Bank of America, National Asso v. Christopher Sand

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:10-cv-00731-CMH-JFA. Copies to all parties and the district court/agency. [998897334]. [11-1618]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 11-1618

BANK OF AMERICA, N.A.,
Plaintiff - Appellant,
v.
CHRISTOPHER ANDREW SANDS,
Defendant – Appellee,
and
JAMES STEPHEN BRITT,
Defendant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.
Claude M. Hilton, Senior
District Judge. (1:10-cv-00731-CMH-JFA)

Argued:

May 16, 2012

Decided:

July 18, 2012

Before WILKINSON, GREGORY, and FLOYD, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: E. John Steren, OBER KALER GRIMES & SHRIVER, PC,
Washington, D.C., for Appellant.
Thomas W. Repczynski, OFFIT
KURMAN, PA, Vienna, Virginia, for Appellee.
ON BRIEF: Michael
A. Hass, Kristina J. Longo, OBER KALER GRIMES & SHRIVER, PC,
Washington, D.C., for Appellant. John B. Raftery, OFFIT KURMAN,
PA, Bethesda, Maryland, for Appellee.

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Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
Bank

of

association
Carolina,

America,
with

brought

N.A.

its

(the

Bank),

principal

this

place

action

against

a

of

national
business

Christopher

banking
in

North

Sands,

a

citizen of Virginia, accusing him, among other things, of actual
and constructive fraud.

According to the Bank, Sands made a

number of misrepresentations related to his company’s accounts
receivable, which the Bank relied upon when issuing a loan to
facilitate a third party’s purchase of his company.

The case

survived motions for summary judgment and proceeded to trial.
At the close of the Bank’s case, the district court determined
that there was insufficient evidence to send the case to the
jury and granted Sands’s motion for judgment as a matter of law.
The

Bank

district

appeals
court

this

that

a

ruling.

Because

reasonable

jury

we

agree

would

have

with

the

lacked

a

legally sufficient evidentiary basis on which to find that Sands
engaged in actual or constructive fraud, we affirm.

I.
Given the procedural posture of this appeal, we view the
evidence in the light most favorable to the Bank and draw all
reasonable

inferences

from

that

evidence

in

its

favor.

See

Buckley v. Mukasey, 538 F.3d 306, 321 (4th Cir. 2008).

The

evidence presented at trial established the following facts.
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Sands

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was

the

founder,

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co-owner,

and

chief

executive

officer of AC Technology, Inc., a company in the business of
reselling hardware.

From the company’s inception, Sands’s goal

was eventually to sell it, preferably for cash.

Because he

desired a cash purchase of the company, he rejected multiple
offers

that

perseverance

contained
paid

noncash

off,

and

components.

on

July

Ultimately,

1,

2008,

MB

this

Security

Corporation purchased AC Technology for approximately $5 million
in cash.
In

effectuating

this

furnished by the Bank.

purchase,

MB

Security

used

a

loan

The loan involved a line of credit,

capped at $10 million, that allowed MB Security to draw varying
amounts

depending

on

the

level

of

AC

Technology’s

accounts

receivable, which served as the collateral base for the loan.
Hence,

as

increased,

the
so

value
did

the

of

AC

Technology’s

amount

that

MB

accounts

Security

receivable

could

provided this amount could not exceed $10 million.

borrow,

This loan

structure is known as “receivable financing.”
As was to be expected, the Bank demanded certain documents
relating to AC Technology’s finances, particularly its accounts
receivable, for determining how much to lend.

Most pertinent to

this appeal are documents referred to as accounts receivable
aging

(ARA)

summaries.

These

ARA

summaries

listed

AC

Technology’s accounts receivable, the customers to which they
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related, and how long they had been outstanding.

An account

receivable could not be properly listed on an ARA summary until
the product shipped to the purchaser.

Until then, it remained a

purchase order, not a billable account receivable.
To

satisfy

the

Bank’s

requests

for

accounts

receivable

information, Sands sent ARA summaries to Michael Byrd and Earle
Munns, co-owners of MB Security.

He did not provide Byrd and

Munns direct access to AC Technology’s records and books.

Byrd

and Munns then sent ARA summaries to the Bank, which understood
them to be receiving their information from Sands.

Also, based

on the information set forth in the ARA summaries, Byrd and
Munns prepared borrowing base certificates (BBCs) for the Bank.
After subtracting certain ineligible accounts receivable, BBCs
calculated

a

gross

accounts

receivable

availability

number,

which the Bank used to determine the line of credit.
In

supplying

information

about

AC

Technology’s

accounts

receivable to Byrd and Munns, Sands knew what did and did not
constitute
Technology,

an

account

he

receivable.

actively

Prior

participated

to
in

the

sale

of

maintaining

AC
the

company’s accounting system and constantly reviewed its accounts
receivable.

