In re Rowell
| Decision Date | 29 August 2019 |
| Docket Number | Bankruptcy No. 18-81847 |
| Citation | 606 B.R. 329 |
| Parties | IN RE: Samuel T. ROWELL, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Darron M. Burke, Barrick Switzer Long Balsley & Van Evera, Rockford, IL, Eric J. Ryan, The Law Offices of Eric J. Ryan, LLC, Geneva, IL, for Debtor.
Lydia Meyer, Lydia Meyer -13 Trustee, Fiona M. Whelan, Lydia S. Meyer, Trustee, Rockford, IL, for Trustee.
Samuel Rowell (the "Debtor"), and Vernon and Cheryl Jones (the "Claimants") were friends and neighbors living in Barrington, Illinois. Apparently, no longer. Now before the court is the Debtor's objection to his former neighbors' unsecured claim of $166,023.08. (ECF No. 36.)
Both the origins and substance of the claim are convoluted. In 2013, Mr. and Mrs. Jones found themselves unable to keep up with their mortgage payments and were forced to sell their home in a short sale. Believing then that the short sale would disqualify them from obtaining conventional financing, they met with Mr. Rowell to see if their neighbor could help. Eventually, Mr. Rowell agreed to obtain a mortgage to finance his purchase of a home they selected. The parties agreed to a lease arrangement whereby Mr. and Mrs. Jones would pay Mr. Rowell sufficient rent to cover his monthly mortgage payments and expenses for about three years when they expected they could qualify for mortgage financing to purchase the home from him.
Reaching that understanding, Mr. and Mrs. Jones provided the earnest money for the home of their choice. With the Claimants further contributing an additional portion of the funds needed for closing the Debtor bought the home, located in Barrington, Illinois (the "Oak Creek Residence") and the Jones' moved in. Unfortunately, the parties did not enter into a written agreement regarding either the Jones' contribution or an option to purchase the property. They did sign a standard lease agreement before the purchase. The lease makes no mention of a purchase option or the future sale of the property. And the parties apparently did not consider what would happen if the Jones were unable to obtain a mortgage or if the Debtor sold the property to someone else. Alas, that came to pass. After offering the property to the Jones and in some financial difficulties of his own, Mr. Rowell sold the home to a third party in 2017 for a "profit."
Apparently, the sale provided little or no financial respite to Mr. Rowell and he commenced this bankruptcy case later in 2018. Mr. and Mrs. Jones assert an unsecured claim against his bankruptcy estate in the amount of $166,023.88 ("Claim 2-1") which they contend is due them under several theories. On the Debtor's objection and after an evidentiary hearing, the court finds that the Claimants are barred by the statute of frauds from asserting a claim for breach of contract for the sale of the home. Further, the terms of their lease agreement preclude much of their claim for reimbursement for repairs and improvements. However, the evidence shows that the Claimants possess a claim in restitution for the Debtor's unjust retention of their contribution that enabled him to purchase the property and of certain later contributions in connection with his 2017 sale of that property at a profit. Accordingly, Claim 2-1 will be allowed in the amount of $76,039. The remainder of the Jones' claim will be disallowed.
This court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. The disallowance of claims is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and over which the bankruptcy court has constitutional authority to enter final orders. See, e.g., Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) (). Additionally, at the hearing on April 4, 2019, counsel for both the Debtor and the Claimants consented on the record to this court entering final orders in the matter.
