In re Nardone, Case No. 05-21490-JBR (Bankr.Mass. 7/7/2008), Case No. 05-21490-JBR.

CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
Writing for the CourtJoel Rosenthal
PartiesIn re MICHAEL A. NARDONE, Chapter 7, Debtor. CARL S. LERARIO ASTRID G. LERARIO, Plaintiffs, v. MICHAEL A. NARDONE, Defendant.
Docket NumberAdv. Pro. No 06-1019.,Case No. 05-21490-JBR.
Decision Date07 July 2008

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In re MICHAEL A. NARDONE, Chapter 7, Debtor.
CARL S. LERARIO ASTRID G. LERARIO, Plaintiffs,
v.
MICHAEL A. NARDONE, Defendant.
Case No. 05-21490-JBR.
Adv. Pro. No 06-1019.
United States Bankruptcy Court, D. Massachusetts.
July 7, 2008.
FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING COLLATERAL ESTOPPEL

JOEL ROSENTHAL, Bankruptcy Judge.


This Court entered an Order Regarding Bifurcation of Issues for Trial pursuant to which it tried only the issue of whether the agreement for judgment entered in the state court litigation precludes further litigation of the dischargeability action.1 An evidentiary

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hearing was held at which the direct testimony of the Plaintiffs was received by affidavit [docket # 67 and # 68]; the Plaintiffs were crossed examined at trial. The Defendant's direct testimony was also by affidavit [docket # 65]; he was cross-examined at trial and provided further testimony upon redirect examination by his counsel. The Court now issues the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

FACTS

In December 1999 the Plaintiffs, Carl S. Lerario and Astrid G. Lerario, entered into a construction contract with Michael A. Nardone, the Defendant, and his construction company, Nardone Construction and Contracting Co., Inc. (collectively with the Defendant, the "State Court Defendants") for the demolition and rebuilding of their commercial property located in Wakefield, Massachusetts (State Court Complaint at ¶¶ 7 and 10).2 The project did not proceed as the Plaintiffs anticipated nor as they claim the Defendant told them it would and on or about November 10, 2000, the Plaintiffs filed a complaint in the Essex County Superior Court, Civil Action No. 2000-2039 (the "State Court Action"), against the State Court Defendants. The Plaintiffs sought damages allegedly incurred as a result of the Defendants' intentional misrepresentations (Count II), conversion (Count IV), breach of the covenant of good faith and fair dealing (Count V), and violations of M.G. L. c. 93A (Count IX), among other things.3 Specifically in the

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State Court Action the Plaintiffs alleged, and the Defendant denied, that the Defendant induced them into paying him substantial amounts of money by intentionally and fraudulently misrepresenting his status as a licensed construction supervisor; his qualifications and experience to do the job; the time and cost to do the job; the size of the Defendant's company, including the fact that he had a licensed architect on staff, who would prepare the plans for the project; that he would obtain all the necessary permits; and that all the work would meet the applicable building codes, laws and regulations (State Court Complaint at ¶¶ 8 and 9). The Defendant, however, was not at that time, and never was, a licensed construction supervisor (Answer at ¶ 13).4 Moreover neither the Defendant nor his company had a licensed architect on staff. Instead the Defendant submitted plans to the Town that were originally signed by an architectural student whom the Defendant retained on behalf of his construction company (Answer at ¶ 15). The Defendant alleged that the Plaintiffs were aware of the student's status (Id.). Subsequently, in response to the Town Building Inspector's issuance of an order to stop the project until he received amended plans reviewed and signed by a licensed architect or engineer, the Defendant retained an unlicensed individual but claims that at the time of the hire, he believed the individual was licensed (Id. and Defendant's Admitted Facts, included in the Joint Pretrial Memorandum at ¶ J).

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The Plaintiffs also alleged that the Defendant represented that each stage of the construction would be and had been inspected and approved by the Town's building inspector as each stage was completed although no such inspections occurred or approvals were obtained when represented (Complaint at ¶ 27). Work on the project ceased in September 2000, but the project was ultimately completed by another construction company (Affidavit of Carl S. Lerario at ¶ 86).

