Marinucci v. SG Homes Assocs., LP

472 B.R. 299

Michael J. MARINUCCI, Appellant/Cross–Appellee,

v.SG HOMES ASSOCIATES, LP, Appellee/Cross–Appellant.

Civil No. WDQ–11–2517.

United States District Court,

D. Maryland,

Northern Division.

April 9, 2012.

Jeffrey Louis Forman, Kauffman and Forman PA, Towson, MD, for Appellant/Cross–Appellee.

Steven Bennett Gould, Jesse D. Stein, Brown and Gould LLP, Bethesda, MD, for Appellee/Cross–Appellant.

MEMORANDUM OPINION

WILLIAM D. QUARLES, JR., District Judge.

Michael J. Marinucci appeals the United States Bankruptcy Court's judgment for SG Homes Associates, LP (“SG Homes”) and determination that the judgment debt is not dischargeable. SG Homes cross-appeals the bankruptcy court's dismissal of its original complaint. For the following reasons, the bankruptcy court will be affirmed.

I. Background

Marinucci was the president and 50 percent shareholder of Chesapeake Site Contracting, Inc. (“Chesapeake”). Marinucci Test., Trial Tr. 19:12–20:12, July 13, 2011. On December 20, 2007, Chesapeake responded to SG Homes's request for bids for site work on a building project at Crabbs Branch Way in Montgomery County, Maryland. Pl.'s Tr. Ex. 2. Chesapeake's bid excluded the cost of payment or performance bonds.¹Id. at 4.

Sometime before December 28, 2007, Marinucci and Jay Munnikhuysen, Chesapeake's senior project manager, met and discussed Chesapeake's bid with two SG Homes officials: procurement manager Paul DeVerger, and procurement vice president Lorin Randall.² Pl.'s Ex. 3; Paul DeVerger Test., Trial Tr. 142:7–9, July 13, 2011. Marinucci asked whether SG Homes would require a bond or accept a higher retainer instead. Pl.'s Ex. 9 at 2; Paul DeVerger Test., Trial Tr. 142:16–18, July 13, 2011. Although Randall agreed to consider a retainer, SG Homes ultimately required a bond.³

On January 28, 2008, SG Homes awarded Chesapeake the contract and requested a certificate of insurance, a performance bond, and a completed W–9 tax form. Pl.'s Ex. 4. Although the parties had not signed a written contract, work began almost immediately. Paul DeVerger Test., Trial Tr. 13:1–10, July 14, 2011; Lorin Randall Test., Trial Tr. 76:22–24, July 14, 2011.

On or before February 1, 2008, Marinucci completed a bond request form from Atlantic Risk Management Corporation. Pl.'s Ex. 12; Michael Marinucci Test., Trial Tr. 64:2–16, 122:15–123:10, July 13, 2011. The form requested performance and payment bonds. Pl.'s Ex. 12. On February 1, 2008, Marinucci told Randall in an email that Chesapeake was “pursuing the performance and payment bonds as we agreed.” Pl.'s Ex. 6 at 3. Marinucci also said that the bonding company needed certain information about SG Homes's parent company before issuing the bonds. Id. On February 5, 2008, Randall provided the requested information. Id. at 1.

By mid-March 2008, Marinucci had decided not to obtain a bond, because his wife would not sign a personal guaranty as required by bonding companies. ⁴ 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.” Pl.'s Ex. 8.

Work continued without a written contract, and Chesapeake submitted monthly payment applications to SG Homes. See Pl.'s Ex. 31A. Each application contained a certification 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 [Chesapeake's] costs for labor, materials, and other obligations.” Id. at 1. Marinucci reviewed each application and directed an employee to sign it. Amanda Nethers Test., Trial Tr. 74:4–75:2, July 13, 2011.

Chesapeake put the money from SG Homes into a common fund from which it paid subcontractors and suppliers, including those who did not provide supplies or services for the Crabbs Branch Way project. Martin Schwartz Test., Trial Tr. 91:20–92:1, July 13, 2011; Michael Marinucci Test., Trial Tr. 109:23–110:16, July 13, 2011.

On May 12, 2008, Chesapeake and SG Homes executed a written agreement (the “Contract”) governing the Crabbs Branch Way project. Pl.'s Ex. 5 at 1. The Contract was ambiguous about whether Chesapeake had to obtain a payment bond. Lorin Randall Test., Trial Tr. 52:4–54:23, July 14, 2011. Subsection G, under “Payment Conditions,” noted that all subcontractors were “subject to a 5 [percent] retainer and/or must post a bond guaranteeing satisfactory completion of the work.” Id. at 2. An “X” was placed next to both options; thus, the Contract required a five percent retainer and a payment bond.⁵ The space for entering the name of the company issuing the bond was left blank. Id.

