Mortarino v. Consultant Engineering Services, Inc.

Present: All the Justices

GIOVANNI MORTARINO, ETC., ET AL.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 951129 March 1, 1996

CONSULTANT ENGINEERING
SERVICES, INC., ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
A. Bonwill Shockley, Judge

The primary issue we consider in this appeal is whether

certain statements contained in a report constitute facts that

are actionable in a motion for judgment alleging constructive

fraud.
The trial court decided this case on demurrer and,

therefore, we shall recite as true the facts alleged in the

motion for judgment and its exhibits and fair inferences

deducible therefrom. Palumbo v. Bennett, 242 Va. 248, 249, 409

S.E.2d 152, 152 (1991).

Giovanni Mortarino was the trustee of MGT Virginia, Inc., an

employee profit sharing trust established under the laws of

Virginia. Mortarino, individually, and MGT Virginia

(collectively referred to as Mortarino), desired to purchase and

develop about 73 acres of real property (the property) fronting

on Johnstown Road in the City of Chesapeake.

Mortarino made arrangements with James A. Morrow, sole

proprietor of the Morrow Group of Companies (hereinafter referred

to as Morrow), to acquire the property. Morrow would serve as a

"strawman" to obtain a purchase agreement and ultimately assign

its interests in that agreement to Mortarino. Morrow, acting as

agent for Mortarino, executed a contract dated March 1988 to

purchase the property from Great Bridge Baseball, Inc.
 Mortarino's purchase of the property from Morrow "was

contingent upon the feasibility of development of the [p]roperty,

unimpeded by governmental wetlands regulations." Morrow executed

a contract with Consultant Engineering Services, Inc. (CES),

which agreed to conduct a wetlands and drainage feasibility study

for the property.

CES retained H. Clayton Bernick, III, a purported expert

investigator and consultant on the existence and extent of

wetlands with proposed development. Dean G. Vincent, vice

president of CES, stated in a report to Morrow:
We contracted with Mr. Clay Bernick who
specializes in investigating and consulting civil
engineering firms on the existence and extent of
wetlands with proposed development. Mr. Bernick's
experience and knowledge in this field is extensive and
therefore his findings are quite reliable. However,
the presence of wetlands are [sic] so opinionated that
there is always the possibility that a different
interpretation could be made. However if that were the
case the only location that is remotely possible for a
contrary determination to be made is a small area on
the southern boundary of the property and the chances
of this are only slight. On the vast majority of the
property Mr. Bernick finds nothing to indicate that
wetlands are present.

In reliance upon these representations, the market value of

the property was deemed to be $570,000. Subsequently, Morrow

assigned its interests in the contract to Mortarino, who acquired

the property from Great Bridge Baseball.

In 1992, CES retained Davis Environmental Consultants, Inc.,

to ascertain the extent of wetlands on the property. Davis

Environmental Consultants determined that "[a]pproximately 80% of

the property . . . is clearly jurisdictional wetlands."

Subsequently, CES changed its earlier position and acknowledged

that most of the property constitutes wetlands. Ultimately, the
United States Army Corps of Engineers determined that most of the

property is jurisdictional wetlands. Hence, Mortarino was unable

to develop the property.

Mortarino filed a motion for judgment against CES, Bernick,

and Morrow, alleging that the defendants had committed acts of

constructive fraud. The defendants filed demurrers asserting

that Mortarino failed to plead a cause of action for constructive

fraud against them because the aforementioned statements in CES'

report constitute opinions and, therefore, cannot be the basis of

a cause of action for constructive fraud. Additionally,

defendant Bernick asserted that Mortarino failed to allege that

Bernick made any representation to Mortarino and, therefore, no

cause of action for constructive fraud was stated against

Bernick. The trial court sustained the demurrers and also

refused to permit Mortarino to amend the motion for judgment. We

awarded Mortarino an appeal.
Mortarino argues that the trial court erred by holding that

the alleged fraudulent misrepresentation is an opinion which

cannot form the basis for a cause of action for constructive

fraud. Defendants assert that the alleged misrepresentations do

not refer to a present or past fact, but are expressions of

opinion.

Mortarino and defendants correctly observe that expressions

of opinion cannot form the basis of an action for fraud:
It is well settled that a misrepresentation, the
falsity of which will afford ground for an action for
damages, must be of an existing fact, and not the mere
expression of an opinion. The mere expression of an
opinion, however strong and positive the language may
be, is no fraud. Such statements are not fraudulent in
law, because . . . they do not ordinarily deceive or
mislead. Statements which are vague and indefinite in
their nature and terms, or are merely loose,
 conjectural or exaggerated, go for nothing, though they
may not be true, for a man is not justified in placing
reliance upon them.

Saxby v. Southern Land Co., 109 Va. 196, 198, 63 S.E. 423, 424

(1909). Additionally, "fraud must relate to a present or a pre-

existing fact, and cannot ordinarily be predicated on unfulfilled

promises or statements as to future events." Patrick v. Summers,

235 Va. 452, 454, 369 S.E.2d 162, 164 (1988) (quoting Soble v.

Herman, 175 Va. 489, 500, 9 S.E.2d 459, 464 (1940)).
We have not, however, established a bright line test to

ascertain whether false representations constitute matters of

opinion or statements of fact. Rather, "each case must in a

large measure be adjudged upon its own facts, taking into

consideration the nature of the representation and the meaning of

the language used as applied to the subject matter and as

interpreted by the surrounding circumstances." Packard Norfolk,

Inc. v. Miller, 198 Va. 557, 562, 95 S.E.2d 207, 211 (1956).

