Deitz v. Ford (In re Deitz)
| Decision Date | 23 April 2012 |
| Docket Number | Adversary No. 08–01217.,BAP No. EC–11–1427–PaDMk.,Bankruptcy No. 08–13589. |
| Parties | In re Shawn DEITZ, Debtor. Shawn Deitz, Appellant, v. Wayne Ford and Patricia Ford, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
OPINION TEXT STARTS HERE
Recognized as Unconstitutional
Alexander B. Wathen argued for Appellant Shawn Deitz. Thomas H. Armstrong argued for Appellees Wayne Ford and Patricia Ford.
Before: PAPPAS, DUNN and MARKELL, Bankruptcy Judges.
Chapter 7 1 debtor Shawn Deitz (“Deitz”) appeals the bankruptcy court's judgment awarding damages to creditors Wayne (“Ford”) and Patricia Ford (together, the “Fords”), and declaring the debt represented by the judgment excepted from discharge under § 523(a)(2)(A), (a)(4), and (a)(6). We AFFIRM.
Deitz was a sometime general building contractor in the Sacramento area. Ford had served in the U.S. Marine Corps, where he was injured; he is disabled and has not worked since that injury. Mrs. Ford is a registered nurse.
In late August or September 2006, the Fords met Deitz at the Applegate Project housing development, where Deitz was building new homes. The Fords informed Deitz that they were planning to build a handicap-assisted home. They all toured the house Deitz had under construction, and further discussed the Fords' building plans.
Over the next two months, the parties had several more meetings. During their conversations, Deitz represented to the Fords that he could build a new house to the specifications required by the Americans with Disabilities Act (“ADA”) and which would comply with Veterans Administration (“VA”) standards for providing financial support for the homeowners. Deitz told the Fords that he had previously worked on construction projects meeting the ADA and VA standards. Deitz also represented on several occasions to the Fords that he was a former Marine, and thus a fellow veteran with Mr. Ford; that his mother was a nurse, as was Mrs. Ford; and that he had worked as a pharmacy technician at the VA Hospital where Ford had been treated. Perhaps most importantly, both of the Fords would later testify that Deitz represented that he was a licensed general contractor in good standing with the State of California.
Deitz gave the Fords a proposal bid to build their home on September 25, 2006. It offered to build a 4,170 square foot house with additional improvements, for a total of 7,050 square feet. Deitz proposed to build the house for the total price of $444,105.00 ($106.50 per square foot). The Fords agreed, and a final contract was entered into by the parties incorporating substantially the same terms. The contract bears Deitz' signature directly above what is shown as his state contractor's license number. However, it is not disputed that on the date that the contract was signed by the Fords, November 7, 2006, Deitz' license was not in good standing, and had been suspended. Indeed, the license was not reinstated by the state until January 3, 2007.2
During the period of construction and up through trial of this action, the Fords paid Deitz a total of $511,800.00 to build the home. Deitz admitted that he failed to complete the construction. According to the expert testimony of John Thompson (“Thompson”), a former senior investigator with the California Contractors' State License Board, the house was approximately 65 percent completed. Additionally, the Fords testified that they made repeated demands to Deitz that he provide them an accounting and itemization, supported by receipts and invoices, to show how he had disbursed the monies he had been paid for the construction. The bankruptcy court would ultimately determine that Deitz never gave the Fords an appropriate accounting, but instead, that Deitz had “simply submitted asserted [construction cost] overages without proof, and unsigned change orders.”
Deitz filed a chapter 7 bankruptcy petition on June 20, 2008. His schedules list the Fords as creditors holding a claim in an unknown amount.
The Fords commenced an adversary proceeding against Deitz on September 9, 2008. The complaint alleged that their claims for damages against Deitz arising from the construction of the house should be excepted from discharge under § 523(a)(2)(A), (a)(4) and (a)(6). As to the § 523(a)(2)(A) claim, the Fords alleged that Deitz knowingly made intentional material misrepresentations to them with the intent to deceive the Fords, upon which they justifiably relied in retaining Deitz, and that the Fords suffered damages as a result of Deitz' fraud. As to § 523(a)(4), the Fords alleged that through fraud, trick and device, with a preconceived design and intent, Deitz misappropriated monies from the Fords. And as to § 523(a)(6), the Fords alleged that Deitz' actions were willful, malicious, and the proximate cause of the Fords' financial damages.
