Petitions for writ of Certiorari denied.
ortgage"). Pl.'s Ex. 45-46; Trial Tr. 160:16-20.
83. The Lenz Mortgage was recorded on January 5, 2007. Pl.'s Ex. 68.
84. The Trabiches knew that granting this mortgage to Lenz was a violation of the Facility Agreement. Trial Tr. 158:9-16; Terry Trabich Dep. 421:16-422:5.
85. In late February 2007, Young received his first notice of the New York Complaint.
Id. 127:19-22, 386:17-19.
86. In his capacity as counsel for the Trabiches in the New York Action, Russ swore by affidavit that the loan made under the Facility Agreement:
was personal, rather than commercial, in that it was made to [four] individuals for their personal use. The use of the loan proceeds, however, was partially in relation to [the Saint Annes Project.]
Pl.'s Ex. 54 ¶ 9.
87. On May 2, 2007, SADC began foreclosure proceedings against Terry Trabich in New York state court, seeking to foreclose on its mortgage to the Trabiches' residence (the "Foreclosure Action"). Pl.'s Ex. 89.
88. In her verified answer in the Foreclosure Action, Terry Trabich swore that: (1) she had no "expectation that any bona fide consulting arrangement
had actually been established or that any consulting services would be provided by [SADC]" under the Facility Agreement "and none were," Pl.'s Ex. 55 ¶ 28; (2) the Facility Agreement "set forth an alleged commercial and/or business purpose . . . notwithstanding the fact that there was no commercial or business purpose thereto,"
id. ¶ 41; (3) the reason for setting forth "an alleged commercial and/or business purpose . . . was to purportedly comply with the exemptions or exceptions of the applicable laws prohibiting usurious transactions,"
id. ¶ 42.
89. Terry Trabich also asserted a counterclaim in her answer, which sought to enjoin SADC's enforcement of the Facility Agreement.
Id. ¶ 16.
90. By affidavit signed December 26, 2007, Terry Trabich swore under oath that:
The Obligors borrowed monies as a personal loan under the Facility Agreement. There was no loan to a business entity. There was no assurance at the time of the draw down of funds that the funds borrowed would be used for commercial purposes. The funds were not used for solely commercial purposes and no steps were taken by [SADC] to assure that they were.
Pl.'s Ex. 56 ¶ 6.
91. On December 14, 2007, SADC repaid Wachovia $1,012,292.71 to pay off the principal, accrued interest, and costs on the loan under the Facility Agreement. Pl.'s Ex. 59; Trial Tr. 395:24-396:14.
92. To obtain the funds to pay off that loan, Young borrowed $1,012,292.71 against his line of credit with PNC Bank (the "PNC Loan") and transferred those funds to SADC. Trial Tr. 396:1-10.
93. Through trial, Young has paid $66,182.31 in interest on the PNC Loan. Pl.'s Ex. 64.
94. On August 12, 2008, Trabich pled guilty to second degree grand larceny, second degree forgery, offering a false instrument in the first degree, and second
degree bribery in New York State Court. Trial Tr. 297:25-298:16.
95. The parties have stipulated that attorneys' fees and costs incurred under ¶ 8 of the Facility Agreement in the amount of $116,227.99 are fair and reasonable. Paper No. 211.
II. Conclusions of Law
Under Maryland choice of law rules, tort claims are governed by the law of the state where the injury occurred. Philip Morris Inc. v. Angeletti, 358 Md. 689, 752 A.2d 200, 230-31 (Md. 2000). Here, the parties appear to agree that the torts alleged occurred in Maryland.
A. Fraud (Counts 4 5)
To prove fraud, a plaintiff must show by clear and convincing evidence that: (1) the defendant made a false
representation to the plaintiff, (2) the defendant knew the representation was false or made it with reckless indifference as to its truth, (3) the purpose of the misrepresentation was to defraud the plaintiff, (4) the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) the plaintiff suffered compensable injury resulting from the misrepresentation. Maryland Envtl. Trust v. Gaynor, 370 Md. 89, 803 A.2d 512, 516 (Md. 2002) ( quoting Nails v. S R Inc., 334 Md. 398, 639 A.2d 660, 668 (Md. 1994)).
"[T]he misrepresentation need not have been the only motivation for the plaintiff's actions," but it must have "substantially induced the plaintiff to act." Nails, 639 A.2d at 669.
