Opinion
Trial Date: April 4, 5, & 11 2011
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Richard T. Ford, United States Bankruptcy Judge
INTRODUCTION
1. Shawn Deitz, the Debtor and Defendant in the above-captioned case ("Defendant"), filed a Voluntary Petition for relief under Chapter 7 of the United States Bankruptcy Code on June 20, 2008.
2. The last day to file a complaint objecting to dischargeability of debts under 11 U.S.C. §§523(a)(2), (4) and (6)was September 22, 2008. This Adversary Proceeding was filed September 19, 2008. 3.Plaintiffs, Wayne and Patricia Ford ("Plaintiffs"), timely filed a complaint to determine dischargeability of debt on September 19, 2008. Plaintiffs' Adversary Complaint alleges causes of action under 11 U.S.C. §§523(a)(2)(A), (a)(4), and (a)(6).
Unless otherwise stated, all Code, chapter, and section references are to the Bankruptcy Code, 11 U.S.C. §§101-1330.
4. Trial occurred on April 4, 5 and 11, 2011 before the undersigned. Thomas H. Armstrong, Esq. represented Plaintiffs. Defendant appeared in pro se. Prior to trial, the undersigned advised the parties that he is not related to or otherwise have any known connection to either Plaintiff despite having the same last name "Ford."
5. The Court has considered significant documentary evidence, testimony of five (5) witnesses including each of the parties, assessed each witnesses' credibility, considered the argument set forth in the Plaintiffs' Trial Brief, Defendant's initial representations immediately prior to trial that he never intended to defraud or willfully injure Plaintiffs, and the proposed Findings of Fact and Conclusions of Law submitted by each party.
6. After trial, and considering the above, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rules of Civil Procedure Rule 52(a)(1) as
JURISDICTION
7. Jurisdiction exists under 28 U.S.C. §1334. Venue is proper under 28 U.S.C. §1409. The District Court for the Eastern District of California has generally referred these matters to the Bankruptcy Court for hearing pursuant to 28 U.S.C. §157(a) and United States District Court, Eastern District of California General Orders 182 and 223. This is a core proceeding within the meaning of 28 U.S.C. §157(b)(2)(I). This is a complaint objecting to the dischargeability of debt under 11 U.S.C. §§523(a)(2)(A), (a)(4), & (a)(6). Plaintiffs are creditors of the estate and have standing to bring this Adversary Proceeding.
FINDINGS OF FACT
8. Defendant testified that he is currently employed by Heald College on a part-time basis. According to his testimony, he served in the U.S. Marines for a number of years and another branch of the armed forces. His total service time was 14 years. During his time in the military, he was engaged in construction projects. Following his tenure in the military, Defendant testified that he followed his passion for building and became a general building contractor. According to Defendant's Contractors State License Board ("CSLB") Certificate of Records (Plaintiffs' Exhibit "4"), Defendant's "B" General Building Contractor's License was issued on September 10, 2004. Defendant testified that he built a number of projects, including a small tract of smaller homes, and that he successfully completed some other larger custom homes in what was identified as the "Applegate Project." (Plaintiff's Ex. "17", Deitz E-Mail September 9, 2007.) The Applegate Project is relevant in that it is where Plaintiffs and Defendant first met.
9. Wayne Ford was born April 8, 1948 and is 63 years old. He is a disabled veteran. He testified that he served in the U.S. Army as a combat infantry soldier beginning in 1967. He served in Viet Nam. In June 1968, Mr. Ford was seriously injured when a vehicle in which he was a passenger ran over a land mine which detonated. He suffered significant, permanent, and obvious disabilities resulting from the land mine blast and must walk with the assistance of fore-arm Canadian Crutches on both arms. He will likely be confined to a wheelchair in the future. Mr. Ford has no college education and has not worked since being injured. He is permanently disabled.
10. Mrs. Ford is a registered nurse. She met her husband in a military hospital in Long Beach upon his return from Viet Nam. They eventually married and she has cared for him over the years.
11. In 2006, Plaintiffs had house plans drawn and submitted to the County of Fresno for approval. The plans were for a 4, 170 square foot handicap accessible home to accommodate Mr. Ford's significant disabilities. It was designed to comply with the Americans With Disabilities Act ("ADA"), the Veterans Administration ("VA") requirements for handicap assisted housing, and of course, the County of Fresno building code requirements.
12. In late August or September 2006, Plaintiffs were driving around and by chance came upon the Applegate Project. Defendant was building three (3) custom homes at the Applegate Project. Mr. Ford testified that he asked permission to look around the three (3) custom homes that were in various states of construction as they were similar in size to what he and his wife were planning to build. Defendant allowed Plaintiffs to look at these homes. Mr. Ford testified that each home had been rough framed, was weather tight, and still in need of drywall and finish carpentry. Two (2) of the Applegate Project houses had covered access porches, which is something Mr. Ford was required to have in order to comply with ADA requirements and to receive VA remuneration for handicap assisted housing.
13. After Plaintiffs viewed the Applegate Project, they spoke with Defendant regarding their plans to build a handicap assisted home. The undisputed testimony is that Defendant represented that he was familiar with ADA and VA requirements for handicap assisted housing and that he had, in fact, built to these guidelines before. Defendant represented that he could build to these standards for Plaintiffs.
14. The testimony by both Plaintiffs and Defendant was that Defendant met Plaintiffs at their property where the home was to be constructed on at least two (2) occasions. The unrefuted testimony adduced at trial was that during these meetings with Defendant, that Defendant also brought commonality between the parties relying on he and Mr. Ford's military experiences, the fact that Defendant worked as a pharmacy tech at the VA Hospital where Mr. Ford receives treatment, and that Defendant's mother was or is a nurse similar to Mrs. Ford. The Plaintiffs each testified that they asked Defendant if he was a licensed contractor in good standing and he replied that he was. Plaintiffs did testify that they were aware of a bonding issue that needed to be taken care of and that Defendant ultimately represented to them that he obtained a bond so that issue was resolved. However, as the Court noted during trial, and as Defendant admitted on direct examination, his license remained suspended for other reasons at the time he contracted with Plaintiffs. The Court finds that Defendant's representations about the status of his contractor's license was a knowingly made material misrepresentation of fact and that Defendant's conduct was designed with the specific intent to deceive Plaintiffs, to fraudulently induce them to contract with him so he could obtain the job and substantial payments of money from Plaintiffs.
15. At some point, presumably prior to September 25, 2006, Defendant was provided a set of plans that both he and Mr. Ford initialed while the Plaintiffs' plans were in plan check with the County of Fresno so Defendant could prepare a bid. (Plaintiff's Exhibit "2".)
16. On September 25, 2006 Defendant provided a Custom Home Bid/Proposal to Plaintiffs. (Plaintiffs' Exhibit "1") The home's square footage was 4, 170 square feet. The total price under the bid for the project was $444,105.00 or $106.50 per square foot (4, 170 x $106.50 = $444,105.00). According to Defendant's bid, the project also included garage square footage of 965 square feet, breeze-way square footage of 309 square feet, porch and patio square footage of 1, 136 square feet, and the courtyard square footage of 470 for a total square footage of 7, 050 square feet for the project. The bid indicated that it included the cost to build and furnish the materials for the home according to the plans as approved by the County of Fresno. There was a caveat that extra flat-work, such as the driveway and retaining wall, would be an additional charge, not included in the $444,105.00 contract price. In concluding the bid to Plaintiffs, Defendant signed the letter "Thanks" and "Semper fi". At trial, and on direct examination of Defendant, Defendant was provided a copy of the United States Marine Corps website home page. That home page was entered into evidence as Plaintiff's Exhibit "22". Plaintiffs' counsel had Defendant read the following into the record from the United States Marine Corps home page:
"Semper Fidelis More Than a Motto, a Way of Life.
Semper Fidelis distinguishes the Marine Corps bond from any other. It goes beyond teamwork-it is a brotherhood and lasts for life.
Latin for 'always faithful, ' Semper Fidelis became the Marine Corps motto in 1883. It guides Marines to remain faithful to the mission at hand, to each other, to the Corps and to country, no matter what.
Becoming a Marine is a transformation that cannot be undone, and Semper Fi reminds us of that. Once made, a Marine will forever live by the ethics and values of the Corps.
There is no such thing as an ex-Marine."
The Court finds that the use of "Semper Fi" in the September 25, 2006 bid was in furtherance of Defendant's intent to induce Plaintiffs to contract with him for the construction of their home.
