JOHN N. XEREAS, APPELLANT v. MARJORIE A. HEISS, ET AL., APPELLEES
No. 19-7108
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 24, 2020 Decided February 16, 2021
Consolidated with 19-7111 Appeals from the United States District Court for the District of Columbia (No. 1:12-cv-00456)
Before: TATEL, PILLARD and WILKINS, Circuit Judges.
Brent M. Ahalt argued the cause and filed the briefs for appellant.
William T. O‘Neil argued the cause and filed the brief for appellees.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit
Xereas challenges the District Court‘s dismissal of his claim for breach of the Defendants’ fiduciary duties of loyalty and care on the pleadings, as well as a number of pretrial and trial errors. Defendants cross-appealed and challenge the District Court‘s denial of their final motion for judgment as a matter of law and request for attorney‘s fees. We reverse the District Court‘s dismissal of Xereas‘s breach of fiduciary duty claim. We affirm the District Court‘s rulings in all оther respects.
I.
A.
Xereas conceived the name “RIOT ACT” during his multi-decade career in the D.C.-area comedy scene. He registered RIOT ACT-related domain names in 2005 and did business as RIOT ACT Entertainment LLC through 2012, booking comics and producing and promoting events at local venues including Lisner Auditorium, The Lincoln Theater, 9:30 Club, and DAR Constitution Hall. Xereas obtained a trademark for RIOT ACT in September 2012, with a first use date of September 2005.
After his successful first club closed, Xereas met and agreed to go into business
In any event, no licensing agreement for the RIOT ACT mark was executed. The parties eventually leased a large event space in downtown D.C. zoned for a theater and arts venue and began renovations. Defendant Heiss registered their company as Riot Act DC, LLC and the parties executed an operating agreement in May 2010 and the operative Amended Operating Agreement (“the operating agreement“) on November 1, 2010. Each party held a 33.33% stake in the LLC.
Xereas, Heiss, and Dawson were the sole Member-Managers of the LLC. The operating agreement gave the managing members “full and exclusive power and authority on behalf of the Company to manage, control, administer[,] and operate the business and affairs of the Company.” Amended Operating Agreement, Art. VI § 6.1(a); see also id. Art. V § 5.10. In other words, all management decisions were controlled by a two-thirds vote of the Member-Managers. The operating agreement also provided that “[a]ny consideration to be paid as salaries by the Company to the Managing Members shall be determined by the Managing Members in their reasonable discretion.” Id. Art. VI § 6.4. The operating agreement also included a provision selecting the District of Columbia as the source of governing law. Id. Art. X § 10.9.
Xereas claims that thе parties agreed to pay him $72,000 per year for his work as General Manager, but later deferred payments until the business became profitable. Trial Tr. 232:5-7. Defendant Dawson acknowledged that “[i]n a perfect world, he would have gotten his salary, which we had hoped would be $72,000 a year,” but Dawson also testified that Xereas‘s salary was never guaranteed. Trial Tr. 616:24-617:16. Other management salaries were being paid, however. Xereas testified that Defendants paid another employee $65,000 per year to manage the club, and Defendant Dawson testified that the LLC paid a $100,000 management fee to one of his companies. Trial Tr. 235:13-17; 692:16-25. In the end, Xereаs received $26,000 in the year and a half between May 2010, when the LLC was officially formed, and his exit in 2012.
The Riot Act club opened its doors in August 2011. Not long after, the relationship between the parties deteriorated. The Defendants voted to fire Xereas‘s brother and friend in January 2012, and a verbal conflict ensued after which Xereas left the premises. Xereas testified that he continued to work for the LLC despite Defendants’ vote two days later to remove him from his day-to-day managerial responsibilities. Defendants cut off Xereas‘s access to his Riot Act-domain email and changed the locks at the club several days later. Defendants ultimately voted to remove Xereas as a managing member in March 2012, under the operating agreement‘s
B.