Because fraud involves misrepresentation of a present or preexisting fact, a plaintiff must prove that the defendant did not intend to uphold the promise at the time it was made. See Levin v. Singer, 227 Md. 47, 175 A.2d 423, 432 (Md. 1961). Fraudulent intent can be inferred from circumstantial evidence. First Union Nat'l Bank v. Steele Software Sys. Corp., 154 Md. App. 97, 838 A.2d 404, 440 (Md. Ct. Spec. App. 2003). In weighing such evidence, Maryland courts consider "the situation of the parties, the relations existing between them, the activity of the promisor in procuring the instrument, and the failure of the promisor to perform." Tufts v. Poore, 219 Md. 1, 147 A.2d 717, 722 (Md. 1959). "[A] failure or refusal to perform is strong evidence of an intent not to perform the promise at the time it was made . . . [when] only a short period of time elapses between the making of the promise and the failure or refusal to perform it, and there is no change in the circumstances." First Union, 838 A.2d at 439 ( quoting Tufts, 147 A.2d at 722).
Although "fraud cannot be predicated on statements [that] are merely promissory in nature[] or upon expressions as to what will happen in the future . . . [it] may be predicated on promises made with a present intention not to perform them." Levin, 175 A.2d at 432; see also Gross v. Sussex Inc., 332 Md. 247, 630 A.2d 1156, 1161-62 (Md. 1993) ("[M]aking a promise as to a matter material to the bargain with no intention to fulfill it is an actionable fraud.").
"Maryland differentiates between intentional breach and fraud with good reason. Contracts are often breached when companies change their business direction because of competitive market forces. Business persons entering contracts know and expect this. Many times, because the parties anticipate potential breach, contracts provide for liquidated damages and/or attorney's fees if breach occurs. The law provides a remedy for breach. Businesses will be hesitant to enter contracts at all if a breach, without evidence of pre-existing fraudulent intent, can expose them to punitive damage awards." First Union, 838 A.2d at 441. Thus, "[a] fraudulent pre-existing intent not to perform a promise made cannot be inferred from the failure to perform a promise alone," but "it may be considered with the subsequent conduct of the promisor and the other circumstances surrounding the transaction[.]" Tufts, 147 A.2d at 722.
The complaint alleges that the Trabiches committed fraud by falsely representing their intent to fulfill material terms of the Facility Agreement. At trial, the Plaintiffs established by clear and convincing evidence that (1) Trabich knew that Young and Rubin entered the Facility Agreement based, at least in part, on the commercial purpose and restricted use of the funds; (2) Young would not have agreed to the credit facility had he known the Trabiches did not intend to use the funds borrowed for commercial purposes; and (3) Young and SADC suffered losses in the amount of $1,078,475.02, representing the principal and accrued interest on the loan from PNC Bank used to pay off the credit facility loan. The Plaintiffs also sought to show that the Trabiches entered the Facility Agreement without the intent to use the funds taken out under the credit facility for the Saint Annes Project or to repay those funds. The Trabiches argue that there is insufficient evidence of their intent not to perform at the time they entered the Facility Agreement.
The Facility Agreement states that the credit facility was for "business or commercial" purposes and that its funds were to be used exclusively for the Saint Annes Project. In the New York Action, the Trabiches asserted that the loan made under the Facility Agreement was "personal" and not commercial and that the funds received were used only "partially in relation to" the Saint Annes Project. The Trabiches have each admitted in sworn statements that, despite the express language in ¶ 10, they did not intend the Facility Agreement to have a commercial purpose. Terry Trabich has further sworn that "the funds were not used for solely commercial purposes," a statement corroborated by Trabich's 2006 Accounting. Although the entries in that 2006 Accounting are imprecise, the $100,000.00 disbursement to Global Golf and the $350,000 disbursed directly to Terry Trabich appear to violate ¶ 1(d) of the Facility Agreement.
Because they were not distinguished by the parties, the Court assumes that "business purposes" and "commercial purposes" are synonymous.
Under ¶ 1(d) of the Facility Agreement, the funds borrowed were to be used "only" to "directly" finance the Saint Annes Project. Paragraph 10 further provided that the credit facility would be used "solely" for business and commercial purposes. Paragraph 1(e) required repayment of any funds taken out under the credit facility by December 31, 2009.
