Abi-najm v. Concord Condo. LLC, Record No. 091546.

• Citation: 699 S.E.2d 483,280 Va. 350
• Decision Date: 16 September 2010
• Docket Number: Record No. 091546.
• Court: Supreme Court of Virginia
• Parties: Phillip ABI-NAJM, et al.v.CONCORD CONDOMINIUM, LLC.

280 Va. 350

699 S.E.2d 483

Phillip ABI-NAJM, et al.v.CONCORD CONDOMINIUM, LLC.

Record No. 091546.

Supreme Court of Virginia.

Sept. 16, 2010.

COPYRIGHT MATERIAL OMITTED

Douglas R. Kay (Steven D. Briglia; Briglia Hundley Nuttall & Kay, Vienna, on brief), for appellants.

Christopher C. Nolan (Nolan, Mroz & McCormick, Vienna, on brief), for appellee.

Present: KOONTZ, KINSER, LEMONS, GOODWYN, MILLETTE, and MIMS JJ., and RUSSELL, S.J.

OPINION BY Justice DONALD W. LEMONS.

In this appeal from the dismissal of an action alleging breach of contract, fraud in the inducement, and violation of the Virginia Consumer Protection Act, Code §§ 59.1-196 et seq. (“VCPA” or “the Act”), we consider whether the trial court erred when it sustained the demurrers of Concord Condominium, LLC (“Concord”) to the complaints of Phillip Abi-Najm (“Abi-Najm”) and other purchasers of residential condominiums (collectively, “the Purchasers”) from Concord on the grounds that the Purchasers' breach of contract claims were barred by the merger doctrine, and their fraud in the inducement and VCPA claims were barred by the economic loss doctrine.

I. Facts and Proceedings Below

This appeal is comprised of two civil actions filed against Concord in the Circuit Court of Arlington County.¹ The first action was brought by Laura and Bradford Reed, and the second action was brought by Abi-Najm and 24 co-plaintiffs (“the Abi-Najm Complaint,” collectively “the Complaints”). The substantially similar suits contain three counts: (i) breach of contract, (ii) violation of the VCPA, and (iii) fraud in the inducement.² The following factual recitation is taken from the Abi-Najm Complaint.

The Purchasers alleged that they were interested in purchasing a condominium and met with sales agents for the West Village of Shirlington in Arlington County in 2005 and 2006. The Purchasers entered into separate purchase agreements (“Contracts”), each containing a schedule of standard finishes (“Schedule A”) and various addenda. In pertinent part, Schedule A provided that the flooring of each condominium would be “Bruce Oak hardwood, 3/4?.” Schedule A also contained the following language: Concord “may substitute substantially equivalent materials and finishes for those specified herein.”

Paragraph 22(a) of the Contract, entitled “MISCELLANEOUS,” contained the following provision pertinent to this appeal:

Notwithstanding anything to the contrary herein, acceptance of the deed at settlement shall constitute Purchaser's acknowledgment of full compliance by [Concord] with the terms of this Agreement. The terms hereof shall be merged into and extinguished by delivery of the deed at settlement except for Sections 4(b), 5, 17, 18, 21, 22 and 23 which shall survive delivery of the deed and shall not be merged therein.

At the center of this litigation is the Purchasers' allegation that instead of the three-quarter-inch Bruce Oak hardwood flooring set forth in Schedule A, Concord delivered “prefabricated engineered hardwood, 3/8? [flooring],” and this substitution was “not substantially equivalent to Bruce Oak hardwood, 3/4?.” The Purchasers alleged that they did not learn of this substitution until after closing on the condominiums, nor would a “normal visual inspection” reveal the substitution. The Purchasers alleged that this substitution constituted a material breach of the contract for which they sought damages in the amount of at least $50,000 per condominium, in addition to prejudgment interest and costs.

In their VCPA count, the Purchasers alleged that their purchase of the condominiums was a consumer transaction as defined by the Act, and Concord's intentionally false and misleading information concerning the flooring constituted misrepresentations of a material fact, and fraudulent acts in violation of the VCPA. The Purchasers also alleged that Concord had knowledge that the information concerning the flooring was untrue, that Concord acted with the intent to deceive the Purchasers, and that Concord willfully concealed the flooring substitution. Finally, the Purchasers alleged that Concord “knew or reasonably should have known that its disclosure of [the actual flooring material] would have caused the [Purchasers] to reconsider or renegotiate the Contracts.” As in their breach of contract count, the Purchasers claimed damages of $50,000 per condominium, treble damages pursuant to Code § 59.1-204(A), and $350,000 in punitive damages, in addition to prejudgment interest and costs including attorney's fees.

In their fraud in the inducement count, the Purchasers set forth substantially similar allegations as were made in the VCPA count, particularly that Concord knowingly misrepresented the quality of the flooring it would deliver and that this misrepresentation involved a material fact. The Purchasers further alleged that they relied upon those misrepresentations, and absent those misrepresentations they would not have entered into the Contracts. They further alleged that in the alternative, they would have renegotiated the Contracts. The Purchasers alleged damages of $50,000, and they sought punitive damages of $350,000 per condominium, prejudgment interest, costs and attorney's fees under this count.

