Filed: Apr. 25, 2011
Latest Update: Feb. 21, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-1514 PERSAUD COMPANIES, INC., Plaintiff – Appellee, v. THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA, Defendants – Appellants. No. 10-1518 PERSAUD COMPANIES, INC., Plaintiff – Appellant, v. THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA, Defendants – Appellees. Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge. (1:09-cv-
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-1514 PERSAUD COMPANIES, INC., Plaintiff – Appellee, v. THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA, Defendants – Appellants. No. 10-1518 PERSAUD COMPANIES, INC., Plaintiff – Appellant, v. THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA, Defendants – Appellees. Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge. (1:09-cv-0..
More
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1514
PERSAUD COMPANIES, INC.,
Plaintiff – Appellee,
v.
THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA,
Defendants – Appellants.
No. 10-1518
PERSAUD COMPANIES, INC.,
Plaintiff – Appellant,
v.
THE IBCS GROUP, INC.; EDMUND C. SCARBOROUGH; STEVEN GOLIA,
Defendants – Appellees.
Appeals from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:09-cv-00094-GBL-IDD)
Argued: March 23, 2011 Decided: April 25, 2011
Before WILKINSON, SHEDD, and DUNCAN, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: David Martin Buoncristiani, JONES DAY, San Francisco,
California, for Appellants/Cross-Appellees. Christopher
Mayfield Brown, SEEGER FAUGHNAN MENDICINO, PC, Washington, D.C.,
for Appellee/Cross-Appellant. ON BRIEF: Paul W. Berning,
HOWREY, LLP, San Francisco, California, Laura R. Thomson,
HOWREY, LLP, Washington, D.C., for Appellants/Cross-Appellees.
Seth A. Robbins, SEEGER FAUGHNAN MENDICINO, PC, Washington,
D.C., for Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
The IBCS Group, Inc., challenges the district court’s grant
of summary judgment in favor of Persaud Companies, Inc., on
Persaud’s fraudulent inducement and false advertising claims.
We agree with IBCS that Persaud has failed to establish a claim
for fraudulent inducement under Virginia law. We also agree
with IBCS that the grant of summary judgment on the false
advertising claim was improper. Therefore, we remand for
further proceedings.
I.
On October 3, 2008, Persaud Companies, Inc. (Persaud),
signed a $3.5 million subcontract for work on a border fence
project in Texas. The subcontract required Persaud to post
payment and performance bonds. Although Persaud had used the
same corporate surety on its previous jobs, on this occasion
Persaud’s bond brokers recommended that the company obtain bonds
from Edmund Scarborough, an individual surety, and his risk
management company, IBCS Group.
During the negotiations with IBCS, two key issues arose.
First, two of Persaud’s brokers suggested that Persaud have the
general contractor pre-qualify the bonds, ensuring that the
bonds would be accepted. Second, Persaud’s brokers asked IBCS
how it would respond if the general contractor rejected the
3
bonds-i.e., whether IBCS would provide a refund of any bond
premium paid by Persaud. With regard to this second issue, the
brokers were referred to IBCS’ brochure about Scarborough’s
bonds. The brochure contains a Question and Answer section,
which includes the following:
Q. What happens if a bond is rejected by an obligee?
A. We intend to pre-qualify all bonding requests to
minimize the possibility of bond rejection. However,
we will reverse a transaction if a bond is promptly
rejected.
(JA at 44).
Persaud entered into a General Agreement of Indemnity (the
Agreement) with Scarborough on December 29, 2008. The Agreement
specifies, with regard to payment, that “[t]he full initial fee
is fully earned upon execution of the BOND and will not be
refunded, waived or cancelled for any reason.” (JA at 51). The
Agreement also notes that, “[t]his Agreement may not be changed
or modified orally. No change or modification shall be
effective unless specifically agreed to in writing, and signed
by Surety.” (JA at 53).
