same information that they had

previously discussed between themselves. See Cusmano Decl. ¶ 12; Cusmano’s Email of Sep. 6,

2019. There is no indication that Cusmano learned any private information that remained private

for more than a few days and that would be useful to Defendants in this litigation.

47 The totality of the circumstances, based on the evidence the Parties submitted, does not

demonstrate the existence of an attorney-client relationship between Butler and Cusmano at any

time leading up to the genesis of this dispute, or any type of relationship approximating an

attorney-client relationship. The Court therefore cannot disqualify Cusmano on those grounds.

Because it finds that no relationship existed, there is no need to reach the questions of whether

the matters are substantially related or whether the Parties’ positions are materially adverse.

2. The Court Cannot Determine Whether Cusmano Currently Represents Adverse Parties

Plaintiffs next argue that Cusmano cannot now represent EIC against Butler and Price

because Butler and Price were and still are themselves partial owners of EIC. See DQ Mot. at

11–13. In other words, having advised all of EIC’s owners at an earlier period in this dispute,

Cusmano “may not pick sides” now and represent the corporation and one of its owners against

the other two. Id at 12–13 (citing Griva v. Davidson,

(D.C. 1994)).

Rule 1.7 provides that

(a) A lawyer shall not advance two or more adverse positions in the same matter.

(b) Except as permitted by paragraph (c) below, a lawyer shall not represent a client with respect to a matter if:

(1) That matter involves a specific party or parties and a position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter . . . ;

...

(c) A lawyer may represent a client with respect to a matter in the circumstances described in paragraph (b) above if

(1) Each potentially affected client provides informed consent to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation; and

48 (2) The lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client.

D.C. R. Prof’l Conduct 1.7. There is no question that Plaintiffs do not consent to any dual

representation, so the Court must determine whether Cusmano is currently engaged in

representing one set of his clients against another set. Rule 1.13 lays out further guidance in the

context of organizational relationships:

A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders, or other constituents, subject to the provisions of Rule 1.7. If the organization's consent to the dual representation is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.

Id. 1.13(d). Together with Rule 1.7, Rule 1.13 “mandates an absolute prohibition of dual or

multiple representation when the lawyer would represent [shareholders] with adverse positions

[to the organization] in the same matter.” Griva,

(internal quotations omitted).

This issue has arisen with some frequency in the case law. In Griva, the court had to

determine, “when a law firm that represents a three-member partnership also represents two of

the individual partners in matters that pertain to the partnership, [whether] the third partner [may]

obtain . . . disqualification of the law firm from representing the partnership?”

. A law

firm assisted three siblings in forming a family partnership to manage their father’s interest in an

apartment building.

. The same firm also assisted the three in guardianship and estate

planning services for the elderly father.

After forming the partnership, the firm represented

the new entity in its business dealings and expressly represented two of the three siblings in their

interests in the partnership, as well as in unrelated personal matters.

The third sibling

obtained separate counsel to represent her own interests in the partnership.

at 833–34.

Management disputes arose, and Griva (the third sibling) determined that the partnership’s

49 counsel was stacking the deck against her in partnership affairs, withholding documents, and

planning to dissolve the partnership to permit the other siblings to control the business.

. She sued both her siblings, their lawyers, and the partnership, trying to disqualify the firm

from representing the partnership and trying to get access to the firm’s documents so that she

could see what the partnership was doing.

at 834–35.

The Court of Appeals found that it could not determine whether the Partnership’s

attorneys had violated any rules of professional conduct because of genuine issues of material

fact.

. The case involved a partnership agreement that included a “unanimous consent”

clause, such that the partnership could not consent to dual representation of both the partnership

and the two siblings without the third sibling’s affirmative vote.

. There were fact

issues about whether and to what arrangement she had consented, so the Court of Appeals could

not answer the question without a trial.

at 845–46.

Headfirst Baseball, a dispute involving two officials of a limited liability company that

ran youth baseball camps, bears an even stronger resemblance to this case.

. When the officials founded the company, they relied on one founder’s father, a lawyer at

Williams & Connolly, and other attorneys from the firm to handle the formation.

. The

firm’s attorneys then acted as the company’s outside counsel, allegedly providing both corporate

and personal legal advice to both founders.

But when a dispute later arose between the

founders, Williams & Connolly represented both the company and its partner’s son in that suit

against the other founder, Elwood (though the father and another attorney involved in the

company’s formation did not participate personally).

. Elwood moved to disqualify the

firm, arguing in part that it had once advised both partners along with the company, so it could

not then represent the company and one partner against the other.

