In re Dinkins, Bankruptcy No. 04-28251.
| Decision Date | 30 June 2005 |
| Docket Number | Adversary No. 04-2230.,Bankruptcy No. 04-28251.,Adversary No. 04-2229. |
| Parties | In re Paul F. DINKINS, Debtor. Romes Design, Inc., Plaintiff, v. Paul F. Dinkins, Defendant. Central Consulting Engineers, Ltd., Plaintiff, v. Paul F. Dinkins, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin |
Frank Kowalkowski, Green Bay, WI, for Plaintiff.
Russell C. Brannen, Jr., Milwaukee, WI, for Defendant.
The plaintiffs, Romes Design and Central Consulting, brought these actions objecting to the dischargeability of certain obligations incurred by The Stubenrauch Architects, Inc., of which the defendant, Paul Dinkins, was president, director, and shareholder. The defendant filed motions for summary judgment in both adversaries seeking dismissal on the merits. The parties fully briefed the issue of whether nondischargeable theft by contractor liability is applicable to the obligations of The Stubenrauch Architects, Inc. and, in his representative capacity, Mr. Dinkins. The court is satisfied that under the uncontested facts of this case, it does not, and the debtor is entitled to summary judgment as a matter of law.
This court has jurisdiction under 28 U.S.C. § 1334 and this is a core proceeding under 28 U.S.C. § 157(b)(2)(I). This decision constitutes the court's findings of fact and conclusions of law under Fed. R. Bankr.P. 7052.
The chapter 7 debtor, Paul Dinkins, was president, director, and shareholder of The Stubenrauch Architects, Inc. (TSA), an architectural firm in Sheboygan, Wisconsin. Central Consulting and Romes Design are both engineering firms, specializing in heating and plumbing and electrical design, respectively. Property owners or general contractors hired TSA to provide architectural and engineering plans for buildings to be constructed on the owner's property. TSA, in turn, contracted with the plaintiffs on various projects. The plaintiffs provided consulting services to TSA, primarily design specifications for the projects at issue, and did not engage in the actual purchase, fabrication, or installation of any equipment. According to Mr. Dinkins, TSA did not engage in any construction or act as a general contractor for any of the projects.
According to the plaintiffs, TSA's work was typically governed by Standard AIA Document B141, entitled "Standard Form of Agreement Between Owner and Architect." A few of the jobs were subject to variations, and there were optional duties that could be selected under the B141. The contractual obligations under the standard agreement included:
2.6.1 The architect's responsibility to provide basic services for the construction phase under this agreement commences with the award of the contract for construction and terminates at the earlier of the issuance to the owner of the final certificate for payment or sixty (60) days after the date of substantial completion of the work....
2.6.4 The architect shall be a representative of and shall advise and consult with the owner (1) during construction until final payment to the contractor is due....
2.6.5 The architect shall visit the site at intervals appropriate to the stage of construction ... become generally familiar with the progress and quality of the work completed and to determine in general if the work is being performed in a manner indicating that the work, when completed, will be in accordance with the contract documents ... the architect shall keep the owner informed of the progress and quality of the work, and shall endeavor to guard the owner against defects and deficiencies in the work....
2.6.11 The architect shall have authority to reject work ... the architect will have authority to require additional inspection or testing of the work....
2.6.13 The architect shall prepare change orders and construction change directive ... and may authorize minor changes....
2.6.14 The architect shall conduct inspection, determine the date or dates of substantial completion and the date of final completion....
2.6.15 The architect shall interpret and decide matters concerning performance of the owner and contract under the requirements of the contract documents....
3.2.3 Through the observations by such project representative, the architect shall endeavor to provide further protection for the owner against defects and deficiencies in the work....
3.4.4 Providing special surveys, environmental studies and submissions required for approval of governmental authorities or others having jurisdiction over the project....
3.4.8 Providing coordination of construction performed by separate contractors or by the owner's own forces and coordination of services required in connection with construction performed and equipment supplied by the owner....