Xereas filed the initial Complaint in this action in March 2012, bringing Lanham Aсt and related claims under District of Columbia law. The District Court exercised jurisdiction over Xereas‘s trademark infringement and other Lanham Act claims pursuant to
Xereas‘s Second Amended Complaint (“SAC“) alleged twenty-six claims stemming from the parties’ less-than-amicable breakup. Relevant for our purposes, the SAC included: a claim for breach of fiduciary duty, Lanham Act and common law trademark infringement claims; and interrelated contract claims based on the implied covenant of good faith and fair dealing, D.C. law, and the operating agreement. The Defendants cross-claimed based on the same conduct alleged in Xereas‘s Complaint, including, as relevant here, a conversion claim for a computer purchased by the LLC and retained by Xereas.
The case was referred to Magistrate Judge Deborah A. Robinson during discovery and referred to her for all purposes by the parties’ consent in September 2017. The District Court decided the parties’ cross motions for summary judgment and allowed Xereas‘s above-named claims, except for his claim for breach of fiduciary duty, and all of Defendants’ cross-claims to proceed. The District Court converted Defendants’ motion into a Motion to Dismiss for the purpose of deciding Xereas‘s breach of fiduciary duty claim, and dismissed it under
Magistrate Judge Robinson presided over a seven-day jury trial from November 5 to 14, 2018. At trial, the District Court conducted voir dire of Xereas‘s sole expert witness, allowed the expert to testify to unsupported business expenses and a company valuation, and ruled his trademark damages testimony inadmissible. After the close of Xereas‘s evidence, Defendants moved for judgment as a matter of law, claiming that Xereas presented no evidence proving the damages element of his breach of contract and trademark infringement claims. The District Cоurt granted the motion with respect to one trademark claim and denied the motion as to the breach of contract claims because it held the evidence could allow the jury to find that Xereas was not paid the agreed-upon salary. Defendants moved again for judgment as a matter of law at the close of trial, and the District Court granted the motion as to the remaining Lanham Act claims. Only Xereas‘s claim for breach of the operating agreement went to the jury.
The jury found for Xereas and awarded him $106,000 in damages. The jury also found for Defendants on their conversion claim and awarded the return of the computer. Following trial, Dеfendants re-moved for judgment as a matter of law, to alter or amend Xereas‘s damages to the amount claimed in his final pretrial statement, and for attorney‘s fees under the Lanham Act,
II.
The District Court dismissed Xereas‘s claim that Defendants owed and breached their fiduciary duties of loyalty and care. Mem. Op. 30-31, ECF No. 188 (Oct. 5, 2018). To state a claim for breach of fiduciary duty under District of Columbia law, a plaintiff must allege facts sufficient to establish: (1) the defendant owed plaintiff a fiduciary duty; (2) a breach of that duty; and (3) proximate cause and injury to be inferred from those facts. See Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d 359, 363 (D.C. 1984) (duty and breach); Randolph v. ING Life Ins. & Annuity Co., 973 A.2d 702, 709 (D.C. 2009) (proximate cause and injury). The District Court analyzed only the first prong and declined to reach the remaining elements after finding it “clear” that a “special confidential relationship transcending an ordinary business transaction” that would give rise to a fiduciary duty “did not take place” between the parties. Mem. Op. 31. Because this holding was error, we reverse and remand to the District Court for further proceedings.
Xereas also alleges that the District Court erred at trial when it improperly excluded evidence relevant to his contract claims that survived summary judgment; abused its discretion by limiting, and ultimately striking, his expert‘s testimony; and made numerous additional evidentiary rulings at trial that violated his substantial rights. Xereas has not shown that we should vacate the verdicts based upon any of these evidentiary rulings, particularly given the substantial deference we owe the trial court on such issues. See Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379, 384 (2008). We consider both arguments in turn.
A.
We review ”de novo the dismissal of a complaint for failure to state a claim, accepting [the] plaintiff‘s factual allegations as true and drawing all reasonable inferences in [the] plaintiff‘s favor.” Momenian v. Davidson, 878 F.3d 381, 387 (D.C. Cir. 2017). District of Columbia law governs claims arising out of the parties’ operating agreement.