Persaud authorized release of the bonds ten days later,
paying a bond premium of $121,557. Eventually, the general
contractor rejected the bonds because of its concern over
Scarborough’s assets. Thereafter, the general contractor waived
the bond requirement for Persaud and permitted it to work on the
4
project while issuing Persaud a “deductive change order.” (JA
at 1190). Persaud, meanwhile, contacted IBCS in a timely manner
to request a refund. In response, IBCS referred Persaud to the
Agreement’s language specifying that all payments were
nonrefundable and, accordingly, denied Persaud’s request.
Scarborough later indicated that, although he had granted more
than twenty refunds in the past, he did not grant Persaud a
refund because (1) he was led to believe the bonds would be
accepted; (2) Persaud retained the subcontract; and (3) Persaud
did not have to purchase replacement bonds.
After IBCS refused Persaud’s refund request, Persaud
responded by filing this action, alleging claims of breach of
contract, fraud, fraud in the inducement, and false advertising
against IBCS. Persaud requested actual and punitive damages.
The district court dismissed the breach of contract and fraud
claims. Following discovery, on cross-motions, the court
granted summary judgment in favor of Persaud on the fraudulent
inducement and false advertising claims, and granted summary
judgment in favor of IBCS on the issue of punitive damages. The
court awarded Persaud damages of $121,557, the total amount of
the bond premium.
5
II.
On appeal, IBCS challenges the award of summary judgment on
both the fraudulent inducement and false advertising claims. 1
Summary judgment is appropriate “if the movant shows that there
is no genuine issue as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). We review the district court’s order granting summary
judgment de novo. Bonds v. Leavitt, 629 F.3d 369, 379 (4th Cir.
2011).
A. Fraudulent Inducement
Under Virginia law, “a false representation of a material
fact, constituting an inducement to the contract, on which the
purchaser had a right to rely, is always ground for rescission
of the contract.” George Robberecht Seafood, Inc. v. Maitland
Bros. Co., 255 S.E.2d 682, 683 (Va. 1979)(internal quotation
marks omitted). “Fraud in the inducement of a contract is also
ground for an action for damages.”
Id. A plaintiff asserting a
cause of action for fraudulent inducement bears the burden of
proving by clear and convincing evidence the following elements:
“(1) a false representation, (2) of a material fact, (3) made
1
Persaud also noted a cross-appeal, contesting the district
court’s denial of its requests for punitive damages and
attorney’s fees. Because we are vacating the awards of summary
judgment in favor of Persaud, we need not address these issues
at this time.
6
intentionally and knowingly, (4) with intent to mislead, (5)
reliance by the party misled, and (6) resulting damage to the
party misled.” Evaluation Research Corp. v. Alequin, 439 S.E.2d
387, 390 (Va. 1994).
Applying this standard, IBCS contends that, because Persaud
had access to the Agreement prior to signing it—and thus had the
ability to read the provisions regarding a refund—the promise of
a refund in the marketing brochure could not have reasonably
induced Persaud into signing the Agreement. We agree. Given
the unequivocal contract language, Persaud’s reliance on the
statements in the brochure was unreasonable. As the Supreme
Court of Virginia has explained:
Where ordinary care and prudence are sufficient for
full protection, it is the duty of the party to make
use of them. Therefore, if false representations are
made regarding matters of fact, and the means of
knowledge are at hand and equally available to both
parties, and the party, instead of resorting to them,
sees fit to trust himself in the hands of one whose
interest is to mislead him, the law, in general, will
leave him where he has been placed by his own
imprudent confidence.
Costello v. Larsen, 29 S.E.2d 856, 858 (1944) (internal
quotation marks omitted); see also Johnson v. Washington,
559
F.3d 238, 245 (4th Cir. 2009) (affirming summary judgment in
favor of the defendant by noting that, “[e]ven assuming” the
defendant misled the plaintiff, “the documents that [the
7
plaintiffs] signed plainly stated the terms of the transaction
and more than corrected any misleading oral statements”).
