Court Opinion

ID: 215378
Source: CourtListenerOpinion
Date Created: 2011-04-25 19:00:42+00
Date Added: 2024-06-11T17:28:24.032531
License: Public Domain

UNPUBLISHED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Vacated and remanded by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.

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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

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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.

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                               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

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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.

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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.

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