In re Cameron

• Decision Date: 17 May 2011
• Docket Number: No. 4:10–bk–14987.,4:10–bk–14987.
• Citation: 452 B.R. 754
• Parties: In re Christopher Thomas CAMERON, Jennifer Denise Cameron, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

452 B.R. 754

In re Christopher Thomas CAMERON, Jennifer Denise Cameron, Debtors.

No. 4:10–bk–14987.

United States Bankruptcy Court, E.D. Arkansas,Little Rock Division.

May 17, 2011.

Kendel William Grooms, Almand, Orsi & Campbell, PLLC, Little Rock, AR, for Debtors.

ORDER

JAMES G. MIXON, Bankruptcy Judge.

On July 13, 2010, Christopher and Jennifer Cameron (Debtors) filed a voluntary petition for relief under the provisions of Chapter 13 of the United States Bankruptcy Code. On August 19, 2010, Lakeview Land Company, LLC d/b/a Saville Homes (Lakeview) filed a proof of claim in the amount of $111,104.47. Attached to the proof of claim is an itemization of the claim that consists of a $20,000.00 oversight fee, $45,893.47 for outstanding costs with material and labor, and $45,211.00 in attorneys' fees. (Debtor's Ex. 6.) The Debtors objected to the proof of claim on August 26, 2010.

A hearing was held on December 2, 2010, and the objection to the proof of claim was taken under advisement.¹ Both parties filed briefs in the matter. The Court has jurisdiction pursuant to 28 U.S.C. § 157 and § 1334. The pending matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and the Court may enter a final judgment in the matter.

I.FACTS

The Debtors and Les Saville (Saville) were family friends. Lakeview is a company that was formed by Saville and his wife in 2004 for the purpose of acquiring and developing properties. (Tr. at 28.) Neither Lakeview nor Saville is a licensed contractor. (Tr. at 30.)

Saville became aware that the Debtors wanted to build a house and offered to help them build it. Saville drafted a writing to reflect their agreement that Saville, through his company Lakeview, would oversee the construction of a house to be built in Sherwood, Arkansas for the benefit of the Debtors. On November 28, 2005, this agreement was signed by both parties. (Tr. at 411.) It does not contain any purchase price. (Tr. at 13.) The writing states that:

[Lakeview] will obtain interim construction financing.... The total fee from [Lakeview] to the [Debtors] for performing the necessary duties to oversee the construction of the property/home will be twenty thousand dollars ($20,000.00).

[The Debtors] agree to be responsible for any additional cost incurred for work or materials that are in addition to the specifications listed in Schedule A.

(Debtors' Ex. 1.) Schedule A is a list of specifications with no prices attached.

Saville stated they had an oral agreement and, “[t]he agreement was the cost of the home would be paid by the Camerons. The total cost to build the home.” (Tr. at 77–78.) Saville again stated, “[t]hat the house would be built per the specifications, and that what it cost, it is what it is, and my fee is fixed at 20,000.00 dollars.” (Tr. at 447.) The Debtors claimed they had set a budget of $250,000.00 and Saville knew about this budget and agreed to it. (Tr. at 215 & 455.) Saville denied that there was ever a budget of $250,000.00. (Tr. at 167, 443 & 536.)

Lakeview purchased the lot for the home and then obtained a construction loan. (Tr. at 33.) Saville could not explain if Lakeview purchased the lot with separate funds or if it was part of the construction loan. (Tr. at 123–127.) The lot cost around $38,000.00. (Tr. at 557.) Mr. Cameron was added as a co-borrower on the construction loan on February 20, 2006. (Tr. at 33–34.) The construction loan was for $218,00.00. (Debtor's Ex. 34.)

As soon as February 2006, the Debtors became aware that the total cost was going to be more than $250,000.00. (Tr. at 337.) The Debtors were concerned about the costs of the construction. Saville waived his fee of $20,000.00 to ease their concerns. (Tr. at 39, 42, & 166.) According to the Debtors, they worked to keep the costs down throughout the construction process cutting items back or completely taking items off the spec sheet and then adding items back when Saville told them that they were under budget. (Tr. at 219–224.) Saville disputes this assertion, stating that he never had a clue what the final costs would be until all invoices were in; however, he also testified that before closing, which was before all the invoices were in, he told the Debtors they would have to pay an additional $48,000.00 and some change. (Tr. at 509 & 554.)

In early August of 2006, Mr. Cameron stated that he began looking for a house elsewhere because “the deal had gotten worse” and he “asked to get off the construction loan,” but Saville refused to let him out of the loan. (Tr. at 669.) Saville stated that he and Mr. Cameron agreed that when all of the final invoices came in, they would sit down and would mutually agree to the terms and “work it out.” (Tr. at 64.) Mr. Cameron also stated that they were going “to work something out when the numbers were hard and solid and real.” (Tr. at 200.) This agreement was never reduced to a writing. (Tr. at 55.) Mr. Cameron stated that because of representations made by Saville, he believed they were over budget by around $15,000.00 to $20,000.00. (Tr. at 204, 235, 669, & 674.)