17. Following the initial bid of September 25, 2006, a Proposal and Contract ("Contract") was drawn by Defendant dated October 10, 2006. (Plaintiffs' Exhibit "2" and Defendant's Exhibit "A".) The Contract contained the same total price of $444,105.00 for the project. The Contract bore Defendant's California State Contractor's License Number 0846254. Regarding Defendant's bonding issue mentioned above, the evidence demonstrated that Mr. Ford executed the Contract on November 7, 2006, one day after Defendant's license suspension for the contractor's bond issue was lifted. (Plaintiffs Exhibit "4", a Certified Copy of Defendant's CSLB License History.) However, Plaintiffs' Exhibit "4" demonstrates that Defendant's license was not reinstated until January 3, 2007 due to an outstanding judgment, for which a suspension was issued on October 12, 2006. Defendant did offer evidence that he had paid this judgment. Nonetheless, Defendant's license remained suspended at the time of contracting. Mr. Ford testified that his only prior experience with a contractor was when he resided in Prescott, Arizona and that he had no problems with that remodel project. The Court finds Mr. Ford's testimony credible and that he justifiably relied upon Defendant's representations that his license issue was resolved prior to executing the Contract.
18. The Court finds that Defendant executed the Contract on October 14, 2006, while his license was suspended in contravention of California Business and Professions Code §7028.5, which in pertinent part provides that, "It is unlawful for any person . . . to individually engage in the business or individually act in the capacity of a contractor without having a license in good standing." The Court also finds that Defendant failed to comply with the mandate of California Business and Professions Code §7030.1(a)&(b) requiring disclosure of Defendant's prior license suspensions as Defendant's license was suspended three (3) times prior to submitting the Contract to Plaintiffs. California Business and Professions Code §7030.1(a)&(b) provides:
"(a) A contractor, who has his or her license suspended or revoked two or more times within an eight-year period, shall disclose either in capital letters in 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type, in a document provided prior to entering into a contract to perform work on residential property with four or fewer units, any disciplinary license suspension, or license revocation during the last eight years resulting from any violation of this chapter by the contractor, whether or not the suspension or revocation was stayed.
(b) The disclosure notice required by this section may be provided in a bid, estimate, or other document prior to entering into a contract."
The Court finds that Defendant offered no evidence that he complied with the mandate of California Business and Professions Code §7030.1(a)&(b). Plaintiffs offered no evidence of any such document presumably because they had none. Defendant's only disclosure relative to his license status was that it was in good standing with the exception of a bonding issue that he represented to Plaintiffs he had cured. The Court finds that this representation was material, false, intentional, and designed to induce Plaintiffs to contract with Defendant.
19. Included in the Contract was an attorney fees clause which provided:
"In the event it becomes necessary to refer said proposal/contract to an attorney, the undersigned agrees to pay attorneys' fees and all costs incurred in the collection of the monies due under the proposal/contract."
While Defendant's Exhibit "A" (the "Contract") does not contain a "Notice to Owner", a "Notice to Owner" page was attached to Plaintiffs' Exhibit "2" (the "Contract"). The "Notice to Owner" in part provides:
"Under the California Mechanics' Lien Law, any contractor, subcontractor, laborer, supplier, or other person or entity who helps to improve your property, but is not paid for his or her work or supplies, has a right to place a lien on your home, land, or property where the work was performed and to sue you in court to obtain payment.
This means that after a court hearing, your home, land and property could be sold by a court officer and the proceeds of the sale used to satisfy what you owe. This can happen even if you have paid your contractor in full if the contractors, subcontractors, laborers, or suppliers remain unpaid."
20. The Contract references the home was 4, 170 square feet at $106.50 per square foot, consistent with the September 25, 2006 bid. It further provides line item budgeted amounts for things such as termite pre-treat, foundation, framing, lumber, roofing, plumbing, plumbing fixtures, HVAC, electrical, electrical fixtures, drywall, finish carpentry, labor, cabinets, flooring, tile/counter tops, paint, stucco, garage doors, doors/moulding/trim, appliances, mirrors/shower doors, cleanup and trash. The Contract refers to an Addendum which is set out as Defendant's Exhibit "A-4" that generally is an acknowledgment by Defendant and Plaintiffs of the ADA and VA requirements for a handicap assisted house. It also includes a schedule of payments attached as Defendant's Exhibit "A-3" calling for payments beginning October 15, 2006 and continuing thereafter.
21. The most comprehensive itemization of payments made, with corresponding receipt numbers, are set forth in Plaintiffs' Exhibit "8" showing payments made by Plaintiffs to Defendant corresponding with the line item allocations in the Contract. Plaintiffs also provided Exhibit "9" which included front and back copies of each negotiated check and corresponding receipts. The total remuneration paid to Defendant was $511,795.00. This includes a $6,500.00 credit given by Defendant to Plaintiffs as set forth in Receipt No. 722754 (Defendant's Ex. E-10; Plaintiffs' Ex. 9) for Plaintiffs' payment of $6,500.00 paid directly to Pacific Door by Mr. Ford, and a $4,100.00 payment paid by the VA for certain concrete work required by the VA. Defendant's Exhibit "D-4", which is a letter from Mr. Kennedy with the VA, indicates that the total amount paid to the builder was $511,795.00.
22. Although the contract price was for $444,105.00, on or about June 27, 2007, a handwritten document entitled "Ford Budget" was submitted to Plaintiffs in the amount of $67,200.00. (Plaintiffs' Exhibit "3"; Defendant's Exhibit "A-5") The "Ford Budget" included amounts for roofing, fireplace, something that appears to be finish electric, cabinets, flooring, counter tops, tile, doors/trim, home theater, appliances, gutters, w/IT permit, an unreadable line item 13, utilities, stucco color and windows. There is also a notation for showers for $6,500.00. A number of these items were included in the original Contract line item schedule. The evidence is that Plaintiffs paid $63,595.00 of the $67,200.00. (Defendant's Exhibit "A-10a".) When the Court adds the $63,595.00 (which includes the $6,500.00 paid directly to Pacific Door and credited under Receipt No. 722754 in the above-referenced paragraph) plus the $4,100.00 Veterans Administration check (Plaintiffs' Exhibit "8"; Defendant's Exhibit "E-T"), and the original contract amount of $444,105.00, the sum is $511,800.00. The Court finds that the total amount paid to Defendant according to Plaintiffs' Exhibit "8" was $511,800.00 toward the completion of the project.
23. Despite Plaintiffs' payment of the $511,800.00 to Defendant to build the custom home, to date, Defendant admitted that he failed to complete construction of the project and did not obtain a certificate of occupancy from the County of Fresno. The evidence before the Court was that Plaintiffs had on numerous occasions requested an accounting and specific itemization with receipts and invoices for the monies paid to Defendant for the construction of the home. Mr. Ford's testimony is that the accounting was not provided. Defendant, on the other hand, indicated that his accounting was provided in what are referred to as Defendant's Exhibits "A-7", "A-8" and "A-9". Exhibit "A-7" indicates that there was a total amount due as of September 8, 2007 of $49,798.00. The Court took judicial notice of the Debtor's bankruptcy schedules that no account receivable in that amount was scheduled. The Court finds that Defendant never provided Plaintiffs an appropriate accounting. Rather, Defendant simply submitted asserted overages without proof, and unsigned change orders.
24. Regarding Defendant's Exhibit "A-8", this document is entitled a "Change Order for Custom Home page two". There is an over-budget amount listed at $117,925.00. It is executed by Defendant, but not executed by Mr. Ford. Mr. Ford's testimony, which the Court finds is credible, was that he never executed any change order document. Defendant did not produce into evidence any executed change order document. The same holds true with Defendant's Exhibit "A-9" dated September 13, 2007 showing upgrades/additions on contract of $118,975.00. It states that the total of upgrades/changes was $73,187.00 or 16%. Again, this document is executed by the Defendant and not Mr. Ford.
25. Defendant was the first witness called by Plaintiffs. Defendant admitted knowing that it was unlawful to contract for work when his license was suspended. He admitted to contracting without a license. He also admitted that the Plaintiffs paid as required under the Contract and that the Contract contained an attorney fees clause.
26. Plaintiffs entered into evidence Exhibit "5", a Certified Copy of a Second Amended Felony Complaint captioned: The People of the State of California vs. Shawn Deitz. The Second Amended Felony Complaint was filed March 23, 2009 bearing Fresno County Superior Court Case No. F07908612 and DA File No. 2006Z44747. There were five (5) counts set forth in the Second Amended Felony Complaint. Mr. Ford testified the Second Amended Felony Complaint was filed after he and his wife initiated a complaint with the District Attorney's office. Under Count Five (5) of the Second Amended Felony Complaint, Defendant was charged under Penal Code Section 487(a), that being the crime of grand theft of personal property for unlawfully taking money and personal property of a value exceeding $400.00 of Wayne Ford.
