Filed: Jul. 18, 2012
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-1618 BANK OF AMERICA, N.A., Plaintiff - Appellant, v. CHRISTOPHER ANDREW SANDS, Defendant – Appellee, and JAMES STEPHEN BRITT, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Senior District Judge. (1:10-cv-00731-CMH-JFA) Argued: May 16, 2012 Decided: July 18, 2012 Before WILKINSON, GREGORY, and FLOYD, Circuit Judges. Affirmed by unpublished per
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-1618 BANK OF AMERICA, N.A., Plaintiff - Appellant, v. CHRISTOPHER ANDREW SANDS, Defendant – Appellee, and JAMES STEPHEN BRITT, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Senior District Judge. (1:10-cv-00731-CMH-JFA) Argued: May 16, 2012 Decided: July 18, 2012 Before WILKINSON, GREGORY, and FLOYD, Circuit Judges. Affirmed by unpublished per c..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1618
BANK OF AMERICA, N.A.,
Plaintiff - Appellant,
v.
CHRISTOPHER ANDREW SANDS,
Defendant – Appellee,
and
JAMES STEPHEN BRITT,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:10-cv-00731-CMH-JFA)
Argued: May 16, 2012 Decided: July 18, 2012
Before WILKINSON, GREGORY, and FLOYD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: E. John Steren, OBER KALER GRIMES & SHRIVER, PC,
Washington, D.C., for Appellant. Thomas W. Repczynski, OFFIT
KURMAN, PA, Vienna, Virginia, for Appellee. ON BRIEF: Michael
A. Hass, Kristina J. Longo, OBER KALER GRIMES & SHRIVER, PC,
Washington, D.C., for Appellant. John B. Raftery, OFFIT KURMAN,
PA, Bethesda, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Bank of America, N.A. (the Bank), a national banking
association with its principal place of business in North
Carolina, brought this action against Christopher Sands, a
citizen of Virginia, accusing him, among other things, of actual
and constructive fraud. According to the Bank, Sands made a
number of misrepresentations related to his company’s accounts
receivable, which the Bank relied upon when issuing a loan to
facilitate a third party’s purchase of his company. The case
survived motions for summary judgment and proceeded to trial.
At the close of the Bank’s case, the district court determined
that there was insufficient evidence to send the case to the
jury and granted Sands’s motion for judgment as a matter of law.
The Bank appeals this ruling. Because we agree with the
district court that a reasonable jury would have lacked a
legally sufficient evidentiary basis on which to find that Sands
engaged in actual or constructive fraud, we affirm.
I.
Given the procedural posture of this appeal, we view the
evidence in the light most favorable to the Bank and draw all
reasonable inferences from that evidence in its favor. See
Buckley v. Mukasey, 538 F.3d 306, 321 (4th Cir. 2008). The
evidence presented at trial established the following facts.
3
Sands was the founder, co-owner, and chief executive
officer of AC Technology, Inc., a company in the business of
reselling hardware. From the company’s inception, Sands’s goal
was eventually to sell it, preferably for cash. Because he
desired a cash purchase of the company, he rejected multiple
offers that contained noncash components. Ultimately, this
perseverance paid off, and on July 1, 2008, MB Security
Corporation purchased AC Technology for approximately $5 million
in cash.
In effectuating this purchase, MB Security used a loan
furnished by the Bank. The loan involved a line of credit,
capped at $10 million, that allowed MB Security to draw varying
amounts depending on the level of AC Technology’s accounts
receivable, which served as the collateral base for the loan.
Hence, as the value of AC Technology’s accounts receivable
increased, so did the amount that MB Security could borrow,
provided this amount could not exceed $10 million. This loan
structure is known as “receivable financing.”
As was to be expected, the Bank demanded certain documents
relating to AC Technology’s finances, particularly its accounts
receivable, for determining how much to lend. Most pertinent to
this appeal are documents referred to as accounts receivable
aging (ARA) summaries. These ARA summaries listed AC
Technology’s accounts receivable, the customers to which they
4
related, and how long they had been outstanding. An account
receivable could not be properly listed on an ARA summary until
the product shipped to the purchaser. Until then, it remained a
purchase order, not a billable account receivable.
To satisfy the Bank’s requests for accounts receivable
information, Sands sent ARA summaries to Michael Byrd and Earle
Munns, co-owners of MB Security. He did not provide Byrd and
Munns direct access to AC Technology’s records and books. Byrd
and Munns then sent ARA summaries to the Bank, which understood
them to be receiving their information from Sands. Also, based
on the information set forth in the ARA summaries, Byrd and
Munns prepared borrowing base certificates (BBCs) for the Bank.
