Fundamental Administrative Services, LLC v. Anderson
MEMORANDUM AND ORDER Denying 27 Motion to Dismiss Verified Amended Complaint ; Granting 34 Motion for Leave to File a Verified Second Amended Complaint. Signed by Judge James K. Bredar on 04/15/2014. (bas, Deputy Clerk)
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IN THE UNITED STATES DISTRIClll~'ij~T)F
FOR THE DISTRICT
. 1U\~ APR \ 5 P .
ADMIN, SERVS., LLC,
CIVIL NO. JKB-13-170S
Pending before the Court in this case are several motions, two of which will be addressed
in this opinion:
Defendant's motion to dismiss the verified amended complaint (ECF No. 27)
and Plaintiffs motion for leave to file a verified second amended complaint (ECF No. 34). The
motion to dismiss has been briefed (ECF Nos. 33 & 48), and the motion to amend is unopposed.
No hearing is necessary.
The motion to dismiss will be denied, and the motion to amend will be
This case began on June 12,2013, with a complaint filed by Fundamental Administrative
Services, LLC CF AS"), against Kristi Anderson, who formerly served as general counsel to FAS
and whose employment there was terminated April 12, 2013.
(Compl., ECF No. I.)
amended complaint includes the same causes of action as the original complaint:
Count I, a
request for injunctive relief to prevent Anderson (1) from violating her ethical obligation as a
member of the Maryland Bar to protect her client's confidences learned during her employment
as counsel for FAS, (2) from violating nondisclosure requirements of joint defense agreements
between Anderson and FAS, and (3) from turning over documents that belonged to FAS;
Count II, a request for declaratory judgment that FAS was not obligated to provide Anderson
with reimbursement for her legal fees and costs occasioned by her involvement in the bankruptcy
court proceeding in the Middle District of Florida for Fundamental Long Term Care, Inc., and
the adversary proceedings
stemming from the bankruptcy case; and Count III, a claim for
restitution of $400,000, which FAS alleges Anderson received as unjust emichment when, while
still employed by FAS, she approved payment of that amount to Steven Leitess, Esq., for fees
and costs incurred as her counsel in the bankruptcy and related adversary proceedings.
CompI., ECF No. 13.)
Initially, the Court granted a temporary restraining order CTRO") but, after a hearing,
dissolved the TRO and denied FAS's request for preliminary injunctive relief. (ECF Nos. 5, 13.)
The Court denied preliminary injunctive relief because FAS's concern appeared to be focused on
the bankruptcy and related proceedings in the federal court in Florida and because of the
availability of that forum to address FAS's issues as to privilege and confidentiality.
June 24, 2013, at 2.) Later, the Court denied Anderson's motion for sanctions and directed her to
respond to FAS's amended complaint.
(ECF No. 24.) Anderson responded with the pending
motion to dismiss the amended complaint.
Shortly afterward, FAS filed the pending motion for
leave to file a second amended complaint.
Between the filing of Anderson's motion to dismiss and the filing of FAS's motion to
amend, FAS filed an emergency motion for TRO and preliminary injunctive relief because of a
new development, i.e., Anderson's filing of a complaint in Maryland state court against FAS and
other defendants; FAS contended that the complaint revealed FAS's privileged and confidential
(PI.'s Emerg. Mot., ECF No. 28.) The Court agreed and issued another TRO and,
after holding an in-court hearing, issued a preliminary injunction against Anderson.
Nos. 32, 4\.)
The Court noted that its original, exclusive focus on the Florida bankruptcy
proceedings had been too narrow and that the Court had never intended, by denying preliminary
relief, to grant Anderson
license to reveal FAS's
information outside of the bankruptcy proceedings.
(Order, Sept. 27, 2013, at 2, ECF No. 32.)
FAS's request for relief was broader than the events occurring in the bankruptcy court, and the
preliminary injunction recognized that.
Even so, the undersigned has assiduously sought to
maintain comity with other courts by not asserting any exclusive prerogative by this Court to
determine all matters relating to the issue of FAS's privileges and confidential information.
