JULIO LAMBOY RUIZ, Plaintiff, v. MILLENNIUM SQUARE RESIDENTIAL ASSOCIATION, et al., Defendants.
Case No. 1:19-cv-03765 (TNM)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
June 11, 2020
Last year, Julio Lamboy Ruiz discovered significant water damage inside the walls of his condominium unit. This damage, he believes, was caused by the building‘s chilled water equipment and pipes, which the Millennium Square Condominium Associations1 (“Millennium Defendants“) and the site manager—Ritz-Carlton Hotel Company (“Ritz-Carlton” or “Hotel“)—improperly installed, repaired, or maintained. He sued the Millennium Defendants and Ritz-Carlton seeking compensation for damage to his property.
Defendants moved to dismiss or compel arbitration. Ruiz now admits that his claims against the Millennium Defendants should go to arbitration, though he urges this Court to stay rather than dismiss the case. Still, he maintains that he has stated a claim for negligence against Ritz-Carlton and he insists that the Court should not compel arbitration of that claim.
The Court agrees with Ruiz that his Amended Complaint has stated a valid claim for negligence. But because this negligence claim is intertwined with Ruiz‘s claims against the
I. BACKGROUND
Ruiz owns a condominium unit within the Millennium Square condominium project (“Condominium“) in Washington, D.C. See Am. Compl. ¶¶ 2-3, ECF No. 18. The Condominium is a “mixed-use” condominium with residential units, like the one owned by Ruiz, and commercial units, operated by Ritz-Carlton. Id. ¶¶ 5, 10.
The top floor of Ruiz‘s unit is adjacent to the Condominium‘s mechanical facilities room. Id. ¶ 14. Ruiz alleges that last year, some chilled water equipment in the mechanical room entered a “blowdown or flushing mode” which caused the room‘s floor drain to overflow. Id. ¶ 15. This overflow caused about 20-30 gallons of water to infiltrate Ruiz‘s unit. Id.
A few days later, Ruiz discovered mold and water in his unit. Id. ¶ 16. Over the next two months, he had several portions of the ceilings and walls opened and discovered that the insulation surrounding the pipes was “heavily waterlogged,” caused by “excessive condensation of the pipes.” Id. ¶¶ 17-20 (capitalization altered).
The water caused more than $575,000 of damage to Ruiz‘s property. Id. ¶ 29. Ruiz claims the Millennium Defendants and Ritz-Carlton caused these damages through the “erroneous operation of the chilled water system . . . and/or [] faulty insulation and/or the faulty installation and/or maintenance of the insulation and/or piping.” Id. ¶ 21.
Ruiz suggests that the Condominium Bylaws obligated the Millennium Defendants to maintain the chilled water system, insulation, and pipes. The Bylaws “govern the respective rights and obligations” between Ruiz and the Millennium Defendants. Id. ¶ 22. And they allocate responsibilities for the “maintenance, repair and replacement” of the Condominium‘s
Ruiz also faults Ritz-Carlton. He alleges that it “assumed certain maintenance and repair responsibilities” that “obligate the Hotel to maintain, repair and replace the facilities and instrumentalities at issue in this litigation including, but not limited to, the Pipes.” Id. ¶ 27. Ritz-Carlton and the Commercial Association have a Management Agreement that gives the Hotel the responsibility to “cause the Common Elements of the Condominium to be repaired, restored, cleaned, added to, improved, altered, replaced or maintained in such condition as may be required by . . . the Bylaws.”2 See Ritz-Carlton Mot. to Dismiss 13 (“Ritz Mot.“), ECF No. 22-2; Management Agreement 4, Ritz Mot., Ex. A, ECF No. 22-3.3
The Millennium Defendants moved to compel arbitration or, in the alternative, to dismiss. See Millennium Mot. to Compel, or, Mot. to Dismiss (“Millennium Mot.“), ECF No. 19-1. In response, Ruiz admitted that arbitration is required for all claims against these Defendants.4 See Ruiz Resp. to Millennium‘s Mot. to Compel 1 (“Ruiz Millennium Resp.“), ECF No. 24. Ritz-Carlton also moved to dismiss or, in the alternative, to compel arbitration. See Ritz Mot. at 4. These motions are ripe for the Court‘s review.