After subtracting certain ineligible accounts receivable, BBCs
calculated a gross accounts receivable availability number,
which the Bank used to determine the line of credit.
In supplying information about AC Technology’s accounts
receivable to Byrd and Munns, Sands knew what did and did not
constitute an account receivable. Prior to the sale of AC
Technology, he actively participated in maintaining the
company’s accounting system and constantly reviewed its accounts
receivable. He was aware that for a purchase to be listed as an
account receivable in the information he was providing to Byrd
and Munns, the product must have actually shipped. That said,
5
it was never Sands’s practice to verify whether orders had
shipped as planned.
Sands also appreciated that the Bank would rely upon the
financial information he provided Byrd and Munns in its loan
decisions. And, along those lines, he understood that Byrd and
Munns were to supply the Bank with the accounts receivable
information that he provided them. From these facts arises the
reasonable inference that Sands anticipated that the Bank would
base its loan decisions at least in part on the accounts
receivable information that he furnished Byrd and Munns.
On the evening of June 27, 2008, three days before the loan
closing, Sands sent an e-mail to Byrd and Munns with an ARA
summary attached. Among the specific accounts receivable
contained in this ARA summary were two that possess particular
relevance here: an account receivable relating to a purchase by
the Maryland Procurement Office (MPO) and an account receivable
relating to a purchase by General Dynamics (GD). Sands had
requested that the vendor for the MPO purchase ship the product
earlier in the day and, as was customary for him, listed it as
an account receivable without verifying that the product had
actually shipped. To the extent they existed, similar details
regarding the GD purchase were not provided. In any event, at
the time Sands sent this ARA summary, neither the MPO purchase
nor the GD purchase had in fact shipped.
6
Later in the night of June 27, after receiving the ARA
summary from Sands, Byrd sent an ARA summary to the Bank via e-
mail. But this ARA summary was not the same ARA summary that
Sands had sent Byrd and Munns. Whereas Sands’s ARA summary
listed the total worth of the GD account receivable as
$163,709.13, Byrd’s summary listed its total worth as
$4,469,509.13. And although Sands’s ARA summary provided one
MPO account receivable with a total worth of $2,007,460.66,
Byrd’s summary listed two MPO accounts receivable, one having a
total worth of $25,980.00 and the other having a total worth of
$2,010,000.00. Other discrepancies in values existed as well.
Because of these differences, the two ARA summaries contained
different amounts for the total worth of AC Technology’s
accounts receivable: Byrd’s ARA summary listed total accounts
receivable of $9,649,523.00, but Sands’s ARA summary reported
accounts receivable totaling only $4,896,514.65.
Byrd and Munns created these disparities by altering the
ARA summary that Sands sent them. In making these alterations,
Munns dictated to Byrd the values of accounts receivable for
various accounts, which Byrd then entered. Nothing at trial
7
established that Sands represented these inflated values to Byrd
or Munns. 1
On the morning of June 29, 2008, Munns resent Byrd’s June
27 e-mail with the above-described altered ARA summary to the
Bank based on the understanding that it did not receive the
prior one. He did not make any further changes to Byrd’s ARA
1
We have thoroughly examined the record regarding this
point. At one point, regarding the value of the GD purchase,
Byrd testified that he received the inflated number from Munns,
and when asked where Munns obtained that number, Byrd stated
that “[t]he General Dynamics was some conversations [Munns]
claimed he was having with Mr. Sands.” That statement is too
ambiguous to yield a reasonable inference that Sands represented
to Munns that the GD purchase was valued at over $4 million
rather than the approximately $160,000 he listed in his ARA
summary. This is particularly true in light of the other
testimony. Munns testified that he did not know the source of
the information regarding the GD purchase. And earlier in
Byrd’s testimony, he stated that he only assumed Munns obtained
the information from Sands. Moreover, Byrd testified that Munns
told him that the information he was including came not only
from Sands, but from others. And, even then, he subsequently
clarified that he did not entirely understand where Munns was
receiving his information.
Also, in an attempt to show that Sands provided the
information regarding the value of the GD purchase, the Bank
points to a number of e-mails that Byrd sent it wherein he
mentioned the value of the GD purchase and alluded to
conversations with Sands. But we have reviewed these e-mails
and find nothing to suggest that the value of the GD purchase
came from these conversations. The fact that the e-mails
contain references to both the GD purchase and conversations
with Sands does not yield a reasonable inference that the value
of the GD purchase came from him. In the end, even viewing the
evidence in the light most favorable to the Bank, we find
nothing establishing that Sands represented to Munns or Byrd the
inflated values included in Byrd’s ARA summary.
