A surety that paid out more than $3.7 million in claims failed in its attempt to sue the principal’s bank because its claims were time-barred, a negligence claim failed as a matter of law, there was no confidential relationship as required for a constructive fraud claim and the elements of breach of trust, constructive trust or accounting were not satisfied.
In 2009, Andy Persaud, president of Persaud Companies Inc., or PCI, opened an account at the Bank of Georgetown. In December 2010, Persaud established a bonding program with Hudson Insurance Company, a surety that agreed to issue payment and performance bonds on PCI’s behalf. In the course of underwriting the bonding program, Hudson’s agent obtained from Persaud documents showing all banks with a security interest in PCI as well as the promissory note and loan documents between PCI and the bank.
In late 2011, Persaud requested an expansion of the bonding program. Hudson agreed to execute an amended general indemnity agreement on two conditions: first, that an additional indemnitor be added, and second, that all funds from contracts relating to the agreement run through a third-party escrow account. Gary W. Day agreed to serve as a second indemnitor in exchange for payment to Day of 1% of the face amount of all bonds issued by Hudson.
A few months later in the spring of 2012, Hudson began receiving claims on PCI’s projects. Hudson ultimately lost $3.7 million by paying out claims related to PCI. Hudson and Day obtained default judgments against PCI and Persaud, who is believed to be penniless. Day obtained the assignment of Hudson’s claims against the bank. Day asserts that, had Hudson been aware of the nature of the banking relationship between Persaud and the bank, it would never have agreed to issue the bonds on which it suffered losses.
The district court held Day failed to state a claim and so dismissed his suit, and, alternatively, granted summary judgment finding all of Day’s claims time-barred. With respect to the latter, it recognized that, under Maryland law, an action only accrues when the claimant in fact knew or was on inquiry notice of the alleged wrong.
The court concluded that Day was on inquiry notice no later than October 2011, when Day, Hudson, and Persaud executed the amended general indemnity agreement. At that time, Hudson was already concerned about the state of Persaud’s finances and possessed the bank’s UCC filing and the loan documents memorializing the agreement between the bank and Persaud.
We agree with the district court’s analysis. The latest Day could have filed suit within the limitations period was therefore October 2014; he did not actually file suit until April 2016. Day’s claim is therefore time-barred.
We also agree that Day’s complaint fails to state a claim. The district court rejected Day’s negligence claim on multiple grounds, concluding that the statute did not establish a duty to Day on the part of the bank and that Maryland law precluded Day’s recovery in tort for purely economic losses.
Next, the court dismissed Day’s attempts to sue directly under the anti-assignment act, concluding that Day lacked a cause of action and that there was no authority to support his argument that he may be subrogated to the government. Day’s constructive fraud claim also failed because, as the district court explained, Day could show neither violation of a duty nor the existence of a confidential relationship between Day and the bank, both necessary prerequisites to stating a constructive fraud claim.
Finally, the district court properly dismissed Day’s counts seeking equitable relief, noting that Day could not meet the elements of breach of trust, constructive trust or accounting. This analysis is sound.
Day v. United Bank, Appeal No. 18-1961, Feb. 20, 2020. 4th Cir. (per curiam), from DMD at Greenbelt (Xinis). David Hilton Wise for Appellant, Richard E. Hagerty for Appellee. VLW 020-2-036. 6 pp.