To rebut this evidence, the Trabiches argue that they complied with the restriction on the use of funds and provided an accounting to show that $1,000,000 was invested in the Saint Annes Project after execution of the Facility Agreement. See Def.'s Ex. 2-5; Paper No. 221 at 15-18, 32-34. The Trabiches' financial records show frequent and poorly documented exchanges of money among various businesses and individuals; thus, it is difficult to determine how much money was transferred to and then actually invested in the Saint Annes Project. These calculations — provided to opposing counsel only weeks before trial — also contradict the 2006 Accounting, which Trabich prepared shortly after he received the funds. This Court does not believe the Trabiches' evidence or calculations.
Global Golf made several of the payments that the Trabiches have attributed to the $1,000,000 paid into the Saint Annes Project. But Global Golf was not involved in the Saint Annes Project, Trial Tr. 83:19-22, and should not have received funds under the Facility Agreement. The Defendants have not shown why those payments should be attributed to funds obtained under the credit facility.
Considering the questionable disbursements and the Trabiches' sworn statements that the funds were not used solely for commercial purposes, there is clear and convincing evidence that, at the time they entered the Facility Agreement, the Trabiches did not intend to use the funds for commercial purposes and exclusively to fund the Saint Annes Project. The Trabiches are liable for fraud based on their false representations in the Facility Agreement, regarding the use and purposes of the funds. Judgment will be entered for SADC on Count 4 and for Young on Count 5. The Trabiches shall be
The Plaintiffs have also argued that the Trabiches never intended to repay the funds taken from the credit facility in direct violation of ¶ 1(e). But, the day after the Trabiches entered the Facility Agreement, Trabich sent Coruzzi an email explaining how the Saint Annes Project needed to operate to "pay Rubin back [the $1,000,000]" and "get out of debt." The Trabiches and Coruzzis also made several of the initial payments under the Facility Agreement. Because the parties agree that the Trabiches financial situation deteriorated significantly in the fall of 2006, a fraudulent pre-existing intent not to perform may not be inferred from their failure to perform the promises in the Facility Agreement alone. On these facts, the Plaintiffs have failed to prove by clear and convincing evidence that the Trabiches never intended to repay the loan.
jointly and severally liable for compensatory damages in the amount of $66,182.31 plus post-judgment interest.
Because the Court has already awarded damages for breach of contract that include the principal amount due to Wachovia for funds taken out under the credit facility, see Paper No. 85 at 6, 17, the Plaintiffs have been compensated for those losses, and the Court will not award double recovery. It appears that Young paid the interest on the PNC Loan; thus, $66,182.31 in compensatory damages will be awarded to him for that interest payment.
B. Constructive Fraud (Count 6)
Constructive fraud is:
[A] breach of a legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence or to injure public interests. Neither actual dishonesty nor intent to deceive is an essential element of constructive fraud.
Ellerin v. Fairfax Sav., F.S.B., 337 Md. 216, 652 A.2d 1117, 1127 n. 11 (Md. 1995).
Constructive fraud "usually arises from a breach of duty whe[n] a relationship of trust and confidence exists."
Crawford v. Mindel, 57 Md. App. 111, 469 A.2d 454, 459 (Md. Ct. Spec. App. 1984). "Whe[n] . . . a party is justified in believing that the other party will not act in a manner adverse or inconsistent with the reposing party's interest or
welfare, constructive fraud may be found to arise from a violation of this belief."
Id. Constructive fraud must be proved by clear and convincing evidence.
Jeffcoat v. Jeffcoat, 102 Md. App. 301, 649 A.2d 1137, 1139 (Md. Ct. Spec. App. 1994).
"In equity, fraud `includes all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence, justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another.'" Alleco v. Harry Jeanette Weinberg Found., 340 Md. 176, 665 A.2d 1038, 1049 n. 6 (Md. 1995) ( quoting 1 Story, Equity Jurisprudence § 263 (14th ed. 1918)).
Here, Young and Trabich dispute whether they were in a confidential relationship when they entered the Facility Agreement. Although Young has testified that he considered Trabich to be a good friend, Trabich contends that he and Young had "nothing more" than a business relationship and the Facility Agreement was an arm's length transaction. Paper No. 221 ¶¶ 120-130.
"[A] confidential relationship exists whe[n] one party has dominion over the other person, and the relationship is such that the person with greater influence is expected to act in the best interest of the other person." Brass Metal Prods. v. E-J Enters., 189 Md. App. 310, 984 A.2d 361, 388 (Md. Ct. Spec. App. 2009). Such relationships may arise when "a party is, under the existing circumstances, justified in believing that the other party will not act in a manner adverse or inconsistent with the reposing party's interest or welfare." Midler v. Shapiro, 33 Md. App. 264, 364 A.2d 99, 103 (Md. Ct. Spec. App.
