Brooke-Petit v. Spagnuolo (In re Spagnuolo)

• Decision Date: 17 November 2014
• Docket Number: Case No. 11-10844-JNF,Adv. P. No. 11-1290
• Parties: In re ROBERT E. SPAGNUOLO, JR., Debtor EDWINA BROOKE-PETIT, Plaintiff v. ROBERT E. SPAGNUOLO, JR., Defendant
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

In re ROBERT E. SPAGNUOLO, JR., Debtor

EDWINA BROOKE-PETIT, Plaintiff
v.
ROBERT E. SPAGNUOLO, JR., Defendant

Case No. 11-10844-JNF
Adv. P. No. 11-1290

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

November 17, 2014

Chapter 7

MEMORANDUM

I. INTRODUCTION

On May 15, 2013, this Court granted the Plaintiff's Motion for Summary Judgment as to Count I of her Complaint and dismissed Count II. See Brooke-Petit v. Spagnuolo (In re Spagnuolo), 491 B.R. 1 (Bankr. D. Mass. 2013), aff'd in part, vacated in part, and remanded, 506 B.R. 1 (D. Mass. 2014). In granting the Motion of Edwina Brook-Petit (the "Plaintiff"), this Court determined that the Defendant, Robert E. Spagnuolo, Jr. (the "Defendant" or the "Debtor"), was precluded by the principle of collateral estoppel from challenging a state

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court jury verdict for fraud under 11 U.S.C. § 523(a)(2)(A).¹ The Defendant appealed this Court's order granting the Plaintiff summary judgment to the United States District Court for the District of Massachusetts. The District Court affirmed this Court's decision in part, vacated it in part, and remanded the matter for findings as to the limited issue as to what portion of the jury verdict in the sum of $250,000 was attributed to fraud because "the state court instructed the jury on breach of contract, damages for breach of contract, damages for breach of a construction contract, fraud, damages for fraud and violations of Mass. Gen. L. c. 93A and c. 142A." Spagnuolo v. Brooke-Petit, 506 B.R. 1, 3 (D. Mass. 2014). Specifically, the District Court determined that this Court correctly held that issue preclusion barred re-litigation of whether the Debtor's conduct, found to constitute fraud by the jury following a trial in the state court, was excepted from discharge. The District Court, however, determined that "a jury's failure to allocate damages between a cause of

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action that is consistent with the federal standard of nondischargeability and a cause of action that does not rise to that standard cannot be the basis of a judgment that has a preclusive effect without further findings regarding same on remand." Spagnuolo v. Brooke-Petit, 506 B.R. at 7 (citing In re Gallagher, 388 B.R. 694, 704 (W.D.N.C. 2008); In re Raccuglia, 464 B.R. 477, 483 (Bankr. N.D. Ga. 2011); and In re Lowery, 440 B.R. 914, 926 (Bankr. N.D. Ga. 2010)). The District Court observed that this Court neither allocated the damages determined by the jury verdict to the Debtor's fraud nor determined that the jury verdict was entirely attributable to the fraud count. Id. at 8.

II. BACKGROUND

A. Procedural Background

Following remand, this Court conducted a status conference on August 5, 2014. Counsel to both parties agreed on a procedure for this Court to determine the issue identified by the United States District Court in its remand order. Pursuant to that procedure, counsel submitted affidavits to which they attached relevant portions of the state court trial transcripts and briefs. Indeed, counsel to the Plaintiff attached the entire transcript from the state court trial.

B. The Trial in the State Court²

At trial, the Plaintiff testified that she interviewed and obtained bids from a number of contractors to perform improvements to her vacation residence located at 131

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Timberlane Drive, Mashpee, Massachusetts, including a bid in the sum of $225,000 from a contractor she identified as Mr. Priestly. The Plaintiff testified that the Debtor originally bid $250,000 for the job, but, after a discussion in which she informed him of Mr. Priestly's bid, he reduced his bid to $200,000 to obtain the work. He represented to the Debtor that he would only charge her for labor and materials and that the absence of a written contract would save her money. In her brief, the Plaintiff summarized the evidence as follows:

From the inception of the relationship [in September of 2005], the Defendant engaged in misrepresentations knowing the Plaintiff would rely upon them. He didn't tell the Plaintiff that he would not produce a contract until he showed up at the job with his workers. The fact that he refused to enter into a written contract evidences his intent to deceive the Plaintiff into continually tendering funds far in excess of the work completed.

