Contract or Tort? Look to the Origin of the Duty.

Trial lawyers drafting lawsuits on behalf of their clients generally try to plead as many causes of action as possible. In particular, they often try to add “tort” claims to a case that is really just about a breach of contract. Virginia law generally does not permit recovery on tort claims when the duty that is breached is based on a contractual relationship. What’s the difference? For one thing, when it comes to assessing damages, the law of contracts looks to those that were within the contemplation of the parties when framing their agreement. Contract remedies are designed to compensate parties for foreseeable losses suffered as a result of a breach of a duty created by the contract itself. Tort law provides remedies for losses resulting from a breach of duty arising independently of any contract.

A recent case decided by Judge Conrad of the Western District of Virginia illustrates the distinction. In Raleigh Radiology, Inc. v. Eggleston and Eggleston, P.C., Raleigh Radiology (“RRI”), the plaintiff, entered into a contract with Eggleston, a practice management services business, which authorized Eggleston to manage and collect reimbursements owed to RRI for radiological services and which gave Eggleston control over RRI’s accounts in order to facilitate the process. In return for Eggleston’s work, the contract specified that RRI was to pay Eggleston $5.40 for each reimbursement it secured. Eventually, however, RRI came to believe that Eggleston had overcharged for services performed and had been billing for nonexistent reimbursements.

RRI sued Eggleston for breach of contract, unjust enrichment (a theory of implied contract) and the tort of conversion. Eggleston responded with a motion to dismiss the conversion claim on the ground that the duty breached was purely a contractual one, which contract12-5-09.jpgprecluded the filing of a tort claim. The court disagreed.

Focusing on the origin of the duties Eggleston allegedly breached, the court held that plaintiffs could legitimately assert conversion claims in conjunction with breach of contract claims when the breached duty arises separately from those required by the contract. The court defined the tort of conversion as “any distinct act of dominion or control wrongfully exerted over the property of another, either inconsistent with, or in denial of, the owner’s rights.” RRI claimed that Eggleston used its control over RRI’s accounts to transfer payment for the alleged overcharges and nonexistent reimbursements into Eggleston’s account. While Eggleston’s access to RRI’s accounts was only made possible by the contract, the court did not dismiss the conversion count because it was not merely redundant of a breach of contract claim. The court observed that every person owes a duty not to improperly make use of another person’s bank accounts and that this duty exists regardless of whether parties have entered into a contract. Because the breached duty existed outside of the contract, RRI was not limited to remedies specified in the parties’ agreement.

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