Bartenwerfer v. Buckley (In re Bartenwerfer), BAP No. NC-16-1277-BJuF
| Decision Date | 22 December 2017 |
| Docket Number | BAP No. NC-16-1277-BJuF,Adv. No. 13-03185,BAP No. NC-16-1299-BJuF (Cross-Appeals) |
| Parties | In re: DAVID WILLIAM BARTENWERFER and KATE MARIE BARTENWERFER, Debtors. DAVID WILLIAM BARTENWERFER; KATE MARIE BARTENWERFER, Appellants/Cross-Appellees, v. KIERAN BUCKLEY, Appellee/Cross-Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM1Argued and Submitted on June 22, 2017, at San Francisco, California
Appeal from the United States Bankruptcy Court for the Northern District of California
Appearances: Matthew J. Olson of Macdonald Fernandez LLP argued for appellants/cross-appellees David and Kate Bartenwerfer; Janet Marie Brayer and Stephen Davis Finestone argued for appellee/cross-appellant Kieran Buckley.
Before: BRAND, JURY and FARIS, Bankruptcy Judges.
Appellants/cross-appellees David and Kate Bartenwerfer appeal a judgment determining that the debt from a state court judgment owed to appellee/cross-appellant Kieran Buckley was excepted from the Bartenwerfers' discharge under § 523(a)(2)(A).2 The bankruptcy court found after a two-day trial that the Bartenwerfers knowingly concealed material defects in a home they sold to Buckley. Buckley cross-appeals the court's ruling that he was not entitled to attorney's fees incurred for prosecuting the dischargeability action against the Bartenwerfers, because he failed to plead a claim for such fees as required by former Rule 7008(b), in effect at the time the adversary complaint was filed.
We AFFIRM, in part, and VACATE and REMAND, in part.
The Bartenwerfers purchased the property at issue in 2005 (the "Property") with a plan to remodel and sell it. Mr. Bartenwerfer is not a licensed contractor nor does he have any education or training in construction. Mrs. Bartenwerfer was a licensed real estate agent when they sold the Property to Buckley.
After the purchase, the Bartenwerfers substantially remodeled the Property, increasing its size from 2,600 square feet to 3,900 square feet. Various contractors and subcontractors completed work on the project; Mr. Bartenwerfer's brother, Dale, who is nota licensed contractor, also did some work on it.
Prior to the Buckley sale, the Bartenwerfers signed disclosure statements regarding the Property's condition known as "Transfer Disclosure Statements" ("TDS"), which are governed by Cal. Civ. Code § 1102 et seq. The Bartenwerfers made representations as to their knowledge regarding any past or present water leaks, the condition of the roof and windows, and whether any additions or other alterations or repairs were made to the Property without necessary permits or in violation of any building codes. In the TDS, the Bartenwerfers certified that the information therein was true and correct to the best of their knowledge as of that date.
The Bartenwerfers sold the Property to Buckley, a general contractor, in January 2008. The Bartenwerfers represented in the sales contract that "Seller has no knowledge or notice that the Property has any material defects other than as disclosed by the Seller in the [TDS] or other writing before Acceptance or as soon thereafter as practicable." The Bartenwerfers made no additional written disclosures beyond what was contained in the TDS and sales contract. The parties executed several addenda to the sales contract, including a provision for certain repairs requested by Buckley and a holdback of funds to address outstanding permit and heating issues.
After the sale, Buckley discovered problems with the Property, including water leaks, defective window conditions due to improper installation, open permit issues and fire escape non-compliance (the "Subject Defects").3 Unable to resolve their post-sale disputes over issues plaguing the Property, Buckley sued the Bartenwerfers in state court.
Buckley's complaint against the Bartenwerfers alleged causes of action for breach of contract, negligence, negligent and intentional misrepresentation, and failure to disclose information in the sale of real estate. Buckley alleged, in part, that the Bartenwerfers had intentionally or negligently failed to disclose defects related to the addition's construction and had failed to obtain the necessary permits for that construction. Buckley sought general and special damages, interest, punitive damages, rescission of the sales contract, attorney's fees and costs.
