Construction Law Insights

Marcus v. Dennis, 2022 U.S. Dist. LEXIS 87149, 2022 WL 1527524 (E.D. Va. May 13, 2022)

Marlene Dennis (“Dennis”) is the sole owner and employee of Marlene Dennis Design, LLC (“MDD”), which operates out of Virginia. On October 15, 2018, Gregory H. Marcus and Jamie N. Marcus (“Plaintiffs”) entered into a contract with MDD for design services for constructing and finishing a new home in Maryland (the “Contract”). Dennis acted as the “Designer” under the Contract, which was responsible for procurement and installation of flooring, wall coverings, finishes, furniture, and fixtures after establishing a design concept. The Plaintiffs agreed to pay: (i) Dennis $175 per hour, not to exceed $50,000 for design consultation and $50,000 for furniture selection and procurement; and (ii) no more than $250,000 for furnishings, rugs, artwork, decorative lighting, and accessories. In November of 2020, Dennis sent the Plaintiffs an invoice reflecting consultation charges from July 15, 2019 through November 2, 2020, amounting to $68,000. Dennis also informed the Plaintiffs that the total contract fees would exceed the original $100,000 cap amount. The Plaintiffs paid the November invoice and other invoices, amounting to $124,722.41. In January of 2021, Dennis invoiced the Plaintiffs $255,560.72 for materials purchased to facilitate the design plan and Plaintiffs wired $255,000 to Dennis. Despite Plaintiffs’ requests, Dennis failed to provide invoices from vendors for these materials until the Plaintiffs threatened litigation against Dennis. The invoices provided by Dennis showed that Dennis had inflated material costs before charging the Plaintiffs. The Plaintiffs’ home was completely empty when they moved in on April 10, 2021. The Plaintiffs had to hire and pay another design team $85,114.50 to complete Dennis’ work, which remained unfinished. On September 24, 2021, the Plaintiffs filed a complaint for a breach of contract against MDD, breach of fiduciary duty against MDD and Dennis, violation of the Virginia Consumer Protection Act (VCPA) against MDD and Dennis, and a claim to pierce the corporate veil. MDD and Dennis moved to dismiss the Plaintiffs’ complaint under FRCP 12(b)(6).

The Court held that the Plaintiffs pled a breach of contract claim against MDD. In Virginia, the elements for a breach of contract action are: (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation. Contractual obligations can be waived when a party has knowledge of the facts basic to the exercise of the right and intent to relinquish that right. MDD failed to follow the Contract’s requirements by not providing monthly invoices and inflating the cost of materials, which amounted to an undisclosed markup and breach of the Contract.

The Court dismissed with prejudice the Plaintiffs’ breach of fiduciary duty claim against MDD and Dennis because the duties owed to the Plaintiffs arose only because of an agreement between the parties, rather than a special relationship that would give rise to tort liability.

The Court permitted the VCPA claim against MDD to proceed but dismissed the VCPA claim against Dennis as an individual. Under the VCPA, a “supplier” is “a seller, lessor or licensor who advertises, solicits or engages in consumer transactions.” The VCPA prohibits “fraudulent acts or practices committed by a supplier in connection with a consumer transaction,” including forms of misrepresentation related to the provision of goods or services, including “[u]sing any other deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction.” The VCPA defines a “consumer transaction” as “[t]he advertisement, sale, lease, license or offering for sale, lease, or license, of goods or services to be used primarily for personal, family or household purposes.” Like other claims of fraud, Virginia courts hold those pleading VCPA claims to a higher pleading standard whereby the complaint must include the identification of “the agents, officers and employees of the entities who are alleged to have perpetrated the fraud and the details of time and place of the fraudulent acts.” Moreover, the allegations “must be of existing fact, not merely an opinion or an unfulfilled promise or statement to future events.” “Virginia law prohibits shoehorning agents of a supplier into the ‘supplier’ definition.” Only MDD signed the Contract and the Contract did not name Dennis as the “Designer,” so Virginia law disqualified the Plaintiffs from bringing an action against Dennis in her capacity as an agent for MDD. The Court dismissed, with prejudice, the Plaintiffs’ claim to pierce the corporate veil. The Plaintiffs only included conclusory allegations that MDD was undercapitalized and that Dennis siphoned funds for personal benefit.

PLDR Law Scott Kowalski 1 PLDR Law Mark Burgin 1

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