SG Homes Assocs., LP v. Marinucci

• Decision Date: 04 June 2013
• Docket Number: No. 12–1621.,12–1621.
• Citation: 718 F.3d 327
• Parties: SG HOMES ASSOCIATES, LP, Plaintiff–Appellee, v. Michael J. MARINUCCI, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

718 F.3d 327

SG HOMES ASSOCIATES, LP, Plaintiff–Appellee,

v.Michael J. MARINUCCI, Defendant–Appellant.

No. 12–1621.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2013.

Decided: June 4, 2013.

ARGUED:Jeffrey Louis Forman, Kauffman & Forman, PA, Towson, Maryland, for Appellant. Steven B. Gould, Brown & Gould, LLP, Bethesda, Maryland, for Appellee. ON BRIEF:Bruce E. Kauffman, Kauffman & Forman, PA, Towson, Maryland, for Appellant. Jesse D. Stein, Brown & Gould, LLP, Bethesda, Maryland, for Appellee.

Before GREGORY and AGEE, Circuit Judges, and DAVID A. FABER, Senior United States District Judge for the Southern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge AGEE wrote the opinion, in which Judge GREGORY and Senior Judge FABER joined.

AGEE, Circuit Judge:

Defendant–Appellant Michael J. Marinucci (“Marinucci”) appeals from the district court's order affirming the bankruptcy court's finding of fraud and entry of a nondischargeable judgment for Plaintiff–Appellee SG Homes Associates, LP (“SG Homes”). For the reasons that follow, we affirm the judgment of the district court.

I.

A.

Marinucci was the president and a 50% shareholder of Chesapeake Site Contracting, Inc. (“Chesapeake”). On December 20, 2007, Chesapeake responded to SG Homes' bid request for site work on a building project at Crabbs Branch Way in Montgomery County, Maryland (“Crabbs Branch Way project” or “the project”).

Some time before December 28, 2007, Marinucci and Chesapeake's senior project manager, Jay Munnikhuysen (“Munnikhuysen”), met and discussed Chesapeake's bid with two SG Homes officials, procurement manager Paul DeVerger (“DeVerger”) and procurement vice president Lorin Randall (“Randall”). Marinucci asked whether SG Homes would require a bond or accept a higher retainer instead. Although Randall agreed to consider a retainer, SG Homes ultimately required a bond.

On January 28, 2008, SG Homes awarded Chesapeake the work and requested a certificate of insurance, a performance bond, and a completed W–9 tax form. Although the parties had not signed a written contract, Chesapeake hired subcontractors and suppliers and began work on the Crabbs Branch Way project almost immediately.

On or before February 1, 2008, Marinucci completed a bond request form from the Atlantic Risk Management Corporation requesting performance and payment bonds. On February 1, 2008, Marinucci told Randall in an email that Chesapeake was “pursuing the performance and payment bonds as we agreed.” (J.A. 167.) By mid-March 2008, however, Marinucci had decided not to obtain a bond because his wife would not sign a personal guaranty which the bonding companies required. Nonetheless, on March 26, 2008, Munnikhuysen copied Marinucci on an email to DeVerger that said, “Our office advises me that you should see the P & P bond by the end of next week.” (J.A. 169.)

Work continued without a written contract, and Chesapeake submitted monthly payment applications to SG Homes. Each application contained a certification from Chesapeake that, “to the best of [Chesapeake's] knowledge, the work covered by [the] Application for Payment ha[d] been completed in accordance with the Contract Documents” and “all amounts previously paid to [Chesapeake] under the Contract ha[d] been used to pay [Chesapeake's] costs for labor, materials, and other obligations.” ( See, e.g., J.A. 195.) Marinucci reviewed each application and directed an employee to sign the certification. Chesapeake deposited the payments received from SG Homes into a common fund from which it paid some of its subcontractors and suppliers on the project, but also paid other creditors who did not provide services or supplies for the Crabbs Branch Way project.

B.

On May 12, 2008, Chesapeake and SG Homes executed a written agreement (“the Contract”) governing the project. The Contract was ambiguous about whether Chesapeake was required to obtain a bond. Subsection G, under “Payment Conditions,” noted that all subcontractors were “subject to a 5[%] retainer and/or must post a bond guaranteeing satisfactory completion of the work.” (J.A. 141; J.S.A. 29–30.) An “X” was placed next to both options indicating the Contract required a 5% retainer and a “warranty/completion” bond. (J.A. 141.)

Subsection M, Part (a) of the Contract (“Performance and Payment Bonds”), under “General Conditions,” stated that Chesapeake would pay for and provide performance and payment bonds to SG Homes, unless a “box [was] checked and no bond [was] indicated above.” (J.A. 145.) There was neither a box nor a check next to this provision. However, Part (b) of Subsection M stated that, if Chesapeake was not then required to post a bond or bonds, SG Homes could require a bond “at any time,” at SG Homes' expense for the Crabbs Branch Way project. (J.A. 145.)

