Even Fraud in the Inducement is Tough in Construction

I have discussed how hard it is in the Commonwealth of Virginia to make out a claim for fraud when a construction contract is involved.  On limited exception is where a claim for “fraud in the inducement” is involved.  Essentially, such a claim states that one party was hoodwinked into entering the contract in the first place.  Because of the initial fraud (for instance misrepresenting the class or existence of a contractor’s license), the courts may bypass the terms of the contract and allow a claim for fraud to go forward.

While you may think that this would lead to many claims making it past a Motion to Dismiss, at least one court here in Virginia makes it clear that such claims will not be taken lightly and must be supported by specific and substantial allegations that would support more than just “advertising” or opinion.  In County of Grayson v. Ra-Tech Services Inc., the U. S. District Court for the Western District of Virginia reviewed an amended complaint from the Plaintiff seeking to make out a claim for fraud in the inducement based upon the defendant’s statements in support of a proposal that certain brands of equipment would be used.  The Court further considered general allegations that the Defendant never intended to provide those particular brands of equipment.

In looking at the amended complaint, the Court found the allegations lacking in the required specificity and granted the Defendant’s Motion to Dismiss while stating:

The expanded facts do not support plaintiffs’ assertion that the individuals specified particular equipment in RA-Tech’s proposal for the purpose of procuring the contract, but never intended to provide the equipment specified. Plaintiffs fail to state the time, place and contents of alleged false statements, or to identify who made them.

The Court then went on to give the usual treatment to fraud claims based upon statements and actions post-execution of the contract at issue.  Namely, it dismissed them.

As this case shows, even the exceptions to the contract=no fraud have very specific requirements.  Because of this be sure to consult with your local construction lawyer before determining if you have a fraud in the inducement claim.  If you don’t you are likely to spend time and money in a losing cause.

As always, I recommend that you read the case yourself and come to your own conclusions.

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