Stanley Silverblatt Electrical Contractor, Inc. v. Marino (In Re Marino)
115 B.R. 863 | United States Bankruptcy Court, D. Maryland | 1990
What This Case Means for Subcontractors
A Maryland contractor officer failed to pay subcontractors from trust funds held under state law. When the contractor went bankrupt, subcontractors tried to collect from the officer personally, claiming the debt was non-dischargeable under federal bankruptcy law. The court ruled that individual officers cannot be held personally liable for trust law violations unless they intentionally defrauded someone, and that trusts created by wrongdoing don't count as real fiduciary relationships for bankruptcy purposes. This means subcontractors cannot automatically pursue officers personally for unpaid trust funds.
Key Takeaways
- •Personal liability against contractor officers for unpaid trust funds requires proof of intentional fraud—negligence or simple breach of the trust law is not enough
- •Maryland's construction trust statutes do not automatically create enforceable fiduciary duties that survive bankruptcy discharge
- •Subcontractors should focus on collecting from the contractor entity itself and securing liens before bankruptcy, rather than relying on personal liability of officers
A trust ex maleficio does not satisfy the fiduciary capacity requirement.
Frequently Asked Question
Can I sue a contractor's owner personally if they don't pay me from trust funds?
Not easily. Maryland courts require you to prove the owner intentionally defrauded you—simply failing to pay subcontractors from trust funds is not enough. Focus instead on filing liens against the property and pursuing claims against the contractor company itself before it goes bankrupt.
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