50 Factual uncertainties precluded a concrete finding that warranted disqualification.

. First, because there was no documentary evidence showing that Elwood was a member of

the party LLC, he claimed (without evidence) that he was instead a partner in the “Headfirst

Partnership,” an unincorporated but related entity that the other official denied existed.

. Second, there was no correspondence in the record showing any communications between

Williams & Connolly lawyers and Elwood until after the purported representation—the first

relevant documents were declarations by the Parties prepared for litigation.

. For those

two reasons, the Court concluded that Elwood could not prove the existence of an attorney-client

relationship between Williams & Connolly and him, so the Court could not disqualify the

attorneys for violating it.

. The Court denied the motion without prejudice, allowing

for the fact that the record at summary judgment might change the analysis.

Taken together, Griva and Headfirst suggest that, in order for the Court to determine

whether Cusmano is violating Rules 1.7 and 1.13 by representing EIC and Augustine in this

litigation, the Court would first need to determine whether Butler and Price were or still are

owners and officers of EIC. But to do that, the Court would need to decide the fundamental

issues in the case: whether there was a contract, whether Augustine breached the contract, and

whether Butler and Price are entitled to some share of EIC. Of course, that’s impossible at the

Motion-to-Dismiss stage. By the time the Court knows the answers to those questions, the case

will be over and it will be irrelevant whether Cusmano may be permitted to represent

Defendants.

“The scant nature of the existing factual record does not square with the high burden

[Plaintiffs] must satisfy to disqualify [Defendants’] counsel of choice. While discovery and

further development of the facts in this case might ultimately support a finding of a Rule

51 1.7 violation, [Plaintiffs] may not rely on that Rule as a basis for disqualifying [Cusmano] as

[Defendants'] counsel in this case at this time. The Court must therefore deny [Plaintiffs’] Rule

1.7 challenge without prejudice. If evidence later comes to light that would counsel in favor of

disqualification, [Plaintiffs] may re-file their motion.” Headfirst, 999 F. Supp. 2d. at 208.

3. The Court Cannot Determine Whether Cusmano Will Be a Necessary Trial Witness

Finally, Plaintiffs contend that Cusmano cannot serve as litigation counsel because he is a

witness to events at the heart of the dispute and will undoubtably be called to testify about what

he saw and heard. See DQ Mot. at 17–20. Rule 3.7 provides:

(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where:

(1) The testimony relates to an uncontested issue;

(2) The testimony relates to the nature and value of legal services rendered in the case; or

(3) Disqualification of the lawyer would work substantial hardship on the client.

D.C. R. Prof’l Conduct 3.7(a). At this point in the case, two portions of the rule counsel against

disqualification on this basis. First, the rule precludes an attorney from “advocat[ing] at a trial.”

This case is nowhere near trial; on its face, the rule does not prohibit Cusmano from

representing Defendants in the pre-trial stages of litigation. Second, the rule bars attorneys

whose testimony at trial is “necessary.”

At this early stage, no one knows whether

Cusmano’s testimony will be “necessary” to the conduct of a trial (or whether a trial will ever

occur). Plaintiffs raise several valid reasons for why they intend to call Cusmano as a trial

witness, but the Court cannot know how those rationales may shift between now and then.

Finally, the rule provides an exception where “[d]isqualification of the lawyer would

work substantial hardship on the client.”

Given that the rule does not require disqualification

52 at this time, the Court concludes that disqualification would do just that to Defendants. At a

hearing, the Court informed Augustine himself that Cusmano’s potential necessity at trial is

foreseeable and that he should be prepared to find another trial lawyer if that scenario comes to

pass. Moreover, the Court will likely permit Plaintiffs to depose Cusmano in the normal course

of discovery. But the Court will not disqualify Cusmano—yet.

IV. Conclusion

The Third Amended Complaint timely and adequately alleges that a contract existed and

that Defendants breached it, or in the alternative, that Augustine made some promise and that

Plaintiffs relied on it to their detriment. An accounting may be necessary to figure out who owns

what. The Complaint also adequately alleges invasion of privacy for appropriation of likeness

and fraudulent filing of tax returns, at least in part. But it does not state a claim for fraudulent

inducement or a violation of the Stored Wire and Communications Act, and there is no need for a

declaratory judgment. Finally, the established facts do not warrant defense counsel’s

disqualification at this stage. Accordingly, it is

ORDERED that Defendants’ Motion to Dismiss the Third Amended Complaint is

GRANTED IN PART and DENIED IN PART. It is further

ORDERED that Plaintiffs’ Motion to Disqualify Defendants’ Counsel is DENIED

without prejudice.

An Order will be entered contemporaneously with this Memorandum Opinion.

DATE: May 6, 2020 CARL J. NICHOLS United States District Judge

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