In re Rapp

• Decision Date: 18 September 2007
• Docket Number: Bankruptcy No. 06-52794.,Adversary No. 06-02543.
• Parties: In re William R. RAPP and Gayle F. Rapp, Debtors. Shirley M. Schafer, Plaintiff, v. William R. Rapp, et al., Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

375 B.R. 421

In re William R. RAPP and Gayle F. Rapp, Debtors Shirley M. Schafer, Plaintiff, v. William R. Rapp, et al., Defendants.

Bankruptcy No. 06-52794.

Adversary No. 06-02543.

United States Bankruptcy Court, S.D. Ohio, Eastern Division at Columbus.

September 18, 2007.

COPYRIGHT MATERIAL OMITTED

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James E. Nobile, Nobile & Thompson Co., L.P.A., Hilliard, OH, for Plaintiff.

Pamela N. Maggied, Columbus, OH, for Defendants.

Myron N. Terlecky, Columbus, OH, Chapter 7 Trustee.

MEMORANDUM OPINION

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

Plaintiff Shirley M. Schafer ("Schafer") initiated this adversary proceeding to determine the dischargeability of a state court judgment entered in her favor against Defendant William R. Rapp ("Rapp" or "Debtor"), a contractor and the debtor in this Chapter 7 case.¹ Schafer sued Rapp in August 2004 in the Franklin County Court of Common Pleas ("State Court").² The lawsuit arose from a dispute between the parties concerning certain renovation and remodeling work performed by Rapp. The State Court's Decision Following Bench Trial ("Decision"), entered March 30, 2006, found for Schafer and entered judgment against Rapp in the amount of $26,500. Schafer now seeks a determination that this judgment debt is excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(6).

Before the Court are the parties' cross-motions for summary judgment, each of which relies exclusively on the findings of fact and conclusions of law set forth in the Decision. As explained below, because the Decision does not establish that the judgment is a debt for money obtained by false pretenses, false representations, or actual fraud, or a debt for willful and malicious injury, the judgment is not excepted from the Debtor's discharge. Thus, Rapp is entitled to summary judgment.

I. Jurisdiction

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2)(I).

II. Factual and Procedural History

The material facts of this case are not in dispute and are taken from the Decision.

In December 2003, Schafer hired Rapp to perform renovation and remodeling work at a vacant property owned by her mother. Rapp prepared a contract ("Contractor Agreement") setting forth the terms of his agreement with Schafer, including a contract price of $16,200, work and payment schedules, and general details about the scope of the work to be performed. The State Court found that the Contractor Agreement contained the following material terms:

1. All work shall be completed in a workman-like [sic] manner and in compliance with all building codes and other applicable laws.

* * *

3. To the extent required by law all work shall be performed by individuals duly licensed and authorized by law to perform said work.

* * *

7. Contractor shall at its [sic] own expense obtain all permits necessary for the work to be performed.

* * *

12. Contractor warrants all work for a period of 36 months following completion.

Decision ¶ 6 (internal quotation marks omitted).

Upon signing the Contractor Agreement, Schafer paid the first installment payment in the amount of $5,400. Schafer understood that Rapp would not devote his full time to the project, but would instead attend to the job during the cold-weather months in the winter of 2004 when other work was slow. In February, Schafer made a second installment payment of $5,400 and advanced Rapp an additional $1,500 shortly thereafter. Though the contract called for a completion date of April 15, 2004, Schafer did not inspect the work until late May, when Rapp was nearing completion of the project. Schafer was dissatisfied with the quality of the renovations and prepared a punch list identifying numerous examples of work performed in a careless or non-workmanlike manner.³ Schafer specified a week to complete the items, and Rapp and his workers continued work on the project.

When Schafer returned to inspect the progress a week later, she prepared a second punch list identifying deficiencies more serious than those she had previously pointed out. For example, gas and hot water had not yet been connected, and a toilet was leaking water. Frustrated, Schafer asked Rapp to leave the project. Shortly thereafter, Schafer had the property inspected by an expert in various construction trades. The expert concluded that certain electrical and plumbing work had not been done according to applicable codes, and certain structural work had been performed in a manner that was "plainly improper." Decision ¶¶ 20-21.