Instead, the preliminary injunction recognizes the jurisdiction of other courts to determine such
issues when required in the context of proceedings before them.
Anderson's motion to dismiss seeks dismissal of Count I on the ground of mootness and
dismissal of Counts II and III for failure to state a claim for relief. Clearly, the Court's issuance
of the preliminary injunction refutes the mootness argument.
As earlier noted, although the
Court at first perceived FAS's complaint as focused only on the bankruptcy proceeding, that
focus, in hindsight, unnecessarily
precluded FAS's request for injunctive relief outside the
confines of the bankruptcy and related proceedings.
Count I is not moot.
arguments in the motion to dismiss are now considered.
II. Standard of Dismissal for Failure to State a Claim
A complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to
reli~f that is plausible on its lace.'"
Ashcrofl v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Facial plausibility exists "when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. An inference of a mere
possibility of misconduct is not sufficient to support a plausible claim.
Id. at 679.
Twombly opinion stated, "Factual allegations must be enough to raise a right to relief above the
550 U.S. at 555.
"A pleading that offers 'labels and conclusions'
formulaic recitation of the elements of a cause of action will not do.' . .. Nor does a complaint
suffice if it tenders 'naked assertion[s)'
devoid of 'further factual enhancement.'"
U.S. at 678 (quoting Twombly, 550 U.S. at 555, 557). Although when considering a motion to
dismiss a court must accept as true all factual allegations in the complaint, this principle does not
apply to legal conclusions couched as factual allegations. Twombly, 550 U.S. at 555.
the Court notes FAS's unopposed motion for leave to file a second
amended complaint is meritorious.
The second amended complaint, once filed, will supersede
the amended complaint and will technically moot Anderson's motion to dismiss.
because the counts to which Anderson objects are included in the second amended complaint,
and because the Court believes it is highly likely Anderson will file another motion to dismiss
including the same arguments she now makes, it is expedient to address her arguments now as to
Counts II and III in the amended complaint. By so doing, the Court does not foreclose Anderson
from raising any other arguments as to the second amended complaint.
Counts II and III are intertwined.
Count II seeks a declaratory judgment that FAS is not
for her legal expenses
with the Florida
proceedings, and Count III seeks repayment by Anderson of an advance of legal expenses to
Anderson argues that she is clearly entitled to be indemnified for the costs and fees
associated with her representation in the bankruptcy and related litigation. (Der's Mot. Dismiss
Supp. Mem. 10.) Her argument implies that her Executive Employment Agreement ("EEA")
with FAS superseded the FAS LLC Agreement and, therefore, FAS's allegation that she was
required to comply with the LLC Agreement in order to be indemnified for her legal expenses
fails as a matter ofJaw. The EEA was attached to Anderson's response to FAS's first motion for
TRO and preliminary injunction (Def.'s Opp'n Ex. II, ECF No. 9-12), and the LLC Agreement
was attached to Anderson's motion to dismiss (Def.'s Mot. Dismiss Ex. I). Both agreements are
relied upon by FAS in its complaint for relief and their authenticity has not been challenged.
Accordingly, the Court will consider them on this motion to dismiss.
See Am. Chiropractic
Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004).
The EEA's relevant section on indemnification is Section 7. In 7.1, the EEA states in
pertinent part, "The Company shall indemnify the Executive to the fullest extent permitted by the
Operating Agreement, as in effect on the date hereof.
The Company expressly represents,
acknowledges and warrants that the Executive is a 'Covered Person,' as that term is defined in
the Operating Agreement."
Section 7.2 goes on to spell out the kinds of costs and expenses
covered by the indemnification agreement and to specify that Anderson has sole discretion to
select, retain, and direct independent counsel for covered proceedings.
"the Operating Agreement"
refers to the LLC Agreement.
The parties agree that
(Am. Compl. ~ 36; Def.'s Mot.
Dismiss Supp. Mem. 2-7; PI.'s Opp'n 8.)