Subsection M (“Performance and Payment Bonds”), under “General Conditions,” also had two provisions. Pl.'s Ex. 5 at 6. Part (a) stated that Chesapeake would pay for and provide SG Homes performance and payment bonds, unless a “box [was] checked and no bond [was] indicated above.” Id. There was neither a box nor a check next to this provision. Part (b) stated that, if Chesapeake was not required to have bonds, SG Homes could require a bond “at any time,” at SG Homes's expense. Id. Attachment C to the Contract excluded from the scope of work the cost of payment and performance bonds. Pl.'s Ex. 5, Attachment C at 4.

The Contract also governed payment of Chesapeake's subcontractors and suppliers. Subsection L, 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 this Contract,” and submit evidence of payments. Pl.'s Ex. 5 at 2. Subsection H, under “General Conditions,” required Chesapeake to keep the project free of liens. Id. at 5.

Marinucci understood that SG Homes wanted the subcontractors and suppliers on the Crabbs Branch Way project to be paid. See Michael Marinucci Test., Trial Tr. 101:22–102:20, July 13, 2011. He also understood that the Contract required Chesapeake to use the money from SG Homes to pay subcontractors working on the project. See id. at 128:12–23. Chesapeake's contracts with the subcontractors and suppliers provided that Chesapeake would pay them when it was paid by SG Homes. See id. at 103:3–106:1. In addition, Marinucci knew about the Maryland Construction Trust Statute, which requires money given to a contractor by a project's developer to be used only to pay that project's subcontractors. Id. at 43:2–10; Md.Code Ann., Real Prop. § 9–201.

On May 14, 2008, Munnikhuysen sent an email to DeVerger to say that Chesapeake's bond ⁶ had been “cancelled because [Chesapeake] assumed that [SG Homes] no longer wanted it.” Pl.'s Ex. 9 at 2. Munnikhuysen noted that the original proposal and Attachment C to the Contract excluded bonds from the scope of work, and the contract price was not increased for the cost of a bond. Id.

DeVerger responded the same day, noting that “there may have been a communication breakdown” because SG Homes still needed a bond.⁷ Pl.'s Ex. 9 at 1. DeVerger asked how soon Chesapeake could obtain a bond, and at what cost, so that the Contract could be revised. Id. About 20 minutes later, Munnikhuysen replied that he had “talked to [Marinucci] via telephone and [Chesapeake] [would] get the bond right away.” Pl.'s Ex. 9 at 1. Marinucci was copied on every email in the exchange. Id. at 1–2.

On June 3, 2008, DeVerger emailed Munnikhuysen and asked when the bond would be issued. Pl.'s Ex. 10. Munnikhuysen responded that he would “check again” and “let [DeVerger] know.” Id. Munnikhuysen copied Marinucci on the email. Id.

On June 17, 2008, Munnikhuysen sent DeVerger—and copied Marinucci on—an email with the subject line “Guardrail/bond—Crabbs Branch Way.” Pl.'s Ex. 11. 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.” Id.

On September 10, 2008, Randall emailed Marinucci to say that a subcontractor had told SG Homes that it had performed work for Chesapeake in July 2008 but would not be paid until October 2008. Pl.'s. Ex. 13. Randall told Marinucci that he would “pay them directly and back the amount out of [Chesapeake's] next payment.” Id.

On October 9, 2008, Randall emailed Marinucci about another subcontractor that was owed money from Chesapeake. Pl.'s. Ex. 16. Marinucci responded that the subcontractor should be paid with a “joint check.” Id.

On October 29, 2008, Randall emailed Marinucci to say that other subcontractors and suppliers had reported that they had not been paid by Chesapeake. Pl.'s. Ex. 15. Randall said that SG Homes would pay them directly “with funds due Chesapeake.”Id. But after the suppliers and subcontractors were paid, SG Homes's “preliminary calculations” indicated that “no money [would] be due Chesapeake.” Id. SG Homes terminated the Contract. Id.

On February 13, 2009, SG Homes sued Chesapeake and Marinucci in the Circuit Court for Montgomery County (the “circuit court”) for breach of contract, fraud, and violation of the Maryland Construction Trust Statute. ECF No. 20, Ex. 2.

On January 20, 2010, Marinucci filed for Chapter 7 bankruptcy protection in the bankruptcy court. Bankruptcy Petition No. 10–11253 [hereinafter “Chapter 7 Case”], ECF No. 1. The circuit court stayed SG Homes's suit against Marinucci, pursuant to 11 U.S.C. § 362. ECF No. 20, Ex. 2 at 9 (Docket No. 47). On January 21, 2010, the circuit court entered an order of default against Chesapeake as a discovery sanction. ECF No. 20, Ex. 2 at 8 (Docket No. 45); ECF No. 20, Ex. 1 at 5:17–23.

On April 19, 2010, trial proceeded in the circuit court on SG Homes's damages against Chesapeake. ECF No. 20, Ex. 1 at 5:17–6:1. The following exchange took place:

Court: You are requesting that I make findings and enter a judgment as to Count 1 of the...