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Homeowner filed suit against its design-build contractor for defects in a $1 million swimming pool.  In addition to claims for negligent design and construction defects, the homeowner asserted that the designer and design-builder were guilty of fraudulent educement, fraudulent misrepresentation, and fraudulent omission concerning the design and also concerning certain changes to construction that did not meet the original design specifications. In dismissing those allegations, the court found that the Complaint failed to state with particularity the circumstances constituting fraudulent inducement.  It didn’t specifically allege that the plaintiff had any direct conversations with any representative of the engineer during contract negotiations, much less disclose the content of any such conversation, the identity of the person with whom the plaintiff had a conversation, or when it occurred. The court also found that the Complaint failed to state a claim for fraudulent misrepresentation, because it did not allege with particularity a false statement of fact by the engineer upon which the plaintiff relied. Hinman v. ValleyCrest Landscape, Inc. and Aquatic Design & Engineering, Inc., Case No. 3:19-cv-00551 (M.D. Tenn 2019)

The court explained that, “Because claims based on fraud pose ‘a high risk of abusive litigation,’ a party making such allegations ‘must state with particularity the circumstances constituting fraud or mistake.'”  To comply with Rule 9(b), “a plaintiff, at a minimum, must ‘allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.”

Fraudulent Educement Claim

In this case, the plaintiff didn’t allege that engineer was a party to the Contract or the Addendum or that it had any involvement in negotiating the terms of either. How the engineer, therefore, could have induced the plaintiff to enter into the contract is not set forth in the complaint.   In dismissing the count of the complaint, the court explained that the claim fails at the first element: the identification of a false statement material to the plaintiff’s decision to contract with the design-builder. “The Complaint does not specifically allege that [plaintiff] had any direct conversations with any representative of [Engineer] during contract negotiations, much less disclose the content of any such conversation, the identity of the person with whom the plaintiff had a conversation, or when it occurred. The Complaint utterly fails to state a fraudulent inducement claim against [Engineer], and certainly does not satisfy the Rule 9(b) standard”.

Fraudulent Misrepresentation Claim

In dismissing the misrepresentation claim, the court stated,

“Similarly, any claims based on fraudulent misrepresentation are insufficient under Rule 9(b), because the Complaint does not identify with particularity any communications between the plaintiff and any representative of Aquatic that involved a knowingly false representation of a present or past fact, much less any reliance by the plaintiff on a false statement. The vast majority of the allegations concerning “misrepresentations” that Aquatic allegedly made to Hinman are too general to satisfy Rule 9(b). (See, e.g., Doc. No. 1 ¶ 22 (“Aquatic assured Ms. Hinman that the pool had been properly constructed and that any problems with it were either routine small issues that occur with any new construction or were maintenance issues that were her responsibility, rather than construction issues.”); id. ¶ 24 (“Aquatic represented to Ms. Hinman that the improperly added expansion joint would solve whatever problems existed.”).

In sum, the court finds that the Complaint fails to state a claim for fraudulent misrepresentation, because it does not allege with particularity a false statement of fact by Aquatic upon which the plaintiff relied.

Fraudulent Omission Claim

A plaintiff pleading a fraudulent omission must allege “(1) precisely what was omitted; (2) who should have made a representation; (3) the content of the alleged omission and the manner in which the omission was misleading; and (4) what [the defendant] obtained as a consequence of the alleged fraud.” In this case, the court explained these requirements were not satisfied by the Complaint because,

“The Complaint alleges, regarding omissions specifically, that the plaintiff relied on Aquatic “to ensure compliance with the plans and drawings and to notify her of any deviations and the consequences of any deviations,” including the failure to include an expansion joint in the original construction (Doc. No. 1 ¶ 20); that Aquatic misled Hinman as to, or concealed from her, the cause of the pool’s leaking by falsely assuring her “that the pool had been properly constructed and that any problems with it were either routine small issues that occur with any new construction or were maintenance issues that were her responsibility, rather than construction issues” (id. ¶ 22); in responding to Hinman’s warranty claims, Aquatic “failed to disclose [the defendants’] substantial deviations from the Contract documents that caused the problems” (id.); Martin refused to disclose to her, when asked, what change orders had been approved or by whom (id. ¶ 28); Martin’s letter to BrightView “mentioned nothing about [the defendants’] deviations from the Contract documents that have caused the pool’s serious problems” and constituted a “further cover-up” of the defendants’ misconduct.”

With respect to the other alleged omissions regarding the alleged failure of the engineer to advise the homeowner of changes to the construction that differed from the original design, and other matters concerning construction, the court found that the plaintiff adequately alleged that the engineer “assumed a duty to disclose to her any material deviations from its plan, to the extent it was aware of such deviations, and, if asked, to disclose to the plaintiff any construction or design defects that were causing the plaintiff’s problems, again assuming it was aware of such defects, when it entered into a contract with BrightView for the design of the plaintiff’s Project and in undertaking to perform services for the plaintiff’s benefit.”

But this did not cause the cause of action alleged by the complaint to survive the motion to dismiss, because “even accepting that Aquatic had such a duty, the plaintiff does not allege the ‘the who, what, when, where, and how’ of any of the alleged omissions…. Nor does she allege facts that reasonably permit the inference that Aquatic was aware of the alleged material deviations and construction defects.”

The court explained that the homeowner’s fraudulent omission claims based on the broad and general assertion that she relied on Aquatic to ensure compliance with the drawings and to notify her of any deviations and that she relied upon repeated false assurances by Aquatic that the pool had been properly constructed and all problems were maintenance issues that were her responsibility are not pleaded with the particularity required by Rule 9(b).

For these reasons, all aspects of the complaint alleging fraud were dismissed.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 7 (Sep 2020).

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