Ryan Kennedy | Dunlap Bennett & Ludwig
On November 7, 2022, the United States District Court for the District of Virginia decided the case of Harrell v. Deluca, 1:20-cv-00087, which centered around a home builder and contractor who failed to successfully deliver on a major home renovation. The facts recited by the Court’s opinion bear an uncanny resemblance to the story told by numerous potential plaintiffs who feel they were taken advantage of and are exploring suing their contractor: an optimistic beginning, followed by delays and apparent construction defects, failure of the builder to communicate effectively, and attempts by the consumer to push for a solution. Then whether because the expectations of one party may be unreasonable, or other factors not apparent until later, the relationship completely deteriorates to the point that work stops and lawyers are hired.
In Harrell, the plaintiffs purchased their home from the builder and signed a contract for the builder to extensively renovate the property. The parties signed a construction agreement that detailed the work to be done by the builder and set a deadline for completion. However, the plaintiffs noticed apparent shortcomings in the builder’s work and began to look deeper into the builder and its subcontractors. The relationship soured and work was not completed by the contract deadline. At this point, the plaintiffs terminated the contract and told the builder to stop all work.
The Harrell plaintiffs filed suit for fraud, constructive fraud, violation of the Virginia Consumer Protection Act, and breach of contract. These are common counts included in many suits where fraud is alleged in connection with a real estate deal. However, as the Harrell case demonstrates, there is a significant difference between alleging fraud at the outset of litigation and proving it at trial.
Key to the plaintiff’s case in Harrell was the idea that the builder had committed fraud because it never intended to perform in accordance with the contract. Many potential plaintiffs want to make this allegation after the fact, especially when significant errors in the construction process come to light. The plaintiffs in Harrell appear to be no different. The Court’s analysis points out that, while fraud can be shown by circumstantial evidence, a plaintiff must still show that the builder had absolutely no intent on performing. Furthermore, this intent must be present as of the date the contract was signed. The burden of proof for this allegation is high, and these claims are extraordinarily difficult to prove.
Just as in other cases this law firm has encountered, the plaintiff’s position in Harrell was difficult for the Court to reconcile against evidence that the builder had actually tried to perform. The builder in Harrell made an effort to apply for permits, worked with the county to correct the permits, obtained materials and supplied labor, and had actually completed some portion of its work. In these circumstances, most courts view the evidence as only showing frustration with the result (or, “disappointed economic expectations”), which is understandable, but Virginia law does not allow these frustrations to become fraud. The Harrell Court reached this same conclusion and dismissed the fraud-related claims in the plaintiff’s complaint, stating that the builder did not appear to have the requisite intent to commit fraud.
The opinion also indicates that the plaintiffs had made false accusations that one of the builder’s subcontractors was a sex offender. It is difficult to know whether this incident colored the Court’s decision, but it certainly didn’t appear to help. Salacious and shocking allegations are risky in litigation If unproven, such allegations risk undermining your credibility, especially if another, simpler explanation exists.
Nevertheless, there did appear to be a breach by the builder in Harrell as several items were either incomplete or improperly built at the construction deadline. Both parties presented expert testimony as to the value of that work. After carefully examining the testimony and written reports of each expert the Court awarded the plaintiffs damages.
Notably, the Court declined to award the plaintiffs damages relating to the delay in completing construction. In reaching this conclusion the Court relied on a legal principle known as the prevention doctrine. The prevention doctrine prevents the recovery of damages by a party who interferes with the completion of a contract. In Harrell, the plaintiffs had directed the builder to cease all work, and thus the prevention doctrine applied.
The lesson here is not that a potential plaintiff must allow their contractor to continue to perform work despite the contractor’s breach of contract. There are ways to kick a contractor off a job, but the answer is dependent on the facts of each case and consulting an attorney first is a smart course of action.
One last point to make about the Harrell case; the Court did not award the plaintiffs any attorneys’ fees. Typically, each party has to pay their own way unless a statute or contract provision states otherwise. Neither appears to have been available here. Instead, the parties have each likely incurred significant fees which have now become sunk costs. This is another important consideration that should be discussed with your attorney early on.
The Harrell case will be an easy and informative read for anyone contemplating a similar lawsuit. The opinion gives a good outline of the legal issues involved, and the types of factual considerations the parties will have to confront. This law firm is also very familiar with construction litigation and can assist you in evaluating your own claim.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.