PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1621
SG HOMES ASSOCIATES, LP,
Plaintiff - Appellee,
v.
MICHAEL J. MARINUCCI,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District
Judge. (1:11-cv-02517-WDQ; 10-11253; 10-00252)
Argued: March 20, 2013 Decided: June 4, 2013
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.
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.
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.
2
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
3
[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
4
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
5
project’s subcontractors. (J.S.A. 100–01); see Md. 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.
1
“Any moneys paid under a contract by an owner to a
contractor, or by the owner or contractor to a subcontractor for
work done or materials furnished, or both, for or about a
building by any subcontractor, shall be held in trust by the
contractor or subcontractor, as trustee, for those
subcontractors who did work or furnished materials, or both, for
or about the building, for purposes of paying those
subcontractors.” Md. Code Ann., Real Prop., § 9-201(b)(1).
6
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.)
7
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
8
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 for
nondischargeability: fraud and subrogation.
On September 21, 2010, the bankruptcy court granted
Marinucci’s motion on the sole count of the original complaint,
violation of the Maryland Construction Trust Statute. However,
the bankruptcy court granted SG Homes’ motion to add the fraud
count, but denied the motion to add the proposed subrogation
claim.
On July 13, 2011, the case went to trial solely on the
fraud count, which SG Homes presented based on two separate
theories of liability. 2 First, it asserted that Marinucci had
falsely represented that Chesapeake would obtain a payment bond.
Second, it alleged that Marinucci had falsely certified in the
2
Marinucci argued that, because SG Homes had dismissed its
fraud count against Chesapeake in state court, it was now barred
from pursuing a derivative fraud claim against him. The
bankruptcy court rejected Marinucci’s argument, reasoning that
the amended complaint alleged that Marinucci himself had made
misrepresentations, and liability did not require a finding that
Chesapeake had also committed fraud.
9
monthly payment applications that Chesapeake was paying its
subcontractors and suppliers on the Crabbs Branch Way project
from those funds.
At trial, the parties stipulated that SG Homes had paid
$208,806.89 to subcontractors and suppliers of Chesapeake that
had worked on the Crabbs Branch Way project but had not been
paid by Chesapeake. Randall testified at trial and explained
how he calculated the amount using invoices, balance sheets, and
Chesapeake’s payment applications. He also testified that, had
he known in January or February 2008 that Chesapeake would not
obtain a bond, SG Homes would not have awarded the contract to
Chesapeake or allowed it to start work. He further testified
that, had he known after execution of the Contract that
Chesapeake would not obtain a bond or pay the subcontractors, SG
Homes would have paid the subcontractors and suppliers directly,
or made an arrangement to issue joint checks.
Marinucci testified that when SG Homes paid the
subcontractors and suppliers, it owed Chesapeake $277,000. He
presented no supporting exhibits, however, and conceded during
cross-examination that he had not reviewed the invoices used in
Randall’s calculations. A spreadsheet of unpaid bills, created
by Chesapeake, showed that the company owed $534,543.80 to its
Crabbs Branch Way project subcontractors and suppliers in
November 2008. (J.A. 232–37.)
10
The bankruptcy court made extensive findings of fact based
on the trial evidence. These findings included that the parties
had agreed that Chesapeake would obtain a bond that insured
payment, and that Marinucci had misrepresented Chesapeake’s
intent to obtain the bond. The court also found from the
“totality of the evidence,” that the certifications at the
bottom of each monthly payment application constituted a false
representation that monies received from SG Homes were used to
pay only subcontractors and suppliers connected to the Crabbs
Branch Way project. (J.A. 66.)
[T]he intent was to assure the owner that
from monies received on this job, the
subcontractors and material men and expenses
of the job were being paid, it is the whole
purpose of such certification, it is in the
context of a draw request . . . . That was
not a correct statement of fact at the
bottom.
Because what was happening without any
dispute of fact is that all the funds
received were going into a common account
and being paid out for payables of
Chesapeake without regard to which job and
based upon decisions solely made by Mr.
Marinucci who would indicate which payables
were to be paid when money was available.