Deitz, who represented himself in the bankruptcy case and adversary proceeding,3 filed an answer to the complaint denying all allegations.
Before a trial could be held, the Fresno County District Attorney filed a criminal complaint against Deitz on March 23, 2009. People v. Deitz, case no. F07–9086 (Superior Court Fresno County). Four of the counts in that complaint alleged that Deitz was guilty of grand theft of personal property in connection with building contract transactions with the Fords and three other parties on their respective properties. Deitz was found not guilty of those four counts by a jury on October 25, 2010. However, Deitz was convicted on a fifth count for the crime of Contracting Without License in violation of Cal. Bus. & Prof.Code § 7028.4
After several continuances to allow the criminal proceeding to be completed, the trial in the adversary proceeding took place on April 4, 5 and 11, 2011. Although the Fords submitted a pretrial brief, Deitz did not, yet the bankruptcy court took note of a pretrial statement made by Deitz that he never intended to defraud or willfully injure the Fords. At the trial, over 500 pages of documentary evidence were admitted, and the bankruptcy court heard testimony from five witnesses (the Fords, Deitz, Thompson, and Terry Freeman, a representative of a supplier of doors to the Fords' project). As reported later in its findings of fact, the court evaluated the credibility of each witness.
At the close of trial, the bankruptcy court took the issues under advisement; it entered its formal Findings of Fact and Conclusions of Law on July 28, 2011. In addition to making over sixty separate, detailed findings of fact, the court listed forty conclusions of law in support of its decision that Deitz' debt to the Fords was nondischargeable under § 523(a)(2), (4) and (6).
As to Fords' § 523(a)(2)(A) fraud claim, the bankruptcy court found and concluded that Deitz knowingly made false representations to the Fords that he was a licensed contractor in October–November 2006 when he contracted with them, and that he misrepresented that he would complete the construction of the home according to ADA, VA and local building code standards. The court found that these misrepresentations were false, intentional, and made to deceive the Fords into entering into the building contract. Finally, the court found that the Fords justifiably relied on Deitz' misrepresentations, and that the Fords' money damages established via the evidence were proximately caused by these intentional misrepresentations.
As to the § 523(a)(4) claim, the bankruptcy court found that the evidence established that Deitz was given significant funds by the Fords, and that Deitz took possession of those funds for a particular purpose (i.e., to construct the Fords' home). The court found that Deitz failed to use those funds to build and complete the home, and that Deitz' conduct amounted to fraud. Consequently, the court concluded that Deitz had committed embezzlement as contemplated by § 523(a)(4).
As to the § 523(a)(6) claim, the court concluded that Deitz fraudulently induced the Fords to enter into the building contract at a time when he knew he was not licensed as a contractor. Deitz further deceived the Fords into making progress payments on the project with continued misrepresentations about the status of work, and that he did so with the intent to obtain substantial funds from the Fords, and that the financial injuries the Fords suffered were foreseeable. As a result, the bankruptcy court concluded that Deitz' actions constituted a willful and malicious injury to the Fords for purposes of § 523(a)(6).
On July 28, 2011, the bankruptcy court entered a money judgment in favor of the Fords and against Deitz in the amount of $386,092.76 and ordered that the judgment was excepted from discharge in Deitz' bankruptcy case pursuant to § 523(a)(2)(A), (a)(4) and (a)(6).
Deitz filed a timely appeal on August 5, 2011.
The bankruptcy court had subject matter jurisdiction over this action under 28 U.S.C. § 1334(b), something which Deitz apparently concedes. In addition, there is no dispute that this action was a core proceeding under 28 U.S.C. § 157(b)(2)(I). In this appeal, however, Deitz challenges the constitutional authority of the bankruptcy court to enter a final judgment against him in the adversary proceeding, relying upon the Supreme Court's recent decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). We discuss this contention below. Finally, the Panel has jurisdiction over this appeal under 28 U.S.C. § 158.
Whether the bankruptcy court had the constitutional authority to enter a final judgment determining the amount of the Fords' claims against Deitz, and the dischargeability of those claims.
Whether the bankruptcy court erred in ruling that Deitz' debt to the Fords was nondischargeable under § 523(a)(2), (4) a...
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