On October 22, 2001 the Defendant went to his attorney's office where both he and his counsel executed an Agreement for Judgment, which the Plaintiffs subsequently signed and filed in the State Court Action on November 13, 2001. The Agreement for Judgment provides:

Judgment for the Plaintiffs, Carl S. Lerario and Astrid G. Lerario, against the Defendants, Michael Nardone and Nardone Construction and Contracting Co., Inc., jointly and severally, pursuant to Counts II, IV, V, and IX of Plaintiffs' Complaint in the amount of $400,000.00, together with interests and costs. Judgment is being entered on behalf of the plaintiffs against said defendants as a result of the defendants' specific actions in obtaining said funds from the plaintiffs by false pretenses, false representations and actual fraud; and as such, it is specifically ordered and agreed that this Judgment is a non-dischargeable debt of the defendants pursuant to 11 U.S.C. § 523(a)(2) and shall not be discharged in any subsequent bankruptcy proceeding.

The Defendant testified that he had not seen the Agreement for Judgment prior to the day he signed it and that, prior to appearing at his lawyer's office, he was not aware that the Agreement would provide that the judgment was to be non-dischargeable. He also testified that even when he saw the Agreement, he did not understand the Agreement would make the judgment nondischargeable nor did he

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understand that he was permanently giving up his counterclaim. He claimed he only understood the Agreement would give the Plaintiffs a $400,000 judgment against him and the corporation and that each would be equally responsible. He stated he just wanted to end the suit because he didn't have the money to fight the litigation. Although the Debtor repeatedly stated he did not understand the Agreement, he also testified that he did not ask his attorney to explain it to him.

The Defendant testified that he had a ninth grade education. He could read but that to understand what he was reading, he often had to read the material three, four or five times. He testified that he read the Agreement for Judgment only once, quickly while sitting in his lawyer's office.

The Debtor had filed a previous bankruptcy in 1988 and was familiar with the concept of dischargeability. The Defendant testified that he knew that if a debt was discharged in bankruptcy, he would not have to pay it. Similarly he testified that he understood a debt that was nondischargeable would be required to be repaid.

I find the Debtor's testimony that he did not understand that the Agreement for Judgment would contain and did contain language to make the judgment nondischargeable not credible. I find the Debtor's testimony that, despite his alleged lack of understanding as to what the Agreement for Judgment meant, he did not ask his lawyer to explain it not credible. I find the Debtor's testimony that he did not understand or intend the judgment to be nondischargeable not credible. I find that the Debtor did understand that the Agreement for Judgment was intended to make the judgment nondischargeable and that, based on his own prior experience with bankruptcy, he

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understood the impact of making a judgment nondischargeable. The Debtor had previously filed bankruptcy and acknowledged understanding the concept of dischargeability. Yet despite this knowledge and the fact that he was represented by counsel and met with his counsel in the privacy of the attorney's office, without the Plaintiffs or their counsel present, he purports to have no understanding of the Agreement's intended effect on any subsequent bankruptcy. He asks the Court to infer that his own counsel never explained this impact to him prior to the execution of the Agreement. I find that the Debtor intended that the judgment was not to be discharged in any subsequent bankruptcy as reflected in the clear language of the judgment. Now that his bankruptcy is a reality, he is looking for a way out of the judgment.

On November 13, 2001 the Agreement for Judgment was entered on the docket in the State Court Action. On February 20, 2002 the State Court issued an execution on the agreed judgment in favor of the Plaintiffs in the amount of $461,628.75.5 No part of the judgment has been satisfied.

On October 13, 2005 the Defendant filed a voluntary petition pursuant to Chapter 7 of the Bankruptcy Code. On January 10, 2006 the Plaintiffs commenced this adversary proceeding seeking to hold the debt arising from the Agreement for Judgment nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). Having found that the Defendant intended the Agreement for Judgment to render the judgment nondischargeable, the Court needs to examine whether that intent, by itself, is sufficient.

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DISCUSSION

11 U.S.C. § 523(a)(2)(A), the section relied upon by the Plaintiffs, excludes from discharge any debt:

(2) for money, property, services, or an extension of credit, renewal or refinancing of credit to the extent obtained by: (A) false pretenses, a false representation or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.

"Exceptions to discharge are narrowly construed ... and the claimant must show that its claim comes squarely within an exception enumerated in Bankruptcy Code § 523(a)." Century 21 Balfour Real Estate v. Menna, 16 F.3d 7, 9 (1st Cir. 1994). The claimant has the burden to prove nondischargeability by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 284-85 (1991).

Collateral estoppel, also known as issue preclusion, prevents the relitigation of issues already litigated. "[C]ourts have often recognized, res judicata and collateral estoppel relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage...

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