Opinion ID: 2008738
Heading Depth: 1
Heading Rank: 4

Heading: The Negligence and Implied Warranty Claims.

Text: In Virginia, a contractor cannot maintain an action against an architect for economic loss in the absence of privity of contract. Blake Construction Co. Inc. v. Alley, 233 Va. 31, 353 S.E.2d 724 (1987). As the court explained in Alley, [t]he parties involved in a construction project resort to contracts and contract law to protect their economic expectations. Their respective rights and duties are defined by the various contracts they enter. Protection against economic losses caused by another's failure properly to perform is but one provision the contractor may require in striking his bargain. Id. 353 S.E.2d at 727. Although no decision of this court on the issue has been cited to us, and we are aware of none, the absence of privity of contract is not deemed conclusive in some jurisdictions. See ANNOTATION: Tort Liability of Project Architect for Economic Damages Suffered by Contractor, 65 A.L.R.3d 249, 256-61 (1975 and Supp.1988), for a discussion of cases not requiring privity. [19] But even assuming, arguendo, that our courts would not follow the Virginia rule, we find Virginia's interest more compelling than the District's. Rippeteau is listed as the project architect on the Agreement between Hercules and Shama, but is not a party to it. Paragraph 13.1 of that Agreement expressly provides that the Contract shall be governed by the law of the place where the project is located, here Virginia. Under these circumstances, Rippeteau could reasonably expect that, in the absence of a contractual relationship with the contractor on a project in Virginia, it would not be liable for a contractor's economic losses. Virginia has a substantial interest in protecting that expectation, and in retaining the authority to prescribe the rules which govern the performance by architects of their obligations and warranties on projects within the State. As Judge Bowers observed below: It would appear to me that the state having the more compelling interest in the resolution of this dispute would be Virginia. Clearly you're talking about whether people are going to go amicably about putting up a building in the state of Virginia. If as a result of shoddy work the building doesn't  performance is shoddy, therefore the building is not in the shape it should be in, Virginia has the interest in remedying that. Although the District arguably has an interest in assuring that its architects perform according to industry standard, this interest is attenuated where, as here, the plans at issue are for a building in Virginia. The Restatement leads us to the same conclusion. Section 145 enumerates four considerations which may guide courts in choice of law decisions relating to tortious conduct: (a) the place where the injury occurred; (b) the place where the conduct causing the injury occurred; (c) the domicile[,] ... place of incorporation... and place of business of the parties; and (d) the place where the relationship is centered. We consider each of these factors in turn. The injury of which Hercules complains in relation to the negligence and implied warranty claims occurred, at least for the most part, in Virginia. It was there that Hercules allegedly tried to carry out the building plans which it characterizes as defective. It was in Virginia that Hercules asserts that it was unable to persuade Rippeteau to process the necessary change orders. To be sure, Hercules is a District of Columbia corporation. It alleges that it suffered pecuniary loss in its place of business. In cases of economic loss, however, the place of injury does not play as important a role for choice of law purposes as it does where personal injury is alleged. Restatement § 145, comment f. Most of the conduct by Rippeteau from which Hercules claims to have suffered injury likewise occurred in Virginia. Although the plans for the project were prepared in Washington, the implied warranty was not effectively breached until it allegedly became apparent that the plans were not adequate and Rippeteau failed to make the necessary changes. It was in Virginia that Rippeteau could have corrected the alleged deficiencies upon Hercules' request. Hercules and Rippeteau are both domiciled in the District. Although this might under some circumstances be a significant factor in favor of applying District law, we do not think it decisive here. Not only do both parties also do business in Virginia, but their relationship is centered on a Virginia project. We conclude that Virginia has a stronger interest than does the District in setting standards and expectations for architects in connection with a renovation project in Virginia. The considerations enumerated in the Restatement likewise persuade us that Virginia has the more significant contacts with the claims of negligence and implied warranty. Accordingly, we agree with Judge Bowers that Virginia law applies to these claims.
The claims of fraudulent and negligent misrepresentation [20] are subject to a different analysis, for different interests are implicated. At issue is the right of citizens and businesses of the District of Columbia to be protected against fraud and misrepresentation allegedly carried out in the District. We conclude that the District has a stronger interest than does Virginia in the fraud and misrepresentation claims. In Blake, supra, the court held that under Virginia law a contractor may not maintain an action against an architect or engineer for economic injury absent privity of contract between the parties. The decision was predicated on the perceived need to protect the economic expectations of the participants in the project. This consideration, which was so important to our conclusion that Virginia's interest in the negligence and implied warranty claims outweighs the District's, does not apply to the fraud and misrepresentation claims. Where a party's conduct has been induced by fraud or misrepresentation, the party engaged in the deceitful conduct has no legitimate expectation that it is entitled to profit from its misrepresentation. We think that the District has a compelling interest in protecting a District of Columbia entrepreneur from fraudulent and negligent misrepresentations, most of them allegedly made in the District, by another business entity based in the capital. Section 148(b) of the Restatement provides a useful framework for selecting the law which applies to multi-state misrepresentation claims. It suggests the following six factors as helpful to the analysis: (a) the place where the plaintiff relied on the defendant's misrepresentations; (b) the place where the plaintiff received the misrepresentations; (c) the place where the defendant made the misrepresentations; (d) the domicile and place of incorporation and place of business of the parties; (e) the place where the tangible thing which is the subject of the transaction between the parties was situated at the time; and (f) the place where the plaintiff is to render performance under the contract which he has allegedly been induced to enter by fraud. The essence of Hercules' claim of fraud is that it was induced into signing the Agreement by Rippeteau's fraudulent misrepresentations. Hercules asserts that it signed the Agreement with Shama, which was executed in the District, in reliance on what it was falsely told by Rippeteau. The initial assurances relating to the Church Street Project were allegedly made and received in the District. Hercules and Rippeteau are also both domiciled here. Accordingly, the considerations enumerated in items (a) through (d) in Section 148(d) of the Restatement weigh substantially in favor of applying District law. The location of the tangible thing that is the subject of the transaction, item (e), and the place of performance under the contract, item (f), point in the opposite direction. On balance, however, we think the District's interest in preventing fraudulent conduct in Washington, D.C. is paramount even if the project is located in Virginia. While Virginia has an obvious interest in regulating the relations between builders and architects within its borders, that concern does not extend to the setting of rules relating to fraudulent misrepresentations allegedly made outside Virginia by one District business to another. [21]