Turning to the common law, “[a] fiduciary relationship is founded upon trust or confidence reposed by one person in the integrity and fidelity of another.” Bolton v. Crowley, Hoge & Fein, P.C., 110 A.3d 575, 584 (D.C. 2015) (quoting Gov‘t of Rwanda v. Rwanda Working Grp., 227 F. Supp. 2d 45, 64 (D.D.C. 2002), aff‘d in part, remanded in part sub nom. Gov‘t of Rwanda v. Johnson, 409 F.3d 368 (D.C. Cir. 2005)). Whether a fiduciary relationship exists is “a fact-intensive question, involving a searching inquiry into the nature of the relationship, the promises made, the type of services or advice given and the legitimate expectations of the parties.” Firestone v. Firestone, 76 F.3d 1205, 1211 (D.C. Cir. 1996) (quoting Church of Scientology Int‘l v. Eli Lilly & Co., 848 F. Supp. 1018, 1028 (D.D.C. 1994)). District of Columbia courts have “addressed the fiduciary duty of loyаlty in the corporate and partnership context[s],” but not in the specific context of a limited liability company. Bolton, 110 A.3d at 581. However, Calomiris v. Calomiris, 3 A.3d 1186 (D.C. 2010), suggests that an action for breach of fiduciary duty may lie between members of an LLC based on their status as members alone.
In Calomiris, 3 A.3d at 1188-89, one member of a family-held LLC brought claims against the LLC and his siblings for breach of contract and breach of fiduciary duty when the LLC refused to reimburse him for attorney‘s fees sought in connection with an earlier action on behalf of the LLC. The operating agreement contained an indemnification clause that the claimant argued entitled him to prevail on his breach of fiduciary duty claim should the LLC continue tо violate the indemnification provision by refusing to reimburse him for the earlier action. Id. at 1194. Without evaluating the merits of his claim, the court ruled that the claimant had pled sufficient facts to entitle him to an award of fees under the clause. Id. at 1194-95. In analyzing the sufficiency of his complaint, the court noted, “[Claimant] sets forth his two causes of action and paragraphs which demonstrate how he satisfies the elements of those causes.” Id. at 1195. The court thus allowed the claimant‘s breach of fiduciary duty claim to continue where it alleged an action arising out of the LLC‘s operating agreement, as Xereas does here.
While the Calomiris court allowed a well-plеaded claim for breach of fiduciary duty by one member of an LLC against another to survive a motion to dismiss, we
In his Complaint, Xereas alleged that he entered into the original operating agreement with Defendants on May 6, 2010 and further alleged that “Defendants Dawson and Heiss, by virtuе of being managers of the LLC at the time most of the events that give rise to this Second Amended Complaint occurred, were in a fiduciary relationship with Plaintiff who was also a manager of the LLC.” Second Am. Compl. ¶¶ 46, 177. We find these allegations sufficient under
For those events that took place in 2012 and therefore also covered by the statute, Xereas correctly argues that section 29-804.09 provides that members of a member-managed LLC owe each other duties of loyalty and care, duties typical of a fiduciary relationship. See
But Defendants’ authority aims to distinguish fiduciary relationships from arms-length contracts, not from business partnerships that give rise to duties owed by members or managers of a limited liability company, and does not alter our conclusion that the District of Columbia affords special
In sum, section 29-804.09 impоses duties characteristic of a special fiduciary relationship and requires members of an LLC to act with the interests of the LLC and other members in mind. See
In light of the above, the District Court improperly found it “clear” that a “special confidential relationship transcending an ordinary business transaction did not take place” between the parties. See Mem. Op. 31. The District Court failed to consider relevant District of Columbia and Maryland law, the statute‘s clear imposition of duties of loyalty and care typical of a fiduciary, or the nature of the parties’ relationship—as partners and co-managers in a business venture, not merely arms-length parties to a standard commercial transaction. Xereas‘s claim for breach of
We hold that Xereas adequately alleged that he, Dawson, and Heiss were members of a member-managed LLC, Second Am. Compl. 362, and that under D.C. law that suffices to plead the existence of a fiduciary duty. For the reasons above, we reverse and remand this claim for further proceedings.
B.
