Persaud Companies, Inc. v. The IBCS Group, Inc. et al, No. 1:2009cv00094 - Document 165 (E.D. Va. 2010)
Court Description: MEMORANDUM OPINION re: Plaintiff's and Defendants' Cross Motions for Summary Judgment. (see Order for details) Signed by District Judge Gerald Bruce Lee on 4/5/10. (tfitz, )
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IN THE FOR THE UNITED STATES DISTRICT EASTERN DISTRICT COURT OF VIRGINIA ALEXANDRIA DIVISION Persaud Companies, Inc. Plaintiff, Case No. v. The IBCS Group, l:09cv94(GBL) Inc., Edmund Scarborough, and Steven Golia, Defendants. MEMORANDUM OPINION THIS MATTER is before the Court on Plaintiff's and Defendants' Cross Motions for Summary Judgment. concerns Plaintiff Persaud Companies, allegations that Defendant IBCS Group, Inc.'s Inc. This case ("Persaud") ("IBCS") falsely represented its refund policy to induce Persaud into purchasing its bonds and that IBCS, along with Defendants Edmund Scarborough and Steven Golia, falsely advertised IBCS's refund policy with the intent to induce the public into purchasing IBCS bonds. There are three issues before the Court. The first issue is whether IBCS materially misrepresented its refund policy to procure a contract with Persaud, such that Persaud relied on the misrepresentations and was induced by them to enter into the contract. The second issue is whether IBCS's marketing brochure sections constitutes 18.2-216 of false advertising the Virginia Code. The in violation of third issue is whether Defendants acted with reckless disregard in procuring IBCS's contract with Persaud. The Court grants Count I summary judgment (fraud in the inducement) issues of material fact as in favor of because Persaud on there are no genuine to whether IBCS misrepresented its refund policy to Persaud to secure the General Agreement and bond premium. The Court Indemnity also grants judgment in favor of Persaud on Count III summary (false advertising) because there are no genuine issues of material fact as to whether IBCS, by disseminating its marketing brochure, Virginia's false advertising statute. Finally, the Court grants summary judgement in favor of Defendants on Count IV damages) because Defendants' IBCS's refund policy, violated (punitive misrepresentations concerning without more, are insufficient genuine issue for trial as to whether Defendants' to create a acted with actual malice. I. Persaud Companies, Inc. is a construction contracting company that sought surety bonds bonding company. BACKGROUND from IBCS Group, (Andy Persaud Decl. 1 3.) Inc., a Persaud wanted bonds to guarantee a subcontract from general contractor JACO & MCC Joint Venture LLP Mr. ("JMJV"). Edmund Scarborough is individual surety and is in (Andy Persaud Decl. the business the owner of of IBCS. HI acting as 7,9.) an He provides payment and performance bonds to general contractors and subcontractors. (Scarborough Dep. 12:1-12, 24:14-17, Oct. Golia is an Executive Vice President of 60:21-61:5, Oct. bonding agent. Admis. to IBCS 6, 2009.) Mr. 7, 2009.) IBCS. 46:3-9, Steven (Golia Dep. Mark Congdon is (Andy Persaud Dep. Mr. Persaud's Nov. 5, 2009; Persaud 66.) Beginning in November 2008, Persaud and IBCS engaged in discussions concerning the bonds Persaud needed to secure its contract with JMJV to construct a Texas border fence. Persaud Decl. emailed Mr. Hf 5, 6.) Nov. 6, (Andy Persaud Decl. 2009.) Mr. Mr. Congdon % 16; Congdon Dep. Golia responded by directing Mr. Congdon to IBCS's marketing brochure, website, 2009, Golia about IBCS's refund policy in case JMJV rejected the bonds. 31:17-32:7, On November 17, (Andy then available on its which stated in relevant part: 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 bond is promptly rejected. (Brochure, Am. Compl. Ex. A.) Mr. a Golia also told Mr. Congdon that Persaud could get a refund within fifteen days if JMJV rejected the bonds, and encouraged Mr. pre-approved by JMJV. On December 29, 2008, General Agreement of parties' U 20; Mem. Opp'n Suitim. Persaud and IBCS Indemnity ("GAI") IBCS Admis. 