He was aware that for a purchase to be listed as an

account receivable in the information he was providing to Byrd
and Munns, the product must have actually shipped.

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That said,

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it

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was

never

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Sands’s

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practice

to

verify

whether

orders

had

shipped as planned.
Sands also appreciated that the Bank would rely upon the
financial information he provided Byrd and Munns in its loan
decisions.

And, along those lines, he understood that Byrd and

Munns

to

were

supply

the

Bank

with

information that he provided them.

the

accounts

receivable

From these facts arises the

reasonable inference that Sands anticipated that the Bank would
base

its

loan

decisions

at

least

in

part

on

the

accounts

receivable information that he furnished Byrd and Munns.
On the evening of June 27, 2008, three days before the loan
closing, Sands sent an e-mail to Byrd and Munns with an ARA
summary

attached.

Among

the

specific

accounts

receivable

contained in this ARA summary were two that possess particular
relevance here: an account receivable relating to a purchase by
the Maryland Procurement Office (MPO) and an account receivable
relating to a purchase by General Dynamics (GD).

Sands had

requested that the vendor for the MPO purchase ship the product
earlier in the day and, as was customary for him, listed it as
an account receivable without verifying that the product had
actually shipped.

To the extent they existed, similar details

regarding the GD purchase were not provided.

In any event, at

the time Sands sent this ARA summary, neither the MPO purchase
nor the GD purchase had in fact shipped.
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Later in the night of June 27, after receiving the ARA
summary from Sands, Byrd sent an ARA summary to the Bank via email.

But this ARA summary was not the same ARA summary that

Sands had sent Byrd and Munns.
listed

the

total

$163,709.13,

Byrd’s

$4,469,509.13.
MPO

account

worth

of

Whereas Sands’s ARA summary

the

summary

GD

listed

account
its

receivable

total

worth

as
as

And although Sands’s ARA summary provided one

receivable

with

a

total

worth

of

$2,007,460.66,

Byrd’s summary listed two MPO accounts receivable, one having a
total worth of $25,980.00 and the other having a total worth of
$2,010,000.00.

Other discrepancies in values existed as well.

Because of these differences, the two ARA summaries contained
different

amounts

for

the

total

worth

of

AC

Technology’s

accounts receivable: Byrd’s ARA summary listed total accounts
receivable of $9,649,523.00, but Sands’s ARA summary reported
accounts receivable totaling only $4,896,514.65.
Byrd and Munns created these disparities by altering the
ARA summary that Sands sent them.

In making these alterations,

Munns dictated to Byrd the values of accounts receivable for
various accounts, which Byrd then entered.

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Nothing at trial

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established that Sands represented these inflated values to Byrd
or Munns. 1
On the morning of June 29, 2008, Munns resent Byrd’s June
27 e-mail with the above-described altered ARA summary to the
Bank based on the understanding that it did not receive the
prior one.

He did not make any further changes to Byrd’s ARA

1

We have thoroughly examined the record regarding this
point.
At one point, regarding the value of the GD purchase,
Byrd testified that he received the inflated number from Munns,
and when asked where Munns obtained that number, Byrd stated
that “[t]he General Dynamics was some conversations [Munns]
claimed he was having with Mr. Sands.”
That statement is too
ambiguous to yield a reasonable inference that Sands represented
to Munns that the GD purchase was valued at over $4 million
rather than the approximately $160,000 he listed in his ARA
summary.
This is particularly true in light of the other
testimony.
Munns testified that he did not know the source of
the information regarding the GD purchase.
And earlier in
Byrd’s testimony, he stated that he only assumed Munns obtained
the information from Sands. Moreover, Byrd testified that Munns
told him that the information he was including came not only
from Sands, but from others.
And, even then, he subsequently
clarified that he did not entirely understand where Munns was
receiving his information.
Also, in an attempt to show that Sands provided the
information regarding the value of the GD purchase, the Bank
points to a number of e-mails that Byrd sent it wherein he
mentioned the value of the GD purchase and alluded to
conversations with Sands.
But we have reviewed these e-mails
and find nothing to suggest that the value of the GD purchase
came from these conversations.
The fact that the e-mails
contain references to both the GD purchase and conversations
with Sands does not yield a reasonable inference that the value
of the GD purchase came from him. In the end, even viewing the
evidence in the light most favorable to the Bank, we find
nothing establishing that Sands represented to Munns or Byrd the
inflated values included in Byrd’s ARA summary.

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summary before resending it.

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The following morning, on June 30,

Byrd sent the Bank a BBC that listed the total amount of AC
Technology’s accounts receivable as $9,649,523.

