Clem v. Tomlinson

• Decision Date: 01 October 2022
• Docket Number: Civil Action 3:18-CV-1200-L
• Parties: STEVEN ANDREW CLEM, Appellant, v. LADAINIAN TOMLINSON and LATORSHA TOMLINSON, Appellees.
• Court: U.S. District Court — Northern District of Texas

STEVEN ANDREW CLEM, Appellant,
v.
LADAINIAN TOMLINSON and LATORSHA TOMLINSON, Appellees.

Civil Action No. 3:18-CV-1200-L

United States District Court, N.D. Texas, Dallas Division

October 1, 2022

MEMORANDUM OPINION AND ORDER

SAM A. LINDSAY, UNITED STATES DISTRICT JUDGE

Steven Andrew Clem (“Mr. Clem,” “Appellant,” or “Defendant-Debtor”) appeals the bankruptcy court's January 3, 2018 Final Judgment that was entered in Adversary Case No. 17-03021-sgj after a trial of the adversary proceeding^[1] was conducted and Mr. Clem's postjudgment Motion for Reconsideration was denied. Mr. Clem appeals the award in favor of LaDainian and LaTorsha Tomlinson (“the Tomlinsons,” “Appellees,” or “Plaintiffs-Creditors”) of $664,590.93 in damages determined by the bankruptcy court to be nondischargeable under 11 U.S.C. § 523(a)(2)(A), plus $19,384.26 in sanctions awarded by the bankruptcy court for his untimely disclosure of insurance policies on the first day of trial.

In addition, Mr. Clem appeals a number of prejudgment and postjudgment orders and rulings, as well as certain findings and conclusions entered by the bankruptcy court in the adversary

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proceeding upon conclusion of the trial.^[2] The adversary action was brought on April 3, 2017, by the Tomlinsons against Chapter 7 debtor Mr. Clem to object to the dischargeability of a debt owed to them under a prior arbitration award (“Award” or “Arbitration Award”) and judgment they obtained against Mr. Clem and his company Bella Vita Custom Homes, LLC (“Bella Vita”). After considering the matters appealed by Mr. Clem, the parties' briefs, the appellate record, and applicable law, the court, for the reasons herein explained, finds no reversible error and affirms the bankruptcy court's January 3, 2018 Final Judgment and all other matters appealed and briefed by Appellant.

I. Factual and Procedural Background

A. Pre-Litigation Events Relevant to the Parties' Dispute

The pertinent facts regarding the parties' business relationship and the custom home construction project (“Project”) that preceded and gave rise to the adversary proceeding brought

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by the Tomlinsons against Mr. Clem are summarized in the bankruptcy court's December 21, 2017

Findings of Fact and Conclusions of Law (“Findings and Conclusions”) as follows:

The Adversary Proceeding is a nondischargeability action in which section 523(a)(2)(A) of the Bankruptcy Code is at issue. It involves a contract (the “Contract”) entered into on April 30, 2015, between the Tomlinsons and [Bella Vita], for a $4,483,185.72 luxury, custom-built home (the “Home”) in North Texas. The Defendant-Debtor was the “chief executive officer” of the homebuilder, Bella Vita, and was also the approximately 50% owner of Bella Vita (with his father and father-in-law collectively owning the remaining 50% of Bella Vita). The Tomlinsons' Home (at 18,000 square feet) would be the largest house that Bella Vita ever contracted to build

Things went significantly awry with the early construction efforts on the Home. Among other things, Bella Vita admittedly undertook undisclosed/unapproved construction changes. Specifically, Bella Vita made the decision to utilize helical steel piers on the large Home-something that the Defendant-Debtor and Bella Vita had no experience using in the past-instead of the concrete piers that were specified in the Contract's original design plans. Bella Vita made this decision after encountering subsurface water when drilling holes for the contemplated concrete piers . . . and after further realizing that the concrete piers would have to be “cased” because of instability in the holes Bella Vita had drilled. The Contract provided that any change in the building plans required written approval of the Plaintiffs-Creditors. Not only did Bella Vita not obtain written approval from the Plaintiffs-Creditors for the switch to helical piers (or disclose initially that helical piers were being substituted) but, while drilling for installation of the helical piers, Bella Vita and/or its subcontractors failed to locate and punctured a water line-causing extensive flooding on the building pad and adjacent land. The Tomlinsons learned (rather belatedly) about the flooding from a neighbor. In addition to these construction issues, the Tomlinsons grew frustrated with Bella Vita for its alleged failure to account for [approximately $200,000] in usages of the Tomlinsons' 10% initial deposit [of $448,318.57] and subsequent draw requests.