8
summary before resending it. The following morning, on June 30,
Byrd sent the Bank a BBC that listed the total amount of AC
Technology’s accounts receivable as $9,649,523. The Bank, in
deciding the amount of credit to extend, relied on this BBC and
Byrd’s ARA summary. Had the MPO and GD accounts receivable not
been listed in that ARA summary, the amount of available credit
would have dropped significantly. In fact, without the MPO and
GD accounts receivable, the Bank would not have issued the loan
to cover the purchase price because there would have been
insufficient collateral.
The closing for the loan took place on June 30, 2008. That
morning, at 9:56 a.m., an AC Technology employee, Paul Ford,
forwarded Sands an e-mail, the subject line of which read “FW:
Orders.” The forwarded material in the body of the e-mail
mentioned that the MPO purchase would not ship until mid-July.
According to Sands, because he was busy preparing for the
closing, he did not read the e-mail that morning and it was not
until the following day that he discovered the MPO order had
failed to ship. At 11:42 a.m. on June 30, Sands sent Byrd and
Munns an e-mail from the same account to which Ford sent the e-
mail regarding the expected shipment date for the MPO purchase.
Sands attached an ARA summary and informed them that it was “the
A/R as of 8:30 am this morning June 30, 2008.” The MPO purchase
remained listed as an account receivable on this ARA summary.
9
Its total worth was $2,135,268.47. Also still listed as an
account receivable was the GD purchase. Its total worth, as on
Sands’s June 27 ARA summary, remained $163,709.13. But again,
neither of these purchase orders had shipped.
At the closing, the Bank extended a loan of $5.5 million to
fund MB Security’s purchase of AC Technology. Of this $5.5
million, Sands personally received about $1.38 million. The
next day, on July 1, MB Security closed on its purchase of AC
Technology.
AC Technology subsequently defaulted on the loan, and the
Bank undertook efforts to recover the balance it was owed. The
Bank brought a lawsuit against Byrd alleging fraud. Byrd
eventually settled with the Bank, agreeing to a nondischargeable
judgment against him. The Bank also obtained a judgment against
Munns. Nevertheless, at the time of Sands’s trial, the Bank
still maintained an outstanding balance of $4,377,722 on the
loan.
The Bank filed a complaint against Sands and James Stephen
Britt in the Eastern District of Virginia on June 29, 2010. The
complaint alleged that Britt was an attorney and current co-
owner of AC Technology who, on behalf of himself, Byrd, and
Munns, negotiated and entered into the purchase and sale
agreement with Sands. The Bank asserted causes of action for
fraudulent misrepresentation, constructive fraud, common law
10
conspiracy to commit fraud, and statutory conspiracy to commit
fraud. The Bank’s case survived motions for summary judgment.
On May 3, 2011, the Bank stipulated to the dismissal of Britt as
a defendant.
The case against Sands proceeded to trial on May 9, 2011.
The next day, at the close of the Bank’s case, the district
court granted Sands’s motion for judgment as a matter of law
pursuant to Federal Rule of Civil Procedure 50(a), finding there
was insufficient evidence to send the case to the jury.
Specifically, the district court concluded that the Bank had
failed to provide evidence demonstrating that Sands knew the
products relating to the MPO and GD purchases had not yet
shipped, meaning that he did not make a knowing
misrepresentation in listing them as accounts receivable. The
court also determined that the Bank did not rely on Sands’s
representations in determining the amount of credit to extend
but instead relied on the altered information that Byrd and
Munns sent it. The Bank then filed this timely appeal.
II.
We review de novo a district court’s order granting a
motion for judgment as a matter of law. Buckley, 538 F.3d at
321. In conducting this review, we apply the same standards as
the district court. Corti v. Storage Tech. Corp.,
304 F.3d 336,
11
341 (4th Cir. 2002). Pursuant to this standard, a district
court may enter judgment as a matter of law against a party on a
claim only if, after the party has been fully heard on a
dispositive issue, the court determines “that a reasonable jury
would not have a legally sufficient evidentiary basis to find
for the party on that issue.” Fed. R. Civ. P. 50(a). Moreover,
because our jurisdiction in this case rests on diversity of
citizenship, we apply the substantive law of Virginia. See
Universal Concrete Prods. v. Turner Constr. Co., 595 F.3d 527,
529 (4th Cir. 2010).