"Confidential relationships can be found in attorney-client relationships, trustee-beneficiary relationships, and in some family relationships." Brass Metal, 189 Md. App. at 388.
1976). "The mere fact that one reposes trust and confidence in another's integrity does not create a confidential relationship." Brass Metal, 984 A.2d at 389 ( quoting Williams v. Dresser Indus., Inc., 120 F.3d 1163, 1168 (11th Cir. 1997)).
Generally, business relationships are not confidential relationships unless "[c]ertain factors above and beyond a typical business relationship" exist. Id. at 388. For example, a confidential relationship may exist when the parties have a close personal relationship that precedes the business relationship. See id. at 389 ( citing Gilmore v. Bell, 478 S.E.2d 609, 611 (Ga. Ct. App. 1996)). Also, a confidential relationship may exist in a business relationship if one party gains influence and superiority as a result of the confidence placed in him by the other party. Id. at 389 ( quoting Nolen v. Hall, 130 Ill. App.2d 867, 266 N.E.2d 141, 145 (Ill. App. Ct. 1970)). By contrast, arm's length transactions between parties seeking to further their own objectives are not consistent with a confidential relationship. Id. at 388-89.
"The fact that one businessman trusts another and relies on another to perform a contract does not give rise to a confidential relationship, because something apart from the transaction between the parties is required." Id. (quoting Exxon Corp. v. Breezevale, Ltd., 82 S.W.3d 429, 443 (Tex. Ct. App. 2002)).
Young argues that Trabich owed him duties arising from their confidential relationship. But there is no evidence that Trabich (1) had a close, personal friendship with Young that preexisted their business dealings or (2) exercised the dominion and influence over Young that would establish a confidential relationship. It was Young — the lender — and not Trabich — the borrower — who controlled whether to fund the credit facility. Furthermore, the Facility Agreement appears to have been an "arm's length" transaction, as it was a formal contract negotiated over two-months among the parties and their attorneys, which stated precise conditions for the repayment and use of the funds.
Young was introduced to Trabich to discuss a business deal, which resulted in the Bethpage Loan and Consulting Agreement; thus, the first interaction between the two men was in the context of that business transaction.
Although their dealings may have led Young to trust Trabich, this is insufficient to transform a business transaction into a confidential relationship. See Brass Metal Prods., 984 A.2d at 390. Because Young has not established that he and Trabich were in a confidential relationship, the constructive fraud claim will be denied.
There is no evidence of a familial relationship or friendship between the parties that preexisted their business dealings. Thus, their regard for one another does not appear to be the respect of colleagues built over a series of mutually beneficial business transactions and is not the fruit of an independent personal relationship.
C. Civil Conspiracy (Count 7)
A civil conspiracy is an agreement or understanding between two or more persons to accomplish an unlawful act, or to use unlawful means to accomplish a lawful act, that damages the plaintiff. Mackey v. Compass Mktg., Inc., 391 Md. 117, 892 A.2d 479, 485 (Md. 2006) (citations omitted). To prove civil conspiracy, a plaintiff must show (1) an unlawful agreement, (2) the commission of an overt act in furtherance of the agreement, and (3) actual injury suffered by the plaintiff as a result. Id. By itself, the unlawful agreement is not actionable; instead, the "[t]ort actually lies in the act causing harm to the plaintiff." Id. (internal quotation omitted). "Thus, civil conspiracy is not capable of independently sustaining an award of damages in the absence of other tortious injury to the plaintiff." Id. (internal citations and quotations omitted).
See also W. Maryland Dairy v. Chenowith, 180 Md. 236, 23 A.2d 660, 664 (Md. 1942) ("A fraudulent conspiracy, sufficient to serve as the basis for an action in a civil case, is the confederation of two or more persons to cheat and defraud, when the design has actually been executed by the confederates with resulting damage to their victim.").
SADC has argued that the similarity of the Trabiches' sworn statements about their intended use of the funds under the Facility Agreement is evidence of their unlawful agreement. Statements in legal papers are typically prepared by a party's attorney; these similarities are insufficient circumstantial evidence of an agreement between the Trabiches to defraud SADC.
