Gary W. Day, Individually & Co. v. United Bank

• Decision Date: 03 August 2018
• Docket Number: Civil Action No. PX-16-975
• Parties: GARY W. DAY, Individually and as Assignee of the Claims of Hudson Insurance Company, Plaintiff, v. UNITED BANK, Defendant.
• Court: U.S. District Court — District of Maryland

GARY W. DAY, Individually and as Assignee of the Claimsof Hudson Insurance Company, Plaintiff, v. UNITED BANK, Defendant.

Civil Action No. PX-16-975

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

August 3, 2018

MEMORANDUM OPINION

Presently pending and ripe for resolution in this matter is Defendant United Bank's Motion for Summary Judgment or to Dismiss Plaintiff's Third Amended Complaint.ECF No. 47.The matters are fully briefed and the Court now rules pursuant to Local Rule 105.6 because no hearing is necessary.For the reasons stated below, Defendant's motion is GRANTED.¹

I.BACKGROUND

In this action, PlaintiffGary W. Day, both individually and as the assignee of the claims of Hudson Insurance Company("Hudson"), seeks to recover against Defendant United Bank, formerly the Bank of Georgetown (the "Bank").This matter centrally concerns certain lending arrangements entered into between the Bank and a non-party government contractor, Persaud Companies, Inc.("PCI").SeeECF No. 38 ¶ 7.

Previously, the Bank moved to dismiss Day's Amended Complaint.SeeECF No. 23.Before the Court acted on the motion, Day filed a second Amended Complaint with the Court's approval.SeeECF Nos. 30, 31, 33.The Court therefore denied the Bank's previous motion to dismiss as moot.ECF No. 35.The Court simultaneously granted Day an opportunity to file a Third Amended Complaint, ECF No. 35, and subsequently directed the parties to engage in limited discovery as to whether Day's claims were barred by limitations, ECF No. 40.The Court granted the Bank an opportunity, following discovery, to move for dismissal or alternatively summary judgment.ECF No. 40.The Bank now brings that motion.

The facts as follows are taken from the third Amended Complaint.(ECF No. 38.)The lending agreement between PCI and the Bank, entered into in 2009, was secured by PCI's receivables for its government contracting work, among other assets.ECF No. 38 ¶ 19.The agreement provided that all funds paid by government departments and agencies for PCI's work would be paid directly into a bank account owned by the Bank.ECF No. 38 ¶¶ 7, 20.A second operating account was established with the Bank in PCI's name.ECF No. 38 ¶ 20.Each month, PCI would apply to the Bank to borrow money for its operations based on the amount in the Bank's account, and the Bank's assessment of PCI's finances.ECF No. 38 ¶¶ 7, 20.Initially the Bank filed formal written assignments of the contract funds with the Government, but at some point the formal assignments ceased, with PCI providing the Government the account number for the Bank's account for payment.ECF No. 38 ¶¶ 8, 23.

In 2010, PCI and Hudson entered into an agreement pursuant to which Hudson issued payment and performance bonds for PCI's government projects.ECF No. 38 ¶¶ 11, 25.PCI did not inform Hudson of the above-described banking arrangement.SeeECF No. 38 ¶ 43.In December 2010, PCI and its principal, Andy Persaud, executed a General Indemnity Agreement ("GIA") in favor of Hudson, which provided that all funds earned by PCI on bonded construction project funds would be trust funds for the purpose of paying PCI's obligations on its contracts.ECF No. 38 ¶ 31.PCI did not notify Hudson of the nature of its lending relationship with the Bank, ECF No. 38 ¶ 33, and the Bank did not thereafter notify Hudson that the funds from PCI's projects were being deposited into the Bank's account, seeECF No. 38 ¶¶ 12, 13.Hudson alleges that the Bank's failure to file written notices of assignments with the Government and Hudson violated the Assignment of Claims Act.

Relying on the GIA, Hudson began issuing bonds for PCI's government projects.ECF No. 38 ¶ 34.Hudson alleges that it would not have issued bonds for PCI projects had it been aware of the details of PCI and the Bank's arrangement.ECF No. 38 ¶¶ 14, 35.

In late 2011, PCI requested that Hudson expand its bond program.ECF No. 38 ¶ 36.At that time, Hudson had not experienced any bond claim for PCI's projects.Nonetheless, Hudson required an amended GIA and an additional indemnitor, in light of Persaud's ongoing and contentious divorce.ECF No. 38 ¶ 36.Day agreed to execute the amended GIA as that second indemnitor.ECF No. 38 ¶¶ 37, 39.The parties also agreed that all funds from contracts relating to the GIA be run through a third-party administered escrow account, or "funds control."ECF No. 38 ¶ 37.The other relevant terms of the amended GIA remained the same.ECF No. 38 ¶ 40.Neither PCI nor Persaud disclosed the precise lending relationship with the Bank to Hudson or Day.SeeECF No. 38 ¶ 38.