(J.A. 66–67.)
The bankruptcy court found that SG Homes had proven fraud
by Marinucci on both of the theories presented and that SG Homes
had relied on the fraudulent misrepresentations to its
detriment. First, that Marinucci defrauded SG Homes by
11
intentionally failing to obtain a bond. Second, that Marinucci
intentionally misrepresented that he would use the funds
received to pay the Crabbs Branch Way project subcontractors and
suppliers. The court specifically ruled in the alternative,
finding each ground as an independent basis for judgment against
Marinucci for fraud, the amount of damages, and the
nondischargeability of the debt.
The bankruptcy court found that the damages Marinucci owed
SG Homes were $208,806.89, the amount SG Homes had “double” paid
the subcontractors and suppliers. (J.A. 70.) Crediting SG
Homes’ evidence over Marinucci’s “unsupported testimony,” the
court found that “there was an ultimate deficit on this job”
after SG Homes had paid the subcontractors and suppliers. (J.A.
70.) The court stated it “must conclude that as a result of
either of the two frauds incurred that SG [Homes] has been
damaged in the amount requested,” $208,806.89. (J.A. 70.)
The bankruptcy court further determined that the judgment
debt was nondischargeable under 11 U.S.C. § 523(a)(2)(A), which
disallows the discharge of a debt obtained by fraud. The court
reasoned that Marinucci had drawn a $150,000 salary from
Chesapeake and
[w]ithout revenue[,] the company would fail,
[and] when the company failed[,] the salary
would stop. When the company . . .
fail[ed,] the investment, the 50 percent
ownership interest[,] would go from whatever
12
value it may have had to zero and it did
ultimately. . . . although Mr. Marinucci did
not get a check directly . . . he did get
money and an enhancement of value of
property as a result of his personal fraud
so [11 U.S.C. §] 523(a)(2) does apply.
(J.A. 74–75.)
Marinucci appealed the bankruptcy court’s decision to the
United States District Court for the District of Maryland,
arguing that the adversary proceeding should have been dismissed
because the state court judgment collaterally estopped SG Homes
from suing him in bankruptcy court. Alternatively, he argued
that the bankruptcy court erred in awarding SG Homes a
nondischargeable judgment because SG Homes had failed to
establish fraud. SG Homes cross-appealed the bankruptcy court’s
dismissal of its original complaint based on the Maryland
Construction Trust Statute.
The district court affirmed the bankruptcy court’s findings
of fraud, damages, and entry of nondischargeable judgment for SG
Homes. 3 The court declined to address the merits of SG Homes’
cross-appeal, reasoning that the “alleged error [would] have no
adverse consequence if the Court affirms the judgment in [SG
Homes’] favor.” (J.A. 106.)
3
The district court also rejected Marinucci’s collateral
estoppel argument which he does not raise as an issue in this
appeal.
13
Marinucci timely appealed, and we have jurisdiction
pursuant to 28 U.S.C. § 158(d)(1).
II.
A.
Where, as here, a district court acts as a bankruptcy
appellate court, “our review of [its] decision is plenary.”
Bowers v. Atlanta Motor Speedway, Inc. (In re Se. Hotel Props.
Ltd. P’ship), 99 F.3d 151, 154 (4th Cir. 1996). In such a
circumstance, “we review the bankruptcy court’s decision
independently.” Banks v. Sallie Mae Servicing Corp. (In re
Banks), 299 F.3d 296, 300 (4th Cir. 2002). Thus, we review for
clear error the findings of fact made by the bankruptcy court,
and we assess de novo its conclusions of law. Kielisch v. Educ.
Credit Mgmt. Corp., 258 F.3d 315, 319 (4th Cir. 2001).
B.
