Virginia Courts Reject Fraud Claims Disguised as Breach of Contract Claims

A Virginia federal court recently confirmed that fraud claims seeking breach of contract damages are not allowable under Virginia law. This principle is referred to as the economic loss rule, and mandates that parties cannot “double-dip” and allege tort damages for contractual breaches in the form of fraud claims, on top of their breach of contract claims.

In other words, if you are choosing to accuse someone of fraud and breach of contract in Virginia, your lawsuit must be carefully drafted or you risk the loss of your fraud claim being dismissed at the outset of the case. Many parties fall into the trap of including as many counts as possible in their complaint, which can backfire, because if you are essentially seeking breach of contract damages with your fraud claim, such a claim will likely not survive.

The United States District Court for the Western District of Virginia, Roanoke Division recently confirmed  this principle in County of Grayson v. RA-Tech Services, Inc., 2014 WL2257155 (W.D. Va. May 29, 2014). Chief Judge Glen E. Conrad emphasized that constructive fraud claims need to specifically allege the time, place, and contents of the false statements, and preferably should include who made the fraudulent statements. The timing is critical for fraudulent inducement claims, because they must occur prior to any contract execution to stand alone and proceed past the motion to dismiss phase. The plaintiff’s constructive fraud claim failed to include the “time, place, and contents” details, and vaguely alleged that the defendant contracted with plaintiff with no intention of fulfilling its contractual responsibilities. The Western District found that it was essentially a breach of contract claim disguised as a fraud claim, dismissing plaintiff’s fraud in the inducement claim.

While many cases have viable contractual and tort claims, the construction law team at Berenzweig Leonard has experience with successfully defending our construction law clients against improper fraud claims, and preserving clients’ remedies for breach of contract and fraud.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.