Jones v. Dawson (In re Dawson), Bankruptcy No. 10–21104.

• Decision Date: 07 March 2014
• Docket Number: Adversary No. 12–02474.,Bankruptcy No. 10–21104.
• Citation: 507 B.R. 348
• Court: U.S. Bankruptcy Court — District of Utah
• Parties: In re Scott Colby DAWSON and Shanna Lynn Dawson, Debtors. Nathan Jones, Plaintiff, v. Scott Colby Dawson and Shanna Lynn Dawson, Defendants.

507 B.R. 348

In re Scott Colby DAWSON and Shanna Lynn Dawson, Debtors.Nathan Jones, Plaintiff,

v.Scott Colby Dawson and Shanna Lynn Dawson, Defendants.

Bankruptcy No. 10–21104.

Adversary No. 12–02474.

United States Bankruptcy Court, D. Utah.

Signed March 6, 2014.

Filed March 7, 2014.

Jerome Romero, George W. Pratt, Jessica P. Wilde, Jones Waldo Holbrook & McDonough, PC, Salt Lake City, UT, for Plaintiff.

George B. Hofmann, Parsons Kinghorn & Harris, Salt Lake City, UT, for Debtors.

MEMORANDUM DECISION

WILLIAM T. THURMAN, Bankruptcy Judge.

If there was ever a need for a better drafted contract, this is the case. With just some attention to terms of performance, terms of default, deadlines and the like, much of the controversy that the parties have presented to the Court could have been resolved between them. However, those rudimentary terms are absent from the two page document that the parties agree is their written contract. Because of the sparsity of terms, the Court is forced to look to course of dealing between the parties and industry norms to fill in the blanks. With this in mind, the Court has constructed this decision.

The matter before the Court is an adversary proceeding brought by Nathan Jones against Scott Colby Dawson and his wife, Shanna Lynn Dawson.¹ Mr. Jones requests that the Court deny Mr. Dawson's discharge of a particular debt, which Mr. Jones claims to be in the amount of $149,736.32, pursuant to 11 U.S.C. § 523(a)(2)(A).² Mr. Jones alleges that Mr. Dawson made fraudulent representations relating to the construction of an airplane hangar at the Provo City Municipal Airport (the “Hangar”).

I. JURISDICTION AND VENUE

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(b) and 157. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is appropriate under 28 U.S.C. § 1409. Notice for the trial is and has been appropriate in all respects.

II. Findings of Fact

1. Mr. Jones, through his agent, Mario Markides, solicited bids for the construction of the Hangar.

2. CoDa Construction, Inc. (“CoDa”), a Utah corporation solely owned by Mr. Dawson, was the successful bidder at a bid price of $270,700. Ms. Dawson was identified as the corporate secretary; however, her involvement with CoDa was only to do some invoicing work under specific instruction from Mr. Dawson.

3. Mr. Dawson received his contractor license from the state of Utah in April 2007, and is an experienced contractor.

4. CoDa prepared an estimate for the total project. Exhibit 2, dated August 30, 2011, is the estimate prepared by Mr. Dawson and signed by Mr. Jones (the “Estimate”).³ Mr. Jones accepted the Estimate on or about September 9, 2011.

5. The Estimate includes the following components and specific costs for the construction of the Hangar:

• 80 x 75 x 20 prefab steel building with PBR walls reverse panel and gajvalume [sic] screw down roof with R–36 roof and R–19 walls with gutter and down spouts 1–framed opening 1–opening for bifold door 60x20 and 2–3070 doors—$65,000

• Erection on a 80x75 prefab steel building to be erected at the Provo Airport with PBR walls and galvalume roof with gutter and downspouts—$29,700

• Concrete on footings and foundation rebar, floor in building and drive way. Footings are to be standard 2 foot. Foundation to be standard 8? x 4'—$63,000

• Removal of Asphalt, Relocate drainage pipe (includes 1 extra drain), and dig foundation includes digging fiber optic and temp fencing—$39,500.

• Rough in Plumbing—$5,000

• 60 x 20 bifold door with auto lock and remote opener and sheeting—$30,500

• Exclusions—All prices are based on information provided to Coda Construction, Inc. and no sewer hookup just rough in and stubbed out Insulation R–19 walls and r–36–roof—$10,800

• Plans and Permits—$17,000

• Electrical & Lighting as per invoice cost of material plus labor as per building codes—$0 (cost plus)

• Heating gas; line as per cost of materials plus labor—$0 (cost plus)

• Overhead door—$4,200

• 10 x 10 concrete room 8? thick walls 1–3060 steel door with lock set—$8,000

6. The Estimate as used by the parties sets out the scope of the project. However, as stated previously, many of the terms have to be imported from the course of dealing between the parties and the industry norms of the construction industry.