Under the Bankruptcy Code, a debtor is entitled to the
discharge of his debt obligations at the conclusion of Chapter 7
bankruptcy proceedings, absent the application of a statutory
exception. See 11 U.S.C. § 523(a) (identifying nineteen
statutory exceptions to discharge). In these proceedings, SG
Homes objected to the discharge of Marinucci’s debt under 11
U.S.C. § 523(a)(2)(A), which disallows the discharge of a debt
14
obtained by fraud. 4 A plaintiff’s proof of fraud under
subsection (2)(A) requires satisfaction of the elements of
common law fraud: “(1) false representation, (2) knowledge that
the representation was false, (3) intent to deceive, (4)
justifiable reliance on the representation, and (5) proximate
cause of damages.” Nunnery v. Rountree (In re Rountree), 478
F.3d 215, 218 (4th Cir. 2007); Gourdine v. Crews, 955 A.2d 769,
791 (Md. 2008); see also Field v. Mans, 516 U.S. 59, 69 (1995)
(explaining that “operative terms” of subsection (2)(A) are
“common-law terms”).
On appeal, Marinucci contends that the bankruptcy court
erred in entering a nondischargeable judgment against him
because SG Homes failed to prove two of the elements of fraud:
reliance and damages. Both elements require proof of facts, and
the bankruptcy court’s findings of fact may not be set aside on
appeal unless they are clearly erroneous. Kielish, 258 F.3d at
319. As explained below, the bankruptcy court did not clearly
err in finding that SG Homes justifiably relied on Marinucci’s
fraudulent misrepresentations, and thereby suffered proven
damages.
4
Subsection (2)(A) of § 523(a) provides that Chapter 7
bankruptcy does not discharge a debtor from any debt obligation
obtained by “false pretenses, a false representation, or actual
fraud, other than a statement respecting the debtor’s . . .
financial condition.”
15
III.
A.
We turn first to the bankruptcy court’s finding that SG
Homes was justified in relying on Marinucci’s false
certifications in the monthly payment applications that
Chesapeake was paying its subcontractors and suppliers. 5
Marinucci contends that this finding was clear error because the
applications required Chesapeake to certify only that it used SG
Homes’ money to pay any of Chesapeake's subcontractors and
suppliers, not that the funds be used to pay only vendors
providing services or supplies to the Crabbs Branch Way project.
To satisfy the justifiable reliance element in proof of
fraud, a plaintiff must show that it actually relied on the
debtor’s misrepresentations, and was justified in doing so
because of “the circumstances of the particular case.” Field,
516 U.S. at 71. A plaintiff “is justified in relying on a
representation . . . although he might have ascertained the
falsity of the representation had he made an investigation.”
Id. at 70 (quoting Restatement (Second) of Torts § 540 (1976));
5
As noted earlier, the bankruptcy court ruled in favor of
SG Homes on two independent and alternate grounds of
nondischargeable fraud: the bond misrepresentation and the
subcontractor payment misrepresentation. The district court
agreed. As we affirm on the basis of the subcontractor payment
misrepresentation, it is unnecessary for us to address the bond
fraud. See Campbell v. Hanover Ins. Co. (In re ESA Envtl.
Specialists, Inc.), 709 F.3d 388, 399 n.11 (4th Cir. 2013).
16
see also Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126,
135 (4th Cir. 1999) (characterizing justifiable reliance as a
“minimal standard”).
The bankruptcy court’s finding that SG Homes justifiably
relied on Marinucci’s false certifications in the payment
applications was not clearly erroneous because it was solidly
based on the trial evidence. As the court recognized, the
parties’ intent and the plain language of the Contract, which
must be read in conjunction with the certifications, required
Chesapeake to use the money from SG Homes to pay only the
subcontractors and suppliers working on the Crabbs Branch Way
project. See Ray v. William G. Eurice & Bros., Inc., 93 A.2d
272, 279 (Md. 1952) (“[W]here a writing refers to another
document[,] that other document, or so much of it as is referred
to, is to be interpreted as part of the writing.”) (cited in
Wells v. Chevy Chase Bank, F.S.B., 832 A.2d 812, 831 (Md.
