Coon v. Wood
2014 U.S. Dist. LEXIS 130853
| D.D.C. | 2014Background
- In 2000 Coon (plaintiff) bought a D.C. investment property with defendant Wood as his real estate agent; Wood is an associate broker at City Houses D.C., whose owner is Meyer.
- In June 2010 Coon signed a Brokerage Agreement with City Houses (exclusive right to sell) and later executed a Sales Agreement for the sale of the D.C. property; the Sales Agreement disclaimed that the broker was a tax advisor.
- Coon asked Wood whether the 2010 sale could avoid capital gains tax under a like-kind (Section 1031 / "Starker") exchange; Wood told him it could not because the 2000 purchase was a Starker Exchange.
- Acting on Wood’s advice, Coon closed the 2010 sale, realized proceeds, and later learned from his accountant he owed over $75,000 in capital gains taxes; Coon alleges Wood’s advice was incorrect.
- Coon sued in diversity (D.C. law applied) asserting breach of contract, negligent misrepresentation, breach of fiduciary duty, and violations of D.C. Code § 42-1701 et seq.; defendants moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract | Brokerage Agreement created obligation to "structure" sale to avoid capital gains | Agreement contains no duty to provide tax advice or structure tax transactions | Dismissed with prejudice — no contractual provision imposed such a duty |
| Negligent misrepresentation | Wood falsely stated tax consequence (no 1031 available); Coon reasonably relied | Reliance was unreasonable given written disclaimers advising to seek tax counsel | Claim survives; reasonable reliance not foreclosed at motion to dismiss because of fiduciary relationship and prior dealings |
| Breach of fiduciary duty | Defendants failed to notify Coon of tax exemption or take steps to effect a like-kind exchange | D.C. statute only requires disclosure of material facts possessed; Sales Agreement disclaims tax-advice duty | Dismissed with prejudice — no statutory or contractual duty to structure tax transaction and disclaimers limit any duty |
| Violation of D.C. real estate statutes (§ 42-1701 et seq.) | Statute imposes duties on brokers to disclose material facts and exercise care; defendants failed to disclose tax option | Statute does not impose affirmative duty to structure tax-exempt exchanges; written disclaimer limits duty | Dismissed with prejudice — statute does not create duty to effect 1031 exchanges and disclaimer forecloses claim |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim for relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (complaint must plead factual content permitting reasonable inference of liability)
- Wood v. Moss, 134 S. Ct. 2056 (standards for assessing factual allegations in Rule 12(b)(6) context)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (federal courts apply state substantive law in diversity cases)
- Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d 359 (real estate brokers owe fiduciary duties to principals)
- Redmond v. State Farm Ins. Co., 728 A.2d 1202 (elements of negligent misrepresentation under D.C. law)
- Firestone v. Firestone, 76 F.3d 1205 (standard for dismissals with prejudice under Rule 12(b)(6))