Yet Another Reminder that Tort and Contract Don’t Mix

Christopher G. Hill | Construction Law Musings

I have stated on numerous occasions here at Musings that in Virginia, contract claims and tort claims (read fraud) don’t mix.  A recent case from the Federal District Court for the Eastern District of Virginia presents another example of this principle.  In Itility LLC v. The Staffing Resource Group, Judge Ellis of the Alexandria Division, considered ITility’s claims of fraud and breach of contract against SRG and one of its officers based upon SRG’s alleged violation of its duties under a teaming agreement.  The claim by ITility was that TSRG provided false and misleading resumes and thus damaged ITility.  SRG filed a Motion to Dismiss and the Court was therefore required to resolve the following issues: (1) whether plaintiff’s fraud claim is barred by Virginia’s “source of duty” rule; (2) whether plaintiff’s claim for tortious interference with a business expectancy is barred by SRG’s participation in the business expectancy, and (3) whether the teaming agreement between the parties bars plaintiff’s claims for consequential and punitive damages.

Unsurprisingly, the Court determined for the defendant, SRG on all three points.  On the question of whether a fraud count could be sustained by ITility, the Court rejected ITility’s argument that the Teaming Agreement didn’t require SRG to provide any representations or warranties regarding its performance under the Teaming Agreement and therefore the fraud claim was outside of the contract.  The Court further fleshed out its ruling on this point as follows:

The question raised by a source of duty analysis is not whether the contract obligated the defendant to certify its performance or not to commit fraud. Rather, the source of duty rule asks whether the alleged tort is based on the defendant’s performance of a contractual duty. Here, SRG had a contractual duty to provide resumes and certifications, and failed in that duty. Therefore, plaintiff’s sole remedy is contract.

The Court then went on to reject the tortious interference and punitive damages claims because SRG was not a third party that could interfere with the contract and punitive damages are not available in contract respectively.

This case continues the long legal history in Virginia that with few exceptions, where a contract exists fraud will not be an available cause of action.  As always, be sure to consult with an experienced Virginia construction attorney to determine if your case may meet one of these exceptions.

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