2003)). The certifications in the applications stated that SG
Homes’ payments to Chesapeake had been made “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.) Indeed, the Contract
provided that Chesapeake had to pay all subcontractors and
suppliers “all amounts due in connection with the performance of
17
[the] Contract.” (J.A. 141 (emphasis added).) Importantly,
Marinucci testified he understood that when Chesapeake received
payments from SG Homes, Chesapeake was to use that money to pay
the subcontractors who worked on the Crabbs Branch Way project:
[Gould]: And so when you agreed on behalf of
Chesapeake under Subsection L that at all
times Chesapeake would pay all amounts due
in connection with the performance of the
contract, you understood that you are
promising SG Homes that you were going to
honor your agreements with your
subcontractors, correct?
[Marinucci]: As long as they honor their
agreements with me, correct.
[Gould]: Right, and that meant that when you
got paid by SG Homes you would then turn
around and pay the subcontractors who had
agreements like we went over that they would
get paid when paid, right?
[Marinucci]: Yes.
(J.S.A. 121.) Marinucci further testified that Chesapeake’s
contracts with its subcontractors and suppliers promised payment
only after it received the funds from SG Homes. Additionally,
Marinucci testified that he was familiar with the Maryland
Construction Trust Statute, which expressly requires funds
received by a contractor to be used only to pay subcontractors
on that job. See Md. Code Ann., Real Prop. § 9-201(b)(1) (“Any
moneys paid under a contract by an owner to a contractor, or by
the owner or contractor to a subcontractor for work done or
materials furnished, or both, for or about a building by any
18
subcontractor, shall be held in trust by the contractor or
subcontractor, as trustee, for those subcontractors who did work
or furnished materials, or both, for or about the building, for
purposes of paying those subcontractors.”); see also Hearn v.
Hearn, 936 A.2d 400, 406 (Md. Ct. Spec. App. 2007) (“Parties to
a contract are presumed to contract mindful of the existing law,
and all applicable or relevant laws must be read into the
agreement of the parties just as if expressly provided by them,
except where a contrary intention is evident.”).
In these circumstances, the bankruptcy court was entitled
to find—as it did—that SG Homes justifiably relied on
Marinucci’s false certifications in the monthly payment
applications that Chesapeake was paying its Crabbs Branch Way
project subcontractors and suppliers. Otherwise, SG Homes would
not have continued to pay Chesapeake had it known Chesapeake was
making false certifications, but would have paid the
subcontractors directly. As a result, the bankruptcy court’s
finding of fraud on the basis of justifiable reliance was not
clearly erroneous.
B.
We turn next to the bankruptcy court’s finding that, as a
result of Marinucci’s fraud, SG Homes incurred $208,806.89 in
damages, the amount SG Homes “double” paid for work completed
19
and material furnished by Chesapeake’s subcontractors and
suppliers. (J.A. 70.) Marinucci challenges the bankruptcy
court’s award of damages, maintaining that the court erred
because SG Homes owed Chesapeake $277,000 for services already
provided, and SG Homes' decision to instead use that money to
pay Chesapeake’s subcontractors and suppliers directly does not
yield any net damages to SG Homes. In effect, Marinucci
contends that the $208,806.89 paid to subcontractors and
suppliers was merely an offset of the $277,000 he contends SG
Homes owed Chesapeake.
Under Maryland law, “[i]t is the general rule that one may
recover only those damages that are affirmatively proved with
reasonable certainty to have resulted as the natural, proximate
and direct effect of the injury.” Empire Realty Co. v.
Fleisher, 305 A.2d 144, 147 (Md. 1973). In determining the
“proper measure of damages in fraud and deceit cases,” Maryland
applies the “flexibility theory,” under which a victim of
fraudulent misrepresentation may elect to recover either out-of-
pocket expenses or benefit-of-the-bargain damages. Hinkle v.