24; Golia Dep. J. Ex. 3.) entered into a which governed the relationship concerning the bonds. GAI contained a the (Defs.' Congdon to get the bonds (Andy Persaud Decl. 219:18-20, Oct. 6, 2009.) The "FEES AND CHARGES" provision which stated that "full initial fee is fully earned upon execution of the BOND and will not be refunded, waived or cancelled for any reason." (GAI, Before Persaud paid the bond premium, Mr. Am. Compl. Ex. F.) Congdon again emailed Mr. refund policy, to which Mr. Golia in January 2009 about IBCS's Golia again directed Mr. Congdon to the marketing brochure and suggested that Persaud get the bonds pre-approved by JMJV. Admis. 20-22; (Andy Persaud Decl. IBCS Admis. bonds pre-approved. 15.) (Defs.' In fact, Mem. Supp. Ex. Summ. J. 6, 2009.) However, Golia 7.) Persaud paid a bond premium of $121,557 and IBCS issued the bonds. Oct. U 22; Persaud never got the Shortly after entering into the GAI, 226:8-11, H at {Golia Dep. on January 12, 2009, JMJV rejected the bonds because they came from an individual surety instead of a corporate surety. 2009.) (Golia Dep. 101:4-9, Oct. JMJV's email to Persaud stated in relevant part: The purpose of concern that this letter is to express the bonds are issued by an [our] individual 6, surety versus Company. the standard Corporate Therefore, [we], rejecting these bonds, by this forwarding back to Persaud Companies, Inc., Surety letter, [are] the originals will be issuing a negative change order for the bond premium, and subsequently issuing joint Companies Inc. and its checks to Persaud second tier subcontractors/suppliers. (PL's Mem. Supp. Summ. J. Ex. L.) Upon notice, the bonds on forms provided by JMJV, them on January 19, 2009. but again, (Answer H 20.) IBCS reissued JMJV rejected Subsequently, JMJV withdrew its demand for the bonds and reduced the size of Persaud's contract by an amount equal to the bond premium, thereby allowing Persaud to proceed under the subcontract. (Defs.' Mem. Supp. Summ. J. 14, of receiving JMJV's rejection, IBCS a copy of JMJV's However, 35-43; in his reply email, Summ. J. Ex. Persaud notified IBCS, 230:8-14, Mr. Mr. Count II 6, Ex. M at 1 29; 2009.) "as stated in the no refund is due." (PL's Mem. N.) Scarborough and Mr. following five counts: IBCS); Oct. Golia wrote, Unable to reclaim its bond premium, against IBCS, emailed and requested a full (Andy Persaud Decl. Golia Dep. General Indemnity Agreement, Supp. Within twenty-four hours rejection letter, refund of the bond premium. Golia Admis. 15.) Count I Persaud filed suit Golia alleging the (fraud in the inducement against (fraud against IBCS, Edmund Scarborough, and Steven Golia); Scarborough, against Count III (false advertising against and Steven Golia); IBCS, Count Edmund Scarborough, (unfair competition against IBCS, IV IBCS, (punitive damages and Steven Golia); Defendants then filed a Motion to Strike, Dismiss, and Motion for a More Definite Statement. from all parties, Defendants Motion to Strike, More Definite Statement as Defendants' to Counts I, and Steven Motion to After the Court denied Motion to Dismiss, Motion to Dismiss as and Count V Edmund Scarborough, Golia). hearing oral arguments Edmund and Motion for a III and IV, to Counts and granted II and V. The parties now file cross Motions for Summary Judgment on Counts I, III and IV. II. Under Federal Rule of grant summary judgment if STANDARD OF Civil REVIEW Procedure 56, the Court must the moving party demonstrates that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Civ. P. 56(c). Fed. R. In reviewing a motion for summary judgment, the Court views the facts in a light most favorable to the nonmoving party. 255 (1986). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, Once a motion for summary judgment is properly made and supported, the opposing party has a genuine dispute exists. the burden of Matsushita Elec. Indus. showing that Co. v. Zenith Radio of Corp., 475 some alleged U.S. 574, factual 586-87 (1986). "[T]he mere dispute between the parties existence will not defeat an otherwise properly supported motion for summary judgment; material the requirement fact." A "material of Anderson, fact" a party's case. Ventures, Inc., 264 Id. at law, that there be no genuine issue of 477 U.S. is a 248; entry of Cir. 2001). Wash. 2001). Sports Whether a is determined by the that might suit under the governing law will Hooven-Lewis v. A "genuine" the outcome v. and "[o] nly disputes over facts properly preclude the 248; (4th Cir. "material" the at 