27. This Court's Minutes of November 5, 2009 in this Adversary Proceeding indicate that the Adversary Proceeding was continued from time to time to allow the criminal matter to be tried. It was ultimately tried in October 2010 before a jury. The victims in the complaint under Counts One (1), Three (3), Four (4) and Five (5) were persons named Andrea C. Burnett, Herbert Milton Chartley, Michael Angelo Dejusto, and Wayne Ford respectively. Ms. Burnett, Mr. Chartley and Mr. DeJusto were each scheduled in Defendant's bankruptcy schedules as general unsecured creditors and their claims discharged. Ms. Burnett and Mr. Chartley will be discussed further below. Count Two (2) was a misdemeanor count brought under California Business and Professions Code §7028 for contracting without a license on or about July 1, 2004.
28. Following the criminal trial held in October 2010, the jury acquitted the Defendant on Counts One (1), Three (3), Four (4) and Five (5). According to Defendant's testimony, the jury was polled and voted to acquit 11 to 1 on those counts. The Court notes that the standard of proof in the criminal proceeding is "beyond a reasonable doubt". Acquittal on those counts is not relevant to this Adversary Proceeding to determine dischargeability of a debt.
29. As to the second count of contracting without a license, Defendant was convicted of contracting without a license in July 1, 2004 in violation of California Business and Professions Code §7028. (Plaintiffs' Exhibit "6"). The Court finds this is relevant in light of Federal Rules of Evidence Rule 406 regarding the habit of a person. In this case, the Court finds that the Defendant knowingly, and repeatedly, in contravention of California law, contracted to construct multiple projects while not possessing a contractor's license in good standing.
30. The second witness called by Plaintiffs in the case was John P. Thompson of Thompson Construction. His Resume was entered into evidence as Plaintiffs' Exhibit "10". He served in the United States Navy and is a Viet Nam Veteran. Mr. Thompson obtained his General Building Contractor's License in 1979. He has worked in the construction industry for over 35 years. His Resume indicates that he attained an Associate of Arts Degree in Business Administration and transferred to San Jose State University where he obtained a Bachelors of Science Degree in Criminal Justice with a Minor in English. In 1985 he was hired by the CSLB in Northern California to participate in a then new program called the Expert Witness Contractor Program. He served for five (5) years as an expert witness for the CSLB. Thereafter, he served for approximately 18 years as a senior investigator for the CSLB. He also served as a Deputy Labor Commissioner with the State of California Labor Commission Office serving in the Fresno Office. He retired from state service in October 2010, renewing his contractor's license, and currently works as an industry expert witness for the CSLB and does contracting work on the side.
31. Mr. Thompson's Report of Inspection and Estimate ("Report") was received into evidence as Plaintiffs' Exhibit "11". Regarding his Report, Mr. Thompson testified that he reviewed the Contract, and compiled the information contained in the Report by personally inspecting the custom home project on December 30, 2010. Mr. Thompson found generally that the construction performed by Defendant did not meet accepted trade standards for good and workman-like construction in numerous regards. He took numerous pictures and provided an estimate for the cost to complete/correct the work listed in the Report at $238,950.00. The cost includes labor, materials and services. Page two of the Report indicates that Mr. Thompson had personally performed and/or supervised over 100 projects similar to the Ford project. The Report lists the four (4) contracting licenses that he possesses, those being a General Building and Remodeling Contractor License, a C-15 Flooring Contracting License, a C-33 Painting Contracting License and a C-54 Ceramic Tile Contracting License. On page three of Mr. Thompson's Report, there is a statement that he prepared the Report based on his knowledge, skill, experience and training in the fields of general building and remodeling, flooring, painting and ceramic tile. He further discloses that he would not enter into any contract to perform the completion/correction of any work which was the subject of his Report. He certifies under penalty of perjury that he does not personally know Plaintiffs and that all statements, answers and representations in the Report, including the attachments, are true and accurate. Mr. Thompson testified that he has appeared and testified in numerous proceedings as an industry expert and on behalf of the CSLB. The Court finds his testimony credible.
32. Mr. Thompson lists 15 line item complaints in his Report. The first is that the appliances were not supplied and installed. The Report, Mr. Ford's testimony that the appliances had been paid for but not installed with the exception of one (1) double-oven, and Defendant's pictures received into evidence support a finding that the majority of the appliances were not installed. Mr. Thompson's cost to correct or complete this item is $9,245.00. The testimony at trial was that the Plaintiffs had paid for the appliances in the amount of $3,000.00 under the initial bid (Plaintiffs' Exhibit "2") and an additional $11,600.00 in June 2007 (Plaintiffs' Exhibit "3"). Thus, the total amount paid for appliances that were not supplied was $14,600.00. The one caveat is that one appliance, a double oven, was the only appliance installed.
33. The second item in Mr. Thompson's Report was that the finish carpentry had not been completed. He indicates that the majority of the base boards had been installed but that the gaps had not been filled and no painting had been done. His observations in the Report were that most of the interior door openings had been finished with jambs and casings, however, the nails were not set and filled, nor were the gaps filled or the trims painted. He testified that a number of doorways were also out of square meaning significant work will be required to correct these deficiencies so doors will properly fit, open, and close. He also noted in his Report that with the exception of three doors that had been hung, there were a number of doors stacked in the garage that were painted but severely damaged needing to be replaced. He states in his Report that the finish carpentry was not completed to accepted trade standards and that the cause of the defect was abandonment by the Defendant. The cost to correct this item is $12,900.00.
34. Regarding electrical work, a number of issues are listed in the Report. The Report indicates that the electrical work was not completed to accepted trade standards, that certain fixtures are not installed as called for under the plans, and that the cause of the defect was abandonment and deviation from the approved plans. The recommended method of correction is to troubleshoot the entire electrical system by tracing each individual circuit from the power supply source and "Ringing out the system." His estimate to correct and complete the electrical items is $10,000.00.
35. Item 4 in the Report regards two fireplaces. Although two gas fireplaces were installed, as indicated in photographs 14 and 20 of his Report, the grates, burners and valves remain in the cartons in which they were shipped and placed inside the fireplaces. The exterior trim around the fireplaces, hearths, and mantles were not installed. He indicates in the Report that Note No. 3 of the approved plans called for tight-fitting closeable glass or metal doors installed. While glass doors were installed, he indicates in his Report that the outside air-intake and dampers were not installed, nor was the flue damper or control installed. He again indicates that the complaint items fail to meet accepted trade standards with the cause of defect being abandonment, deviation from plans and specifications, and departure from acceptable trade standards. The cost to resolve these problems is $3,100.00.
36. Item 5 in his Report regards plumbing. While the top-out rough plumbing was inspected and signed off by the County of Fresno on February 23, 2007, Mr. Thompson indicates that the tankless water heaters were set in place but not completed, having no water supply or return plumbing. Item 5 of Plaintiffs' Exhibit "24", the Department of Veterans Affairs Compliance Inspection Report dated March 5, 2008 prepared by Paul Kennedy, the VA Building Inspector, further corroborates that the water heater lacked venting and required a 3/4" copper pressure relief valve. Mr. Thompson also states that the toilets installed were not the brands selected by Plaintiffs and that less expensive models or brands were utilized. He further indicates that the sinks and fixtures were not installed, and the Court observed in Defendant's pictures, which Defendant moved into evidence, that there were boxes of plumbing supplies sitting in open cabinetry in at least one of the bathrooms of the home. The Report indicates that the fiberglass bathtubs had been set on plywood frames and that despite the Contract with the Plaintiffs for installation of cast iron tubs, the Defendant deviated from the Contract and merely set in place, but did not install, the fiberglass bathtubs. Again, the cause of the defect is Defendant's abandonment. Mr. Thompson testified that the cost to troubleshoot the plumbing system is a time-consuming and costly venture. His estimate to correct and/or complete the plumbing issues is $30,000.00. The Court also finds that Defendant failed to pay Ferguson Enterprises, Inc. in an amount of $1,585.14 which is evidenced by the Ferguson Enterprises, Inc.'s Mechanic's Lien filed with the Fresno County Recorder's Office on January 22, 2008 as Document No. 2008-0007896 in the amount of $1,585.15. (Plaintiffs' Exhibit "N".) The Court finds this Mechanic Lien to be damages attributable to Defendant's conduct and that with interest allowed under California Code of Civil Procedure §685.010(a), that interest accrued at the rate of 10% up to the time of trial in the amount of $504.24 and thus the total as of April 4, 2011 owing to Ferguson Enterprises, Inc. on this Mechanic's Lien is $2,087.39.
