Contractor defeats fraud claim by homeowners

Where homeowners sued a contractor after he failed to complete a home renovation, the contractor prevailed on the fraud claim. Although he was incredibly unorganized, did not communicate effectively and may have possibly cut corners in the building permitting process, the homeowners failed to show he had the intent not to complete performance on the contract or intended to defraud the plaintiffs.

Background

John and Dawn Harrell entered into a contract with Douglas Deluca to renovate a property in Arlington, Virginia. Pursuant to the agreement the plaintiffs paid approximately 4.5 million dollars for construction on the property.

In this suit, plaintiffs assert four counts against Deluca: (1) fraud in the inducement; (2) constructive fraud; (3) violations of the Virginia Consumer Protection Act, or VCPA, and (4) breach of contract. Both parties presented evidence during a bench trial and subsequently filed memorandum detailing their positions and the applicable law.

Fraudulent inducement

For fraud in the inducement to be found in a breach of contract case, there must be a finding that the defendant “did not intend to perform at the time of contracting.” The court finds that defendant was incredibly unorganized, did not communicate effectively and may have possibly cut corners in the building permitting process. However, the plaintiffs have not met their burden to demonstrate that the defendant had the intent not to complete performance on the contract or intended to defraud the plaintiffs.

Constructive fraud

Both the economic loss rule and the source-of-duty rule bar the plaintiffs’ claims for constructive fraud. Evidence at trial conclusively shows that all the damages purportedly resulting from the supposed fraud are damages from the plaintiffs’ “disappointed economic expectations” in the result of contractual relationship. Further, the misrepresentations attributed to the defendant are so entwined with the parties’ contract that the misrepresentations cannot support a claim for constructive fraud.

VCPA

The Virginia criminal code prohibits a person, who receives money from another, to promise to perform construction with fraudulent intent and then to refuse to perform that promise. As discussed earlier, the court finds that the defendant did not have the requisite fraudulent intent regarding the completion of construction on the property to be liable under this statute.

Next, the evidence at trial does not show that any of the representations made by the defendant regarding the square footage of the house were supposed to indicate an exact measurement of the interior space of the main house on the property. As the statement was general and indefinite, the evidence at trial does not show that the statement was an actionable false representation.

The court also finds, after reviewing the evidence, that it would be improper to award judgment for the plaintiffs on the VCPA claims based on statements regarding the housing permits or inspections. And while the plaintiffs have argued that the defendant made a misrepresentation when he made the statement that he had placed a deposit for the custom tile the plaintiffs had picked out to go into the master bathroom, because the only resulting damages are damages associated with not being able to move into the property by the anticipated date, and plaintiffs are not entitled to these consequential damages, it is not appropriate to award judgment on their VCPA claim based on these alleged misrepresentations.

Finally the evidence does not demonstrate that the plaintiffs reasonably relied on the statements when the defendant clearly communicated that the roof was “new” and not “original.” Judgment will not be awarded on the VCPA claims based on the statements about the roof of the property’s main house.

Breach of contract

It is undisputed that a written agreement existed between the parties. The plaintiffs have shown that completing certain items by Aug. 1, 2019, was material to the contractual agreement. Because these items were not complete by the deadline, the defendant breached the contract. The plaintiffs have requested rescission of the agreement or, in the alternative, actual and foreseeable damages.

Plaintiffs premised their rescission argument on the assumption that there was a fraudulent act by the defendant. As already discussed, the evidence at trial has not supported a finding that the defendant fraudulently induced the plaintiffs into entering the contract. The court finds that consequential damages are not appropriate because of the prevention doctrine, which prevents the recovery of damages for a party who interferes with the completion of performance of a contract, and because of the plaintiffs’ failure to mitigate.

Damages

The plaintiffs have established by a preponderance of the evidence that they are entitled to damages for the items identified by the experts who testified at trial. The court calculates the actual damages as $181,762.87, with prejudgment interest of six percent accruing as of Aug. 1, 2019.

Judgment for plaintiffs on Count Four. Judgment for defendant on remaining counts.

Harrell v. Deluca, Case No. 1:20-cv-87, Nov. 7, 2022. EDVA at Alexandria (O’Grady). VLW 022-3-500. 26 pp.