Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Del. Super.: Delaware consumer fraud claims based on engineering firm’s alleged misrepresentations fail, (Jul 26, 2013)

By Tobias J. Gillett, J.D., LL.M.

A construction manager and subdivision developer failed to state Delaware Consumer Fraud Act (DCFA) claims against an engineering firm based on an alleged misrepresentation regarding the background of an engineer and misstatements concerning the legal status of land required to complete the subdivision, a Delaware Superior Court has ruled (RHA Construction, Inc. v. Scott Engineering, Inc., July 24, 2013, Jurden, J.).

In May 2007, RHA Construction, Inc., a construction manager, entered into an agreement with Scott Engineering, Inc. (SEI) for SEI to perform engineering services related to the development of two properties for subdivisions, including a study to determine the feasibility of using the properties for the intended purpose. In July 2008, Beechwood Retreat, LLC, a holding company created to secure financing for the subdivisions, closed on the two properties. In August 2008, RHA entered into a second agreement with SEI for construction drawings and subdivision plans for each property.

However, Kent County later informed Beachwood that it would not approve the subdivision plans because a strip of land know as “Percheron Road,” which rendered one of the two properties accessible, was not a road, but rather an easement owned in fee simple by abutting land owners. The County refused to allow Beachwood to use the strip of land as a main access point because it was only 30 feet wide, rather than the required 50 feet, and the owners of Percheron Road would not permit an expansion of the easement. In addition, the County prohibited Beechwood from laying ground lines for necessary utilities because Beechwood did not own Percheron Road in fee simple.

RHA and Beechwod filed suit against SEI, asserting various claims including a claim under the DCFA. SEI moved for summary judgment.

The plaintiffs identified two alleged misrepresentations that served as the basis for their DCFA claim. With respect to the May 2007 agreement, the plaintiffs cited a statement on SEI’s website that “Mr. Scott is extremely familiar with the City of Dover and Kent County having lived and worked in Kent County for the last 22 years.” With respect to the August 2008 agreement, the plaintiffs cited SEI’s either intentional or negligent misstatement regarding the feasibility of using Percheron Road to lay utilities and to access the planned subdivision.

Since there was no evidence that Scott had not lived in Kent County for at least 22 years, the only issue with respect to the first statement was whether the claim that Scott was “extremely familiar with the City of Dover and Kent County” was actionable under the DCFA. The court concluded that it was not, finding that it “contains no substance on which to state a claim.” The statement merely constituted “a general description of Mr. Scott’s professional background and experience,” and the record was “silent on how the statement on the website was material to the May 2007 agreement.” Therefore, the court granted summary judgment to SEI on the DCFA claim with respect to the May 2007 agreement.

The second statement also could not support a claim under the DCFA, according to the court. The court explained that “a statement of opinion cannot generally be the basis for an action in fraud,” but that a statement couched as opinion could be treated as a statement of fact where it “may carry with it the implication that the maker is aware of facts that support or justify that opinion.” A recipient of the statement could recover for the misrepresentation where the recipient did not know the facts, and therefore could justifiably rely on the implied assertions.

Here, the plaintiffs were aware of the underlying facts, and therefore could not recover for SEI’s alleged misstatements, according to the court. Testimony from an owner of RHA indicated that RHA knew prior to the August 2008 contract that at least a portion of Percheron Road was an easement, and that the size of Percheron Road would require a variance from the County. Although Scott admitted to telling the owner that a variance was a possibility, and two experts testified that such a variance was highly unlikely, the court observed that Scott’s opinion could not “be the basis of a fraud claim.”

Moreover, RHA’s owner was “presumed to know the law and therefore cannot be deceived by erroneous statements of law,” including knowledge of local zoning regulations. Therefore, Scott’s allegedly erroneous statements regarding County zoning regulations could not “serve as the basis for a fraud action.” The court noted that RHA had hired SEI “to perform engineering tasks,” and “not to advise the plaintiffs on the legal implications of their ownership stake in said properties.” Thus, the court granted summary judgment to SEI on the DCFA claim with respect to the August 2008 agreement.

The case is No. C.A. N11C-03-013 JRJ CCLD.

Attorneys: Richard H. Cross, Jr. (Cross & Simon, LLP) for RHA Construction, Inc. Patrick M. McGrory (Tighe & Cottrell, P.A.) for Scott Engineering, Inc.

Companies: RHA Construction, Inc.; Beechwood Retreat, LLC; Scott Engineering, Inc.

Cases: StateUnfairTradePractices DelawareNews