37. Item 6 of the Report involves cabinetry. In the Court's view, cabinetry is a significant item showing Defendant's abandonment of the project. The testimony in the case by Mrs. Ford was that she had met with Defendant initially regarding one type of cabinets. The Defendant instructed her to go to a website that had certain types of cabinetry. Mrs. Ford testified that she did as the Defendant instructed. She went to the appropriate website and decided on a Shaker-style cabinet, downloaded pictures of the same, and met with Defendant at Defendant's house to look at similar type cabinetry doors. Defendant represented that he could and would build the cabinetry. Defendant did not dispute this testimony. The Defendant's own pictures show that in the kitchen and multiple bathrooms, the cabinetry is far from complete. Despite Plaintiffs paying for the cabinetry, all that has been installed are frames with no backing, shelves, holes for shelves to go on, and no cabinet doors or drawers. The cabinetry is far from complete. In Mr. Thompson's Report, the cause of the defect, again, is abandonment and departure from trade standards. The Court finds abandonment is the cause of the cabinetry issues. The method of correction in Mr. Thompson's Report is to remove all temporary framing and build and install new cabinetry at a cost of $38,950.00. The Court also reviewed Defendant's Exhibit "W" which is a construction bid dated May 14, 2008 from JCL Construction ("JCL") to complete the work at Plaintiff's house. JCL's bid to complete the house was $122,014.00. However, in the Court's view, the JCL bid is not as comprehensive as the Thompson Report, as it fails to account for such items as the appliances Plaintiffs paid for, does not account for counter-tops in bathrooms and other areas besides the kitchen, only contemplates 3, 000 square feet of tile while Defendant testified there is 3, 600 square feet of tile, and in general, is less comprehensive as the Report. The JCL bid for cabinetry with maple Shaker style cabinets, which the Court finds was the agreed-upon type of cabinets between the parties, was $36,000.00. In addition, under the JCL bid the installation cost for the cabinets is an additional $4,600.00, and the cost to stain and finish the cabinets is $3,450.00 bringing the total to $44,050.00. The Court finds Mr. Thompson's cost to complete and install the cabinetry in the amount of $38,950.00 is credible.
38. Another significant item not completed and totally absent in the home are the counter tops. There was testimony by Mrs. Ford, Mr. Ford, Mr. Thompson, and the Defendant specifically regarding the counter tops. The Court finds the undisputed evidence is that the counter tops were to be granite. Defendant's pictures in particular, as well as Plaintiffs' pictures, are very representative of the way the home sits today. The Defendant's pictures show no granite counter tops installed in the home. Defendant testified that no granite was ever delivered to the house. He further testified that he did not know where the granite was. The allowance in the October 6, 2006 Contract for tilecounter tops was $15,000.00. While it is undisputed that Plaintiffs paid that amount, there are no granite counter tops or back splashes in the home. According to Mr. Thompson's Report, and his testimony, the cause of the defect was abandonment by Defendant, the failure to appropriately prepare the substrate support for the counter tops, and the failure to provide and install the granite counter tops after the material was selected at DAL Tile and paid for by Plaintiffs. Mrs. Ford testified that when she spoke with the representative at DAL Tile, he indicated that the Defendant never paid any money toward the granite counter tops and that the granite was put back into inventory for sale to other customers. Mr. Thompson's cost to complete this abandoned item is $24,550.00. This includes preparation of the substrate structures so they will properly hold the weight of the granite upon its installation. The Court finds this to be a reasonable cost to complete the counter tops.
Defendant's Exhibit "W", the JCL Construction Bid dated May 14, 2008, includes $10,800 for standard grade granite and an additional $1,690.00 for kitchen tile back splash. The Court finds the "tile/counter tops" in Defendant's October 6, 2006 Contract was for tile back splash and granite counter tops.
39. The next item concerns the tile floors. Tile floors are very significant due to Mr. Ford's disability. The floors must be smooth so as not to constitute a safety hazard. According to Defendant's testimony, there is approximately 3600 square feet of tile flooring that needed to be provided for the home to accommodate Mr. Ford's needs. Mr. Thompson observed in his Report, and testified, that the tile floors were not completed, that different dye lots and colors of tile were installed, and that the tile that was installed was uneven and cracked. His observations were that the tile that was cracked due to the slab foundation being incorrectly poured. In his Report, under item eight, Mr. Thompson notes that Note #12 of the approved plans called for the slab foundation to be three and one-half inches thick with a 6 x 6-pound 10X welded mesh wire installed mid-point in the slab. The Report indicates that the Plaintiffs observed the pouring of the slab foundation and no wire mesh was installed. The Defendant did not rebut this evidence. Mr. Thompson's Report indicates that the failure to follow the approved plans in the pouring of the slab foundation was not within acceptable trade standards, and alone, was sufficient to cause the severe cracking of the slab, which ultimately contributes to the cracking of the tiles. He further observed that there was a significant problem with "lippage". Lippage is the difference in height between the edge of one tile and another adjacent tile. Excessive lippage results in a trip hazard, especially dangerous where someone is handicapped, as is Mr. Ford. Mr. Thompson testified that the industry standard for tile lippage is 1/6". The pictures accompanying his Report show that the lippage between the tiles in some instances is 3/16" to 5/16". He testified that this occurs throughout the home where tiles were set. Regarding the slab floor, Mr. Thompson testified, and his Report indicates, it deviates from industry accepted standards of a "plus or minus" of 1/4" over ten feet. Some of his photos, for example, photos 24 and 25 to his Report, show a severely cracked concrete slab floor which is the result of no steel reinforcement in the concrete slab floor and 5/16" displacement between the two cracked edges. Photo number 26 shows the concrete slab floor is out of level 3/8" over six feet. Photo number 27 shows tile lippage of 3/16", while photo number 28 shows cracked tile that has "telegraphed" from the cracked concrete slab floor under the tile.
40. The cause of the defect with respect to the concrete slab floor was deviation from accepted trade standards. Regarding the tiles, the Court finds that Defendant failed to order all tiles at the same time so they would be matching and from the same dye lot, and this in turn resulted in Defendant being unable to install sufficient tile of a single dye lot to complete the entire project. Mrs. Ford testified that the specific tiles selected had a slip resistance comparable to commercial grades of tile especially selected due to her husband's disability. The tiles have now been discontinued, thus making ordering additional matching tile impossible. Defendant corroborated Mrs. Ford's testimony. The Defendant did offer, however, that he was able to find similar tiles and if they were set in another room, one would not be able to tell the color differentiation. The Court finds Defendant deviated from the plans and specifications by failing to install the wire mesh in the foundation which resulted in excessive cracking of the concrete slab foundation which then telegraphed into the tile floors which caused excessive cracking of the tile floors. The Court further finds that Defendant failed to install the tile flooring level between the tiles in conformity with trade standards causing excessive and unsafe lippage. The Court finds this perhaps is the most costly item to complete. As Mr. Thompson testified, the best corrective action short of razing the entire structure and removing and replacing the entire foundation, would be to remove all of the tiles from the floor, clean the floor of all thin-set adhesive, grind the exposed cracks with a "B" diamond tool and fill the cracks with epoxy. From there the floors must be floated out so they will be level, and Plaintiffs will have to re-purchase and install new equal in value 20" x 20" tiles and grout as required. His estimate of cost to fix this portion of the job is $60,350.00.
41. Item No. 9 regards insufficient insulation in the attic. Mr. Thompson observed that the approved plans called for blowing insulation under the work platform for the heating and air conditioning unit in the attic. His estimate to complete the insulation installation was $1,600.00. The rain gutters, which were a $2,600.00 line item paid for in Plaintiffs' Exhibit "3", were never installed. Mr. Thompson's estimate to install galvanized gutters and a new drip edge metal and down spouts is $5,600.00. On cross-examination he testified that the difference in price from the $2,600.00 cost Defendant allocated and Mr. Thompson's cost of $5,600.00 was because the roof tiles would have to be lifted in order to place the drip edge and rain gutters under the roof tiles and adhere them to the fascia board.
42. The next complaint was that there was debris left on the roof and that the monetary cost to clean the debris from the roof is $350.00.
43. Mr. Thompson observed in his Report that one air conditioning unit was missing as called for in the approved plans. The original plans called for three. However, the contract signed by the Plaintiffs only indicates two air conditioning units. The Defendant testified the two air conditioning units would supply the same output as the three called for under the approved plans. However, it is unclear as to whether the output of the two installed air conditioning units would equate to the same output as the three called for under the plans. What is clear and the Court so finds, is that Defendant again deviated from the approved plans. The Court does note that on Exhibit "B" to Mr. Thompson's Report (Plaintiffs' Exhibit "11"), that the refrigeration unit/furnace required to be inspected and signed off by the County of Fresno inspector, has not been signed at all.