247-48. JKC Holding Co. 465 affect the outcome of U.S. at fact that might affect F.3d 459, fact is considered to be substantive is summary judgment." Caldera, 249 Anderson, F.3d 259, issue concerning a 265 "material" All (4th fact arises when the evidence is sufficient to allow a reasonable jury to return a verdict in the nonmoving party's Anderson, All U.S. at 248. Rule 56(e) requires favor. the nonmoving party to go beyond the pleadings and by its own affidavits, by the depositions, on file, answers to interrogatories, 317, 324 and admissions designate specific facts showing that there is a genuine issue for trial. (1986). Celotex Corp. v. or Catrett, All U.S. III. A. Count I (fraud in the The Court grants Count I because ANALYSIS inducement) summary judgment in favor of Persaud on there are no genuine issues of material fact as to whether IBCS misrepresented its refund policy to Persaud in order to secure the GAI and bond premium. To prevail on a fraud in the inducement claim a plaintiff must prove (1) that the defendant made a material misrepresentation for the purpose of procuring a contract, (2) the plaintiff relied on the misrepresentation and (3) was contract, Brame v. (Va. and (4) the plaintiff suffered damage as a result. Guarantee Finance 1924). induced by it to enter into the Co., Inc., et al., 124 S.E. 477, 481 The Court addresses each of the four elements in turn. 1. Material misrepresentation IBCS materially misrepresented its refund policy based on the information supplied by its marketing brochure and Mr. Golia's representations. A misrepresentation is it influences a person to enter into a contract, "material when when it deceives him to act, or when without it the transaction would not have occurred." J.E.Robert Co. 350, 355 (Va. S.E.2d 207, 1986) 211-12 v. J.Robert Co., (quoting Packard Norfolk v. (Va. 343 S.E.2d Miller, 95 1956)(citation omitted))(finding the car dealer's statements regarding its automobile material because they substantially affected the buyer's interest in purchasing the automobile). Here, there is no factual dispute as to whether IBCS made a material misrepresentation because both the marketing brochure and Mr. Golia's representations were contrary to the GAI the true embodiment of IBCS's refund policy-and influential in Persaud's decision to pay the bond premium. marketing brochure expressly stated, On its Ex. A.) Moreover, IBCS's refund policy, brochure. Summ. 20-22; J. Mr. {PL's Mem. each time Mr. Supp. 15.) bonds pre-approved, Mr. (Brochure, Am. Congdon inquired about Golia directed him to the marketing Summ. at 2; Andy Persaud Decl. IBCS Admis. IBCS's "we will reverse a transaction if a bond is promptly rejected." Compl. face, J. Ex. H 26; Defs.' H at H 22; Mem. Opp'n Golia Admis. While encouraging Persaud to get Golia also promised Mr. the Congdon that IBCS would provide a refund within fifteen days if JMJV rejected the bonds. (Defs.' Mem. Opp'n Summ. J. at 2, 3.) In contrast, the GAI's "FEES and CHARGES" provision states unequivocally, "the full initial fee is and will not be refunded, {GAI, Am. Compl., Ex. F.) fully earned upon execution of the BOND waived or cancelled for any reason." At no time during their discussions and email correspondence did Mr. Golia disclose to Mr. Congdon that the GAI 95:14-96:7, governed Nov. 6, its bond premium, CHARGES" brochure's express Supp. 2009.) refund policy. Yet when Persaud sought a refund of "FEES and which contradicts both the marketing language and Mr. Summ. J. Ex. Under the circumstances, representations (Congdon Dep. IBCS denied the request based on the provision, (PI.'s Mem. IBCS's Golia's representations. N.) Mr. Golia's oral and written influenced Persaud's decision to enter into the GAI and pay the bond premium. Mr. Congdon inquired about IBCS's refund policy on more than one occasion. possible rejection of the bonds, Mr. Concerned with JMJV's Congdon emailed Mr. Golia in November 2008 about the likelihood of receiving a full refund. 