Even Where Fraud and Contract Mix, Be Careful With Timing

Christopher G. Hill | Construction Law Musings

I have often discussed the limited circumstances under which a construction contract claim and a fraud claim can coexist.  A recent case from the Western District of Virginia federal court demonstrates that care is necessary even in those limited circumstances.

In Fluor Fed. Sols., LLC v. Bae Sys. Ordinance Sys., the Court examined the question of a fraud statute of limitations under Virginia law.  The basic facts found in the Complaint are these:

In 2011, the United States Army awarded BAE Systems Ordinance Systems Inc. a basic ordering agreement under which BAE was responsible for modernization projects at the Radford Army Ammunition Plant. This action stems from a subcontract between Fluor Federal Solutions LLC and BAE, under which Fluor agreed to design and construct a new natural gas boiler at the plant. Fluor has completed work on the project, and BAE has accepted that work. Nonetheless, Fluor claims that BAE has refused or failed to pay for the balance of the project costs. Fluor alleges that BAE received several changes to its prime contract from the Army but did not pass those changes along to Fluor until after BAE solicited a bid from Fluor and entered a contract with Fluor to build a temporary facility. Instead, BAE continued to misrepresent the scope of the project. Fluor alleges that the change in plans increased costs substantially, but that BAE withheld information about those changes so that it could solicit lower bids. Fluor alleges that it requested a copy of BAE’s prime contract on numerous occasions, but BAE failed to provide a copy of it. Instead, Fluor submitted a request under the Freedom of Information Act. It received a copy of BAE’s prime contract on Oct. 3, 2018.

Based upon the above set of facts, Fluor then filed its complaint alleging fraud by BAE in this court on Oct. 17, 2019 claiming that BAE fraudulently induced Fluor to bid on a temporary facility that was significantly less costly than what was ultimately constructed and that BAE continued to misrepresent the scope of the project throughout construction.  BAE filed a Motion to Dismiss the Complaint based upon Virginia’s 2-year statute of limitations on fraud actions.  The relevant statute of limitations provides that a fraud complaint must be filed within 2 years of when the fraud was discovered or should have been discovered through reasonable due diligence. BAE argued, and the Court agreed, that the statute of limitations accrued when Fluor and BAE entered into a contract modification in November of 2016 that eliminated the requirement of a temporary facility and therefore Fluor should have known of the misrepresentation as of that date, a date more than 2 years prior to the filing of the Complaint.

The Court went further to address a tolling argument by Fluor.  The Court rejected that argument, stating:

Fluor had knowledge of all the facts necessary for its cause of action to accrue under Virginia law. Therefore, BAE’s alleged failure to disclose the terms of its prime contract did not prevent Fluor from discovering its cause of action. Moreover, Fluor asserts only that BAE did not provide a copy of its prime contract. Fluor does not suggest that BAE ever affirmatively misrepresented or concealed its fraud. BAE’s silence, without more, is insufficient to toll the statute of limitations.

In short, just because BAE’s passive failure to provide information was not enough to stop Fluor’s reasonable discovery of the facts necessary to know of the misrepresentation.  BAE would have had to affirmatively hide facts and misdirect Fluor for the fraud statute of limitations to be tolled.

As this and prior cases discussed here at Construction Law Musings attest, fraud in construction can be fraught with pitfalls.  As I always recommend, be sure to discuss this case and the facts of your potential claim with an experienced Virginia construction attorney to be sure that you meet both the limited factual circumstances for such a claim and that you meet the relevant statute of limitations.

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