The EEA's governing law is that of Maryland as stated in that agreement's Section 13.
utilizes the objective
Mattingly Canst. Co.. Inc. v. Hartford Undenvriters Ins. Co., 999 A.2d 1066, 1074 (Md. 2010).
If the contract's language is unambiguous, then the Court gives effect to its plain, ordinary, and
usual meaning, taking into consideration the context in which the language is used. Id. "Where
the contract comprises two or more documents, the documents are to be construed together,
harmoniously, so that, to the extent possible, all of the provisions can be given effect." Rourke v.
Amchem Products. Inc., 863 A.2d 926,941 (Md. 2004).
Under the LLC Agreement, the topics of exculpation and indemnification are addressed
in part by the following subsections of Section 18:
(a) No Member, Director or Officer (collectively, the "Covered Persons")
shall be liable to the Company or any other Person who has an interest in or claim
against the Company for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Covered Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement, except that a
Covered Person shall be liable for any such loss, damage or claim incurred by
reason of such Covered Person's gross negligence or willful misconduct.
(b) To the fullest extent permitted by applicable law, a Covered Person
shall be entitled to indemnification from the Company for any loss, damage or
claim incurred by such Covered Person by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement, except that no
Covered Person shall be entitled to be indemnified in respect of any loss, damage
or claim incurred by such Covered Person by reason of such Covered Person's
gross negligence or willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 18 by the Company
shall be provided out of and to the extent of Company assets only, and the
Member shall not have personal liability on account thereof. The Company may,
to the extent authorized from time to time by the Board and the Member, grant
indemnification rights to other employees and agents of the Company and to
employees, representatives, agents and Affiliates of the Member to the extent
permitted by law.
(c) To the fullest extent permitted by applicable law, expenses (including
legal fees) incurred by a Covered Person defending any claim, demand, action,
suit or proceeding shall, from time to time, be advanced by the Company prior to
the final disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the Covered Person
to repay such amount if it shall be determined that the Covered Person is not
entitled to be indemnified as authorized in this Section 18.
In subsection b, indemnification is limited to damage resulting from an act or omission
performed or omitted in good faith by a Covered Person on behalf of FAS and in a manner
reasonably believed to be within the scope of the Covered Person's authority, except that a
Covered Person is not entitled to indemnification for damage incurred by that Covered Person by
reason of the Covered Person's gross negligence or willful misconduct.
In subsection c, a
Covered Person is entitled to receive an advance by FAS for expenses incurred in defending a
.claim, suit, etc., prior to final disposition "upon receipt by the Company of an undertaking by or
on behalf of the Covered Person to repay such amount if it shall be determined that the Covered
Person is not entitled to be indemnified .... "
According to the complaint, Anderson, while she was FAS's general counsel, approved
an advance payment of $400,0001 to Leitess for legal fees to defend her in the bankruptcy and
(Am. Comp!. ~ 5.) Anderson refused to execute the undertaking proffered
by FAS. (Id. ~ 38.) The proceedings in Florida had not been concluded at the time this advance
was made. (Id. ~~ 44-50.)
Anderson makes two arguments.
The first is that, because she has been dismissed with
prejudice from the Florida litigation after reaching a settlement with the bankruptcy trustee and,
"(t]herefore, she was not found to have committed gross negligence or willful misconduct"
(Def. 's Mot. Dismiss Supp. Mem. 10), she is entitled to indemnification under either the EEA or
the LLC Agreement or both. She cites no authority for the proposition that a settlement resulting
in a dismissal with prejudice in a proceeding that never considered the meaning of either of these
agreements, or her conduct in relation thereto, forecloses FAS's allegations that she failed to
In the proposed second amended complaint. this amount is alleged to be $500.000.
meet the criteria for indemnification under the agreements.
Her argument is premised upon a
conclusion not justified by the underlying disposition.
Anderson's second argument is that the EEA "requires FAS to advance legal fees to [her]
without the requirement for an undertaking."
