Contracts – Page 2 – Construction Law Musings- Richmond, VA

Fraud, the VCPA and Construction Contracts

Originally posted 2014-11-10 09:36:15.

I’ve discussed the economic loss rule here at Musings on several occasions. The economic loss rule basically states that where one party assumes a duty based in contract or agreement, the Virginia courts will not allow a claim for breach of that duty to go forward as anything but a contract claim. This doctrine makes fraud claims nearly, though not absolutely, impossible to maintain in a construction context. In a majority of instances, fraud and construction contracts are very much like oil and water, leaving parties to fight it out over the terms of a particular contract despite actions by one party or the other that non-lawyers would clearly see as fraud.

However, a recent case decided by the Virginia Supreme Court gives at least some hope to those who are seemingly fooled into entering a contract that they would not other wise have entered into. In Philip Abi-Najm, et. al, v Concord Condominium, LLC, several condominium purchasers sued Concord under for breach of contract, breach of the Virginia Consumer Protection Act (VCPA) and for fraud in the inducement based upon flooring that Concord installed that was far from the quality stated in the purchase contract. Based upon these facts, the Court looked at two questions: 1. Did a statement in the contract between Concord and the condo buyers create a situation in which the merger doctrine barred the breach of contract claim, and 2. Did the economic loss rule bar the VCPA and fraud claims?

After analyzing the merger claim and determining that the merger doctrine did not bar the breach of contract claim, the Court moved on to its analysis of the VCPA and fraud in the inducement claims. In both instances, the Court determined that the causes of action would stand. It reasoned that the VCPA created an independent statutory requirement making it unlawful to misrepresent that goods are of a particular quality. Because this duty arose independent of the contract, the claim was not barred by the economic loss rule.

Similarly, the fraud in the inducement claim was not barred because the plaintiffs alleged that Concord deliberately misrepresented the quality of the flooring knowing that it would likely cost Concord the sales if it disclosed the actual quality of the floors. In short, the fraud, as alleged, was independent of the contract because it was conceived to bring buyers in despite Concord’s having no intention to follow through on the quality of the floors.

The lesson here is that pleading matters and that not all is lost for a consumer or home buyer that thinks that he or she is subject to fraud. However, the devil is in the details and in the details put into the pleadings. Without pleading some independent duty outside of the contract, any fraud or other non-contract claim will fail. The advice of an experienced Virginia construction attorney will help you parse through the facts and properly package them for presentation to the Court.

As always, I welcome and encourage your comments below, please share your thoughts. Also, please subscribe to keep up with the latest Construction Law Musings.

Construction Contract Basics: Venue and Choice of Law

Previously in this on-again-off-again series of posts on construction contract basics, I discussed attorney fees provisions and indemnification. In this installment, the topic at hand is venue and choice of law.

As construction professionals (outside of us construction attorneys), you are likely to be focused on things like the scope of work in a construction contract, the price terms, payment, delays, change orders, and the like. However, the venue (where any lawsuit or arbitration will have to happen) and the choice of law (what state’s law applies) can be equally important. You need to know where you will have to enforce your rights under the contract and also what law will apply. Will you need to go to another state to enforce your rights? Even if not, will your local attorney have to learn the law of another jurisdiction? These are important questions when reading and negotiating your prime contract (if with the owner) or subcontract (if with the general contractor). Continue reading Construction Contract Basics: Venue and Choice of Law

Another Exception to Fraud and Contract Don’t Mix

Originally posted 2013-05-27 09:00:37.

Map of Virginia highlighting Loudoun County (Photo credit: Wikipedia)

Here at Construction Law Musings, we’ve discussed the fact that, in Virginia, the “economic loss rule” generally renders claims of fraud and construction contracts like oil and water. This is true in most states, including Florida.

What this means is that as a general rule where any party is supposed to perform under a contract, and fails to do so, the Virginia courts will dismiss a fraud claim out of a desire to avoid turning any breach of contract (read “broken promise”) case into a claim for fraud. As you have likely gathered by the title of this post, there are exceptions. One is a properly plead Virginia Consumer Protection Act (“VCPA”) claim.

Continue reading Another Exception to Fraud and Contract Don’t Mix

Aarow Equipment v. Travelers- An Update

Originally posted 2015-01-12 09:00:08.

Previously here at Musings, I discussed the application of pay if paid clauses and the Miller Act. The case that prompted the discussion was the Aarow Equipment & Services, Inc. v. Travelers Casualty and Surety Co. case in which the Eastern District of Virginia Federal Court determined that a “pay if paid” clause coupled with a proper termination could defeat a Miller Act bond claim. However, as I found out a couple of weeks ago at the VSB’s Construction Law and Public Contracts section meeting, the 4th Circuit Court of Appeals reversed and remanded this case in an unpublished opinion (Aarow Equipment & Services, Inc. v. Travelers Casualty and Surety Co.)

In it’s opinion, the 4th Circuit looked at some of the more “interesting” aspects of this case. One of these circumstances was that Syska (the general contractor) directed Aarow to construct sedimentary ponds and other water management measures around the project (the “pond work”), which both agreed was outside of the scope of the work defined in their subcontract. Syska asked that the government agree to a modification of the prime contract and asked Aarow to wait to submit its invoice for the pond work until after the government issued a modification to the prime contract and Syska issued a change order to the subcontract.

Several months later, no modification or change order had been issued, and Aarow submitted an invoice to Syska for the completed pond work. Syska instructed Aarow to list the pond work under a line item designated for certain finishing work on the project that had not yet been completed. The government denied the subsequent change order request (submitted by Syska), stating that the pond work was in the scope of the original contract and Syska withheld money owed for other aspects of the work to make up the difference for the previously billed pond work.

Continue reading Aarow Equipment v. Travelers- An Update

No Damages for Delay May Not Be Enforceable in Virginia

Anyone who reads Construction Law Musings with any regularity (thank you by the way) knows that the contract is king in most instances here in Virginia. Any commercial construction subcontractor in Virginia is likely also very familiar with so-called “no damages for delay” clauses in construction contracts. These clauses essentially state that a subcontractor’s only remedy for a delay caused by any factor beyond its control (including the fault of the general contractor), after proper notice to the general contractor, is an extension of time to complete the work. However, in 2015 the Virginia General Assembly passed a change in the law that precluded the diminishment of any right to claims for demonstrated additional costs prior to payment. This left open the question as to which types of “diminishment” would be barred by the statute.

The recent case out of the Eastern District of Virginia federal court, Strata Solar LLC v. Fall Line Construction LLC, added a bit of clarity. Continue reading No Damages for Delay May Not Be Enforceable in Virginia