The Court has diversity jurisdiction over this case, since Ruiz is a citizen of North Carolina, Millennium Defendants are incorporated in the District of Columbia, and Ritz-Carlton is a Delaware limited liability company with its principal place of business in Maryland. See Am. Compl. ¶¶ 1-11;
II. STANDARD OF REVIEW
To survive a motion to dismiss, a complaint must “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
Courts evaluate motions to compel arbitration under
III. ANALYSIS
A. Ritz-Carlton‘s Motion to Dismiss
To plead negligence against the Hotel, Ruiz must allege facts showing that (1) Ritz-Carlton owed a duty to him; (2) it breached that duty; and (3) Ruiz‘s injury was proximately
1. Ruiz pleaded that Ritz-Carlton owed him a duty of care.
Ritz-Carlton suggests that Ruiz failed to sufficiently plead that it owed him a duty, both because Ruiz “fails to characterize the specific legal duty owed to him” and because it “owes him no duty as a matter of law.” Ritz Mot. at 10-12. The Court disagrees on both fronts.
To begin, Ruiz does characterize Ritz-Carlton‘s legal duty in his Amended Complaint. It alleges that the Hotel “assumed certain maintenance and repair responsibilities that it knew or should have known would directly impact the Plaintiff which such assumed responsibilities obligate the Hotel to maintain, repair and replace the facilities and instrumentalities at issue in this litigation including, but not limited to, the Pipes.” Am. Compl. ¶ 27. In other words, the Amended Complaint alleges that Ritz-Carlton voluntarily undertook maintenance and repair responsibilities for the pipes and other chilled water equipment. These responsibilities, Ruiz insists, imposed a duty on Ritz-Carlton to exercise reasonable care when repairing and maintaining the chilled water equipment. See Ruiz Opp‘n to Ritz-Carlton‘s Mot. to Dismiss 11-12 (“Ruiz Ritz Opp‘n“), ECF No. 23.
Though Ruiz does not explain in detail how the Hotel assumed certain maintenance responsibilities or what those responsibilities covered, Ruiz has pleaded facts, not mere legal conclusions. See The Scowcroft Grp., Inc. v. Toreador Res. Corp., 666 F. Supp. 2d 39, 42 (D.D.C. 2009) (“Although a complaint does not need detailed factual allegations, a plaintiff‘s
A separate question is whether the Hotel‘s assumption of maintenance duties—through the Management Agreement—imposes a duty on the Hotel to act with reasonable care toward Ruiz. Ritz-Carlton maintains that it cannot.
First, Ritz-Carlton insists that the Management Agreement, as a contract, could not be the basis of a tortious duty. Ritz Mot. at 12. Within the District, it notes, generally a “tort 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.” See id. (quoting Choharis v. State Farm Fire & Cas. Co., 961 A.2d 1080, 1089 (D.C. 2008)) (emphasis added).
But the Hotel admits it “has no contractual relationship with Plaintiff.” Ritz Mot. at 12. Instead, its contract is with Millennium Square Commercial Association. Id. And this contract may create certain duties in tort to affected third-parties. See Presley v. Commer. Moving & Rigging, Inc., 25 A.3d 873, 888 (D.C. 2011) (“In the absence of contractual privity with an unrelated third party, whether a party should have foreseen that its contractual undertaking was necessary for the protection of the third party is important.“); see also Vantage Commod. Fin. Servs. I, LLC v. Assured Risk Transf. PCC, LLC, 321 F. Supp. 3d 49, 64 (D.D.C. 2018) (“Defendants note that these undertakings were contractual obligations to [the signatory] but do not explain why they cannot also be tort obligations to [the non-signatory].“).