And, as we observed in Garrett v. Finch, 107 Va. 25, 28, 57 S.E.

604, 605 (1907):
It is not always an easy matter to determine
whether a given statement is one of fact or opinion.
The relative knowledge of the parties dealing, their
intentions and all of the surrounding circumstances,
which can only be gathered from the evidence, affect
the interpretation which the courts put upon the
representations in determining whether they be of fact
or opinion.

We hold that the alleged misrepresentations contained in

CES' report to Morrow are statements of fact. CES represented in

its report that "[o]n the vast majority of the property Mr.

Bernick finds nothing to indicate that wetlands are present" and

"the only location that is remotely possible for a contrary

determination to be made is a small area on the southern boundary
of the property and the chances of this are only slight." These

statements are unambiguous representations of the present quality

or character of the property and, thus, are representations of

fact, and not mere expressions of opinion.

It is true, as the defendants point out, that CES stated in

its report, "[h]owever, the presence of wetlands are [sic] so

opinionated that there is always the possibility that a different

interpretation could be made." This statement, however, is not

sufficient to absolve the defendants of any liability that might

ensue because of the purported factual misrepresentations that

are contained in this report. For example, this purported

disclaimer does not affect Vincent's factual representation that

Bernick "finds nothing [on the property] to indicate that

wetlands are present."
Mortarino also argues that the trial court erred in holding

that the motion for judgment fails to state a cause of action for

constructive fraud against Bernick. Mortarino says that the

motion for judgment alleges that Morrow acted as Mortarino's

agent and that "[a] person who enters into a fraudulent

transaction with an agent, acting within the scope of his

authority to bind a principal, is subject to liability to the

principal whether the fraud is practiced upon the agent or upon

the principal."

Bernick responds that there are no factual allegations

concerning him other than the fact that he performed a wetlands

study for CES. Bernick asserts that Mortarino does not allege

Bernick was aware of Morrow or knew that a report was being

furnished which would be used to establish a value on the
property. Further, Bernick asserts that "no contract, contact,

knowledge, meetings, [or] representations between Bernick and

either of the Plaintiffs are alleged."

Initially, we observe, that "'[w]here fraud is relied on,

the [pleading] must show specifically in what the fraud consists,

so that the defendant may have the opportunity of shaping his

defence accordingly, and since [fraud] must be clearly proved it

must be distinctly stated.'" Ciarochi v. Ciarochi, 194 Va. 313,

315, 73 S.E.2d 402, 403 (1952) (quoting Alsop v. Catlett, 99 Va.
364, 370, 34 S.E. 48, 50 (1899)); accord Campbell v. Bettius, 244

Va. 347, 351, 421 S.E.2d 433, 435-36 (1992); Tuscarora v. B.V.A.

Credit Corp., 218 Va. 849, 858, 241 S.E.2d 778, 783 (1978);

Temple v. Jones, Son & Co., 179 Va. 286, 297, 19 S.E.2d 57, 61

(1942). We have stated that the elements of a cause of action

for constructive fraud are a showing by clear and convincing

evidence that a false representation of a material fact was made

innocently or negligently, and the injured party was damaged as a

result of his reliance upon the misrepresentation. Evaluation

Research Corp. v. Alequin, 247 Va. 143, 148, 439 S.E.2d 387, 390

(1994); accord Nationwide Mut. Ins. Co. v. Hargraves, 242 Va. 88,

92, 405 S.E.2d 848, 851 (1991); Kitchen v. Throckmorton, 223 Va.

164, 171, 286 S.E.2d 673, 676 (1982). Additionally, "[a] finding

of . . . constructive fraud requires clear and convincing

evidence that one has represented as true what is really false,

in such a way as to induce a reasonable person to believe it,

with the intent that the person will act upon this

representation." Alequin, 247 Va. at 148, 439 S.E.2d at 390.

Here, the trial court properly sustained Bernick's demurrer
because Mortarino failed to plead, with the requisite degree of

particularity, facts which support all the elements of a cause of

action for constructive fraud. For example, Mortarino failed to

plead that Bernick knew or had reason to know that Mortarino

would rely upon Bernick's alleged misrepresentations or that

Bernick knew that his representations would be placed in a report

that would be used to determine the value of the property.

Next, Mortarino asserts that the trial court abused its

discretion by denying his motion for leave to amend the motion

for judgment. The defendants do not respond to this assignment

of error in their respective briefs.
Rule 1:8 states in part: "[l]eave to amend shall be

liberally granted in furtherance of the ends of justice."

Whether to grant leave to amend "is a matter resting within the

sound discretion of the trial court." Kole v. City of

Chesapeake, 247 Va. 51, 57, 439 S.E.2d 405, 409 (1994). Here,

nothing in the record suggests that the defendants would have

been prejudiced by allowing an amended motion for judgment.

Additionally, Mortarino had not previously amended his motion for

judgment. We conclude, therefore, that the trial court abused

its discretion in failing to allow the filing of the amended

motion for judgment.

Accordingly, we will affirm that portion of the trial

court's judgment holding that Mortarino failed to plead a cause

of action for constructive fraud against Bernick. We will

reverse that portion of the judgment denying Mortarino's motion

to amend the motion for judgment. We will also reverse that part

of the judgment sustaining the demurrers on the basis that the
statements in Consulting Engineering Services' report constitute

opinions. We will remand this case for further proceedings

consistent with this opinion.
Affirmed in part,
reversed in part,
and remanded.