(fd.) Her argument contradicts the plain meaning
of the EEA. It clearly states that she is entitled to indemnification "to the fullest extent permitted
by the Operating Agreement."
(EEA Section 7.1.) This means that indemnification under the
EEA is subject to fulfillment of the terms of the LLC Agreement.
And an advance is only
authorized under the LLC Agreement when FAS has received an undertaking as specified in
reply, she makes a nonsensical argument that the proviso of
Section 7.1 has no application to Section 7.2. (Def.'s Reply 4-5.) She fails to explain why a
court should compartmentalize the various provisions of an agreement. Her assertion flies in the
face of a well-accepted tenet of contract interpretation, and that is that all parts of a contract
should be read so that all have meaning in harmony with one another if possible. Owens-Illinois,
Inc. v. Cook, 872 A.2d 969, 985-86 (Md. 2005) (court must give "effect to every clause and
phrase, so as not to omit an important part of the agreemenC).
None of Anderson's
on the interpretation
of the governmg
persuades the Court that FAS has failed to state a claim with regard to Count II. Anderson
makes additional arguments as to Count III. First, she says that FAS's theories of recovery under
Counts II and III are substantially identical and that, pursuant to Maryland case law, FAS cannot
make a claim for unjust enrichment because the matter is covered by a contract between the
parties. (Def.'s Mot. Dismiss Supp. Mem. II.)
In Maryland, generally, a quasi-contract claim of "unjust enrichment cannot be asserted
when an express contract defining the rights and remedies of the parties exists."
Comm'rs of Caroline County v. J Roland Dashiell & Sons, Inc., 747 A.2d 600, 610 (Md. 2000).
That general principle does not apply here. No express contract defines the rights and remedies
of FAS to recover money allegedly wrongfully advanced to Anderson's attorney.
No cause of
action for breach of contract appears to arise from either the EEA or the LLC Agreement to
address this claim.
In the absence of a contractual right and remedy, FAS has appropriately
stated a claim for unjust enrichment.
See Janusz v. Gilliam, 947 A.2d 560, 567-68 (Md. 2008)
(exceptions to rule barring unjust enrichment claim when evidence exists of fraud or bad faith,
when breach of contract or mutual rescission of contract has occurred, when rescission is
warranted, or when express contract does not fully address subject matter).
argues that FAS "voluntarily
paid" the $400,000 to Anderson's
attorney and, hence, FAS is barred from pursuing this claim.
(Def.' s Mot. Dismiss Supp.
Mem. 11-12.) The voluntary payment doctrine provides "that, when one voluntarily pays money
under a mistake of law, the payor may not ordinarily bring a common law action for the recovery
of the money."
Dua v. Comcast Cable of Maryland, Inc., 805 A.2d 1061, 1085 (Md. 2002).
"Voluntary payments, when once made with full knowledge of the facts, cannot be recovered"
Pleading and Practice,
6th (Sachs) ed. gl19
Bourgeois v. Live Nation Entertainment, Inc., _
WL 936841, at *28 (D. Md. Mar. 10,2014).
(1970) (emphasis added), quoted in
F. Supp. 2d _'
Civ. No. ELH-12-0058, 2014
The allegations are that Anderson herself approved
payment of the money to her lawyer and that she did so without submitting the required
undertaking to FAS.
of her action as a "voluntary"
payment by FAS is
inconsistent with the factual allegations, which are more consistent with an inference that
Anderson's action was outside the scope of her authority. The voluntary payment doctrine is not
a bar to Plaintiffs claim.
For the foregoing reasons, it is hereby ORDERED:
motion to dismiss the verified amended complaint
(ECF No. 27)
2. Plaintiff s motion for leave to file a verified second amended complaint (ECF No. 34) is
3. The Clerk shall DOCKET Exhibit I to Plaintiffs motion (ECF No. 34-2) as the Verified
Second Amended Complaint.
day of April, 2014.
BY THE COURT:
James K. Bredar
United States District Judge
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