The D.C. Court of Appeals has turned to Restatement (Second) of Torts § 324A, to determine whether a party performing services under a contract assumes a tortious duty to an independent third party. See Presley, 25 A.3d at 889. Section 324A recognizes that:
“One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if
(a) his failure to exercise reasonable care increases the risk of such harm, or
(b) he has undertaken to perform a duty owed by the other to the third person, or
(c) the harm is suffered because of reliance of the other or the third person upon the undertaking.”
§ 324A, Restatement (Second) of Torts.
To be sure, Ruiz‘s briefing on this issue is not pellucid. There, he insists that the Hotel‘s duty is “independent of the Condominium Management Agreement” and of the Bylaws.7 See Ruiz Ritz Opp‘n at 8, 10. Indeed, his brief seems to suggest that the Hotel undertook this duty by voluntarily beginning work on equipment. Id. at 11. He likens this assumption of duty to a landlord who “generally owes no duty to his tenants to renovate the leased premises,” but owes a duty to exercise reasonable care “once he begins to renovate and improve the property.” Id. (quoting Towers Tenant Ass‘n, Inc. v. Towers Ltd. P‘ship, 563 F. Supp. 566, 570 (D.D.C. 1983)). In the same way, he concludes, “[o]nce the Hotel began its work, the Hotel owed a duty to the residents of the Condominium to exercise reasonable care in the performance of those activities.” Id. at 11-12.
So, though Ruiz sufficiently pleaded that the Hotel owed a duty to him because of the Management Agreement and Bylaws, Ruiz failed to allege facts that would establish an independent duty based on the Hotel‘s work on the equipment.
Next, Ritz-Carlton argues that even if it would normally owe a duty to Ruiz, the exculpatory clause in its Management Agreement absolves it of this duty. See Ritz Mot. at 12-15. The Management Agreement—under the heading “Indemnification and Reimbursement“—states that the Hotel:
“assumes no liability whatsoever for . . . any and all claims or damages or injuries to persons or property by reason of any cause whatsoever, either in or about the Condominium, or any Residential Unit when and during the time that Manager is providing management services set forth in this Agreement . . . unless such claim results from the intentional or willful misconduct or acts amounting to fraud of Manager . . . .”
Management Agreement at 13-14; see Ritz Mot. at 13-14.
This language, of course, may prevent the Commercial Association from holding the Hotel liable for any damage to the Condominium or residential units. But that‘s not this case. Ritz-Carlton cites no precedent suggesting that someone like Ruiz—who is not a party to the contract—is bound by that contract‘s exculpatory clause.
The contract of sale included an exculpatory clause where the buyer agreed that the Government had no liability for any injury caused by the plane. Id. at 717. In litigation, the Government pointed to this clause, suggesting that it “relieve[d] it from any previous negligent inspections.” Id. at 720. The court disagreed. Id. The clause might require the buyer to indemnify the Government. Id. But this clause did not affect the plaintiff‘s claim because “he was not a party to the contract.” Id.; see also Air Prod. & Chems., Inc. v. Eaton Metal Prod. Co., No. 02-cv-1277, 2003 WL 22133839, at *20 (E.D. Pa. Aug. 22, 2003) (“[Defendants] may not use the exculpatory clause as a defense to [Plaintiff‘s] negligence claim for the simple reason that exculpatory clauses may only be asserted against contracting parties.“).
So too here. The exculpatory clause in the contract between the Commercial Association and Ritz-Carlton cannot bar Ruiz‘s case since “[i]t goes without saying that a contract cannot bind a nonparty.” EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002). The clause may require Millennium to indemnify Ritz-Carlton, but it can do no more.
2. Ruiz adequately pleaded breach of Ritz-Carlton‘s duty.
Ritz-Carlton also suggests that Ruiz failed to plead enough facts to establish a breach of its duty. Again, the Court disagrees.