44. Item No. 13 in the Report regards the footing for the columns that support the front portico. The Report indicates they are too small. There was no cost to complete that deviation from the plans. Item No. 14 in Mr. Thompson's Report is a belly band on the exterior of the structure. The plans called for the belly band, which is a decorative feature, to be installed around the entire structure. It was only installed in the front of the home. The corrective measure to install the belly band around the remaining three sides of the home would be to install a foam belly band around those three exterior walls, re-stucco them as required, and painting. The cost to do that would be $3,700.00. The cause is again abandonment by Defendant.
45. The last item in the Report regards incomplete painting. Mr. Thompson's Report indicates that the industry standard regarding painting is that painting of a completed home is a final opportunity to enhance the workmanship of the builder. The Report states that the lack of paint, or "botched" painting, tends to enhance the poor workmanship this contractor performed on the job. The cause of this defect as well as that of the belly band, the footing for the columns that support the front portico, and the air conditioning, the roof, rain gutters and insulation in the attic are abandonment of the project.
46. The total cost to complete the project, according to Mr. Thompson's Report, is $238,950.00. The Court finds this cost to be realistic.
47. Mr. Thompson also testified regarding his investigation, as the senior investigator for the CSLB, of the Andrea Burnett and Herbert M. Chartley jobs. Defendant was the contractor on these jobs. Plaintiffs' Exhibit "12" has the CSLB Licensee Investigation Reports that were assigned to Mr. Thompson for investigation. Mr. Thompson testified that he prepared these reports in the ordinary course of business while he was an investigator for the CSLB. In each one of these cases, similar problems existed. For example, as Plaintiffs' Exhibit "14" demonstrates, with respect to the Burnett property, the Defendant contracted without a license, took a $15,000.00 check when he was supposed to be paid $1,500.00, cashed the same claiming that it was a mistake, failed to exercise reasonable diligence to complete the job, exceeded the contract amount for the project as is the case herein, and then abandoned that job as well. With respect to the Chartley project, the Defendant lacked reasonable diligence in building the project, departed from accepted trade standards in the building that was done, took monies in excess of the amount of the contract, required an excessive down payment and ultimately abandoned the project. In the Burnett case, Mr. Thompson determined Ms. Burnett suffered damages in the amount of $17,168.50. (Plaintiffs' Exhibit "12", CSLB Complaint No. NB2006-560 at paragraph 9 synopsis of section violated.) Mr. Chartley was also a disabled veteran. CSLB Complaint No. NA2005-327 regards the Chartley project, which is Plaintiffs' Exhibit "13". The established injury to Mr. Chartley was $22,671.84.
48. The Court also notes that the CSLB on its own behalf had assigned Mr. Thompson to file a complaint with the District Attorney's office for numerous violations by the Defendant. Plaintiffs' Exhibit "14" shows a complaint by "L. Registrar" with various Business Code violations including abandonment of project, diversion of funds, willful and fraudulent acts, contracting without a license and exceeding the contract amount. The Court finds that Defendant has exhibited this type of conduct for a significant portion of his contracting license history and with respect to Plaintiffs' project, exhibited similar conduct.
49. Terry Freeman also testified at the trial. Terry Freeman is the manager of Pacific Door. Pacific Door supplied the doors for Plaintiffs' home. Mr. Freeman has worked at Pacific Door for 23 years and held the position as manager for 20 years. As the position of manager, he is familiar with the books and records and intimately familiar with receivables due to Pacific Door. He also is familiar with the pre-liens and mechanics liens filed by Pacific Door.
50. Mr. Freeman testified that the contract amount for doors for Plaintiffs' house was $22,508.26. (Plaintiffs' Exhibit "9"). He testified that the only monies paid to Pacific Door by Defendant was $2,500.00. He also testified that Defendant did tender two other checks each in the amount of $5,000.00 to Pacific Door. However, those checks were non-negotiable due to non-sufficient funds. Pacific Door sent these checks to the District Attorney for collection. The Court finds that Defendant failed to pay the contract balance due to Pacific Door. Pacific Door ultimately filed a state court action to perfect its mechanic's lien under California law. After Plaintiffs paid $6,500.00 to Pacific Door, they were ultimately able to settle the remaining balance after hiring another attorney. The case was then settled between the parties with regard to the mechanic's lien filed by Pacific Door by paying an additional $8,000.00. As stated above, the Court notes that Ferguson Enterprises, Inc. still retains an unsatisfied properly perfected mechanic's lien due to Defendant's failure to pay for plumbing supplies. (Plaintiffs' Exhibit "9"). The Court further notes that Defendant scheduled Pacific Door as a general unsecured creditor in his Schedule "F" in the amount of $12,505.00. This corresponds to the Pacific Door Amended Claim of Mechanic's lien in the amount of $12,505.26 filed against Plaintiffs and included in Plaintiffs' Exhibit "9".
51. Mr. Freeman further testified that prior to Plaintiffs' project, he had two other dealings with the Defendant. Those cases regarded two homes in the Applegate Project where Plaintiffs and Defendant first met. Mr. Freeman testified that Mr. Deitz never paid for doors he ordered for those homes and that ultimately Pacific Door was forced to collect from the owners of those homes as was the case herein.
52. Mr. Ford testified next in this Adversary Proceeding. He testified about a number of items that have previously been discussed. Significantly, Mr. Ford compiled the information set forth in Plaintiffs' Exhibit "7". Plaintiffs' Exhibit "7" concerns monies paid to Defendant while his contractor's license was suspended. The Court finds this amount is $324,800.00. Exhibit "7" is also supported by Exhibit "8" which is Plaintiffs' compilation of all funds paid to Defendant. It shows that Defendant was paid $511,800.00 as set forth which includes $4,100.00 being paid directly to Defendant by the VA for certain concrete work, and $6,500.00 paid on July 9, 2007 directly to Pacific Door by Plaintiffs which Defendant credited Plaintiffs in Receipt No. 722754 in Plaintiffs' Exhibit "9". Exhibit "9" is another compilation prepared by Mr. Ford, who admittedly could not construct a house. Exhibit "9" consists of items that were paid for but Defendant failed to finish or needs to be replaced or repaired with respect to the project. The total, as computed by Mr. Ford in Exhibit "9", is $154,307.48. In support of Exhibits "7", "8" and "9", and included in Plaintiffs' Exhibit "9", are fronts and backs of the negotiated checks by Defendant and receipts issued by Defendant. At the time of trial, Plaintiffs' counsel and Mr. Ford randomly selected checks and receipts from Exhibit "9" and matched the same to checks set forth in Exhibits "7" and "8".
53. The purpose of Plaintiffs' Exhibits "7", "8" and "9" is to establish Plaintiffs' injury and damages. The Court finds that due to the Defendant's intentional and knowing false material misrepresentations upon which the Plaintiffs justifiably relied, that Plaintiffs were injured. The Court further finds that Defendant's failure to exercise reasonable diligence in constructing the home, to build within accepted trade standards, and abandonment of the project proximately caused Plaintiffs' damages. Plaintiffs offered Exhibits "7", "8" and "9" as evidence of the damages sustained by them at Defendant's hands.
54. The Court finds that the evidence set forth in Exhibits "7", "8" and "9" is a true and accurate representation prepared by Mr. Ford of all monies paid to Defendant and that damages sustained by Plaintiffs may be computed from these exhibits, if necessary.
55. Of particular note in this case are a number of emails set forth in Plaintiffs' Exhibit "17". The email correspondence serves as a significant illustration of the problems experienced by Plaintiffs, and the communications between Plaintiffs and Defendant. Some of the important emails in Plaintiffs' Exhibit "17" begin with an email dated January 7, 2008 from Defendant to Mr. Ford. In that email, Defendant states that if he understood his paralegal correctly, they would get Plaintiffs dismissed from the Pacific Door mechanic's lien action based upon the fact that in the papers filed by Pacific Door it was a contract between Defendant's company and not the Plaintiffs. This is in absolute contradiction to the "Notice to Owner" set forth on page two of Plaintiffs' Exhibit "2" wherein Defendant specifically advised that if he failed to pay any supplier who helped to improve Plaintiffs' property, that the supplier has a right to place a lien on the home and sue the Plaintiffs in court to obtain payment. The Court finds that as late as January 7, 2008, Defendant continued making knowing misrepresentations in contravention with his contract that he executed with Plaintiffs. Defendant further indicates in that email that, "I don't see why you need a different attorney on the same case and I will pay for it." This is significant in that there are additional damages in the form of attorney fees suffered by Plaintiffs due to Defendant's failure to pay suppliers.
