In re Fordiani, Case No. 13-00094
| Decision Date | 16 April 2014 |
| Docket Number | Case No. 13-00094 |
| Parties | In re GINO FORDIANI, Debtor. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Hawaii |
SO ORDERED.
__________
Robert J. Faris
United States Bankruptcy Judge
Re: Docket No. 52
This dispute involves claims by co-owners of real property for contribution for their expenditures and efforts in acquiring, renovating, and maintaining the common property.
Cheri Gallo filed proof of claim no. 4, asserting a general unsecured claim in the amount of $673,535.64. The debtor, Gino Fordiani, objected to the claim. The court held an evidentiary hearing on the objection on March 3, 7, and 31, 2014. Kris A. LaGuire represented Mr. Fordiani and Barbara L. Franklin represented Ms. Gallo.
Based on the evidence, the court makes the following
1. In the late 1990's, Mr. Fordiani and Ms. Gallo began an intimate relationship. In or around 2001, Mr. Fordiani moved into Ms. Gallo's residence in Laguna Beach, California. Ms. Gallo was the sole owner of the Laguna Beach residence after she received it in a divorce. They lived together in the Laguna Beach residence (except for a few months of separation) until she sold it in 2006.
2. Mr. Fordiani claims that he contributed to the value of the Laguna Beach residence by making improvements and preparing it for sale. Ms. Gallo denies this contention. The evidence does not sustain his contention that he added quantifiable value to the property for which he should be compensated.
3. From 2005 through 2010, Mr. Fordiani and Ms. Gallo signed and filed joint tax returns as husband and wife, even though they never married. The joint filing for 2005 allowed Ms. Gallo to reduce the tax burden of the sale of the Laguna Beach property by doubling the capital gains exclusion under section 121 of the Internal Revenue Code. This did not harm Mr. Fordiani because he could not have used the exclusion in any other way and he can use the exclusion if he purchases and sells a residence in the future.
4. Mr. Fordiani owned a condominium in Aliso Viejo, California. Ms. Gallo claims that, when Mr. Fordiani sold the condominium, she acted as the real estate agent but received no compensation. Mr. Fordiani denies this contention.The evidence does not sustain her entitlement to any quantifiable compensation for these services.
5. In the early 2000's, Mr. Fordiani and Ms. Gallo began to talk about moving to Hawaii and building their dream home. In 2005, while visiting Mr. Fordiani's parents on Maui, they found a property they liked that was located at 54-2299 Kynnersley Road, North Kohala, Hawaii.
6. Before they made an offer for the Kynnersley Road property, Mr. Fordiani and Ms. Gallo discussed their budget extensively to make sure they could afford it. They agreed that they would share equally the mortgage payments and other expenses of owning, maintaining, and renovating the property.
7. Mr. Fordiani testified that he and Ms. Gallo regarded the property as a joint endeavor with equal ownership, that they would each contribute their assets and effort to the property, and that they would always be equal owners regardless of whether they made equal contributions to the property. I do not believe this testimony. Mr. Gallo's description of the agreement-that both parties agreed to equal ownership and equal contributions—is more plausible.
8. The parties agreed that Mr. Fordiani would "run his expenses" through companies which he controlled, Shoreline Plumbing Inc. and Shoreline Plumbing Enterprises, Inc. (the latter of which was dissolved at some point).
9. Mr. Fordiani and Ms. Gallo bought the Kynnersley Road property for$1,690,000.00. Ms. Gallo contributed $764,820 (from the sale proceeds of her Laguna Beach home) and Mr. Fordiani contributed $330,000 for the down payment and closing costs. They obtained a $600,000 first mortgage loan from Countrywide Financial for which they were jointly and severally liable. They took title as tenants in common. The deed does not specify their ownership shares but the parties agree that their shares are equal.
10. Mr. Fordiani and Ms. Gallo moved into the Kynnersley Road property in 2006 and began work on it a few months later. They renovated the main dwelling and added an ohana unit, garage, and barn according to agreed-upon plans. They both worked hard on the project for several years. The improvements are well done and attractive.
11. Mr. Fordiani and Ms. Gallo agreed to do the work without obtaining building permits in advance as the law requires. They did so because they did not want to delay the work until the permits were issued. They intended to obtain building permits after the fact, but they have never obtained permits.
