E-Alert Case Updates
Court Dismisses Breach of Contract Case Finding Oral Agreement Invalid
Bonfire, LLC v. Michael R. Zacharia, et al.
On September 18, 2014, plaintiff entered into a lease agreement with defendants to rent property at 1132 19th Street, NW in Washington, D.C. and operate a restaurant called Bonfire. Plaintiff claims that during negotiations, defendant Zacharia, the commercial real estate broker, and manager and co-owner of the property, verbally agreed to provide plaintiff with a right of first refusal to purchase the property if defendants decided to sell it. Plaintiff alleged that it relied upon Zacharia’s oral assurances, and therefore did not insist on a written right of first refusal clause in the lease agreement.
The lease did not include any reference to the right of first refusal, and it did contain a provision in which plaintiff explicitly agreed to execute any documents to subordinate the lease agreement “upon demand” by the landlord. The lease also contained an integration clause: “[t]his Lease contains the final and entire agreement between the parties hereto, and they shall not be bound by any terms, conditions, oral statements, warranties or representations not herein contained.”
On April 15, 2016, defendants asked plaintiff to sign the Tenant Estoppel Certificate and Subordination, Non-Disturbance and Attornment Agreement (“SNDA”) mentioned in section 15 of the lease. Plaintiff was not told that defendants needed plaintiff’s signature on those agreements because of a future sale to a third party. Plaintiff signed the documents, figuring that it needed to do so in order to remain compliant with the terms of the lease. The estoppel document “forced [plaintiff] to admit that it ha[d] no right of first refusal to purchase the Property.” Subsequently, defendants entered into a sale agreement with a third party in April 2016 “without informing or allowing [p]laintiff to meet the purchase price.”
Plaintiff filed suit on July 27, 2016, alleging that defendants breached their contract with plaintiff by selling the property to a third party without honoring the verbal agreement that offered plaintiff a right of first refusal. Plaintiff also claimed that defendants committed fraud when they demanded that plaintiff sign the estoppel and SNDA agreements without disclosing what the documents were for. Defendants moved to dismiss.
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When considering a motion to dismiss, the court must interpret a complaint liberally in the plaintiff’s favor, and should grant the plaintiff “the benefit of all inferences that can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). The court, however, does not need to accept inferences drawn by the plaintiff if such inferences are unsupported by factual allegations, nor must the court accept plaintiff’s legal conclusions. See Id.
Plaintiff first alleged a breach of contract. In order to properly state a claim for 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.” Logan v. LaSalle Bank Nat’l Ass’n, 80 A.3d 1014, 1023 (D.C. 2013). Pursuant to the statute of frauds, a contract is not valid in real estate transactions unless the agreement is in writing and “signed by the party to be charged therewith.” D.C. Code § 28-3502. D.C. case law expressly denotes that a promise to provide a right of first refusal to purchase real estate is not enforceable under the statute of frauds unless it’s in writing and signed by the party being charged. Mark Keshishian & Sons, Inc. v. Wash. Square, Inc., 414 A.2d 8340, 840 (D.C. 1980).
The United States District Court for the District of Columbia found that plaintiff did not sufficiently provide facts that it had a valid contract to purchase the property in the event of a sale. A right of first refusal must be in writing in order to be enforceable, and plaintiff has not produced such evidence. Further, the court also found that the breach of contract claim failed because of the integration clause. The contract could not be clearer: the parties agreed “not to be bound by any terms, conditions, oral statements, warranties or representations not herein contained.” That in itself, the court argued, allowed the court to find the contract to be fully integrated. Therefore, plaintiff failed to state a valid claim under a breach of contract theory.
Plaintiff also claimed that defendants committed fraud in order to get it to sign the estoppel and SDNA agreements. To state a valid claim for fraudulent misrepresentation or fraud in the inducement, a plaintiff must reasonably allege that a person or entity: “(1) made a false representation of or willfully omitted a material fact; (2) had knowledge of the misrepresentation or willful omission; (3) intended to induce [another] to rely on the misrepresentation or willful omission; (4) the other person acted in reliance on that misrepresentation or willful omission; and (5) suffered damages as a result of [that] reliance.” Sundberg v. TTR Realty, LLC 109 A.3d 1123, 1130 (D.C. 2015).
The court held that a plaintiff who has “the capacity and every opportunity to read the written contract, who has executed it, not under any emergency, and whose signature was not obtained by trick or artifice . . . cannot later claim fraud in the inducement.” One-O-One Enters., Inc. v. Caruso, 848 F.2d 1283, 1287 (D.C. Cir. 1988). Here, the court found plaintiff to be such a party, and therefore its fraud in the inducement claim must fail. The court also found that “mere silence does not constitute fraud unless there is a duty to speak,” Sundberg, 109 A.3d at 1131, and plaintiff has not alleged that defendant Zacharia had such a duty. Even if it had, plaintiff has not alleged that it relied upon the misrepresentation to its detriment, nor has plaintiff shown any damages by the misrepresentation. Thus, plaintiff has failed to state a valid claim under a fraudulent misrepresentation theory.
Because plaintiff has failed to state any valid claims, the court granted defendants’ motion to dismiss.
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