Persaud offers several alternative reasons for affirmance,
none of which is persuasive. For instance, Persaud contends
that the Agreement itself does not provide IBCS’s actual refund
policy because Scarborough admitted that he has given more than
twenty refunds over the past several years. While this is
factually correct, legally IBCS and Scarborough are free to
enforce the contractual refund provision or waive it as they see
fit. See Roenke v. Virginia Farm Bureau Mut. Ins. Co., 161
S.E.2d 704, 709 (Va. 1968) (noting that waiver “may or may not
be exercised by the person holding it”). 2
In sum, Persaud cannot establish, by clear and convincing
evidence, that it reasonably relied on the brochure or any oral
statements by IBCS because the Agreement clearly stated that the
bond premium was nonrefundable. Accordingly, we vacate the
award of $121,557 in favor of Persaud and direct the district
court, on remand, to enter summary judgment in favor of IBCS on
this count.
2
In a similar vein, Persaud suggests that the waiver policy
is applied irrationally and subjectively. To the extent this is
even relevant, IBCS put into evidence declarations that it
considered each refund request in good faith, and Persaud did
not come forward with any contrary evidence.
8
B. False Advertising
We next address IBCS’s argument that the district court
erred in granting summary judgment to Persaud on the false
advertising claim. Virginia Code § 18.2-216 prohibits the use,
in any advertisement, of “any promise, assertion, representation
or statement of fact which is untrue, deceptive or misleading”
if the advertisement is made with the “intent to sell” or “to
induce the public” to enter into an obligation. See Henry v.
R.K. Chevrolet, Inc., 254 S.E.2d 66, 67-68 (Va. 1979). Section
18.2-216 also “subjects the defendant to an action for damages
[under Va. Code Ann. § 59.1-68.3] by any person who suffers loss
as the result” of a statutory violation.
Id. at 67; see also
Klaiber v. Freemason Associates, Inc.,
587 S.E.2d 555, 559 (Va.
2003) (“[Section 59.1-68.3] by its express terms requires,
however, that the plaintiff must ‘suffer[ ] loss’ in order to
recover damages.”). As a “penal statute,” §18.2-216 “must be
construed strictly” and should not “be extended by implication,
or be made to embrace cases which are not within its letter and
spirit.”
Henry, 254 S.E.2d at 68 (internal quotation marks
omitted).
The Supreme Court of Virginia has noted two important
distinctions between fraud and false advertising. First, a
fraud claim requires a showing that a representation was false,
while false advertising requires a showing that a statement was
9
“untrue, deceptive or misleading.” Parker-Smith v. Sto Corp.,
551 S.E.2d 615, 619 (Va. 2001). Second, “in fraud, the
misrepresentation must relate to a present or pre-existing fact;
it cannot be predicated on unfulfilled promises or statements as
to future events. In contrast, the misrepresentation in a false
advertising claim does not have to relate to a statement of
present or pre-existing fact. It can be just a promise.”
Id.
(internal citation and quotation marks omitted). See also Va.
Code Ann. § 18.2-216 (“promise, assertion, representation or
statement of fact”).
The district court concluded that the marketing brochure
qualified as an advertisement under the statute and was
misleading. On this basis alone, and without considering
whether Persaud “suffer[ed] loss” as a result of the
advertisement, the district court awarded summary judgment. We
agree with the district court that the marketing brochure
satisfies the statutory requirements of a false advertisement:
the brochure is an advertisement under the statute and it is—at
a minimum—misleading or deceptive. As IBCS notes, however, the
district court did not consider whether the brochure made
Persaud “suffer loss,” that is, whether the advertisement caused
any actual injury. Because of this failure, we vacate the grant
of summary judgment in favor of Persaud on this claim as well.
10
On remand, the district court must determine whether Persaud can
satisfy this statutory requirement. 3
III.
Accordingly, we vacate the award of $121,557 in favor of
Persaud and vacate the grant of summary judgment on Persaud’s
claims for fraudulent inducement and false advertisement. On
remand, the district court is instructed to grant summary
judgment in favor of IBCS on the fraudulent inducement claim and
to consider whether Persaud suffered loss as a result of IBCS’s
false advertisement. If the district court finds in Persaud’s
favor on those issues, it is free to assess appropriate damages.
VACATED AND REMANDED
3
We note that IBCS urges us to simply answer the question
of whether Persaud suffered loss because of the advertisement in
the first instance. While we recognize our discretion to do so,
we decline to exercise that discretion in this case.
11