Virginia law recognizes claims for both actual fraud and
constructive fraud. See Evaluation Research Corp. v. Alequin,
439 S.E.2d 387, 390 (Va. 1994). To prove actual fraud,
claimants must provide evidence of “(1) a false representation,
(2) of a material fact, (3) made intentionally and knowingly,
(4) with intent to mislead, (5) reliance by the party misled,
and (6) resulting damage to the party misled.”
Id. Similarly,
to sustain claims of constructive fraud, claimants must
establish 1) “a material false representation”; 2) “that the
hearer believed it to be true”; 3) “that it was meant to be
acted on”; 4) “that it was acted on”; and 5) “that damage was
sustained.” Nationwide Ins. Co. v. Patterson,
331 S.E.2d 490,
492 (Va. 1985). “Constructive fraud differs from actual fraud
in that the misrepresentation of material fact is not made with
12
the intent to mislead, but is made innocently or negligently
although resulting in damage to the one relying on it.”
Evaluation Research, 439 S.E.2d at 390.
Claimants alleging actual fraud or constructive fraud must
prove each element of the claim by clear and convincing
evidence. ITT Hartford Grp., Inc. v. Va. Fin. Assocs., Inc.,
520 S.E.2d 355, 361 (Va. 1999). “Clear and convincing evidence
is such proof as will establish in the trier of fact a firm
belief or conviction concerning the allegations that must be
established.” Thompson v. Bacon,
425 S.E.2d 512, 514 (Va.
1993). It requires “more than a mere preponderance” of evidence
but less evidence than is necessary to prove a claim “beyond a
reasonable doubt.” Fred C. Walker Agency, Inc. v. Lucas,
211
S.E.2d 88, 92 (Va. 1975) (quoting Cross v. Ledford,
120 N.E.2d
118, 123 (Ohio 1954)) (internal quotation marks omitted).
We begin by recognizing that Sands made false
representations of material facts. As the Bank asserts, he
falsely represented to Byrd and Munns that the MPO and GD
purchases were accounts receivable. The evidence, viewed in the
light most favorable to the Bank, established that these
purchases had not yet shipped and therefore could not properly
be listed as accounts receivable. Sands nevertheless listed
them as accounts receivable on his ARA summaries. And because
the value of AC Technology’s accounts receivable drove the
13
amount of the loan that the Bank would extend, these false
representations were material.
We agree, however, with the district court that the Bank
failed to provide evidence on which a reasonable jury could
conclude that it relied upon Sands’s false representations. For
both actual and constructive fraud, claimants must prove
reliance on the misrepresentations by the injured party. See
Richmond Metro. Auth. v. McDevitt Street Bovis, Inc., 507 S.E.2d
344, 346-47 (Va. 1998). The Bank points to Sands’s ARA
summaries, which contained his false representations that the
MPO and GD orders were accounts receivable. But the Bank did
not rely on Sands’s ARA summaries in making its loan decision.
Rather, it relied on the inflated value of AC Technology’s
accounts receivable as reported in Byrd’s BBC and ARA summary.
And, as seen, Byrd’s ARA summary did not simply relay Sands’s
representations to the Bank. Instead, Byrd altered Sands’s
information to raise the value of AC Technology’s accounts
receivable—his total value of the company’s accounts receivable,
$9,649,523, was significantly higher than the value that Sands
represented, $4,896,514.65. 2
2
This number comes from Sands’s June 27 ARA summary. In
his June 30 ARA summary, he stated the total amount of AC
Technology’s accounts receivable was $6,335,373.82, which is
still less than Byrd represented. The evidence at trial
demonstrated, however, that the Bank did not rely upon Sands’s
(Continued)
14
Thus, it was Byrd’s, not Sands’s, false representations
regarding the worth of AC Technology’s accounts receivable that
the Bank relied upon in deciding that enough collateral existed
to extend the $5.5 million loan. No reasonable jury could have
concluded otherwise. Accordingly, we agree with the district
court that the Bank failed to provide legally sufficient
evidence upon which a reasonable jury could find actual or
constructive fraud. And having determined that the evidence was
insufficient to show reliance by the Bank, we need not reach the
district court’s determination that a reasonable jury could not
find by clear and convincing evidence that Sands had the
requisite knowledge for actual fraud.
III.
For these reasons, we affirm the judgment of the district
court.
AFFIRMED
June 30 ARA summary, as it had already decided to extend the
loan by that time.
15