6, (Andy Persaud Decl. 2009.) inquiry. Congdon Dep. Less than two months later, (Andy Persaud Decl. IBCS Admis. Golia, H 16; 15.) Ex. Mr. 31:17-32:7, Congdon made the same Hat f 22; Golia Admis. Only after receiving assurances on both occasions, Nov. 20-22; from Mr. that a full refund would be provided with prompt notice did Persaud enter into the GAI and pay the bond premium. Decl. 6, U 20; 2009.) (Defs.' IBCS Admis. Thus, Mem. Opp'n Summ. 24; Golia Dep. at the very least, Mr. J. Ex. 101:4-9, 3; Andy Persaud 219:18-20, Congdon's repeated inquiries indicate the materiality of Mr. Golia's misrepresentations concerning IBCS's refund policy. 10 Oct. 2. Reliance Persaud's reliance on the marketing brochure and Mr. Golia's representations was both reasonable and justifiable. A basic tenet of fraud is that on by the party to whom it was however, the misrepresentation was relied addressed. The reliance, must be both reasonable and justified. Potocska, 589 F.Supp.2d 631, reliance is unreasonable if excite his suspicions, 652 (E.D. the party Va. See White v. 2008) (holding that "had enough information to and he was therefore under a duty to ascertain the true condition for himself.") Where reasonable reliance requires looking to what a prudent person would do under the circumstances, justifiable reliance does not require that a person conform his conduct to the standard of the reasonable man. Simply put, Field v. Mans, 516 U.S. 59, 63, (1995). justifiable reliance is less demanding than reasonable reliance because it is characteristics of circumstances of "a matter of the particular plaintiff, the particular case, the qualities and and the rather than of the application of a community standard of conduct 71 71 ..." Id. at (citation omitted). On these facts, Persaud's reliance on IBCS's misrepresentations was both reasonable and justified even in light of the GAI. Relying on Potocska, 11 58 9 F.Supp.2d at 650, and Scheduled Airlines 180 F.3d 583, 589 Traffic Offices, (4th Cir. 1999), Inc. IBCS v. faults Objective, Persaud for failing to discover the GAI's contradictory language. Mem. Supp. Objective, contrast Summ. J. however, 11, 12.) The facts of where defendants this case. In alleged plaintiffs fraudulently misrepresented certain documents financial services (Defs.' Potocska and do not parallel the facts of to Potocska, Inc., in the sale of a firm after months of negotiation in which both parties were involved in drafting specific exhibits, there was insufficient information here to arouse Persaud's suspicion concerning IBCS's true refund policy. 589 F.Supp.2d at 639. IBCS alone drafted the marketing brochure and GAI. GAI, Am. Compl. possession of Ex. A, F.) Although Persaud had access and the GAI beginning on December 29, actively misdirected Mr. (Brochure, 2008, Mr. Golia Congdon to the marketing brochure and made contradictory statements beginning in early November 2008 and even after the parties entered into the GAI. Decl. Ex. H at U 22; Golia Admis. In Objective, 20-22; (Andy Persaud IBCS Admis. defendant software development 15.) firm agreed to produce a travel software system for plaintiff but failed to complete the task when problems made the software inoperable. 180 F.3d 583. Confronted with a breach of contract and breach of warranty complaint, defendant counterclaimed for fraud and 12 argued that it was induced based on guarantees of There, the to enter into a low exposure and visibility. court deemed plaintiff's statements expressions of opinion about what defendant parties' agreement. fee Id. In contrast, in IBCS's marketing brochure and Mr. contract Id. at 589. as mere could gain from the the statements contained Golia's emails were not opinions but assurances that Persaud would issue a full refund if prompt notice of JMJV's rejection is provided. Opp'n Summ. Admis. J. 20-22; Ex. 3; Andy Persaud Decl. IBCS Admis. 15.) H at 1 22; In further contrast, Circuit found that the plaintiff in Potocska made misrepresentation of a material fact we Ex. (Defs.' ..." Id. Mem. Golia the Fourth "no Whereas here, cannot deny that IBCS materially misrepresented its refund policy. Mr. Congdon's written and oral inquiries were repeatedly met with the same response to look to IBCS's marketing brochure and if notice of a rejection is given within fifteen days, Opp'n Summ. Admis. J. 20-22; based on Mr. IBCS would refund the bond premium. at 2, 3; Andy Persaud Decl. IBCS Admis. 