Subsection L of the Contract, under “Payment Conditions,” required Chesapeake to “insure that all subcontractors, employees, and suppliers, at all times [were] paid all amounts due in connection with the performance of [the] Contract,” and submit evidence of payments. (J.A. 141 (emphasis added).) SG Homes was authorized to withhold any payments due Chesapeake should the subcontractors not be paid and was also authorized to pay such subcontractors directly. Subsection H, under “General Conditions,” required Chesapeake to keep the project free of liens. (J.A. 144.)

Marinucci testified that he understood the Contract required Chesapeake to use the money from SG Homes to pay the subcontractors and suppliers working on the project. (J.S.A. 121.) Further, Marinucci affirmed that Chesapeake's contracts with the project's subcontractors and suppliers provided that Chesapeake would pay them when it was paid by SG Homes. Marinucci also testified that he knew about the Maryland Construction Trust Statute, which requires money disbursed to a contractor by a project's developer to be used only to pay that project's subcontractors. (J.S.A. 100–01); seeMd.Code Ann., Real Prop., § 9–201.¹

C.

On May 14, 2008, Munnikhuysen sent an email to DeVerger to say that Chesapeake's bond had been “cancelled because [Chesapeake] assumed that [SG Homes] no longer wanted it.” (J.A. 171.) DeVerger responded the same day, noting that “there may have been a communication breakdown” because SG Homes still needed a bond. (J.A. 170.) DeVerger asked how soon Chesapeake could obtain a bond, and at what cost, so that the Contract could be revised. Munnikhuysen replied that he had “talked to [Marinucci] via telephone and [Chesapeake] [would] get on the bond right away.” (J.A. 170.) On June 3, 2008, DeVerger emailed Munnikhuysen and asked when the bond would be issued. Munnikhuysen responded that he would “check again” and “let [DeVerger] know.” (J.A. 172–73.) Marinucci was copied on every email in the exchange.

On June 17, 2008, Munnikhuysen sent DeVerger—and copied Marinucci—on an email with the subject line “Guardrail/bond—Crabbs Branch Way.” (J.A. 174–75.) Munnikhuysen said that he had received DeVerger's telephone message and forwarded it to Marinucci, who was out of the office but “handling the issues [DeVerger] [had] called about.” (J.A. 174–75.)

In September 2008, Randall emailed Marinucci to say that a subcontractor had told SG Homes that it had performed work for Chesapeake on the project in July 2008 but would not be paid until October 2008. Randall told Marinucci that he would “pay them directly and back the amount out of [Chesapeake's] next payment.” (J.A. 178.) On October 9, 2008, Randall emailed Marinucci about another subcontractor that was owed money from Chesapeake on the project, and that a joint check would be issued to the subcontractor.

On October 29, 2008, Randall emailed Marinucci to inform him that other project subcontractors and suppliers had reported that they had not been paid by Chesapeake. Randall said that SG Homes would pay them directly “with funds due to Chesapeake.” (J.A. 179.) After the suppliers and subcontractors were paid, however, SG Homes' “preliminary calculations” indicated that “no money [would] be due Chesapeake.” (J.A. 179.) SG Homes subsequently terminated the Contract. (J.A. 179–82.)

D.

In February 2009, SG Homes sued Chesapeake and Marinucci in Maryland state court for breach of contract, fraud, and violation of the Maryland Construction Trust Statute. While the case was pending in state court, Marinucci filed individually for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the District of Maryland. SG Homes was listed as a creditor of Marinucci based on any liability arising from the Crabbs Branch Way project. The state court stayed SG Homes' suit against Marinucci, pursuant to 11 U.S.C. § 362, but the case proceeded against Chesapeake.

In January 2010, the state court entered a default judgment against Chesapeake as to liability. Subsequently, the state court determined the amount of damages and entered a final judgment of $208,806.89 in favor of SG Homes on April 19, 2010.

Four days later, SG Homes filed an adversary proceeding against Marinucci in the bankruptcy court, seeking a declaration that Marinucci's debt to it was nondischargeable under 11 U.S.C. § 523(a)(2)(A). SG Homes contended that Marinucci had violated his fiduciary duties as a statutory trustee under the Maryland Construction Trust Statute. The Complaint alleged that Chesapeake had held money in trust for subcontractors, Marinucci had controlled that money, and he had knowingly withheld payment from the subcontractors, in violation of the statute. SG Homes sought to recover $208,806.89, plus fees and costs from Marinucci as a nondischargeable debt.

On July 14, 2010, Marinucci moved for judgment on the pleadings. He argued that a violation of the Maryland Construction Trust Statute was not a valid basis for objecting to the discharge of his debt. SG Homes opposed the motion and moved to amend the complaint, seeking to add two new grounds...