Rockville Motor Co., 278 A.2d 42, 47 (Md. 1971). The former
permits a plaintiff to recover his or her actual losses; the
latter puts the plaintiff in the same financial position as if
the fraudulent representation had in fact been true. Goldstein
v. Miles, 859 A.2d 313, 324 (Md. Ct. Spec. App. 2004); see also
20
Buie v. Sys. Automation Corp., 918 F.2d 955 (table), 1990 WL
180126, at *11 (4th Cir. 1990) (benefit-of-the-bargain damages
may be employed only in “appropriate cases”). In this case, SG
Homes recovered out-of-pocket expenses. 6
Following a bench trial, the bankruptcy court determined
that, as a result of Marinucci’s fraud, SG Homes paid twice for
work completed and material furnished by Chesapeake’s
subcontractors and suppliers:
The evidence as pointed to by [SG Homes] is
that SG [Homes] paid the draw request for
work after the date of the contract,
performed by Chesapeake and invoiced by
Chesapeake. Chesapeake did not pay the subs
and material men for some if not all of the
work included in those invoices, liens were
threatened and/or imposed and SG [Homes] had
to pay out again directly to the subs and
material men for the same work and supplies.
(J.A. 68–69.) The court found that the exact amount of such
double payment was $208,806.89, which was supported by the
following evidence offered by SG Homes: (1) Marinucci stipulated
that SG Homes paid $208,806.89 to the subcontractors and
suppliers; and (2) Randall testified and explained in detail how
he calculated that figure using invoices, balance sheets, and
6
We note that no legal error influenced the bankruptcy
court’s damages calculation, as SG Homes was entitled to recover
its out-of-pocket expenses rather than benefit-of-the-bargain
damages. See Hinkle, 278 A.2d at 47 (adopting “flexibility
theory”). We thus review the bankruptcy court’s damages
calculation for clear error. Univ. Furniture Int’l, Inc. v.
Collezione Europa USA, Inc., 618 F.3d 417, 427 (4th Cir. 2010).
21
Chesapeake’s payment applications. The court further found
Marinucci’s argument that SG Homes owed Chesapeake funds in
excess of the amount of the double payment to be unsupported by
the evidence:
The Court finds most probative of this not
the pretty much unsupported testimony of Mr.
Marinucci but the exhibit about which I
colloquy counsel for [SG Homes] during
closing argument.
The spreadsheet furnished by Chesapeake
about the status of its accounts on this job
in which it appears that according to that
exhibit . . . there was an ultimate deficit
on this job and that therefore there was not
a fund to recoup the double payment.
(J.A. 70.) Chesapeake’s spreadsheet showed that it still owed
more than $534,000 to its Crabbs Branch Way project
subcontractors and suppliers in November 2008. Importantly, the
court noted that Marinucci conceded he had not reviewed the
invoices used in Randall’s calculations, and also had not
provided any documentary support for his assertion that
Chesapeake was owed $277,000.
The bankruptcy court thus properly determined that
Marinucci had failed to rebut SG Homes’ prima facie proof of
damages. The court appropriately required SG Homes to establish
its actual losses and then shifted the burden to Marinucci to
prove any offset or reduction to that amount by any funds SG
Homes still owed Chesapeake for services already provided.
22
Moreover, we discern no clear error in the court’s conclusion
that Marinucci failed to meet this burden. Marinucci was given
an opportunity to offer reliable proof in support of his
argument, yet failed to do so. In short, Marinucci's case in
rebuttal to SG Homes' prima facie case of damages was his
unsupported testimony which the bankruptcy court found not
credible. In other words, Marinucci simply failed to carry his
burden of proof.
The bankruptcy court’s comprehensive findings were based on
its examination of the parties’ presentations and on the
credibility of witnesses, particularly the unsupported testimony
of Marinucci. See Parris v. Lynch, 35 F.3d 556 (table), 1994 WL
486549, at *1 (4th Cir. 1994) (“assessing the weight of evidence
and the credibility of witnesses is within the sole province of
the fact-finder”). These factual findings are entitled to our
deference. As a result, the court’s award of damages for SG
Homes was not clearly erroneous.
Finally, we conclude that the bankruptcy court did not err
in determining that the judgment debt was nondischargeable under
11 U.S.C. § 523(a)(2)(A), which disallows the discharge of a
debt obtained by fraud. SG Homes obtained a judgment based on
Marinucci’s fraud after having shown the fraud, reliance on the
fraud, and damages attributable to the fraud. Section
523(a)(2)(A) was, therefore, the appropriate exception to
23
discharge in bankruptcy for SG Homes’ judgment claim against
Marinucci.
IV.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
24