Xereas has not, however, shown that we should reverse any of thе District Court‘s evidentiary rulings, particularly given the broad deference we owe the trial court on such issues. See Sprint/United, 552 U.S. at 384. “[W]e review a trial court‘s evidentiary rulings for abuse of discretion and even if we find error, we will not reverse an otherwise valid judgment unless appellant demonstrates that such error affected [his] substantial rights.” Bowie v. Maddox, 642 F.3d 1122, 1134 (D.C. Cir. 2011) (alterations in original) (internal quotation marks omitted). For an error to affect a party‘s substantial rights, it “must have been prejudicial: It must have affected the outcome of the district court proceedings.” Muldrow ex rel. Estate of Muldrow v. Re-Direct, Inc., 493 F.3d 160, 168 (D.C. Cir. 2007) (quoting United States v. Olano, 507 U.S. 725, 734 (1993)). As the party claiming error, Xereas bears the burden of demonstrating harmfulness. Shinseki v. Sanders, 556 U.S. 396, 409 (2009).
Xereas failed to carry his burden. To the extent his expert testimony was relevant to claims properly dismissed for other reasons, we find no prejudicial error. Nor do we find error where the District Court excluded Xereas‘s expert testimony regarding trademark damages because it did not comply with our decision in Foxtrap, Inc. v. Foxtrap, Inc., 671 F.2d 636 (D.C. Cir. 1982), to the extent that Xereas‘s challenge can even be understood to extend to that ruling. And conclusory statements that the trial court‘s remaining alleged errors “substantially prejudiced” Xereas do not demonstrate that each, or any, error altered the outcome of trial. See, e.g., Appellant‘s Br. 24, 27; Appellant‘s Reply and Response to Cross Appeal 10, 18, 22. We decline to decide each evidentiary issue in turn. Instead, the trial court on remand should examine anew the previous rulings through the lens of the single remaining breach of fiduciary duty claim. Conscious that the District Court—faced with a different claim on remand—could determine that the new claim warrants different rulings, we decline to elevate its prior rulings to law of the case because evidentiary rulings are inherently situational. See Sprint/United, 552 U.S. at 387-88 (citing the Advisory Committee‘s note on
We make one final note to guide the trial court on remand. It is well settled that a party “cannot recover the same damages twice, even though the recovery is based on two different theories.” Hill v. Assocs. for Renewal in Educ., Inc., 897 F.3d 232, 241 (D.C. Cir. 2018) (Wilkins, J., concurring) (quoting Medina v. District of Columbia, 643 F.3d 323, 326 (D.C. Cir. 2011)), cert. denied, 139 S.
III.
Turning to Defendants’ cross-appeal, we affirm the District Court‘s decision to deny Defendants judgment as a matter of law on Xereas‘s breach of contract claim. We also affirm the denial of Defendants’ fee petition for the reasons below.
A.
“[W]e do not lightly disturb a jury verdict.” Radtke v. Lifecare Mgmt. Partners, 795 F.3d 159, 163 (D.C. Cir. 2015) (alteration omitted). We review the District Court‘s denial of a motion for judgment as a matter of law de novo. Id. “Judgment as a matter of law is appropriate only if the evidence and all reasonable inferences that can be drawn therefrom are so one-sided that reasonable men and women could nоt have reached a verdict in plaintiff‘s favor.” Muldrow, 493 F.3d at 165 (internal quotation marks and citation omitted). We cannot substitute our view for that of the jury, nor do we assess the credibility or weight of the evidence. See Radtke, 795 F.3d at 163.
Defendants argue that Xereas introduced insufficient evidence at trial to support his breach of contract claim because he failed to present evidence of damages caused by Defendants’ breach of the operating agreement. Appellees’ Br. 25. Under District of Columbia law, breach of contract requires a showing of: “(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, 984 A.2d 181, 187 (D.C. 2009). Defendants strenuously urge that any salary paid or promised to Xereas was “discretionary” under the operating agreement. Appellees’ Br. 27; see also Amended Operating Agreement, Art. VI § 6.4. Under their theory, none of Defendants’ breaching behavior, including removing Xereas as a managing member, could have caused him to lose a salary he was never entitled to. Appellees’ Br. 27.
