Construction Law Insights

1004 Palace Plaza, LLC v. Ebadom Food, LLC, 2019 U.S. Dist. LEXIS 118320 (E.D. Va. July 15, 2019)

1004 Palace Plaza, LLC (“Palace Plaza”) and Edabom Food, LLC (“Edam Food”) were parties to a 10-year lease for a commercial space that was to be used as a restaurant. The lease contained a 7-month rent grace period for the build-out of the space and required Edam Food to provide Palace Plaza with building plans within 14 days of executing the lease. Palace Plaza alleged that Edam Food did not provide building plans within the 14-day period, was not able to complete the build-out of the property on schedule in order to open the restaurant on time, did not get the required permits from the county, and ordered work to continue despite not having the required permits. Edam Food counterclaimed and asserted that Palace Plaza was responsible for certain aspects of the buildout and permitting which it failed to complete, hid issues from Edam Food regarding the buildout in order to have Edam Food begin paying rent and to foist additional costs on Edam Food.

As a result of these issues, Palace Plaza terminated the lease in December of 2017 and brought suit for unlawful detainer in the Fairfax County General District Court (the “State GDC Action”). At the conclusion of the State GDC Action, Palace Plaza was awarded possession of the property but zero dollars in damages and Edam Food was awarded $370,000.00 in damages. The State GDC Action was then appealed to the Fairfax County Circuit Court. In addition to appealing the State GDC Action, Palace Plaza also filed this federal action. Edam Food filed counterclaimed against Palace Plaza in the federal action and Palace Plaza moved to dismiss Edam Food’s counterclaims.

The Court denied Palace Plaza’s motion to dismiss Edam Food’s Counterclaim Count I (Breach of Contract) and Count IV (Unjust Enrichment), but granted Palace Plaza’s motion to dismiss Edam Food’s Counterclaim Count II (Fraud), County III (Constructive Fraud), and Count V (Virginia Statutory Business Conspiracy). The Court found that the Counterclaim sufficiently alleged a breach of contract cause of action and that a party is permitted to plead unjust enrichment as an alternative cause of action. The Court utilized the “Source of Duty” rule to determine that Edam Food’s fraud and constructive fraud allegations stemmed from the lease. Edam Food alleged that Palace Plaza committed fraud when it failed to inform, or affirmatively hid from, Edam Food that Palace Plaza had not completed the buildout of the restaurant space as required by the lease in order to induce Edam to begin paying rent early and to shoulder some of Palace Plaza’s costs for the buildout.

Finally, the Court found that Edam Food’s allegations that Palace Plaza conspired with contractors to prevent Edam Food from learning about the issues with the buildout failed to state a cause of action for statutory business conspiracy because there was no underlying wrongful act since the Court dismissed Edam Food’s fraud and constructive fraud claims and breach of contract does not support a conspiracy claim.

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