15.) Ex. H at (Defs.' H 22; Mem. Golia Persaud had no reason to doubt, Golia's assurances that IBCS, a decade old company dealing with clients engaging in contracts with the Department of Defense, would publish a marketing brochure or make representations containing false information regarding its 13 services. Thus, Persaud could therefore justifiably rely on all that Mr. IBCS contends three reasons. that First, Congdon's inquiries revealed. Persaud's reliance was unreasonable Persaud failed to protect getting the bonds pre-approved as Supp. Summ. Second, J. at reasonably and 5-7; Defs.' itself by IBCS suggested. Mem. Opp'n Summ. for J. (Defs.' at 6, Mem. 7.) because JMJV not only rejected the bonds but also waived the bond requirement, the subcontract, thereby allowing Persaud to proceed under the circumstance was one which neither party anticipated, and contrary to the marketing brochure's language. (Defs.' Supp. Mem. Summ. J. 13, 14.) The brochure only stated that IBCS would reverse a transaction if a bond is promptly rejected, (Brochure, not when there is a waiver of the bond requirement. Am. Compl. H 13, Ex. A.) Consequently, Persaud could not rely on representations concerning a situation which neither party considered or discussed, marketing brochure. Finally, and was not stated in the Persaud should have made specific inquiries regarding the inconsistencies between its claimed understanding of the alleged representations and the GAI's express terms. {Defs.' Mem. Supp. Summ. J. 11, 12.) The Court is unpersuaded by IBCS's arguments. on the marketing brochure's language, First, based pre-qualification was not a condition precedent to receiving a refund of the bond premium. 14 "We intend to pre-qualify all bonding requests possibility of bond rejection," requirement. of (Brochure, Am. is Compl. language of Ex. A.) the marketing brochure indicated that would pre-qualify the bonds. However, A IBCS, IBCS to minimize the intent, not literal reading not Persaud, took no action to satisfy its obligation and instead encouraged Persaud to prequalify the bonds. Admis. 20-22; (Defs.' IBCS Admis. Mem. 15.) Opp'n Summ. Second, J. at 2-5; Golia JMJV's decision to waive the bond requirement did not change the fact that it first rejected the bonds Ex. L.) issued by IBCS. By its January 19, unequivocally stated, 2009 n[we are] (PL's Mem. letter to Persaud, J., JMJV rejecting these bonds, forwarding the originals back to Persaud . issuing joint checks to Persaud Companies tier subcontractors/suppliers." L.) for Summ. . . Inc. (PL's Mem. and subsequently and its second for Summ. J., Ex. Any decision thereafter to waive the bond requirement was a separate act from JMJV's earlier rejection. Whether Persaud relied on representations concerning an unanticipated eventJMJV's waiver of Finally, the bond requirement is irrelevant. IBCS cannot use Persaud's negligence as an excuse where IBCS's misrepresentations diverted Persaud from discovering that it would not receive a refund. Ins. Co. v. Patterson, 331 S.E.2d 490, 15 492 (Va. See Nationwide 1985) (concluding that when a party enter into a contract, fraudulently induces he cannot then "escape another to liability by saying that the party to whom the misrepresentation was made was negligent in failing to learn the truth"); Pettit, 75 S.E. 303, 308 (Va. 1912) {finding that one cannot defend an action for fraud by saying, fraud and deceit, therefore, omitted)). "( [i]t is true that induced you to enter into the contract, you were negligent in not finding out and, see also Cerriglio v. that by but I was deceiving you, guilty of negligence in believing me'" At the time of its representations, the drafting party, I, (citation IBCS knew, as that while the marketing brochure stated a full refund of the bond premium would be available, no such refund was due under the GAI's terms. Mr. continued to direct Mr. Nonetheless, Golia Congdon to the marketing brochure every time the latter raised a question about IBCS's refund policy. (PL's Mem. Golia Adtnis. conceal for Summ. 20-22; the GAI's misdirected Mr. J. H 33; Andy Persaud Decl. IBCS Admis. terms 15.) from Mr. Mr. Ex. H at j 22; Golia did not simply Congdon but actively Congdon into believing that a full refund would be available upon timely notice of JMJV's rejection. As such, Persaud's failure to discover the inconsistencies between IBCS's representations and the GAI's terms reliance. 