3.4.17 Providing assistance in utilization of equipment or system such as testing, adjusting and balancing, preparation of operation and maintenance manuals, training personnel for operations and maintenance and consultation during operation....
Standard AIA Document B141.
Also according to the plaintiffs, some projects used alternative contracts for services provided by TSA. One such contract included the following obligations:
Job progress meeting and site inspection oversight and coordination bi-weekly or as specific construction activity warrants. Assistance with project close-out procedures and compliance with requirements for owner occupancy and orientation of building systems.
Development of punch list and follow-up procedures for completion of work.
Assistance with warranty-related item.
Coordination of one-year building performance review and assistance in resolving any identified issue.
Job progress meeting and site inspection oversight and coordination during building structural system construction.
Coordination of site survey procedures and requirements.
Coordination of geotechnical and subsurface exploration proceedings and requirements.
Ironwood Plastics Remodel Contract. Mr. Dinkins admits that on certain projects TSA provided supervisory and other services, such as certifying the percentage of construction completion to authorize the release of construction funds. The content of the contracts and the description of the debtor's firm's duties appears not to be disputed.
Whether or not TSA was paid in full on all of the projects is disputed. Since the issue of payments to TSA is not a fact material to the narrow issue here, the court will assume for purposes of summary judgment that TSA was paid on all of the projects. See Smith v. Dunn, 368 F.3d 705, 708 (7th Cir.2004) (). Naturally, there would be no funds held in trust for any projects in which TSA was not paid by the general contractor or owner. Additionally, it is not clear from the record whether or not actual construction occurred on all of the projects, but it appears that at least two were not started.
TSA encountered financial difficulties in the early 1990s after a group of shareholders established a defined benefit pension plan, retired within a few years of each other, and left an unfunded liability. Consequently, TSA incurred a substantial tax liability which inhibited its profitability for the next decade. After some substantial projects failed to get off the ground, TSA filed for bankruptcy on March 16, 2004. The debtor, Mr. Dinkins, filed for chapter 7 relief on May 28, 2004, after demands were made for his guaranty of both the building lease and bank financing.
The defendant contends because TSA simply provided design services, funds received by it are not within the scope of a statutory trust fund. Theft by contractor liability only extends to those parties who either perform physical construction work or act as a general contractor on a project. TSA was thus not obligated to treat monies it received as a statutory trust fund, and the debtor's obligations as an officer of TSA are dischargeable.
The plaintiffs argue that material facts in dispute relating to the nature and scope of TSA's work on the various projects and the actual contractual relationship between TSA and the various project owners preclude summary judgment in the defendant's favor. The theft by contractor statute should not be read as narrowly as the defendant proffers, but rather construed to encompass the services performed by TSA, thus making the plaintiffs beneficiaries of trust funds paid to TSA.
Summary judgment is required "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
The "theft by contractor" provisions of Wis. Stats. §§ 779.02(5) and 779.16 create a trust fund for sums paid by an owner to a general contractor for the benefit of subcontractors and material suppliers. Kraemer Bros. Inc. v. Pulaski State Bank, 138 Wis.2d 395, 399-400, 406 N.W.2d 379, 381 (1987). Wisconsin's theft by contractor statute establishes the type of express statutory trust contemplated by § 523(a)(4) of the Bankruptcy Code. See Matter of Thomas, 729 F.2d 502 (7th Cir.1984) ().
Wis. Stat. § 779.02(5) provides in full:
Theft by contractors. The proceeds of any mortgage on land paid to any prime contractor or any subcontractor for improvements upon the mortgaged premises, and all moneys paid to any prime contractor or subcontractor by any owner for improvements, constitute a trust fund only in the hands of the prime contractor or subcontractor to the amount of all claims due or to become due or owing from the prime contractor or...
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...or agents of the corporation responsible for the misappropriation." Wis. Stat. § 779.02(5). See also, Romes Design, Inc. v. Dinkins (In re Dinkins), 327 B.R. 918, 923 (Bankr.E.D.Wis.2005) ("If an individual debtor is an officer, director, or agent responsible for misappropriation by an enti......
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