On August 29, 2018, Mr. Rowell filed his petition for relief under chapter 13 of the Bankruptcy Code. Cheryl and Vernon Jones (the "Claimants") timely filed an Official Form 410 ("Proof of Claim") to assert their unsecured claim of $166,023.88 for what they describe as "[m]oney paid towards purchase of real estate by Debtor, which Debtor sold without repaying Creditor." (Claim No. 2-1.) They attached to their Proof of Claim a "Chronological Summary" and a spreadsheet entitled "Expenses Incurred." The Claimants included with their submission copies of invoices and estimates for roof and other home repair work together with a home inspection report. The Claimants' seek "to recover sums of money paid on behalf of the Debtor relating to a residence owned and sold prior to the filing of the Chapter 13 petition." (Claimant's Post-Trial Br. ¶ l, ECF No. 96.) They now explain that the amount sought consists of "$80,000 ... related to the down payment and earnest money for the purchase of the subject property, and the remainder was related to repairs and improvements made to the property." (Id. at ¶ 2.) While admitting that there is no writing that memorializes terms of an agreement regarding their contributions or the purchase of the Oak Creek Residence, the Claimants argue that the Debtor orally agreed to purchase the Oak Creek Residence for them using a combination of funds provided by the Jones, together with funds provided by the Debtor and a mortgage loan he would obtain, and then lease the residence to them for approximately three years when he would sell the property to them. Because the Debtor later sold the Oak Creek Residence to a third-party at an admitted profit, Mr. and Mrs. Jones argue that they are entitled to receive back the monetary benefit they conferred on the Debtor either as contractual damages or as an equitable remedy for unjust enrichment or conversion.
The Debtor objects to Claim 2-1 in its entirety. (ECF Nos. 36, 75.)1 According to the Debtor, (i) the Claimants have failed to meet their burden of demonstrating an agreement was formed; (ii) any claim for breach of contract is barred by the Illinois statute of frauds; (iii) their claim for equitable relief is barred by the terms of the written lease agreement; and (iv) the Claimants have not met their burden to prove the damages and amounts sought. (See generally , Debtor's Post-Trial Br., ECF No. 94.) The Claimants filed their response (ECF No. 77) and on March 14, 2019, this court entered its Final Pretrial Order. (ECF No. 84.) During the March hearing, the court reminded the parties that this contested matter appeared to raise disputed material facts and asked them whether they wished the opportunity to conduct discovery. Both parties responded that they did not. The court held an evidentiary hearing on May 21, 2019, during which the Debtor and both Vernon and Cheryl Jones testified. In addition, the court received the following exhibits without objection: a recapitulation of expenses prepared by Mr. Jones, a handwritten list of rent payments prepared by the Debtor, and the Residential Lease made by the parties. At the direction of the court, the parties later submitted post-trial memoranda. (ECF Nos. 94, 96.) The Chapter 13 Trustee participated in these proceedings but did not take a position on the merits of the claim or the Debtor's objection.
After weighing the evidence and credibility of testimony of the witnesses and the other evidence received, giving due consideration to the argument of counsel and taking judicial notice of matters of public record and the court's own docket, the court makes the following findings of fact as set forth here and in later portions of this Memorandum Opinion.2 See Lulay Law Offices v. Rafter , 579 B.R. 827, 829 n.1 (Bankr. N.D. Ill. Sept. 29, 2017) (citing United States v. Wood , 925 F.2d 1580, 1582 (7th Cir. 1991) ).
In 2013, Vernon and Cheryl Jones realized they had to give up their home in a short sale. Unable to obtain traditional financing to purchase a new home, Mr. and Mrs. Jones contacted a company that finances home purchases through lease arrangements offering purchase options. The Claimants eventually elected not to go forward with that company because it would not finance the home they wished to buy, the Oak Creek Residence. They then approached Mr. Rowell, their friend and neighbor, to discuss the lease / option concept and see if he could help. At the time the Jones were under the impression that that they could qualify for a traditional mortgage three years after the short sale. They proposed to Mr. Rowell an arrangement whereby he would obtain a mortgage loan to purchase the Oak Creek Residence and rent the home to them for three years until they could obtain a mortgage and buy the residence.
After visiting several banks suggested by Mr. Jones and exploring other alternatives, the Debtor found a lender. The purchase price for the Oak Creek Residence was $345,000. In July 2013, Mr. and Mrs. Jones made the earnest money payment of $5,000 for the property. They contributed an additional $70,000 by wire transfer to fund part of the down payment at the closing on September 26, 2013.3 The Debtor funded the rest of the purchase money and buyer's costs at closing using the proceeds of the mortgage loan in an initial principal amount of $234,000 together with an additional $29,100 in personal funds withdrawn from his 401(k) account.4 While the Debtor vaguely testified that he may have incurred income taxes and withdrawal penalties for these withdrawals (see supra note 4 and infra note 9), he failed to establish what specific charges he incurred to fund his purchase.
The parties did not sign...
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