16 is not a defense to 3. Inducement The marketing brochure and Mr. Golia's representations induced Persaud to enter into the GAI and pay the bond premium. Misrepresentations under a fraud in the inducement claim must be made with the intent to Brawe, 124 S.E. at 481. induce Admittedly, brochure as a marketing tool bonds. (Golia Dep. plain language, GAI on belief formation of IBCS to attract 134:2-135:8, Oct. used the marketing those 6, without qualification, the contract. seeking surety 2009.) The brochure's led Persaud to sign the that a full refund would be provided if JMJV rejected IBCS's bonds. (Brochure, Am. Compl. % 13, Ex. A.) IBCS knew its refund policy was not embodied in the Brochure or in Mr. Golia's representations but rather in the GAI's CHARGES" provision. 188:15-189:1, 7, 2009.) and Mr. Oct. (Golia Dep. 6, 2009; Nonetheless, 138:9-139:20, Scarborough Dep. "FEES AND 163:21-164:1, 24:18-25:13, Oct. IBCS disseminated the marketing brochure Golia repeatedly assured Mr. Congdon that a refund would be available if JMJV rejected the bonds and timely notice is given. 96:7, (Golia Dep. November 6, 143:2-19, 2009; Oct. 6, 2 009; Andy Persaud Decl. Congdon Dep. f 18.) Thus, 95:14IBCS knowingly misrepresented its refund policy in order to procure the GAI with Persaud and the bond premium. 17 But for IBCS's misrepresentations, Persaud would not have entered into the GAI and paid the bond premium. the GAI, Mr. Before signing Congdon made numerous oral and written inquiries regarding IBCS's refund policy and at all times he was directed to the marketing brochure. to A. Persaud Decl. Additionally, Mr. U 22; (PL's Mem. Golia Admis. for Summ. 20-22; J. U 33; IBCS Admis. Ex. H 15.) Golia's statements indicating that there was a fifteen day review period and a refund would be given if the bonds were rejected within that time provided further incentive for Persaud to pay the bond premium. at H 17; IBCS Admis. IBCS argues 17, (Andy Persaud Decl. 18; Golia Admis. that pressure 24, Ex. E. 25.) from JMJV forced Persaud to purchase the bonds rather than any act of inducement by IBCS; therefore, Golia's the marketing brochure and Mr. representations had no effect on Persaud's decision to purchase the bonds. (Defs.' Mem. Opp'n Summ. J. at 15-20.) However, whether Persaud faced pressure from JMJV or struggled to obtain the bonds from other bonding companies is misrepresentation of its refund policy. irrelevant to IBCS's As an unrelated third party to the IBCS-Persaud contractual relationship, JMJV's actions had no bearing on IBCS's true intention regarding its refund policy under the GAI. secure bonds Similarly, from other sureties is 18 Persaud's ability to independent from IBCS's misrepresentations. on the ground that circumstances 4. Therefore, Persaud was on which IBCS IBCS cannot avoid responsibility compelled to contract because of had no control. Damages Persaud's reliance on IBCS's marketing brochure and Mr. Golia's misrepresentations resulted in the loss of the bond premium. Shortly after entering into the GAI, bond premium. hours of (Answer U 18; Golia Dep. receiving JMJV's rejection, Tr. 226:8-11.) the bond premium. 29; Answer UH 26, Oct. 6, 2009.) 27; However, the value of 35-41; Golia Dep. Ex. loss the bond premium. Ex. N at H 31; Answer K 31; Golia Dep. M at f 230:8-14, IBCS refused to issue a refund, causing Persaud to suffer financial $121,557, and requested a (Andy Persaud Decl. Golia Admis. Within Persaud notified IBCS, emailed IBCS a copy of JMJV's rejection letter, full refund of Persaud paid the thereby in the amount of (Andy Persaud Decl. 232:19-233:19, Oct. 6, 2009.) B. Count III (false advertising) The Court grants summary judgment Count III because there are no genuine as to whether IBCS, in favor of Persaud on issues of material fact by disseminating a brochure which contained a false statement regarding its refund policy, Virginia's false advertising statute. 