56. The Court also considered Defendant's December 27, 2007 email to Mr. Ford. In that email he states that he paid over $7,000.00 to Pacific Door when Mr. Freeman testified that Defendant only paid them $2,500.00 of the contract balance. Defendant further states in that email that his license issue had been cleared and the record reflects in Plaintiffs' Exhibit "4" that Defendant's license was reinstated on December 27, 2007. The Court finds that the representation of the payment to Pacific Door was yet another intentional misrepresentation made by Defendant to Plaintiffs. In Defendant's October 12, 2007 email to Mr. Ford, he indicates that he would give a credit for the cabinets but wanted closure on the project so he could finish the house and move on. He states that, "The more time we delay it keeps costing me both more time and money!" He further states that he had been honest with Plaintiffs since the beginning and was not sure where he had not been more clear on all of the Plaintiffs' budget and items that were added to improve the home. The Court finds first, that Defendant had not been honest with the Plaintiffs since the beginning of the project. Further, that the Defendant never provided an appropriate accounting of all costs and expenses incurred in the construction of the home. This email tends to further discredit Defendant in the eyes of the Court and lends credence to the Defendant's pattern of conduct to abandon jobs prior to completion. This email is also significant when compared to the September 8, 2007 email from Defendant to Mr. Ford. On the second page of that email, the Defendant states:
"I have budgeted the house very well and I'm not going to be left in the dust as with my Applegate projects. I was left with over $120,000.00 still left unpaid."
He also states further down in that email that:
"I don't want you thinking I'm taking advantage of you any further. We have had great communication up until the end of July and if I have led [sic.] you to believe in any way that I'm dishonest or have given you false information then we will clear it up. All I have tried to do was build your home and give you what I want."
The Court finds that in the fall of 2007, after the home was supposed to have been completed, that Defendant was actively pursuing an exit strategy from the project without having completed the work contracted for. These actions, in the Court's view, constitute a wilful act that is certainly designed to cause injury to Plaintiffs. It was wrongful, intentional, the cause of Plaintiffs' injury and/or damages, and was done without just cause or excuse.
57. On August 15, 2007 Defendant emailed Mr. Ford indicating that they would be ready for inspection in about two or three weeks. As set forth in the Thompson Report, the inspection card was never signed off for a Certificate of Occupancy and Defendant admitted on direct testimony that the home never received a final inspection and Certificate of Occupancy. This again is simply another misrepresentation of material fact in this case. In Defendant's August 5, 2007 email, Defendant states that he ordered 3, 600 square feet of tile. Defendant testified that DAL Tile told him he did not need to order all of the tile at once as it was readily available. This is contrary to his August 5, 2007 email correspondence. Defendant continues in his August 5, 2007 email that he was unsure how DAL Tile only ordered 1, 000 square feet as the person at DAL Tile told him the same tile was readily available. He professes to again have done his job. He also acknowledges that the entry tiles needed repair and states that he would fix the entry tiles when he received more tiles. Defendant never fixed the tiles. He also professes in his August 5, 2007 email that his contractor's license was in force. However, on August 5, 2007, Defendant's license remained suspended by reason of a judgment obtained in a court action bearing Case No. 06 CE S.C. 01566 from June 29, 2007. (Plaintiffs' Exhibit "4"). The license was not reinstated until September 4, 2007. Accordingly, the Court finds that the Defendant's statements in the August 5, 2007 email are not credible and continue the pattern of intentional misrepresentations in this case.
58. The June 27, 2007 email from Defendant to Mr. Ford is also revealing. It indicates that he received a telephone call from the appliance supplier and the appliances had arrived. Although the appliances had already been paid for, Defendant states in that email that he will need to get $15,000.00 for the rest of the appliances when the appliances only cost $14,600.00 and were paid for with $3,000.00 under the original budget, and $11,600.00 on June 27, 2007. (Plaintiffs' Exhibit "3"). Moreover, the testimony by Mr. Ford was that they had received numerous phone calls from the appliance supplier and despite the fact the appliances had been received, the Defendant never picked them up. The Defendant, on the other hand, testified that he did not pick the appliances up because the house was not secure. Mr. Ford testified that as the appliances were not picked up, his understanding was that the appliance dealer was levied upon by the Internal Revenue Service and the appliances were sold pursuant to that levy. The Court finds that the Defendant's failure to pick the appliances up in a timely fashion directly resulted and proximately caused injury to Plaintiffs due to Defendant's inaction. Additionally, the Court finds that this is simply another instance in which the Defendant, by failing to account, as he should have, to Plaintiffs for these appliances, as well as other items in the construction project, exhibits another action by Defendant to obtain money from Plaintiffs for which they had already paid.
59. The Defendant's email of October 18, 2007 also indicates Defendant had enough money to pay the remaining balance due to Pacific Door. However, the evidence before the Court is, and the Court finds, that the Defendant only paid $2,500.00 to Pacific Door and this controverts his assertion of having enough money to pay the remaining balance to Pacific Door. The Court finds it significant in that email of October 18, 2007 that Defendant stated:
"When I issued a receipt for the doors didn't mean they were paid in full!! Never did I give you the impression that you paid me in full for those vendors. Again, I didn't misuse your funds for your home in any way, shap [sic.] or form!"
The Court finds this assertion to be false and consistent with Defendant's pattern of conduct in this case as well as the cases of Chartley and Burnett.
60. Exhibit "18" are the attorney fees of Scott C. Hawkins incurred by Mr. Ford in defense of the Pacific Door lawsuit. Those attorney fees are in the amount of $5,670.00. Exhibit "19" are the attorney fees incurred as of trial date by Mr. Armstrong in representing Plaintiffs. Those fees and costs total $20,997.66. Counsel was permitted to supply additional documentation as to other fees and costs incurred. Those fees and costs include the time spent in trial and preparation of the Proposed Findings of Fact and Conclusions of Law. In total, with the cost of Mr. Thompson's, the total fees and costs as of May 6, 2011 are $50,501.43.
61. Exhibit "20" references additional damages suffered by Plaintiffs. Those damages include estimates for the attorney fees mentioned immediately above. Plaintiffs request a return of the $50,105.00 profit paid to Defendant. They also request damages of $1,755.75 per month for 45 months as of the time of trial, or $79,008.75 for insurance, property taxes and payments on the first and second mortgage on the house that Plaintiffs would have sold back in 2007 had the project been timely completed. The Court finds that the Defendant abandoned or was fired and ordered not to return to the property in December 2007. In addition there was a new bid by JCL on May 14, 2008, which indicates that the relationship between Plaintiff and Defendant had terminated. Therefore the Court finds that the claimed damages in this category beginning in August 2007 and ending in April 2011 are NOT damages "resulting from " or traceable to" the fraud the Court has found. The Court will allow the sum of $19,313.25 covering the months April 2007 through June 2008. Additional claimed damages by Plaintiff is for the loss of market value of Plaintiffs' current home. In 2007 Mr. Ford testified they had listed their home for sale for $408,000.00 with the outstanding indebtedness of $325,000.00. The listing of a home does not establish value. That home has depreciated from 2007 but the testimony of Mr Ford is not sufficient or convincing to allow this court to allow this item.
CONCLUSIONS OF LAW
62. The burden of proof in nondischargeability cases is by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 289, 111 S.Ct. 654, 651, 112 L.Ed.2d 775 (1991).
63. This adversary proceeding alleges claims under 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6).
64. 11 U.S.C. §523(a)(2)(A) provides in pertinent part that:
"... a discharge under Section 727, ... does not discharge an individual debtor from any debt - ... (2) for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained, by - (A) false pretenses, false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;"
65. To prove a debt non-dischargeable pursuant to 11 U.S.C. §523(a)(2)(A) a creditor must prove by a preponderance of the evidence the following:
A. The debtor made the representation;
B. That at the time the representation was made, the debtor knew it was false;
C. That the debtor made the misrepresentation with the intent and purpose of deceiving the creditor;
D. That the creditor justifiably relied on the representation; and
E. The damages sustained as a result of the misrepresentations were proximately caused by the debtor's conduct.
See In re Slyman, 234 F.3d 1081, 1085 (9th Cir. 2000); In re Britton, 950 F.2d 602, 604 (9th Cir. 1991); In re Kirsh, 973 F.2d 1454 (9th Cir. 1992); In re Sabban, 384 B.R. 1, (9thCir. B.A.P. 2008); In re Martinez, 49 Bankr. Ct Dc 173 (2008 Bankr. LEXIS 470) (C.D. Cal. 2008).
THE DEBTOR KNOWINGLY MADE FALSE REPRESENTATIONS
66. California Business and Professions Code Sections 7000, et seq., otherwise known as the Contractor's State License Law, requires contractors to be licensed at all times when they contract to perform construction work and while they are constructing works of improvement. California Business and Professions Code Section 7028.5.