R. 18-19. Appellant disagrees with the bankruptcy court's interpretation of the parties' Contract to the extent it determined that the Contract required the Tomlinsons' written approval for all

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changes in building plans, including the decision to use steel helical piers rather than concrete piers called for in the design plans. Appellant's Br. 46, 60.

The exact date that the waterline was punctured is unclear. R. 65 & n. 162. Also unclear is whether Bella Vita was at fault. Id. The bankruptcy court determined that the waterline puncture and decision by Bella Vita to change to helical piers both occurred in early to mid-July 2015. Ms. Tomlinson testified that she first learned about the change to helical piers during a meeting she attended in late July 2015 with Mike Moss, Bella Vita's vice president. On August 7, 2015, after having paid $655,318.57 toward the purchase price of their new Home, the Tomlinsons terminated the Contract with Bella Vita.

B. The State Court Action and Arbitration Proceedings

The Tomlinsons sued Mr. Clem and Bella Vita in state court on September 8, 2015, and the parties were ordered to arbitrate. In the arbitration, the Tomlinsons asserted legal and equitable claims for breach of contract; breach of warranty; negligence; gross negligence; negligent representation; alleged violations of § 17.46 of the Texas Deceptive Trade Practices Act (“DTPA”) for intentional misrepresentations and unconscionable or knowing violations of the DTPA for which they sought treble or punitive damages; alleged violation of § 17.50 of the DTPA for breach of warranty; fraud; fraudulent inducement; fraud in a real estate transaction; conversion, and estoppel. They also relied on alter ego, agency, and joint enterprise theories of recovery in seeking to hold Mr. Clem and Bella Vita jointly and severally liable.

The essence of these claims is that Mr. Clem and Bella Vita failed to comply with the parties' Contract and failed to construct the Tomlinsons' new home in a good and workmanlike manner in accordance with an engineering foundation design plan that called for installation of concrete foundation piers because ground water was a potential issue. The Tomlinsons asserted

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that the Contract required Mr. Clem and Bella Vita to notify them of any proposed changes to the piers, and the substitution and installation of steel helical piers without their knowledge or consent constituted a breach of the Contract and a violation of the DTPA. The Tomlinsons similarly asserted in support of their various fraud claims that Mr. Clem and Bella Vita misrepresented or failed to make certain disclosures that led them to believe that their new home would be constructed in accordance with the Contract, and that such conduct induced them to enter the Contract.

The Tomlinsons prevailed in the arbitration and obtained an Award against Mr. Clem and Bella Vita, jointly and severally, in the total amount of $744,711. The Arbitration Award was confirmed and adopted into a Final Judgment Confirming Arbitration Award that was entered in state court on September 30, 2016. R. 19-20; R. 210-31.

In their written Award dated September 16, 2016, the arbitrators denied the Tomlinsons' claims for “misrepresentation, fraud, fraud in the sale of real estate, conversion, estoppel, alter ego, and joint enterprise” based on their determination that these claims “were not sustained by a preponderance of the evidence.” R. 207. The arbitrators also found that the actions of Mr. Clem and Bella Vita did “not constitute a knowing violation of the DTPA.” Id. at 206. The arbitrators, nevertheless, concluded that the Tomlinsons were entitled to recover $677,053.50, jointly and severally against Mr. Clem and Bella Vita, because Mr. Clem's and Bella Vita's conduct, acting through Mr. Clem, breached the parties' Contract, violated the DTPA, and was a producing cause of the Tomlinsons' economic damages, which were recoverable under the DTPA. Id. at 206-07. Included in this amount was reasonable attorney's fees of $150,000 and arbitration fees or expenses totaling $28,089.20. The $677,053.50 amount awarded against Mr. Clem and Vella Vita, jointly and severally, was broken down as follows:

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a) Adjusted contract balance $26,201.82

b) Charge for the helical piers $169,875

c) Removal of the helical piers $30,300

d) Repair building pad $235,000

e) Foundation design $6,230

f) Completion of building plans $31,357.50

g) Expert fees $28,089.20

h) Attorneys' fees $150,000

Subtotal: $677,053.50

Id. at 207. In addition to this amount, Defendants-Debtors were ordered to pay $67,657.50 for arbitration costs and arbitrator fees. Id. In support of the Award, the arbitrators made the following factual findings:

1. On April 30, 2015, the Tomlinsons signed the Bella Vita Custom Homes New Construction Build on Your Lot Home Agreement with Bella Vita (the “Contract”) for the construction of a residence located on lots 2005 Navasota Cove and 2007 Navasota Cove, Westlake, Tarrant County, Texas (the “Residence”).

2. The Contract was a fixed-price contract in the amount of $4,483,185.72. The Contract and preliminary drawing specified concrete piers. Any change to the plans required the approval of the Tomlinsons. The Tomlinsons had the option of terminating the Cont[r]act at any time for any

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