For a time, all was well with PCI, Hudson, and Day.Then, in the spring of 2012, PCI and Persaud began diverting funds from PCI's operating account with the Bank for non-business purposes.ECF No. 38 ¶ 15.²PCI's subcontractors and suppliers subsequently did not receive timely payment, and so made claims on the bonds issued by Hudson.ECF No. 38 ¶¶ 15, 41.

In July 2012, Hudson demanded that PCI provide collateral security pursuant to the GIA. ECF No. 38 ¶ 42.PCI and Hudson entered into an agreement to satisfy Hudson's demand, the conditions of which PCI subsequently breached.ECF No. 38 ¶¶ 42-43.Hudson alleges that PCI committed this breach in order to conceal its with the Bank.ECF No. 38 ¶ 43.

In January 2013, Hudson filed an indemnity suit against PCI, Persaud, and Day in the Eastern District of Virginia.ECF No. 38 ¶ 44.During that case Hudson served subpoenas on the Bank, which led to the production of a number of documents, but none of the documents reflected the Bank-owned account into which PCI's contract funds had been deposited.ECF No. 38 ¶ 45.Based on the facts pleaded, it is not all clear how the Bank would have known that Hudson served as a surety on PCI's projects.Hudson and Day, however, learned of the exact banking relationship between the Bank and PCI on July 9, 2013, during the corporate designee deposition of the Bank in connection with the indemnity suit.ECF No. 38 ¶ 46.

The indemnity suit concluded with Hudson dismissing its claims against Day in exchange for a $1,700,000.00 payment, and assigning its claims against the Bank to Day.ECF No. 38 ¶ 50.In all, Hudson asserts that PCI's failure to pay subcontractors and suppliers led to $3,790,333.43 in payment and performance bond losses, net of the $1,700,000.00 paid to it by Day.ECF No. 38 ¶¶ 47, 48.Although Hudson succeeded in its indemnity claims against PCI and Persaud, neither Hudson nor Day are likely to collect on such claims because PCI is defunct and Persaud is believed penniless.ECF No. 38 ¶ 51.

In this action, Day brings claims for negligence against the Bank for its alleged failure to comply with the Assignment of Claims Act (Count I); violations of the Assignment of Claims Act (Count II);"Equitable Right to Recover Payments/Assignment of Claims Act"(Count III); breach of trust (Count IV); constructive fraud (Count V); constructive trust (Count VI); conversion (Count VII); unjust enrichment (Count VIII); and accounting (Count IX).The Bank moves for summary judgment, alleging that Hudson (and therefore Day) was on inquiry notice as to the Bank's lending arrangement with PCI well before the relevant time period for limitations in this case, and in the alternative argues that all of Day's claims are subject to dismissal for failure to state a claim.For the reasons below, the Court agrees with the Bank that Day has failed to state a claim against the Bank for which relief can be granted, and further agrees that the facts as known to Hudson during the lending process sufficed to put Hudson on inquiry notice as to the Bank and PCI's lending arrangement.

II.STANDARD OF REVIEW

A.Motion to Dismiss

When reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must determine whether the complaint includes facts sufficient to state a claim to relief that is plausible on its face.Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555(2007);Ashcroft v. Iqbal, 556 U.S. 662, 678-79(2009).A plaintiff must plead facts to support each element of the claim to satisfy the standard.SeeMcCleary-Evans v. Md. Dep't of Transp., State Highway Admin., 780 F.3d 582, 585(4th Cir.2015).In so assessing, the Court takes as true all well-pleaded factual allegations and makes all reasonable inferences in the plaintiff's favor.Philips v. Pitt Cty. Mem. Hosp., 572 F.3d 176, 180(4th Cir.2009).The Court does not credit conclusory statements or legal conclusions, even when couched as allegations of fact.SeeIqbal, 556 U.S. 678-79;Giarratano v. Johnson, 521 F.3d 298, 302(4th Cir.2008).

If a claim alleges fraud, or if the gravamen of a claim is fraud, the allegations must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).SeeHaley v. Corcoran, 659 F. Supp. 2d 714, 721(D. Md.2009).The rule requires the plaintiff to "state with particularity the circumstances constituting fraud or mistake."Fed. R. Civ. P. 9(b).To satisfy this standard, plaintiffs"must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby."United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379(4th Cir.2008)(quotation marks and citation omitted).Fraud allegations that fail to comply with Rule 9(b) warrant dismissal under Rule 12(b)(6).SeeHarrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783(4th Cir.1999).

The Court may consider materials attached to the complaint without transforming the motion to dismiss into one for summary judgment.SeeFed. R. Civ. P. 10(c).The Court also may consider materials attached to a motion to dismiss, so long as such materials are integral to the complaint and authentic.Philips, 572 F.3d at 180;seeWalker v. S.W.I.F.T. SCRL, 517 F. Supp. 2d 801, 806(E.D....