Schafer filed the civil action against Rapp in State Court, asserting two claims for relief — a common law fraud claim and a claim based on Rapp's alleged violations of the Ohio Consumer Sales Practices Act ("OCSPA").⁴ Following a bench trial, the State Court ruled as follows:

25) [T]he preponderance of the evidence proves that defendant Rapp materially breached his contract, and plaintiff did not get what she paid to receive....

. . . .

29) Mr. Rapp committed several deceptive consumer practices, and unconscionable acts or practices as defined in [Ohio Revised Code] 1345.02 and 1345.03. These included misrepresenting the fact that legal permits would be obtained, and taking advantage of the consumer's ignorance that Mr. Rapp was not properly licensed or entitled to perform such work in the City of Columbus. In addition, this contract provided that the work was to be completed in a "workman-like manner and in compliance with all building codes and other applicable laws." Mr. Rapp took too many short cuts....

30) The Court concludes that it has been proven defendant was deceptive from the outset about being licensed and obtaining permits, and never intended to comply with those important promises made to induce Mrs. Schafer to hire him.

. . . .

33) While finding that there was both a breach of contract and serious knowing violations of the Consumer Sales Practices Act, the Court does not find common law fraud....

Decision ¶¶ 25-33 (emphasis added).⁵

The State Court found that the true value of the work performed by Rapp was $6,300. Because Schafer had already paid $12,300 of the contract price, the State Court awarded actual damages of $6,000, which it trebled due to Rapp's violations of the OCSPA. Decision ¶¶ 25-26, 31. The State Court also awarded Schafer $8,000 in legal fees and $500 in litigation-related expenses. Decision ¶ 32. Judgment was entered against Rapp in the amount of $26,500.

On June 9, 2006, Rapp filed a petition for relief under Chapter 7 of the Bankruptcy Code. Schafer commenced this adversary proceeding August 24, 2006, seeking to except the $26,500 judgment from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(6). Schafer and Rapp filed cross-motions for summary judgment, each asserting that the State Court's findings of fact and conclusions of law are entitled to preclusive effect.

III. Legal Analysis

A. Summary Judgment Standard

Summary judgment is appropriate where "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 a judgment as a matter of law." Fed.R.Civ.P. 56(c) (made applicable in this adversary proceeding by Fed. R. Bankr.P. 7056). On motion for summary judgment, the inferences drawn from the underlying facts must be viewed in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 511 (6th Cir.2003); McKenzie v. Bell-South Telecomms., Inc., 219 F.3d 508, 512 (6th Cir.2000). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Leary v. Daeschner, 349 F.3d 888, 897 (6th Cir.2003); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989). Once the moving party satisfies its burden, the non-moving party must then "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (quoting Fed.R.Civ.P. 56(e)); Lanier v. Bryant, 332 F.3d 999, 1003 (6th Cir.2003); McKenzie, 219 F.3d at 512. The nonmoving party may not meet this burden by resting on mere allegations in the pleadings. See Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Mounts v. Grand Trunk W.R.R., 198 F.3d 578, 580 (6th Cir.2000). "Merely alleging the existence of a factual dispute is insufficient to defeat a summary judgment motion; rather, there must exist in the record a genuine issue of material fact." McKenzie, 219 F.3d at 512 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A material fact is one that has the "potential to affect the outcome of the suit under applicable law." FDIC v. Anchor Props., 13 F.3d 27, 30 (1st Cir.1994) (citations and internal quotation marks omitted). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. See also Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir.1992).

Here, Schafer and Rapp have filed cross-motions for summary judgment and agree that no genuine issue of material fact exists. "The fact that both parties make motions for summary judgment, and each contends in support of his respective motion that no genuine issue of fact exists, does not require the Court to rule that no fact issue...