After a 19-day trial, a jury entered a special verdict, finding in favor of Buckley on his causes of action for breach of contract, negligence and failure to disclose, and finding in favor of the Bartenwerfers on the causes of action for negligent and intentional misrepresentation. For Buckley's claim for "nondisclosure of material facts" (as titled in the verdict), the jury found: (1) the Bartenwerfers did not disclose information that they "knew or reasonably should have known" about the Subject Defects; (2) Buckley did not know and could not have reasonably discovered this information; (3) the Bartenwerfers knew or reasonably should have known that Buckley did not know and could not have reasonably discovered the information; (4) this information significantly affected the value or desirability ofthe Property; (5) Buckley was harmed; and (6) the Bartenwerfers' failure to disclose the information was a substantial factor in causing Buckley's harm.
The jury awarded Buckley damages of $444,671. The damages relevant here are:
The jury awarded Buckley "$0" for "intentional fraud" and declined to award punitive damages.
The $300,000 PVD award was later reduced to $90,000, as reflected in the state court's remittitur and subsequent amended judgment ("State Court Judgment"). The State Court Judgment provided that Buckley recover from the Bartenwerfers, jointly and severally, $234,671 plus 10% interest from October 4, 2012 until paid and attorney's fees and costs pursuant to a noticed motion.
Buckley thereafter filed his post-trial motion for attorney's fees, seeking $378,491.72. The issue was fully briefed and a hearing scheduled. The Bartenwerfers filed their bankruptcy case before the state court could hear the fee matter.
After the Bartenwerfers filed their chapter 7 bankruptcy case, Buckley filed his dischargeability complaint, alleging that the State Court Judgment was excepted from discharge under § 523(a)(2)(A). Buckley alleged that the Bartenwerfers hadconcealed from him material information concerning the Property, including that the work performed was not done in compliance with building codes and was done by unlicenced contractors or the Bartenwerfers themselves, and that there were multiple leaks due to improperly installed windows, doors and roofing. Buckley further alleged that the Bartenwerfers did not disclose that all permits were still "open" and that there had been no final sign off on electrical or plumbing work despite the fact that all walls were closed at the time of sale.
Buckley alleged that the Bartenwerfers knowingly failed to disclose information that they knew was material to Buckley, with the intent to induce him to rely on the nondisclosures and to proceed with his purchase of the Property. Buckley alleged that he justifiably relied on the Bartenwerfers' nondisclosures, completed his purchase of the Property and suffered damages as found by the jury.
In his prayer for damages, Buckley requested: (1) a determination that the Bartenwerfers' debt to him, including interest accrued at the legal rate, was nondischargeable; (2) punitive damages; and (3) costs of suit incurred in the adversary proceeding. Paragraph 4 of the complaint's preamble stated that, in addition to the amount of the State Court Judgment, Buckley was "entitled to recovery [sic] attorneys' fees totaling $378,491." Paragraph 13 of the complaint stated: "As a result of Defendant's actions, Plaintiff has suffered damages as found by the jury in the pre-petition state court trial, to wit, $234,671 plus attorneys' fees and costs totaling $378,491."
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The Bartenwerfers moved for judgment on the pleadings or, alternatively, for summary judgment on Buckley's § 523(a)(2)(A) claim. The Bartenwerfers maintained that they were entitled to judgment on the basis of issue preclusion, because the jury expressly found that they did not engage in fraud and did not intentionally or negligently misrepresent any facts to Buckley; the jury found only that the Bartenwerfers breached their contract with Buckley, were negligent, and did not disclose facts that they "knew or should have known." The jury also did not award any damages for fraud and declined to award punitive damages, which the Bartenwerfers argued indicated no fraud.
Buckley also moved for summary judgment on the basis of issue preclusion. Part of the jury's damages award was the PVD award under Cal. Civ. Code § 3343, which is a "fraud" damage. Buckley argued that because the state court upheld the PVD award in its remittitur, only reducing it, the court must have concluded that the Bartenwerfers committed fraud. Thus, argued Buckley, because the issue of the Bartenwerfers' fraud was actually litigated and necessarily decided against them (and all of the other elements for issue preclusion were met), he was entitled to summary judgment on his § 523(a)(2)(A) claim. In closing, Buckley stated his intention to move...
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