19 violated It is a misdemeanor for a person or company who or service intends to make or distribute regarding that product, statements sell or distribute Va. which contains Inc., Code Ann. 254 §§ 18.2-216 S.E.2d 66, any product any written advertisement false or misleading intended to persuade the public obligation. Chevrolet, to 67 to enter into an (West 2009); (Va. Henry v. R.K. 1979)(affirming the trial court's decision that defendant's oral representations did not violate §§ 18.2-216 because Congress cover only non-oral advertisements). misdemeanor, a violation of intended the statute to Although punishable as a §§ 18.2-216 also "subjects the defendant to an action for damages by any person who suffers loss as a result of Henry, 254 such violation." S.E.2d at 67. In dispute Va. Code Ann. §§ 59.1-68.3; is whether the marketing brochure contained misleading statements which IBCS intended to induce the public into purchasing its bonds. 1. Misleading Statement The marketing brochure and Mr. Golia's emails contained misleading statements regarding IBCS's refund policy. other forms of advertisement, Like the marketing brochure was a marketing tool which IBCS used to promote its surety services. (Golia Dep. HH 12, 134:2-19, Oct. 13; Brochure, Am. 6, 2009; Andy Persaud Decl. Compl. Ex. A.) marketing brochure on its website, 20 Ex. By posting the any member of the public C at could obtain information about IBCS's services simply by accessing the World Wide Web to view the brochure. 138:13, 134:2-19, Oct. 6, 2009.) Based on its that wishes to purchase surety bonds and reads language, However, that was not (Brochure, the case as Am. IBCS Compl. timely notice U GAI, (Golia Dep. 138:9-139:20, Oct. 13, In sum, IBCS's refund policy. A.) 6, 2009.) its refund Rather, which expressly forbids refunds for any reason, embodiment of Ex. admitted the marketing brochure did not contain a complete statement of policy. a party the brochure would understand that he may receive a refund if of a rejection is given. (Golia Dep. (GAI, Am. the is the true Compl., Ex. F.) the marketing brochure was not only an incomplete statement, but a false statement of IBCS's refund policy such that IBCS will not reverse a transaction if a bond is promptly rejected. IBCS argues (1) that there was no misleading statement because the marketing brochure made no claims about refunds in the event bond requirements were waived, here; and (2) it was Mr. Congdon, which was what happened as Persaud's agent, who transmitted the marketing brochure to Persaud which broke any causal connection between IBCS and Persaud's claimed loss. (Defs.' Mem. Opp'n Summ. J. at 8, 9.) As discussed, JMJV's decision to waive the bond requirement is irrelevant because it 21 also rejected the bonds. (Golia Dep. 101:4-9, PL's Mem. Ex. to the claim that Persaud Supp. Summ. J. was misled by its own agent, L.) As this argument Oct. 6, 2009; is contradicted by the plain fact that IBCS disseminated the marketing brochure to the public by making it available on its website. 138:13, 2. 134:2-19, Intent Oct. to Induce 6, the (Golia Dep. 2009.) Public IBCS disseminated the marketing brochure with intent to induce the public to purchase its bonds. written advertisement under §§ 18.2-216. The brochure was a There is no dispute it was used to provide members of the public looking to purchase surety bonds information about 138:13, 6, Oct. 2009.) IBCS's Specifically, services. (Golia Dep. IBCS hoped the public would buy IBCS bonds and but for this purpose IBCS would not have made its marketing brochure available on the World Wide Web. (Golia Dep. element of C. Count 134:2-135:8, intent to induce IV is Oct. 6, 2009.) Therefore, the satisfied. (punitive damages) The Court grants summary judgment in favor of Defendants because despite misrepresentations concerning IBCS's refund policy, there is no proof Defendants acted with actual malice in disseminating the marketing brochure or based on Mr. representations. Golia's Punitive damages may be recovered in an action 22 for fraud where there actual malice, is which is rights of others. direct or circumstantial proof of shown by a conscious disregard of Jordan v. 1978)(reversing the Sauve, trial court's 247 S.E.2d 739, the 741-42 (Va. order denying plaintiff's claim for punitive damages because defendant withheld documents pertaining to the buyer's right to purchase the automobile). granting punitive damages, plaintiff's loss, his wrongdoing. In the court seeks not to compensate for but to punish the defendant and warn others of Id. at 741. While Defendants were aware that IBCS's refund policy