eNotes – Liability – July 2023 – Virginia

SIGNIFICANT CASE SUMMARIES

Virginia Case Summary

Nestler v. Scarabelli
Virginia Court of Appeals
Nos. 0497-22-2, 0421-22-2

Decided: May 2, 2023

Fraudulent inducement damages can be the difference between the contract value and what was received; measure of damages insufficient to convert fraudulent inducement into contract claim.

Background

In two dueling and related suits, Dr. Tiziano Scarabelli alleged that other doctors at MCV Associated Physicians (“MCVAP”) at the Virginia Commonwealth University Health System defamed him, while the MCVAP physicians alleged that Scarabelli fraudulently induced them to contract him as the Director of Cardio-Oncology. A jury returned a verdict against Scarabelli, finding that he failed to prove a prima facie defamation case against the named individuals. The jury also ruled in favor of MCVAP on its counterclaim, awarding compensatory damages of $102,500.00 and punitive damages of $143,500.00. Scarabelli filed Post-Trial Motions, including a Motion to set aside the Counterclaim and a Motion for a new trial.

The referenced Motions were denied. There was significant discussion on the error of the Trial Court in failing to award sanctions against Scarabelli for filing and pursuing baseless defamation claims against Nestler, which are beyond the scope of this note, which will focus instead on the discussion of the source of duty rule.

Holding

Scarabelli argued that MCVAP’s fraudulent inducement claim was precluded by the source of duty rule, voluntary payment doctrine, Virginia Wage Claim Act, and “Gasque” doctrine. First, the Court held that the source of duty doctrine did not bar MCVAP’s claimed relief, as the compensatory damages claimed did not convert the fraudulent inducement action into a contractual claim as Scarabelli argued. Tort damages are intended to compensate a plaintiff for all losses suffered by the defendant’s breach of a duty, which may be measured by the difference between the value of what the plaintiff received and its contract price. The Court noted that the voluntary payment doctrine did apply to fraud, such that it does not bar MCVAP’s claim. Similarly, the Virginia Wage Claim Act does not apply, as the MCVAP paid Scarabelli’s salary and did not withhold wages, which is the purpose of that Act. Finally, the doctrine precluding punitive damages in contract actions does not apply, as the counterclaim properly sounds in tort. In short, Scarabelli’s arguments failed because he attempted to assert that the fraudulent inducement claim sounded in contract when it sounded in tort. The jury award was thus proper.

Questions about this case can be directed to Mackenzie Payne at (571) 470-1906 or mpayne@tthlaw.com.