Marked up: Homeowners claim designer allegedly inflated expenses

A breach of contract claim brought by out-of-state homeowners against a Virginia interior designer has survived a motion to dismiss.

The homeowners claimed the designer inflated expenses without their knowledge and that they had to spend tens of thousands of dollars to address her inability to complete the job.

As such, the homeowners “have pleaded a facially plausible breach of contract claim under Virginia law,” U.S. District Judge Rossie D. Alston Jr. wrote.

Alston’s decision from the Eastern District of Virginia is Marcus v. Dennis (VLW 022-3-207).

Design contract

Gregory and Jaime Marcus hired Virginia interior designer Marlene Dennis and Marlene Dennis Design LLC, or MDD, in 2018. The parties entered into a contract for “design services” for the purpose of building and furnishing the couple’s new home in Bethesda, Maryland.

Per the terms of the contract, the Marcuses agreed to pay Dennis and MDD “$175 per hour, not to exceed $50,000, for design consultation and $50,000 for furniture selection and procurement.” MDD was required to invoice the Marcuses monthly.

Additionally, the contract provided for “furnishings, rugs, artwork, decorative lighting and accessories not to exceed $250,000,” under the assumption that the Marcuses would use much of the furniture they already owned.

Dennis allegedly began work on a different multimillion-dollar project in July 2020. According to the opinion, this “precipitated a decline” in her performance on the Marcuses’ project; she apparently showed “dilatory behavior” and did not perform in alignment with previously agreed-upon target dates.

In November 2020, Dennis allegedly sent the Marcuses an almost $68,000 invoice for her charges dating to July 15, 2019. She also told the Marcuses the total contract fees would exceed the originally agreed $100,000 cap. The Marcuses paid the invoice which, when combined with other invoices, allegedly totaled more than $124,000.

Just two months later, in January 2021, Dennis invoiced the Marcuses again — this time for an additional $255,560.72 for “materials purchased to facilitate the design plan.”

The Marcuses wired Dennis the money “in order to expedite the furniture order and delivery process” instead of paying the vendors directly. After repeated requests to provide them with invoices from the vendors, Dennis handed over copies in August 2021 after being threatened with litigation. The Marcuses claimed that, in these invoices, Dennis “dramatically inflated the cost of these items before charging them.”

In fact, the Marcuses said Dennis “dramatically overinflated the cost” of items “for which Dennis could hide the actual price.” Examples shared in the opinion include a dining table and artwork which Dennis allegedly marked up by thousands of dollars.

When they moved into their home in April 2021, the Marcuses alleged that it was “almost completely empty,” and that Dennis “went silent” after promising to provide a spreadsheet with the status of all of the pieces in delay.

After receiving an email from the Marcuses threatening to terminate the agreement, Dennis purportedly let them know they “should look elsewhere” and that she had cancelled several previously agreed-upon orders.

At substantial expense, the Marcuses hired another designer to complete the work, which remains unfinished according to the opinion.

The Marcuses filed their complaint in September 2021, alleging breach of contract against MDD, breach of fiduciary duty, violation of the Virginia Consumer Protection Act, or VCPA, and seeking to pierce the corporate veil against Dennis via MDD.

The defendants filed a motion to dismiss for failure to state a claim.

Plausible claim

The defendants said there could be no claim for breach based on delays since the contract did not outline any deadlines. Also, the Marcuses waived their right to enforce the $100,000 cap by knowingly paying above the capped amount.

But Alston, citing precedent set in Johnson v. Robert Shields Interiors, Inc., disagreed, saying, “Plaintiffs have pleaded a plausible breach of contract claim,” and ruled that the first count survived the motion.

“If true, [the alleged inflated expenses] constitutes the exact ‘undisclosed markups on items procured for’ Plaintiffs that the court considered a breach in Johnson,” the judge wrote. “It follows that Plaintiffs paid $255,000 in expenses to Dennis without the requisite intention to relinquish their contractual right to ensure that those expenses were just that — expenses — and not count toward the Contract Fees envisaged by the contract.”

Beyond that, Alston said Dennis’s alleged conduct, as an agent of MDD, “also violates the implied duty of good faith and fair dealing to which parties are held under Virginia law.”

The alleged behavior by the defendant “far surpassed the arbitrary and creeped waywardly into the dishonest” in regards to allegedly intentionally keeping the Marcuses in the dark on the true costs of materials, the judge said.

Remaining claims

The breach of fiduciary duty and veil piercing claims, however, did not survive the motion to dismiss.

Alston said the Marcuses’ fiduciary duty claim failed to state a “facially plausible claim separate and apart” from the breach of contract claim.

“This Court recognizes that Plaintiffs’ entrustment of funds to MDD, and Dennis as an agent of MDD, was extracontractual,” the judge said. “But the source-of-duty rule’s parameters do not end simply because the parties agreed to amend a particular term of the contract over the course of performance to impose a fiduciary relationship between the parties.”

Accepting each of the allegations as true, Alston said “this Court cannot find as a matter of law that Defendants owed any common law duty” to the Marcuses, adding that the “source of MDD’s duty, and any duty arising to Dennis as an agent of MDD, arises entirely from the contract.”

The plaintiffs’ VCPA claim was partially dismissed, with the count being dismissed with prejudice against Dennis as an individual while being allowed to proceed against MDD.

“Virginia law prohibits shoehorning agents of a supplier into the ‘supplier’ definition,” Alston wrote. Since the contracts were signed only by MDD and did not mention Dennis as the designer in the agreement, “Virginia law disqualifies Plaintiffs from bringing a cause of action against Dennis in her capacity as agent of MDD.”

Alston determined the Marcuses did plead the requisite specificity under the VCPA in regards to MDD. The court allowed that claim to proceed.

Finally, Virginia courts are “very reluctant to permit corporate veil piercing,” according to Alston.

“Plaintiffs have alleged that Dennis ‘conducts all of her personal, non-business activities’ through her personal email address, which she also uses for all her business through MDD,” the judge wrote. “That fact, however, does not allow the court to infer ‘more than the mere possibility of misconduct’ given the demanding evidentiary standard to grant the ‘extraordinary’ event of piercing the veil of an LLC. And plaintiffs do not allege MDD ‘is in any financial difficulty or that any injustice will result from holding’ MDD, rather than Dennis, primarily liable.”

According to court records, pretrial conference in this case will begin next month.