3. Ruiz‘s negligence claim is not barred by the economic loss doctrine.
Finally, Ritz-Carlton urges that the economic loss doctrine bars Ruiz‘s negligence claim. But because Ruiz‘s Amended Complaint seeks compensatory damages for property loss, not pure economic loss, this doctrine does not apply.
Under the economic loss doctrine, “purely economic losses” are not recoverable in tort unless a “special relationship exists” between the plaintiff and defendant. Aguilar v. RP MRL Wash. Harbor, 98 A.3d 979, 986 (D.C. 2014). This means that plaintiffs are barred from seeking recovery of lost profits or lost wages—unconnected to any injury to body or property—in a negligence action. Id. at 982-83.
Yet Ruiz insists—and Ritz-Carlton apparently concedes—that he has only alleged property damages. Ruiz Ritz Opp‘n at 9; Ritz Reply 4, ECF No. 25 (“By Plaintiff‘s own admission, he alleges property damages, not pecuniary loss.“). Ritz-Carlton never tries to show
4. Ruiz‘s claim for attorneys’ fees will be dismissed.
But the Court will grant Ritz-Carlton‘s motion to dismiss Ruiz‘s claim for attorneys’ fees. Ritz Mot. at 17. In the District of Columbia, “a plaintiff litigating a civil action must bear his own attorney‘s fees and expenses absent a contractual or statutory basis for liability,” unless he falls within a small set of narrow exceptions such as bad faith. Safeway Stores, Inc. v. Chamberlain Protective Servs., Inc., 451 A.2d 66, 68-69 (D.C. 1982). As Ritz-Carlton notes, Ruiz has “not alleged that there is any statutory, contractual, or common-law exception that would entitle him to recover attorneys’ fees[.]” Ritz Mot. at 17-18. Indeed, Ruiz does not respond at all to the Hotel‘s motion to dismiss the claim for attorneys’ fees. The Court therefore treats this argument as conceded and will dismiss Ruiz‘s claim for attorneys’ fees against Ritz-Carlton. See D.D.C. LCvR 7(b); Wannall v. Honeywell, Inc., 775 F.3d 425, 428 (D.C. Cir. 2014) (“[I]f a party files an opposition to a motion and therein addresses only some of the movant‘s arguments, the court may treat the unaddressed arguments as conceded.“).
B. Ritz-Carlton‘s Motion to Compel Arbitration
In the alternative to its Motion to Dismiss, Ritz-Carlton urges the Court to compel Ruiz to arbitrate his claims, based on the doctrine of estoppel. See Ritz Mot. at 19. Since Ritz-Carlton and Ruiz are not in contractual privity, no written agreement binds Ruiz to arbitrate his claims against the Hotel. Yet Ruiz admits that his claims against the Millennium Defendants are subject
Under the doctrine of estoppel, a “signatory to an arbitration agreement may be compelled to arbitrate with a non-signatory when the non-signatory is seeking to resolve issues that are intertwined with an agreement that the signatory has signed.” Fox v. Comput. World Servs. Corp., 920 F. Supp. 2d 90, 103 (D.D.C. 2013). There is no express test for determining whether issues are sufficiently “intertwined.” Yet other judges in this District have found estoppel to be appropriate where “there would be no claim against the nonsignatory if the underlying contract never existed[.]” Riley v. BMO Harris Bank, N.A., 61 F. Supp. 3d 92, 99 (D.D.C. 2014); see also Kelleher v. Dream Catcher, LLC, 278 F. Supp. 3d 221, 225-26 (D.D.C. 2017) (finding a non-signatory‘s claims “‘intertwined’ with those against the signatory to the contract” when the plaintiff‘s claims against the non-signatory “exist only because of the Contract“).