67. California's strict statutory guidelines are designed in significant part to protect consumers from the perils incident to contracting with incompetent and unlicensed contractors. In re Martinez, 49 Bankr. Ct. Dec. 173 (2008 Bankr. LEXIS 470) (CD Cal.2008) approvingly citing Davis Co. v. Superior Court of San Diego County, 1 Cal.App.3d 156, 158, 81 Cal.Rptr. 453 (1969). It is a misdemeanor for any person to engage in the business or act in the capacity of a contractor without having a license, with certain exceptions that are not applicable herein. California Business and Professions Code Section 7028.
68. Court California Business and Professions Code Section 7031 prohibits unlicensed contractors from maintaining actions to recover compensation. Additionally, parties utilizing the services of unlicensed contractors may recover all compensation paid to the contractor even where the person for whom the work was performed knew that the contractor was unlicensed. Please see Hydrotech Sys. Ltd. v. Oasis Water Park, 52 Cal.3d 988, 1007, 277 Cal.Rptr. 517, 803 P.2d 370, 376 (1991).
69. Defendant was licensed as a general contractor September 10, 2004, but had at least nine (9) suspensions of his license due to various reasons. He failed to disclose these suspensions to Plaintiffs as statutorily required. California Business and Professions Code Section 7030.1(a)&(b). He was convicted of contracting without a license previously, and admitted at trial that although he represented to Plaintiffs that his license issues were resolved and therefore in good standing as a contractor, he knew when he contracted with Plaintiffs that his license was not in effect. Additionally, Defendant represented that he could and would complete the construction of the home to ADA, VA, County of Fresno building code requirements which he did not do.
70. This case bears great similarity to what the creditors in In re Martinez, supra, experienced. In this case, as in Martinez, the Defendant knowingly represented that he was a licensed contractor when he was not, received funds directly from Plaintiffs, and then failed to apply all of the funds so received for construction of Plaintiffs' home. The evidence clearly and amply demonstrates Defendant failed to apply all of Plaintiffs' funds to the project.
71. The Court concludes that Defendant knowingly made a false representation that he was a licensed contractor in October 2006 when he contracted with Plaintiffs. The evidence clearly demonstrates that while Defendant had procured a bond and represented to Plaintiffs that his contractor's license was then in good standing, his contractor's license was not reinstated until January 3, 2007 due to being suspended for an adverse judgment. Thus, his license was not in effect until approximately two months after contracting with Plaintiffs. Defendant admitted at trial he knew the representations were false when they were made to the Plaintiffs. Defendant was also convicted of the crime of contracting without a license previously, and admitted at trial that he knew he contracted with Plaintiffs when his license was not in effect. Additionally, the Defendant previously represented that he would complete the construction of the home to ADA, Val and the County of Fresno building code standards.
72. Accordingly, the Court concludes that Defendant knowingly made material false representations to Plaintiffs about the status of his contractor's license and his ability to construct the home which Plaintiffs hired him to build.
DEFENDANT'S MISREPRESENTATIONS WERE INTENTIONAL AND MADE TO DECEIVE PLAINTIFFS
73. Intent to deceive may be inferred from the facts set forth in the case. In re Rubin, 875 F.2d 755 (9th Cir. 1989). Defendant's misrepresentations were intentional and designed specifically to deceive and induce Plaintiffs for the sole purpose of being retained to build Plaintiffs' home and profit thereby.
74. Plaintiffs testified that they believed Defendant's license issues were resolved upon his obtaining the contractor's bond to which both Plaintiffs and Defendant testified. In fact, Defendant was convicted of a misdemeanor in the Fresno County Superior Court of contracting without a license in July 1, 2004, pursuant to California Business and Professions Code Section 7028. Defendant's Contractor's Licence history (Plaintiffs' Exhibit "4"), shows numerous suspensions resulting from judgments and lack of bonding. Evidence of the habit of a person or of a routine of practice is relevant to prove that the conduct of the person on a particular occasion was in conformity with their habit or routine practice. Federal Rules of Evidence Rule 406. The Court may only conclude from the evidence presented, that as early as July 1, 2004 and continuing up to and through the time when Defendant contracted with Plaintiffs, that he had intentionally acted on numerous occasions to contract to build in the State of California while his license was suspended. The evidence also shows he abandoned or, failed to complete, at least two (2) other construction jobs. Thus, the Court may only infer and conclude, based upon these circumstances, the testimony, and documentary evidence before the Court, that Defendant acted with the intent to deceive Plaintiffs.
PLAINTIFFS JUSTIFIABLY RELIED UPON DEFENDANT'S MISREPRESENTATIONS
75. Justifiable reliance is the standard that must be proven in complaints objecting to the dischargeability of particular debts under 11 U.S.C. §523(a)(2)(A). Field v. Mans, 516 U.S. 59, 71, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). "Justification is a matter of the qualities and characteristics of the particular plaintiff, and circumstances of the particular case rather than of the application of the community standard of conduct to all cases." Field v. Mans, supra, 516 U.S. at 71 citing Restatement Second of Torts §540 (1976). Defendant knowingly and repeatedly, in contravention of California law, contracted to construct multiple projects while not possessing a contractor's license in good standing. See Paragraph 29 above. "A person is justified in relying on a representation of fact 'although he might have ascertained the falsity of the representation had he made an investigation.'" Field v. Mans, supra, 516 U.S. at 70. The Court concludes that the appropriate standard is a "subjective standard", and whether the reliance was justifiable under the circumstances in this case. See also In re Martinez, supra.
76. The Ninth Circuit holds that to determine "justifiable reliance", the court must look to all of the circumstances surrounding the particular transaction, and must necessarily consider the subjective effect upon the creditor. In re Kirsh, 973 F.2d 1454, 1460 (9th Cir. 1992); see also In re Martinez, supra.
77. In this case, the Defendant exploited the commonality between himself and the Plaintiffs to gain their trust. He utilized his military career and position as a pharmacy tech at the VA Hospital where Mr. Ford receives treatment to promote a common bond with Mr. Ford. He utilized the fact that his mother is a registered nurse to promote commonality with Mrs. Ford. He was forthcoming about the need to first acquire a bond to reinstate his contractor's license, which he then represented he acquired before contracting and that his license was then in good standing when it was not. He also represented that he was knowledgeable regarding VA and ADA building requirements for handicapped persons, and the County of Fresno building code. Additionally, Mr. Ford testified that Defendant had cured his license issues and that Plaintiff's had only one (1) prior experience with a contractor in Prescott, Arizona and that remodel job went well. As Judge Naugle held in In re Martinez, supra, citing the Restatement Second of Torts §540 (1976):
"A person is justified in relying on a representation of fact although he might have ascertained the falsity of the representation had he made an investigation."
The Court concludes that Plaintiffs were not obliged to investigate Defendant's contractor's license history prior to executing the Contract.
78. When the Court considers these facts and circumstances, the Court may only conclude that Plaintiffs' reliance was justifiable.
PLAINTIFFS' DAMAGES WERE PROXIMATELY CAUSED BY DEFENDANT'S INTENTIONAL MISREPRESENTATIONS
79. Proximate causation,
"Is sometimes said to depend on whether the conduct has been so significant and important a cause that the defendant should be legally responsible. But both significance and importance turn upon conclusions in terms of legal policy, so that they depend on whether the policy of the law will extend the responsibility for the conduct to the consequences which have in fact occurred."
In re Britton , 950 F.2d 602, 604 (9th Cir. 1991); In re Martinez, supra, approvingly citing W. Page Keeton et al., Prosser and Keeton on The Law of Torts, §42 at 273 (5th Ed. 1984).
80. The damages incurred by Plaintiffs are equally a foreseeable consequence of being defrauded by Defendant just as much as the damages were in Britton, supra, and Martinez, supra. Defendant's intentional misrepresentations discussed above provide a firm foundation from which the many damages discussed below occurred and ultimately harmed Plaintiffs. Additionally, the California Business and Professions Code referred to above express a policy that consumers and citizens in the State of California be protected from the perils of contracting with incompetent and unlicensed contractors. Davis Co. v. Superior Court of San Diego County, supra, 1 Cal.App. at 158.
11 U.S.C. §523(a)(4)81. The second cause of action in Plaintiffs' Adversary Complaint is for embezzlement. Under Federal law, embezzlement has been defined as "the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come." In re Littleton, 942 F.2d 551, 555 (9th Cir. 1991) citing Moore v. United States, 160 U.S.268, 269 (1885).
82. To prove embezzlement requires the showing of three elements: (1) property rightfully in the possession of a non-owner; (2) the non-owner's appropriation of the property to a use other than which it was entrusted; and (3) circumstances indicating fraud." In re Littleton, supra.