The Bank, in

deciding the amount of credit to extend, relied on this BBC and
Byrd’s ARA summary.

Had the MPO and GD accounts receivable not

been listed in that ARA summary, the amount of available credit
would have dropped significantly.

In fact, without the MPO and

GD accounts receivable, the Bank would not have issued the loan
to

cover

the

purchase

price

because

there

would

have

been

The closing for the loan took place on June 30, 2008.

That

insufficient collateral.

morning, at 9:56 a.m., an AC Technology employee, Paul Ford,
forwarded Sands an e-mail, the subject line of which read “FW:
Orders.”

The

forwarded

material

in

the

body

of

the

e-mail

mentioned that the MPO purchase would not ship until mid-July.
According

to

Sands,

because

he

was

busy

preparing

for

the

closing, he did not read the e-mail that morning and it was not
until the following day that he discovered the MPO order had
failed to ship.

At 11:42 a.m. on June 30, Sands sent Byrd and

Munns an e-mail from the same account to which Ford sent the email regarding the expected shipment date for the MPO purchase.
Sands attached an ARA summary and informed them that it was “the
A/R as of 8:30 am this morning June 30, 2008.”

The MPO purchase

remained listed as an account receivable on this ARA summary.
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Its total worth was $2,135,268.47.

Also still listed as an

account receivable was the GD purchase.

Its total worth, as on

Sands’s June 27 ARA summary, remained $163,709.13.

But again,

neither of these purchase orders had shipped.
At the closing, the Bank extended a loan of $5.5 million to
fund MB Security’s purchase of AC Technology.

Of this $5.5

million, Sands personally received about $1.38 million.

The

next day, on July 1, MB Security closed on its purchase of AC
Technology.
AC Technology subsequently defaulted on the loan, and the
Bank undertook efforts to recover the balance it was owed.
Bank

brought

a

lawsuit

against

Byrd

alleging

fraud.

The
Byrd

eventually settled with the Bank, agreeing to a nondischargeable
judgment against him.
Munns.

The Bank also obtained a judgment against

Nevertheless, at the time of Sands’s trial, the Bank

still maintained an outstanding balance of $4,377,722 on the
loan.
The Bank filed a complaint against Sands and James Stephen
Britt in the Eastern District of Virginia on June 29, 2010.

The

complaint alleged that Britt was an attorney and current coowner of AC Technology who, on behalf of himself, Byrd, and
Munns,

negotiated

and

agreement with Sands.
fraudulent

entered

into

the

purchase

and

sale

The Bank asserted causes of action for

misrepresentation,

constructive
10

fraud,

common

law

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conspiracy to commit fraud, and statutory conspiracy to commit
fraud.

The Bank’s case survived motions for summary judgment.

On May 3, 2011, the Bank stipulated to the dismissal of Britt as
a defendant.
The case against Sands proceeded to trial on May 9, 2011.
The next day, at the close of the Bank’s case, the district
court granted Sands’s motion for judgment as a matter of law
pursuant to Federal Rule of Civil Procedure 50(a), finding there
was

insufficient

evidence

to

send

the

case

to

the

jury.

Specifically, the district court concluded that the Bank had
failed to provide evidence demonstrating that Sands knew the
products

relating

shipped,

meaning

to

the

that

MPO

and

he

did

GD

purchases
not

had

make

a

not

yet

knowing

misrepresentation in listing them as accounts receivable.

The

court also determined that the Bank did not rely on Sands’s
representations in determining the amount of credit to extend
but

instead

relied

Munns sent it.

on

the

altered

information

that

Byrd

and

The Bank then filed this timely appeal.

II.
We

review

de

novo

a

district

court’s

motion for judgment as a matter of law.
321.

order

granting

a

Buckley, 538 F.3d at

In conducting this review, we apply the same standards as

the district court.

Corti v. Storage Tech. Corp., 304 F.3d 336,
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341 (4th Cir. 2002).

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Pursuant to this standard, a district

court may enter judgment as a matter of law against a party on a
claim

only

if,

after

the

party

has

been

fully

heard

on

a

dispositive issue, the court determines “that a reasonable jury
would not have a legally sufficient evidentiary basis to find
for the party on that issue.”
because

our

citizenship,

jurisdiction
we

apply

in

the

Fed. R. Civ. P. 50(a).
this

case

substantive

rests
law

on

of

Moreover,

diversity

Virginia.

of
See

Universal Concrete Prods. v. Turner Constr. Co., 595 F.3d 527,
529 (4th Cir. 2010).
Virginia law recognizes claims for both actual fraud and
constructive fraud.
439

S.E.2d

387,

390

See Evaluation Research Corp. v. Alequin,
(Va.

1994).