Take Riley. There, the plaintiff sued a group of banks for their “participation in a scheme to . . . collect unlawful debts[.]” Riley, 61 F. Supp. 3d at 94. The plaintiff obtained the loans from a separate group of lenders and her agreements with those lenders contained arbitration clauses. Id. at 95. Though the banks were not parties to those contracts, they sought to compel arbitration based on the doctrine of estoppel. Id. at 98-99.
The court granted the motion, finding that the plaintiff‘s claims against the banks were “intertwined” with the claims subject to arbitration. Id. at 100-01. The relevant question, the court explained, was “whether the agreements need[ed] to be ‘relied upon’ or [were] ‘integral’ to establishing the violation alleged by Plaintiff.” Id. at 100. There, the plaintiff referenced the
Ruiz‘s claim against Ritz-Carlton is similarly intertwined with the claims against the Millennium Defendants—with whom he agreed to arbitration in the Condominium Bylaws. Ritz-Carlton‘s alleged duty to Ruiz arises from the Hotel‘s maintenance responsibilities under the Management Agreement with the Commercial Association. See supra at III.A.1. Through the Management Agreement, the Commercial Association assigned some of its maintenance and repair responsibilities to Ritz-Carlton. See Management Agreement at 4. Of course, the Commercial Association could only assign maintenance and repair responsibilities to Ritz-Carlton that it itself had.
And Ruiz‘s Amended Complaint suggests that the Millennium Defendants did have these maintenance responsibilities, under the Bylaws. Ruiz alleges that, among other things, the Millennium Defendants had a contractual duty under the Bylaws to “maintain, repair and replace the facilities and instrumentalities at issue in this litigation including, but not limited to, the Pipes.” See Am. Compl. ¶ 40. He also alleges that the Millennium Defendants breached this contractual duty by “failing to maintain, repair and replace the facilities and instrumentalities under their respective control in a manner consistent with the Bylaws.” Id. ¶ 41.
An arbitrator will determine whether the Millennium Defendants, in fact, had this duty and breached it. This finding is “integral” to whether Ritz-Carlton also owed a duty to Ruiz. Ritz-Carlton‘s duty arose only because it had “undertaken to perform a duty owed by the other to
But even if Ruiz‘s claim against Ritz-Carlton did not depend on the Bylaws, the claims against Ritz-Carlton and the Millennium Defendants are still “intertwined” for a separate reason: Ruiz asserts the same claim for negligence against all Defendants. See Sakyi v. Estee Lauder Co., Inc., 308 F. Supp. 3d 366, 385 (D.D.C. 2018) (compelling arbitration on estoppel grounds where “the plaintiff assert[ed] the exact same claims, based on the same operative set of facts” against the non-signatory defendant as he had against the signatory defendant (internal quotation omitted)).
Count IV—the negligence claim—is asserted “[a]gainst all Defendants.” Am. Compl. at 9. Ruiz alleges that “Defendants, individually and collectively, owed a duty to maintain, repair and replace the facilities and instrumentalities at issue” and that they “individual[ly] and collectively” breached that duty.8 Id. ¶¶ 49, 51. More, the negligence claim against each Defendant is “based on the same operative set of facts.” Id. ¶¶ 13-30. That is, Ruiz alleges that
Because Ruiz seeks to hold Defendants “individually and collectively” responsible for the same damage to his unit caused by the same negligent acts relying on the same underlying facts, Ruiz‘s claim against Ritz-Carlton is “intertwined” with his case against the Millennium Defendants. Accord Fox, 920 F. Supp. 2d at 103-04 (compelling plaintiff to arbitrate claims with a non-signatory to an arbitration agreement on estoppel grounds because plaintiff‘s “claims against all defendants [were] identical“). The Court will, thus, compel arbitration on Ruiz‘s negligence claim against Ritz-Carlton.
C. The Court Will Stay the Case Pending Arbitration.
Ruiz and the Millennium Defendants agree that all claims against the Millennium Defendants are subject to arbitration. Ruiz Millennium Resp. at 1; Millennium Reply 3, ECF No. 26. They disagree, though, whether the Court should stay the case pending arbitration or dismiss the claims. Ruiz Millennium Resp. at 5; Millennium Reply at 3.
