Court Opinion

ID: 875416
Source: CourtListenerOpinion
Date Created: 2013-06-04 18:56:24.451132+00
Date Added: 2024-06-11T12:39:15.029798
License: Public Domain

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

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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.

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