United States District Court, E.D. Virginia, Alexandria Division
M. HILTON, UNITED STATES DISTRICT JUDGE
MATTER comes before the Court on Plaintiff's Motion to
Dismiss the Counterclaim (Dkt. 31) pursuant to Federal Rule
of Civil Procedure 12(b)(6).
and Defendants were parties and related corporate officers to
a lease, assignment, and guaranty for a commercial space that
was to be used as a Korean barbeque restaurant. Prior to the
execution of the lease, Defendants allegedly made
representations regarding the amount of capital that was
available to support the investment, that building plans were
already complete for the project, and that they had
sufficient knowledge of how to quickly complete the project
as they had numerous similar locations in South Korea.
Plaintiff alleges that as a result of these statements it
entered into the lease for a ten-year period providing
Defendants a seven-month period where rent would not be owed,
the lease defined this as the "fixturing period."
The lease was executed on November 21, 2016 and was between
Plaintiff and Defendant Ebadom Food, LLC, a California
limited liability company.
alleges that after the lease was signed problems started to
occur that amount to breaches of the lease. It first noted
that the lease required Defendants to provide building plans
to Plaintiff within fourteen days of the execution of the
lease, and the plans were not provided during that window.
Also, the Defendants were unable to complete the build out of
the property on schedule in order to open the restaurant by
the time required in the lease. Further, Defendants allegedly
did not properly manage the build out of the location in
terms of getting permits from the county. Even though proper
permits were not received, Defendants ordered work to
continue on the property. When the county inspector saw the
scope of the permits had been exceeded he issued a Stop Work
allege in their counterclaims that Plaintiff was responsible
for certain aspects of the build out and permitting which it
failed to complete. Defendants allege that Plaintiff not only
did not satisfactorily complete the build out of the roof of
the restaurant but hid the issues from Defendants in order to
have Defendants begin paying rent and foist additional costs
on to Defendants. Defendants allege that the issues with the
build out were hid from them by Plaintiff conspiring with
numerous contractors to keep the information secret.
result of all of these issues, Plaintiff terminated the lease
in December 2017 and brought a suit for unlawful detainer in
Fairfax County General District Court. Defendants
counterclaimed in that court. At the conclusion of that
trial, Plaintiff won possession of the property but zero
dollars in damages while Defendants were awarded $370, 000 in
damages for their counterclaims. That judgment is on appeal
in the Fairfax County Circuit Court in a consolidated action
with new complaints raised in that court.
brought this lawsuit alleging five counts, two of which were
for fraud (Count IV) and constructive fraud (Count V). This
Court has already resolved a motion to dismiss the Complaint
with all claims there moving forward. In their Answer,
Defendants raised five counterclaims: Breach of the Contract
(Counterclaim I), Fraud (Counterclaim II), Constructive Fraud
(Counterclaim III), Unjust Enrichment (Counterclaim IV); and
Virginia Statutory Business Conspiracy, Va. Code §§
18.2-499 and -500 (Counterclaim V). Plaintiff now moves to
have the Counterclaims dismissed for failure to state a claim
upon which relief can be granted.
motion to dismiss tests the sufficiency of the complaint.
See Republican Party of N.C. v. Martin, 980 F.2d
943, 952 (4th Cir. 1992). On a Rule 12(b) (6) motion to
dismiss, a court must accept all well-pleaded facts as true
and construe those facts in the light most favorable to the
plaintiff. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009); Reyes v. Waples Mobile Home Park Ltd.
P'ship, 903 F.3d 415, 423 (4th Cir. 2018). The
complaint must provide a short and plain statement showing
that the pleader is entitled to relief, Fed.R.Civ.P. 8(a)(2),
and it must state a plausible claim for relief to survive a
motion to dismiss, Iqbal, 556 U.S. at 679; Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Claims
for fraud and statutory business conspiracy must be pleaded
with particularity to withstand dismissal. Fed.R.Civ.P. 9(b).
See, e.g., Gov't Emps. Ins. Co. v. Google,
Inc., 330 F.Supp.2d 700, 706 (E.D. Va. 2004) (discussing
the heightened pleading standard for business conspiracy
claims). As this Court sits in diversity, Virginia law
applies to the substantive portions of the claims raised.
Levine v. Emp'rs Ins. Co. of Wausau, 887 F.3d
623, 627 (4th Cir. 2018) .
raises issues with each counterclaim and they are addressed
begin, Plaintiff contends that Counterclaim I fails because
its obligation to complete the buildout was rendered null and
void when Defendants breached the terms of the lease by
failing to deliver the final plans for construction on time.
The Court, however, finds that Plaintiff has adequately
pleaded facts that state a claim upon which relief can be
granted and the motion to dismiss Counterclaim I will be
Court next turns its attention to Counts II and III, Fraud
and Constructive Fraud. Defendants allege that Plaintiff
committed fraud by falsely representing the buildout was
complete and concealing information regarding the status of
construction. Plaintiff contends that these counts cannot
stand for two reasons. The first being that Defendant cannot
be said to have reasonably and justifiably relied on
Plaintiff's representations, and the second being that
the Source of Duty Rule bars these claims. The first
contention is a factual dispute which the Court will not
address on a motion to dismiss as all factual inferences must
be made in Defendants' favor. Iqbal, 556 U.S. at
678. The Source of Duty Rule, however, does act as a bar in
courts diligently protect the line between claims arising in
contract and those in tort in order to prevent every breach
of contract from being turned into a tort. See Dunn
Constr. Co. v. Cloney, 278 Va. 260, 267, 682 S.E.2d 943,
946 (2009). To determine whether a claim is best heard in
contract or tort, a court must determine the source of the
duty violated. Richmond Metro. Auth. v. McDevitt Street
Bovis, Inc., 256 Va. 553, 558, 507 S.E.2d 344, 345-46
(1998). A claim in tort must arise from a breach of
a common law duty, as opposed to one that exists between the
parties by virtue of a contract alone. Dunn Constr.
Co., 278 Va. at 267 (internal quotations and citations
present case, Defendants have alleged that Plaintiff
committed fraud when it failed to inform, or affirmatively
hid from, Defendants that it had not completed the build out
of the restaurant space as required by the lease. Defendants
allege that Plaintiff did this in order to induce Defendants
to begin paying rent early as well as to have Defendants
shoulder some Plaintiff's costs from the build out by
hiding the need for more work until Defendants'
contractors had begun working. These alleged
misrepresentations or omissions relate to a duty arising out
of the contract as Plaintiff was required by the lease to
perform the build out of the roof. Thus, they cannot serve as
the basis for a fraud claim. See Dunn Constr. Co.,
278 Va. at 268 (finding false statements regarding adequate
repairs to induce payment did not take fraud outside of the
contractual relationship); Richmond Metro. Auth.,
256 Va. at 347-48 (stating that fraud must generally be found
in the inducement of the contract, not in concealment of
breach to allow claim to stand). Because there is no
allegation by Defendants that would tend to show that
Plaintiff never intended to perform on the lease from the
outset, there are no actionable fraud claims stated and
Counterclaims II and III fail.
Court next turns to Plaintiff s contention that Count IV,
Unjust Enrichment, must fail. Plaintiff contends that this is
not allowable as the fraud claims have failed and there is no
request for rescission of the contract by Defendant.
Plaintiff, however, neglects to consider their claims for
fraud which still remain. These fraud claims are for fraud in
the inducement, which, if successful, would negate the
existence of the lease. As there is a potential for the lease
to be set aside, Defendants are allowed to alternatively
plead a claim for unjust enrichment as the remedies under
breach of contract would no longer ...