Xereas counters that he introduced evidence that Defendants agreed to pay him a salary of $72,000. Appellant‘s Reply and Response to Cross Appeal 25, 27. He argues that testimony describing the LLC‘s payment of similar salaries to a second general manager, as well as management consulting fees, allowed the jury to infer that he would have been compensated at a similar rate to that of general managers had he not been removed. Id. at 26-27. He further notes that he presented evidence that Defendants improperly removed him as a managing member in violation of the operating agreement, and that in light of
Xereas is correct: the evidence introduced at trial was not “so one-sided that reasonable men and women could not have reached a verdict in [his] favor.” Muldrow, 493 F.3d at 165. Xereas testified that Defendants agreed to pay him a salary, and Defendant Dawson acknowledged that “[i]n a perfect world, he would have gotten his salary, which we had hoped would be $72,000 a year.” See Trial Tr. 232:5-7; 616:24-617:9. But Defendant Dawson also testified that this salary was never guaranteed. Trial Tr. 617:10-16. Given the conflicting testimony, it is not our role to substitute our view for the jury‘s careful weighing of the witnesses’ credibility and of the evidence. See Radtke, 795 F.3d at 163.
We note finally that Xereas‘s testimony that Defendants improperly removed him as a managing member suffiсes to draw a causal link between the claimed damages and his removal. The operating agreement provides that “[n]o Member, as such, other than the Managing Members shall . . . [b]e paid any salary by the Company.” Art. V § 5.10(c). If the jury evaluated the conflicting evidence and credited Xereas‘s testimony that he was to be compensated for performance of his management duties, his improper removal as a managing member eliminated his chance to recoup the salary owed. For the reasons above, we affirm the District Court‘s denial of Defendants’ renewed motion for judgment as a matter of law.
B.
We also affirm the District Court‘s deniаl of Defendants’ fee petition. Although Defendants are prevailing parties with respect to their Lanham Act claims, the District Court also based its denial on its view that this case is not “exceptional” as required to justify fees. See
A party need not win judgment on every claim to be a “prevailing party.” Fox v. Vice, 563 U.S. 826, 834 (2011). Because Defendants were granted judgment on the merits of all three of Xereas‘s Lanham Act claims, they were prevailing parties. See Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep‘t of Health & Human Res., 532 U.S. 598, 604 (2001) (“[E]nforceable judgments on the merits . . . create the ‘material alteration of the legal relationship of the parties’ necessary to permit an award of attorney‘s fees.” (quoting Tex. State Tchrs. Ass‘n v. Garland Indep. Sch. Dist., 489 U.S. 782, 792-93 (1989))). The District Court was incorrect when it stated, without explanation, that “Defendants have failed to demonstrate . . . that they are ‘prevailing’ parties.” See Mem. Order 2, ECF No. 252 (Aug. 9, 2019).
However, no prejudice lies where the District Court did not abuse its wide discretion in determining that this case is not exceptional. Id. Analyzing an identical fee-shifting statute in the Patent Act,
Defendants contend that this case stands out based on the trial testimony, which they argue irrefutably showed that Xereas‘s claimed oral license to the LLC to use his RIOT ACT trademark was “a fiction.” Appellees’ Br. 31. In their view, the evidence showed that Xereas lied about granting an oral license to Defendants, referred to the LLC‘s ownership of the intellectual property, and applied for the mark only after granting the LLC the right to use it (and thus filed false statements with the Patent and Trademark Office). Id. at 31-32. Xereas responds that Defendants failed to establish that the District Court abused its discretion where his trademark infringement claims failed only because he did not introduce evidence of damages traceable to their infringing behavior, not because the evidence refuted his testimony that Defendants infringed his mark. Appellant‘s Reply and Response to Cross Appeal 32.
The District Court found that Defendants failed to show that the case was brought for the purpose of harassing them, or that Xereas‘s conduct was willful or in bad faith. Mem. Order 2. The Supreme Court has interpreted the Patent Act‘s identical fee-shifting statute broadly: “[A]n ‘exceptional’ case is simply one that stands out from others with respeсt to the substantive strength of a party‘s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). Here the District Court exercised its substantial discretion to find that this case was neither litigated unreasonably nor brought to harass. Because district courts “may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances,” we decline to overturn the District Court‘s ruling here. See id.
IV.
For the foregoing reasons, we reverse the District Court‘s dismissal of Xereas‘s breach of fiduciary claim and rеmand for proceedings consistent with this opinion. We affirm the District Court‘s rulings on both issues raised in Appellees’ cross-appeal.
So ordered.