To

prove

actual

fraud,

claimants must provide evidence of “(1) a false representation,
(2) of a material fact, (3) made intentionally and knowingly,
(4) with intent to mislead, (5) reliance by the party misled,
and (6) resulting damage to the party misled.”

Id.

to

claimants

sustain

claims

of

constructive

fraud,

Similarly,
must

establish 1) “a material false representation”; 2) “that the
hearer believed it to be true”; 3) “that it was meant to be
acted on”; 4) “that it was acted on”; and 5) “that damage was
sustained.”

Nationwide Ins. Co. v. Patterson, 331 S.E.2d 490,

492 (Va. 1985).

“Constructive fraud differs from actual fraud

in that the misrepresentation of material fact is not made with
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the intent to mislead, but is made innocently or negligently
although

resulting

in

damage

to

the

one

relying

on

it.”

Evaluation Research, 439 S.E.2d at 390.
Claimants alleging actual fraud or constructive fraud must
prove

each

evidence.

element

of

the

claim

by

clear

and

convincing

ITT Hartford Grp., Inc. v. Va. Fin. Assocs., Inc.,

520 S.E.2d 355, 361 (Va. 1999).

“Clear and convincing evidence

is such proof as will establish in the trier of fact a firm
belief or conviction concerning the allegations that must be
established.”
1993).

Thompson

v.

Bacon,

425

S.E.2d

512,

514

(Va.

It requires “more than a mere preponderance” of evidence

but less evidence than is necessary to prove a claim “beyond a
reasonable doubt.”

Fred C. Walker Agency, Inc. v. Lucas, 211

S.E.2d 88, 92 (Va. 1975) (quoting Cross v. Ledford, 120 N.E.2d
118, 123 (Ohio 1954)) (internal quotation marks omitted).
We

begin

representations
falsely

by
of

recognizing
material

represented

to

facts.

Byrd

and

purchases were accounts receivable.
light

most

favorable

to

that

the

As
Munns

Sands
the

Bank

that

made

the

false

asserts,

he

MPO

GD

and

The evidence, viewed in the

Bank,

established

that

these

purchases had not yet shipped and therefore could not properly
be listed as accounts receivable.

Sands nevertheless listed

them as accounts receivable on his ARA summaries.
the

value

of

AC

Technology’s

accounts
13

receivable

And because
drove

the

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amount

of

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the

loan

that

the

Pg: 14 of 15

Bank

would

extend,

these

false

representations were material.
We agree, however, with the district court that the Bank
failed

to

provide

evidence

on

which

a

reasonable

jury

could

conclude that it relied upon Sands’s false representations.
both

actual

and

constructive

fraud,

claimants

must

For
prove

reliance on the misrepresentations by the injured party.

See

Richmond Metro. Auth. v. McDevitt Street Bovis, Inc., 507 S.E.2d
344,

346-47

(Va.

1998).

The

Bank

points

to

Sands’s

ARA

summaries, which contained his false representations that the
MPO and GD orders were accounts receivable.

But the Bank did

not rely on Sands’s ARA summaries in making its loan decision.
Rather,

it

relied

on

the

inflated

value

of

AC

Technology’s

accounts receivable as reported in Byrd’s BBC and ARA summary.
And, as seen, Byrd’s ARA summary did not simply relay Sands’s
representations

to

information

raise

to

the

Bank.
the

Instead,

value

of

AC

Byrd

altered

Technology’s

Sands’s
accounts

receivable—his total value of the company’s accounts receivable,
$9,649,523, was significantly higher than the value that Sands
represented, $4,896,514.65. 2

2

This number comes from Sands’s June 27 ARA summary.
In
his June 30 ARA summary, he stated the total amount of AC
Technology’s accounts receivable was $6,335,373.82, which is
still less than Byrd represented.
The evidence at trial
demonstrated, however, that the Bank did not rely upon Sands’s
(Continued)
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Thus,

it

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was

Byrd’s,

Pg: 15 of 15

not

Sands’s,

false

representations

regarding the worth of AC Technology’s accounts receivable that
the Bank relied upon in deciding that enough collateral existed
to extend the $5.5 million loan.
concluded otherwise.
court

that

evidence

the

upon

Accordingly, we agree with the district

Bank

which

constructive fraud.

No reasonable jury could have

a

failed

to

reasonable

provide
jury

legally

could

sufficient

find

actual

or

And having determined that the evidence was

insufficient to show reliance by the Bank, we need not reach the
district court’s determination that a reasonable jury could not
find

by

clear

and

convincing

evidence

that

Sands

had

the

requisite knowledge for actual fraud.

III.
For these reasons, we affirm the judgment of the district
court.
AFFIRMED

June 30 ARA summary, as it had already decided to extend the
loan by that time.

15