On August 22, 2006, Saville and Mr. Cameron signed a standard offer and acceptance contract with a purchase price of $250,000.00.² (Debtor's Ex. 7.) At the time the offer and acceptance was signed, both parties were aware that the total cost was going to be more than $250,000.00. (Tr. at 188 & 202.) It is undisputed that both parties signed the agreement so that they could close the long term loan on the home. It is also undisputed that the parties agreed that Saville stated that he would finance any amount due over the $250,000.00. (Tr. at 509 & 672.) Saville signed an owner's affidavit stating that “all claims, liens and charges against said premises for material and labor thereon are paid in full.” (Debtor's Ex. 9.) Saville also signed a builder's or contractor's affidavit stating that “all charges and costs for labor performed, material furnished and fixtures installed on said premises are free and clear of all lienable claims.” (Debtor's Ex. 10.) Both of these affidavits were signed “to induce Chicago Title Insurance Company to issue its title insurance.” (Debtor's Ex. 9 & 10.)

Given the amount of outstanding bills still due at closing, Saville's repeated testimony that he wasn't aware that there were more bills to be paid at the time of closing is simply not credible. (Debtor's Ex. 12.) The Debtors moved into their new home just prior to closing and the parties closed on August 31, 2006. (Debtor's Ex. 8; Tr. at 11, 14, 82, & 283.) The $210,000.00 construction loan was paid off and Lakeview received a check from the bank for the remaining balance of the permanent loan in the amount of $32,000.00. (Tr. at 544.) Saville continued to write checks after the closing for bills due on the house. (Tr. at 95–97.)

For about a year after closing, the parties tried to reach an agreement. (Tr. at 70–71.) When Saville asked for more than $45,000.00 over $250,000.00, “[i]t caused some issues, big time.” (Tr. at 675.) The Debtors received a bill for $45,893.47 from Lakeview and the Debtors refused to pay it. (Debtor's Ex. 2 & Tr. at 15.) The $45,893.47 is the alleged amount of outstanding costs still due on the construction project after closing. (Tr. at 66.)

Mr. Cameron alleges that the reason they were around $45,000.00 over budget was mismanagement on Saville's part. (Tr. at 331 & 685.) Mr. Cameron disputes several of the invoices, including being charged closing costs on the lot loans, interest paid on the lot loans, builder's risk insurance, and being charged to fix items that should never have happened in the first place that total $32,650.41. (Debtor's Ex. 22.) The Debtors vehemently objected to Dennis Rhodes' $15,000.00 fee as the general contractor, alleging that he was never at the construction site. According to Saville, when it became clear that an agreement was not going to be reached Saville believed his $20,000.00 waiver was no longer applicable. (Tr. at 65.)

Lakeview sued the Debtors in state court. On a motion for summary judgment, the Pulaski County Circuit Court found the November 2005 writing “violates the statute of frauds in that it fails to contain essential terms, such as the contract price, and fails to reflect a meeting of the minds concerning the cost of the items added to the construction contract.” (Debtor's Ex. 3.) This order was not appealed. (Tr. at 79.) The parties were set to go to trial in state court on the remaining issues when the Debtors filed for bankruptcy. On August 19, 2010, Lakeview filed a claim in the amount of $111,104.47. (Debtor's Ex. 6.)

II.ARGUMENT

The Debtors argue Lakeview's claim should be disallowed because the Bankruptcy Code does not allow claims based on an unenforceable agreement. They argue that the November 2005 writing is not enforceable because essential elements are missing from the agreement. The Debtors argue if any agreement is enforceable, it is the offer and acceptance in the sum of $250,000.00. The Debtors argue they do not owe any additional sums to Saville because of the doctrine of merger and because Saville signed affidavits stating that nothing more is owed. The Debtors further argue that Saville waived his $20,000.00 oversight fee and that the Debtors relied on this waiver. Finally, the Debtors state that under Arkansas law they are entitled to attorneys' fees in the amount of $62,964.58.

Lakeview argues the initial contract was for the cost of building the home plus a $20,000.00 fee and that this is the controlling contract that is valid under Arkansas law. According to Lakeview the state court order did not comply with rule 54(b), and, therefore, it is not a final order and this Court is not bound by the state court's determination that the initial written agreement is invalid. Lakeview also argues that by failing to complete this contract, the Debtors rejected Saville's offer to waive his $20,000.00 fee. Lakeview argues the offer and...