D. Punitive Damages
In Maryland, "actual malice must be proven for recovery of punitive damages in an action for fraud." Ellerin, 652 A.2d at 1127. Clear and convincing evidence of actual malice is required. Owens-Illinois, Inc. v. Zenobia, 325 Md. 420, 601 A.2d 633, 657 (Md. 1992). "[A] person's actual knowledge that his statement is false, coupled with his intent to deceive another by means of that statement, constitutes the `actual malice' required for the availability of punitive damages." Ellerin, 652 A.2d at 1129. Thus, "[w]hat is needed to support an award of punitive damages is conscious and deliberate wrongdoing." Hoffman v. Stamper, 385 Md. 1, 867 A.2d 276, 301 (Md. 2005).
As explained above, there is clear and convincing evidence that the Trabiches made knowing misrepresentations about the intended use and purposes of the credit facility with the intent to deceive the Plaintiffs. Accordingly, punitive damages are available.
To determine the amount of punitive damages, Maryland courts consider a defendant's "degree of culpability" and "ability to pay." Ellerin, 652 A.2d at 1130 ( quoting Embrey v. Holly, 293 Md. 128, 141-42, 442 A.2d 966, 973 (Md. 1982)). The purpose of punitive damages is not to compensate the plaintiff but to punish and deter the wrongdoer. Exxon Corp. v. Yarema, 69 Md. App. 124, 516 A.2d 990, 997 (Md. Ct. Spec. App. 1986). Accordingly, "punitive damage awards must not be disproportionate to the gravity of the defendant's wrong." Ellerin, 652 A.2d at 1129.
Because the evidence demonstrates fraud and actions to hide the fraud — by failing to give immediate notice of the New York Complaint — the Plaintiffs contend that the Court should award $1,000,000 in punitive damages to deter the Trabiches from future misconduct. The Trabiches argue that, given the contract damages awarded and Trabich's recent incarceration, they have no ability to pay a punitive damage award.
On May 21, 2008, this Court awarded compensatory damages against the Trabiches in the amount of $2,994,792.71 plus post-judgment interest. With the additional $66,182.31 fraud award, the compensatory damages assessed against the Trabiches in this action will total $3,060,975.02. The Trabiches' most recent financial statement, from November 1, 2007, indicates a combined net worth of $525,000 and Mr. Trabich's annual salary of $350,000-$380,000. Given this evidence, the Court finds that
Of that total award, the Coruzzis are jointly and severally liable for $1,244,792.71 plus post-judgment interest.
the Trabiches have the ability to pay only a modest punitive damages award.
The purpose of punitive damages is to punish and deter "heinous" or "outrageous" conduct. Ellerin, 652 A.2d at 1130 n. 13. Here, the Trabiches conduct, although deceptive and worthy of deterrence, does not under the circumstances justify an award of punitive damages that they have no apparent ability to pay.
To assess appropriate punitive damages in private actions involving "commercial" fraud, Maryland courts may consider the criminal fines imposed for similar offenses as an indication of the public policy interest in deterring such offenses. See id. (citing Embrey v. Holly, 293 Md. 128, 442 A.2d 966, 973 (Md. 1982)). Under Title 4 of the Criminal Law Article, the maximum penalty for a crime involving "commercial fraud" is $10,000. See Md. Code Ann., Crim. Law §§ 8-401 to 8-408. Considering the Trabiches' limited financial resources and the public policy interest in deterring fraud, the Court will award punitive damages (1) to Young against Trabich in the amount of $10,000, and (2) to SADC against the Trabiches, jointly and severally, in the amount of $10,000.
E. Attorneys Fees
Having prevailed on its breach of contract claim, see Paper No. 86, SADC is entitled to collect its reasonable attorneys' fees and expenses under ¶ 8 of the Facility Agreement. The parties have stipulated, and this Court finds, that fees and expenses incurred under that Paragraph in the amount of $116,227.99 are fair and reasonable. Accordingly, judgment shall be entered in favor of SADC against the Defendants, jointly and severally, in the amount of $116,227.99 plus post-judgment interest.
See supra note 9.
III. Conclusion
For the reasons stated above, the Court finds the Trabiches liable for fraud and awards compensatory damages to Young in the amount of $66,182.31 plus post-judgment interest at the legal rate and punitive damages to SADC and Young in the amount of $10,000 each plus post-judgment interest at the legal rate. The Defendants will pay SADC's attorneys' fees under ¶ 8 of the Facility Agreement in the amount of $116,227.99 plus post-judgment interest at the legal rate.