was not as it appeared in the marketing brochure, not amount sets to a reckless disregard of Persaud's rights. forth two arguments why IBCS and Mr. conscious disregard of reckless their conduct did for not its rights. Golia displayed a First, informing Persaud that Persaud Mr. IBCS's Golia was true refund policy was contained in the GAI when he knew of Persaud's concern about 22, 23.) the refund policy. Additionally, (PL's Mem. Supp. Summ. J. at the fact that IBCS did not incur any risk or provide any services tends to show a disregard for Persaud's rights, and therefore IBCS should not be allowed to retain the bond premium. Persaud's arguments (PL's Mem. Supp. are unconvincing. that in securing the GAI and bond premium, 23 Summ. First, Mr. J. at 23, it is Golia made 24.) true representations Congdon to Mem. J. H 26; Persaud Decl. However, to the GAI's Defs.' U 22; Mem. Ex. than the Golia Admis. 20-22; GAI. J. (PL's at 2; Ex. IBCS Admis. 3; Andy Persaud Decl. 15.) Ex. (Defs.' Hat 1 22; Mem. H 15.) IBCS also urged Persaud to pre-qualify the bonds IBCS Admis. Mr. and directed Mr. Opp'n Summ. order to avoid a rejection from JMJV. J. terms the marketing brochure rather for Summ. to A. contrary in Opp'n Summ. Golia Admis. 20-22; It is more likely that malice would exist had Golia discouraged Persaud from getting pre-qualification, which was not the case. from the GAI's Mr. Golia's act of deflecting attention "FEES AND CHARGES" provision based on his representations, though dishonest, did not amount to a spirit of mischief or criminal indifference to Persaud's rights. Second, that IBCS did not point out information in the GAI which was available to Persaud is not evidence of reckless disregard for Persaud's rights. The question here is whether sufficient evidence exists to permit the jury to find that IBCS acted with recklessness by dissemination and directing Persaud to its marketing brochure, along with Mr. Golia's representations, so as to evince a conscious disregard of Persaud's rights to learn of the true refund policy. balance, the Court finds it does not. On Unlike defendant car salesmen in Sauve who allegedly tampered with the sales order 24 and caused plaintiff car buyer to obtain unauthorized amount, IBCS did not terms at or concealed 740-41. the Without more, to Persaud. Therefore, secretly change relevant provisions. established by the mere services financing at an the GAI's Sauve, 247 S.E.2d reckless disregard cannot be fact that IBCS did not provide any Inaction alone does not amount to malice. even where all inferences are drawn in a light most favorable to Persaud, there was no actual malice by Defendants and Persaud may not recover punitive damages. IV. CONCLUSION The Court grants summary judgment Count I (fraud in the inducement) in favor of Persaud on because there are no genuine issues of material fact as to whether IBCS misrepresented its refund policy to Persaud to secure the GAI and bond premium. The Court also grants Count III summary judgment in favor of Persaud on (false advertising) because there are no genuine issues of material fact as to whether IBCS, brochure, violated Virginia's by its marketing false advertising statute. Finally, the Court grants summary in favor of Defendants on Count IV (punitive damages) because despite their misrepresentation concerning IBCS's refund policy, there is insufficient evidence to create a genuine issue for trial as to 25 whether Defendants acted with actual malice. Accordingly, it is hereby ORDERED that GRANTED IN PART and DENIED ORDERED GRANTED Plaintiff's Motion for Summary Judgment IN that Defendants' IN PART and DENIED PART. It is further Motion for Summary Judgment Civil Procedure 58. Inc., Inc. Edmund Scarborough, amount of one hundred twenty-one fifty-seven dollars to Federal The Court enters judgment in favor of Plaintiff Persaud Companies, IBCS Group, is IN PART. The Clerk is directed to ENTER JUDGMENT pursuant Rule of is and against Defendants and Steven Golia thousand and in the five hundred ($121,557.00). The Clerk is directed to forward a copy of the Memorandum Opinion to counsel. Entered this Alexandria, & > day of April, 2010. Gerald Bruce Lee Virginia J*L United States District Judge 26
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