With respect to the Debtor's job performance, the Plaintiff stated:

The Defendant both performed certain services himself, and hired and supervised other contractors to provide services in connection with the project including subcontractors related to the defendant. The Defendant failed to obtain proper and required permits, and the permit he did obtain was incomplete, incorrect and signed without authorization from the Plaintiff. The Defendant made false representations to the Plaintiff and fraudulently obtained money from the Plaintiff. More specifically, the Defendant lied on the building permit and lied about code violations, beginning with the failure to use pressure treated wood at the very start of the job in the basement, which he admitted. He represented the basement concrete floor was supposed to be 4" and he instead installed a 2" floor. He left rotted sills and built on top of them. He installed Tyvek wrap wrong and left it exposed. He used insufficient or no hangers, made no attempt to install lally columns correctly, he installed a door in [the] basement that was not to code, he installed a picture window at the wrong height and with no support, other windows were not installed with proper headers and supports, skylights were installed wrong, the pitch of the deck was reversed so no water could drain, and without anything underneath for support. He violated basic code from the start. He took $200,000.00 and barely completed $50,000.00 worth of work. He violated basic building codes then walked off

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the job leaving it incomplete.

In sum, he did nothing a contractor of his experience would or should do which demonstrates not negligence, but intentional misrepresentations.

In addition to the evidence summarized by the Plaintiff, the evidence introduced at the trial in the state court established that the Plaintiff paid $3,800 for building plans prepared by the Debtor's nephew. The Plaintiff produced invoices and canceled checks made payable to the Debtor, or subcontractors or suppliers, in the total sum of $182,188. In addition, the Plaintiff produced evidence that, after the Debtor left the job site, she paid $5,000 to a contractor identified as Philip Ambrose to patch the roof and clean up the Mashpee property which was strewn with trash and debris when the Debtor left the job site; $20,000 to a contractor identified as Mr. Marchio to fully repair the roof; $20,000 to a contractor identified as Mr. Lucas to demolish the structure; $4,500 to an environmental consultant to address wetland issues ignored by the Debtor; and $350 to erect a safety barrier, for total expenditures of $235,838.

C. The Jury Instructions

The state court instructed the jury as to breach of contract and damages for breach of contract. With respect to damages it stated:

Damages is a - - kind of a vague word we use to mean like financial losses or harm or injury, some - - sometimes they refer to them as injury, but there's no - - no physical injury here, no personal injury like in a motor vehicle car case, a motor vehicle accident. It's - - we're talking about financial loss is what we're really talking about.

***

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[T]he basic principle of contract damages is that the injured party should be put in as good a position as if the other party had fully performed its obligations under the contract. So the basic principle is to put the person in as good a position as if the other party had fully performed its obligations under the contract. . . . [I]f the damages were caused by Mr. Spagnuolo . . . Ms. Brooke-Petit is entitled to recover damages sufficient to give her the benefit of the contract bargain as long as those damages are reasonably proven. In other words, she's entitled to those damage[s] that would put her in a position to obtain what she bargained to obtain, such as compensation in money that can be computed by rational methods upon a firm factual basis.

The state court, while noting that the Plaintiff could recover both general and specific damages, informed that jury as to the measure of damages specific to construction contracts, stating:

[I]n a construction contract, the measure of damages is where the builder fails to complete a construction job, and it should be measured by the difference between the value of the job - - of the work in disrepair and the value of the subject structure if satisfactorily completed according to the contract. So the measure of damages awarded in a construction contract should be, where the builder fails to complete a construction job should be measured by the difference between the value of the - - value of the work in disrepair and the value of the subject structure if satisfactorily completed according to the contract.

With respect to the Plaintiff's fraud count, the state court judge noted that the Plaintiff had alleged that the Debtor "misrepresented important facts including, but not limited to, the cost to do the construction remodeling services . . . , the materials to be used, the subcontractor work, the payments made to them, and the actual construction or remodeling work done on the plaintiff's property which the plaintiff says she would not have done if she had known the true state of affairs." After identifying the five elements required to establish fraud, see In re Spagnuolo, 491 B.R. at 5-6, the state court directed the

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jury that "if you reach the issue of damages, award [the plaintiff] a sufficient amount of money to put her in the position that she would've been in if the situation had been as represented by . . . the defendant," adding "award her the benefit of the bargain or the benefit of the contract with the defendant if those damages are...