In response Concord filed demurrers to the Complaints, arguing that the breach of contract claims were barred by merger, and the VCPA and fraud in the inducement claims were barred by the economic loss rule. The trial court held a hearing on Concord's demurrers, at the conclusion of which it held: “With respect to the merger clause, if you look at paragraph 22(a) of the [Contract], it is pretty clear that the merger clause applies. And claims that merge into the deed can, in fact, and do exist in this case. And as such, there is no breach of contract.” With respect to the Purchasers' fraud in the inducement and VCPA claims, the trial court held that “a separate tort ... does not exist,” and therefore the “economic [loss doctrine] as [stated] in Sensenbrenner ” precludes those causes of action. Accordingly, the trial court entered orders sustaining Concord's demurrers to the Complaints.

The Purchasers timely filed their notice of appeal and we granted an appeal on the following assignments of error:

1. The trial court erred when it granted respondent's demurrer and dismissed petitioners' breach of contract claim on the grounds that the claim was barred by the merger doctrine.

2. The trial court erred when it granted respondent's demurrer and dismissed petitioners' claims under the Virginia Consumer Protection Act and for fraud in the inducement on the grounds that the claims were barred by the economic loss doctrine.

II. Analysis

A. Standard of Review

We apply well-established principles guiding our review of a trial court's judgment sustaining a demurrer.

“The purpose of a demurrer is to determine whether a motion for judgment states a cause of action upon which the requested

relief may be granted.” Tronfeld v. Nationwide Mut. Ins. Co., 272 Va. 709, 712, 636 S.E.2d 447, 449 (2006) (citing Welding, Inc. v. Bland County Serv. Auth., 261 Va. 218, 226, 541 S.E.2d 909, 913 (2001)). “A demurrer tests the legal sufficiency of facts alleged in pleadings, not the strength of proof.”

Glazebrook v. Board of Supervisors, 266 Va. 550, 554, 587 S.E.2d 589, 591 (2003). Accordingly, we accept as true all properly pled facts and all inferences fairly drawn from those facts. Id. “Because the decision whether to grant a demurrer involves issues of law, we review the circuit court's judgment de novo.” Dreher v. Budget Rent-A-Car Sys., 272 Va. 390, 395, 634 S.E.2d 324, 326-27 (2006) ( citing Glazebrook, 266 Va. at 554, 587 S.E.2d at 591.)

Augusta Mutual Ins. Co. v. Mason, 274 Va. 199, 204, 645 S.E.2d 290, 293 (2007).

B. The Merger Doctrine

The trial court sustained Concord's demurrer to the Purchasers' breach of contract action, holding that Section 22(a), the Contracts' merger clause, caused Concord's obligations under Schedule A to be merged into and extinguished by the deed. The Purchasers argue that the merger doctrine is inapplicable to this case. For the reasons stated herein, we agree with the Purchasers.

The merger doctrine has been long-recognized by this Court. See Woodson v. Smith, 128 Va. 652, 104 S.E. 794 (1920). “The merger doctrine deals with extinguishing a previous contract by an instrument of higher dignity,” the deed. Empire Mgmt. & Dev. Co. v. Greenville Assocs., 255 Va. 49, 52, 496 S.E.2d 440, 442 (1998). “However, provisions which are collateral to the passage of title and not covered by the deed are not merged into the deed and survive its execution.” Beck v. Smith, 260 Va. 452, 455, 538 S.E.2d 312, 314 (2000) ( citing Empire Mgmt., 255 Va. at 54, 496 S.E.2d at 443; Davis v. Tazewell Place Assocs., 254 Va. 257, 262-63, 492 S.E.2d 162, 165 (1997); Miller v. Reynolds, 216 Va. 852, 854-55, 223 S.E.2d 883, 885 (1976); and Woodson, 128 Va. at 656, 104 S.E. at 795).

In discussing the doctrine of merger, we have explained that a deed “is a mere transfer of title.”

Miller, 216 Va. at 855, 223 S.E.2d at 885. The deed is the final expression of the agreements between the parties as to “every subject which it undertakes to deal with,” and any conflicts between the terms of prior agreements and the terms of the deed are resolved by the deed. Woodson, 128 Va. at 656, 104 S.E. at 795.

Id. at 456, 538 S.E.2d at 314-15.

In Woodson, one of our earliest cases addressing the merger doctrine, a seller of two parcels of real estate entered into two separate contracts of sale, each of which reserved in the seller a right of possession until November 15, 1919. 128 Va. at 653-54, 104 S.E. at 794. On February 27, 1919, the seller delivered the deeds, which “contain[ed] no reference to the antecedent contracts” of sale. Id. at 654, 104 S.E. at 794. The trial court held that the contracts of sale merged into the deeds, thereby entitling the grantees to immediate possession of the property. Id. at 655, ...