Defendants sued for not repaying loan

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Where a man alleged that defendants refused to repay a loan, he plausibly alleged a claim for breach of contract. However his fraud claims were dismissed with prejudice because they were barred by the economic loss rule.

Background

Zhengfeng Bo asserts four counts under Virginia law against Rui Tang and ConnectChain Inc.: (1) actual and constructive fraud; (2) fraud in the inducement; (3) breach of contract and (iv) unjust enrichment. In sum, plaintiff alleges that defendants made misrepresentations to plaintiff that plaintiff relied upon when entering into a loan agreement with defendants, and that defendants have breached the contract and have been unjustly enriched by their failure to repay the loan. Defendants have filed a motion to dismiss.

Fraud claims

In Count One, plaintiff asserts a claim for actual or constructive fraud. In Count Two, plaintiff asserts a claim for fraud in the inducement. First, plaintiff’s barebones allegations of fraud are insufficient to support a plausible claim of actual or constructive fraud or fraud in the inducement.

Plaintiff also apparently concedes that Count One is barred by the economic loss rule as his opposition only argues that the economic loss rule would not bar plaintiff’s fraud in the inducement claim (Count Two), because the Supreme Court of Virginia has created an exception to the economic loss rule where a false misrepresentation induced the contract.

The problem with plaintiff’s argument, however, is that the complaint fails to allege that either of the two alleged misstatements induced the contract. Indeed, to the contrary, plaintiff asserts in his opposition that it was the promise of two times the principal interest rate that induced the contract, a duty that sounds only in contract.

Ultimately, the damages that plaintiff seeks are from the failure of defendants to repay the loan – a claim governed by contract law. Because plaintiff’s fraud claims are barred by the economic loss rule, Counts One and Two will be dismissed with prejudice.

Breach of contract

Defendants argue that the claims against Tang must be dismissed because he was not a party to the contract and acted only as an agent of ConnectChain. Not so. The complaint is replete with allegations that Tang personally took on liability for the loan. Additionally, there is an ambiguity in the contract documents as to whether Tang was signing in an individual or corporate capacity.

Defendant next argues that the oral contract violates Virginia’s Statute of Frauds. Plaintiff responds that the Statute of Frauds does not apply where a defendant has committed fraud. But the court has found the fraud claim is insufficient. And, moreover, the oral contract could not form the basis of plaintiff’s breach of contract claim because it was superseded by the acknowledgment of debt.

Defendants also argue that the breach of contract claim is premature because, under the repayment plan, the entire principal is not due until 2028. But plaintiff’s breach of contract claim is ripe with respect to the installments that plaintiff alleges Tang has not made up to and through the end of this litigation. And because the repayment plan was not a modification of the acknowledgment of debt as to ConnectChain, plaintiff has plausibly alleged a breach of the acknowledgment of debt against ConnectChain for the entire principal of the loan.

Punitive damages and attorneys’ fees

Defendants argue that punitive damages and attorney’s fees are not available for plaintiff’s breach of contract claim. The court agrees and grants this aspect of the motion to dismiss.

Unjust enrichment

Defendants argue that plaintiff fails to state a claim for unjust enrichment because there is an express contract governing the parties’ relationship. However “pleading unjust enrichment as an alternative to a breach of contract claim is appropriate where the validity or existence of an express contract governing the plaintiff’s claims is in dispute.” Here, the ambiguity regarding Tang’s signature — and whether he intended to bind himself, ConnectChain or both — creates an ambiguity about whether plaintiff’s claims are governed by an express contract.

Plaintiff has alleged, and submitted documents reflecting, that plaintiff made payments to ConnectChain. If plaintiff can plausibly allege that Tang retained any of the money that Plaintiff paid, then plaintiff may amend his unjust enrichment claim to state a claim against Tang.

Defendants also argue that plaintiff is not permitted to recover punitive damages or attorney’s fees with respect to the unjust enrichment claim. Defendants are correct.

Defendants’ motion to dismiss granted in part, denied in part.

Bo v. Tang, Case No. 1:23-cv-79, Aug. 30, 2023. EDVA at Alexandria (Alston). VLW 023-3-527. 24 pp.