12. In 2010, Mr. Fordiani and Ms. Gallo agreed to take a new mortgage loan from Hawaii Community Federal Credit Union ("HCFCU"). The amount of the loan was sufficient to refinance the Countrywide loan, create a reserve account of about $50,000 to cover the payments on the HCFCU loan for a time, and provide $75,000 each to Mr. Fordiani and Ms. Gallo.
13. The following table lists the amounts the parties spent to acquire, renovate, and maintain the Kynnersley Road property. Each of these expenditures were necessary for those purposes and benefitted the common property.
Gallo
Fordiani
Down Payment
$764,820.00
$330,000.00
Mortgage payments
$299,332.81
$7,425.82
Property taxes
$29,921.20
$829.65
Homeowners insurance
$10,904.10
$373.50
Security system & service
$3,261.58
$112.12
Renovation costs
$660,310.07
$115,127.00
Refinancing expense
$800.00
Pest control
$520.84
Legal bill re purchase
$533.30
Total
$1,770,403.90
14. The amounts which the parties paid for automobiles (loan payments, insurance, and maintenance), utilities (gas, electricity, telephone, television, and internet), health insurance, medical care, travel, and similar items were not necessary for the acquisition, renovation or maintenance of the property.
15. Some of the expenses claimed by Ms. Gallo may have been partly attributable to the acquisition, renovation, or maintenance of the property. For example, Ms. Gallo testified that the storage unit held both materials for the construction project and their personal items. A portion of the water bills may havebeen necessary to preserve the landscaping, but another portion must have been attributable to washing, cooking, and the like, purposes which were not necessary for the acquisition, renovation, or maintenance of the property. Similarly, some of the fuel and electricity costs were probably attributable to the renovation project, but others were not. The evidence does not permit me to allocate these items between property-related and personal expenses with reasonable certainty.
16. Mr. Fordiani has failed adequately to substantiate most of his claims for reimbursement.
a. Mr. Fordiani's exhibits include numerous credit card statements, bills, and accounting summaries purporting to show amounts which his company, Shoreline Plumbing, paid for the renovation work. In many cases, the documents do not indicate the purpose of the expenditures or confirm that the expenditures were for the Kynnersley Road property rather than Shoreline Plumbing's other business.
b. Although the exhibits are less than clear on this point, he apparently claims reimbursement for periodic partial payments toward credit card balances, although most of the charges making up those balances are not related to the Kynnersley Road property.
c. Included in Mr. Fordiani's claims are expenses for the acquisition and transportation of two or more travel trailers and a vacation spot inMexico. These expenses have nothing to do with the Kynnersley Road property and Ms. Gallo never agreed to pay any part of them.
d. Mr. Fordiani claims a right to reimbursement for his repayment of loans which Ms. Gallo made to him or his company.1 This claim is absurd.
e. He claims reimbursement for the portion of the HCFCU refinancing loan which the parties agreed would be disbursed to Ms. Gallo,2 even though he received exactly the same amount of the loan proceeds. This claim is also absurd.
f. The most reliable evidence of Mr. Fordiani's expenditures is exhibit "O," an accounting report which shows the expenses allocated to the Kynnersley Road project on Shoreline Plumbing's books.
17. Mr. Fordiani did a substantial amount of physical work on the improvements. Mr. Fordiani failed, however, to establish the dollar value of that work with reasonable certainty. The only pertinent evidence is his testimony that the value of the property after the improvements was greater than the sum of the purchase price and the out-of-pocket cost of the improvements. His testimony on value is admissible because he is a co-owner of the property, but it has little weight because he is not a qualified expert on real property values in Hawaii. Further, histestimony is insufficient to establish the value of his work because the value of the property may have risen due to general market conditions, wholly apart from his services.
18. Mr. Fordiani never had a contractors' license in Hawaii. (He has only a California contractors' license.)
19. Mr. Fordiani seeks reimbursement for the cost of purchasing tools and gas powered equipment which were used on the renovation work. Because Mr. Fordiani (or one of his companies) still owns these items, and there is no evidence that these items were used up or destroyed on this project, the correct measure of his possible claim would be the fair rental value of those items. There is no evidence of the fair rental or use value of those items.
20. Ms. Gallo repeatedly asked Mr. Fordiani to pay his share of their property-related expenses but he did not comply.
21. The relationship between Mr. Fordiani and Ms. Gallo deteriorated and eventually collapsed. In late 2012, Mr. Fordiani moved out of the...
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