The Courts of Appeals are also divided on this issue.9 The question arises from a conflict in how to interpret Section 3 of the Federal Arbitration Act (“FAA“):
“If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.”
On its face, Section 3 appears to leave the Court with only one option when it determines that an issue in a suit is “referable to arbitration“: “on application of one of the parties,” the Court “shall . . . stay the trial of the action.”
Yet the Millennium Defendants urge the Court to rely on cases that deviate from the plain language of the statute. See Millennium Reply at 3-4. These cases ultimately determine that Congress could not have meant for courts to retain cases when all issues in the lawsuit are arbitrable. The Fourth Circuit, for example, maneuvered around Section 3‘s plain language, holding that “[n]otwithstanding the terms of § 3 . . . dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable.” Choice Hotels Int‘l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001) (emphasis added). The Fifth Circuit, likewise, leaned on congressional intent, reasoning that Section 3 “was not intended to limit dismissal of a case in the proper circumstances.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). There would be no reason to stay the case when all claims are subject to arbitration, the Fifth Circuit concluded, because “retaining jurisdiction and staying the action will serve no purpose.” Id. (quoting Sea-Land Serv., Inc. v. Sea-Land of P.R., Inc., 636 F. Supp. 750, 757 (D.P.R. 1986)).
The Ninth Circuit, agreeing with the Fourth and Fifth Circuits, has also provided little analysis to support its interpretation of Section 3. In Sparling v. Hoffman Construction Co., the court dismissed the plaintiff‘s claims based exclusively on its reading of an earlier Ninth Circuit case. See 864 F.2d 635, 638 (9th Cir. 1988). It read its precedent to say that Section 3 “gives a court authority, upon application by one of the parties, to grant a stay pending arbitration, but does not preclude summary judgment when all claims are barred by an arbitration clause.” Id. at 638 (citing Martin Marietta Alum‘m, Inc. v. Gen. Elec. Co., 586 F.2d 143, 147 (9th Cir. 1978)). Yet the court in Martin Marietta declined to issue a stay because the parties did not apply for a stay and “a request for a stay is not mandatory” under Section 3. 586 F.2d at 147. The Sparling Court did not acknowledge this reasoning or make any independent effort to grapple with Section 3‘s statutory language.
But “even the most formidable argument concerning the statute‘s purposes could not overcome” a statute‘s clear text. See Kloeckner v. Solis, 568 U.S. 41, 55 n.4 (2012). And these cases’ reasons for diverging from the plain language of the text are not “formidable.” The Millennium Defendants fail to explain why the Court should not read this language to mean that the stay is mandatory. This Court thus will adhere to the plain language of Section 3. Once a party moves for a stay, Section 3 provides no menu of options. It dictates that the Court “shall . . . stay the trial of the action[.]”
Still, because neither party requests that the claim against Ritz-Carlton be dismissed pending arbitration and because the related claims against the Millennium Defendants will be stayed, the Court will exercise its discretion to stay the case against Ritz-Carlton as well. See Landis v. N. Am. Co., 299 U.S. 248, 254 (1936) (“[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.“). This will allow the related claims to move along the same track.
IV. CONCLUSION
For these reasons, Ritz-Carlton‘s Motion to Dismiss will be granted in part and denied in part. The Court will dismiss Ruiz‘s claim for attorneys’ fees against Ritz-Carlton but will not dismiss Count IV of the Amended Complaint. The Millennium Defendants’ and Ritz-Carlton‘s Motions to Compel Arbitration will be granted. The Millennium Defendants’ Motion to Dismiss will be denied as moot. The Court will stay the case during arbitration. A separate Order will issue.
Dated: June 11, 2020
2020.06.11 12:49:29-04‘00’
TREVOR N. McFADDEN, U.S.D.J.