83. The evidence clearly shows that Defendant was given significant monies and was rightfully in the possession of those funds for a particular purpose, the building of Plaintiffs' home. Defendant failed to utilize these funds to build and complete Plaintiffs' home for which these monies were entrusted. As stated above, Defendant's conduct clearly indicates fraud. Plaintiffs have proven embezzlement as contemplated under 11 U.S.C. §523(a)(4).
84. The Court makes no finding that Larceny exists in this case.
11 U.S.C. §523(a)(6)85. Section 523(a)(6) in part provides that a discharge under Section 727 does not discharge an individual debtor from any debt for willful and malicious injuries.
86. According to the United States Supreme Court, the willful requirement of Section 523(a)(6) "modifies the word injury, indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 977, 140 L.Ed.2d 90, 95 (1998). See also Ormsby v. First American, 591 F.3d 1199 (9th Cir. 2010)
87. Plaintiffs must prove the "willful injury" requirement under 11 U.S.C. Section 523 (a)(6) by demonstrating that the Debtor either had a subjective motive to inflict the injury, or believed the injury was substantially certain to occur as a result of the Debtor's conduct. In re Jercich, 238 F.3d 1202, 1208, (9th Cir. 2001). The Court concludes that both situations exist.
88. The requirement of "malicious injury" is separate from the requirement of "willful". In re Su, 290 F.3d 1140, 1146, (9th Cir. 2002.)
89. A malicious injury requires (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse. In re Bammer, 131 F.3d 788, 791 (9th Cir. 1997) (en banc).
90. Under California Civil Code Section 1572, a party to a contract with the intent to deceive another party to the contract, or to induce the other party to enter into the contract, acts with malice causing injury. In re Martinez, supra.
91. The Court concludes that Defendant fraudulently induced Plaintiffs to enter into the Contract at a time when he knew he was not licensed. Based upon his prior acts, as the Court notes above, the Defendant had to have believed that injury to the Plaintiffs was substantially likely to occur based upon his actions and/or inaction. Defendant further deceived Plaintiffs into making progress payments with continued misrepresentations about the status of the work on Plaintiffs' home and did so for his own gain to obtain funds from Plaintiffs. This evidences a "subjective motive" by Defendant certain to inflict injury. The funds that Plaintiffs provided to Defendant were substantial and the injury that was caused was certainly foreseeable. The Court concludes that the malicious prong as set forth in In re Jercich, supra, is satisfied. Additionally, the Court concludes based upon the later emails between the parties, that Defendant was seeking an exit strategy without intending to complete construction of the home as agreed upon in the Contract between Plaintiffs and Defendant. These acts constitute a willful and malicious injury pursuant to 11 U.S.C. Section 523(a)(6).
DAMAGES
92. The Court concludes that sum of the damages suffered by Plaintiffs in this case were foreseeable and substantial under each theory pleaded in Plaintiffs' Adversary Complaint and arose from Defendant's fraud. The United States Supreme Court holds that damages "resulting from" or "traceable to" fraud are barred from discharge. Field v. Mans, 516 U.S. 59, 61, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995); accord Cohen v. De La Cruz, 523 U.S. 213, 218, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998); In Re Sabban, supra, 384 B.R. at 6-7. First, the Court discusses the actual damages sustained by Plaintiffs. There are several considerations in this regard.
93. Plaintiffs' complaint prays for damages in an amount of at least $154,307.48. (See also Plaintiffs' Exhibit 9, Page 1). This amount was computed by Mr. Ford who testified that he has no experience in construction. Plaintiffs also request in the Adversary Complaint that the Court order the return of Defendant's profit in the amount of $50,105.00 as Defendant failed to complete the construction and ultimately abandoned the project.
94. The Court concludes that while Mr. Ford diligently attempted to quantify the damages, the evidence is that Plaintiffs' damages far exceed his estimate. Plaintiffs' estimate fails to account for removal and replacement of the substantial tile flooring. It fails to account for the cost to repair the foundation, electrical and plumbing issues. It also fails to account for a number of other items as set forth in significant detail in Mr. Thompson's Report including the cabinetry.
95. Plaintiffs also offer Exhibit "7" which sets forth all monies paid to Defendant while his contractor's license was suspended. This amount is $324,800.00. Under California law, Plaintiffs may recover the total of these funds. Business and Professions Code Section 7031(b).
96. While the Court concurs with Judge Pappas' dissent in In re Sabban, 384 B.R. 1 (9th Cir. B.A.P. 2008) that Defendant should disgorge all payments made to him while he contracted without a valid license as contemplated under California Business and Professions Code §7031(b) as they were made due to Defendant's fraud, the Court feels constrained to follow the majority opinion in that Bankruptcy Appellate Panel decision and cannot utilize this as a measure of damages.
97. Damages are also set forth in the JCL Construction bid of May 14, 2008. (Defendant's Exhibit "W"). The amount set forth in this bid is $122,014.50. There are several caveats at the conclusion of the bid. There is the likelihood for at least a 10% overage on the quoted price due to the fact that other items are likely to be discovered as the project is being finished. Additionally, it fails to account for the appliances Plaintiffs' paid for that were not installed. It fails to provide for bathroom counter tops and back splashes. It also only contemplates replacement of 3, 000 square feet of tile as opposed to 3, 600 which Defendant testified was required. This bid, in the Court's view, however, is not as comprehensive as Mr. Thompson's Report.
98. Mr. Thompson's Report is quite comprehensive and prepared by Mr. Thompson who has significant experience as a contractor and as a Senior Investigator for the CSLB. In the performance of his duties as a Senior Investigator with the CSLB, he calculated damages sustained by parties in regards to various construction projects.
99. Mr. Thompson's Report calculates damages sustained by Plaintiffs at $238,500.00, which the Court concludes is credible. The Court believes the deficiencies needing correction and completion will easily cost this much.
100.Secondarily, there are additional consequential and compensatory damages suffered by Plaintiffs "traceable to" and "resulting from" Defendant's fraud. These damages include the damages resulting from Defendant's failure to pay certain suppliers. The evidence before the Court is that after Plaintiffs paid Defendant for their doors, Defendant did not pay Pacific Door. Plaintiffs' then paid Pacific Door $6,500.00 on July 9, 2007 (Plaintiffs' Exhibit "8") and according to Mr. Ford's testimony, an additional $8,000.00 to settle the mechanic lien litigation. There also is the remaining Ferguson Enterprises, Inc. mechanic's lien in the amount of $1,584.14 as of trial, and now calculated by the Court to be $2,087.39.
101.Additional consequential and compensatory damages "traceable to" and "resulting from" Defendant's fraud include the payment by Plaintiffs of $5,670.00 in attorney fees incurred by Scott C. Hawkins to defend the Pacific Door mechanic lien litigation. (Plaintiffs' Exhibit "18").
102.Exhibit "20" alleges that they are entitled to other consequential and compensatory damages suffered by Plaintiffs "traceable to" and "resulting from" Defendant's fraud. These damages are the $50,105.00 in profit paid to Defendant for a construction project he abandoned, 45 months of payments of insurance, property taxes and payments on the first and second mortgage on Plaintiffs' current home that they would have sold in 2007 had the project been timely completed in the amount of $79,008.75 (Plaintiffs' Exhibit "20"). The Court is only allowing 11 months of payments for a total of $19,313.25 for the reasons set forth in paragraph 61. Ex "2" is also claiming $60,000 for loss of value in their home over the years. The Court is not allowing any damages for the claimed loss of value of Plaintiffs current home as explained above for the reason that there was no credible proof offered.
103.Lastly, there are the attorney fees and costs including experts of $55,917.12 (see the supplemental declaration filed by Armstong) "resulting from" and "traceable to" Defendant's fraud. Defendant's contract includes an attorney fee clause and under California Civil Code Section 1717, prevailing parties are entitled to recover attorney fees and costs. The Supreme Court holds that prevailing parties may recover such damages. Travelers Casualty and Surety Company of America v. Pacific Gas & Electric Co., 549 U.S. 443, 127 S.Ct. 1199, 1203, 167 L.Ed.2d 178 (2007).
104.The Court concludes that damages in this case directly "resulting from" and "traceable to" the Defendant's fraud are as follows:
A. Cost of Repair and Completion:
$238,500.00
B. Mechanic Lien Issues:
16, 587.39
C. Mechanic Lien Attorney Fees:
5, 670.00
D. Return of Profit:
50, 105.00
E. Insurance, Property Taxes and House Payments:
19, 313.25
F. Attorney Fees, Costs, Experts
55, 917.12
Total Damages
$386,092.76
105.The Court concludes that but for Defendant's fraud, embezzlement, larceny, and willful and malicious conduct, that Plaintiffs would not have suffered these damages. Therefore, the Court concludes as a matter of law that the amount of $386,092.76 is nondischargeable pursuant to 11 U.S.C. §§523(a)(2)(A), (4), and (6).