7. The Estimate shows a total fixed cost of $272,700, which number was reduced in writing to $270,700 on the Estimate.⁴ The Estimate also contains terms anticipating some variable costs for electrical, lighting, heating gas line, and cost of labor for installation.⁵ There is no written agreement as to the specific costs of these additional items.

8. Mr. Jones, who had previously hired contractors in six different hangar construction projects in Arizona, believed and was under the impression that Mr. Dawson would complete the project by December 25, 2011, but this completion date was not included in the Estimate.

9. Mr. Jones offered to pay the full $270,700 up-front at the start of the project, but Mr. Dawson refused his offer.

10. The parties agreed to follow industry custom, which was to invoice for each project segment or component of the job for roughly 50% up-front with the balance to be invoiced and paid when that segment or component was completed. However, the parties did not follow industry norm at all times.

11. Further, as testified by Darrell Jason Lester, a worker on the job site, when a segment or component is first invoiced, industry custom is for the contractor to apply the funds received directly towards the items indicated in the invoice.

12. Each invoice issued by CoDa, prepared by Mr. Dawson or pursuant to Mr. Dawson's instruction, included a list of one or more items taken from the Estimate, provided the cost of the item, the description of the item, and included a total percentage of the job on each item. The total percentage indicates that the payment requested was for the commencement of the item listed, for an up-front payment that was required for the delivery of the item, or, if the component had been completed, that the remaining balance should be paid.

13. From September 2011 through February 2012, Mr. Jones paid CoDa $230,000 in multiple installments upon receipt of various invoices.⁶

14. Mr. Jones did not request receipts or proof of payments from Mr. Dawson for goods and services related to the project that Mr. Dawson was to pay, just invoices.

15. In preparing the Estimate, Mr. Dawson built in an internal profit of 20% of the cost of the project and an additional 10% on the specific costs of certain components on the Estimate, which he referred to as his “commission.”

16. Mr. Dawson did not disclose his intended commission to Mr. Jones. According to Mr. Dawson's accounting on Exhibit 18 and Mr. Dawson's testimony, out of the funds received from Mr. Jones, Mr. Dawson issued CoDa shareholder distributions in the minimum amount of $35,124.⁷ Again, as stated above, Mr. Dawson was the sole shareholder of CoDa.

17. Mr. Dawson also accounted for a minimum distribution of $24,462.57 for “Builders Overhead.” ⁸ At the time Mr. Dawson withdrew this builder's overhead amount from the funds paid by Mr. Jones for the construction of the Hangar, Mr. Dawson knew that he would not have sufficient funds remaining to complete the project.

18. At the commencement of the project, unexpected expenses arose. The Estimate was based on a footing to be “standard 2 foot,” but because of the high ground water, Provo City required the foundation to be dug eighteen inches deeper than the standard two feet, thus requiring an extra 8,437.5 cubic feet of excavation and an increased quantity of gravel fill material. The parties agreed that Mr. Jones would pay for the increased cost, but never agreed upon the amount.

19. On October 7, 2011, Mr. Dawson issued an initial invoice, invoice number 130, for $70,000 that included the cost of the permits with a total percentage of 100%, indicating that Mr. Dawson would complete the appropriate papers and obtain the necessary building permits from Provo City for a total of $17,000. ⁹ The invoice also included a bifold door and the building indicating a total percentage of 65.57% and 50.77%, respectively.¹⁰

20. Mr. Jones paid for invoice number 130 in two installments,¹¹ the first installment of $55,000 and the second of $20,000, providing a credit of $5,000.¹² Mr. Dawson testified that he set aside $17,000 of the $55,000 payment for the permits. The Court received Exhibit 21 for impeachment purposes. Exhibit 21 shows that out of the initial $55,000 paid by Mr. Jones on September 9, 2011, Mr. Dawson made significant withdrawals for personal use through September 2011, contrary to his testimony as to the use of those funds. Accordingly, the Court does not find Mr. Dawson's testimony credible.

21. Mr. Dawson did not purchase the identified permit from Provo City for the construction of the Hangar, but instead began construction using a fast track permit from Provo City that limited construction to the foundation of the Hangar.

22. On October 7, 2011, Mr. Dawson issued a separate invoice for $25,000 for excavation indicating a total percentage of 63.24% completed, which Mr. Jones paid.¹³

23. Mr. Dawson issued an invoice on November 15, 2011 for concrete indicating a total percentage of 47.62% for a total amount of $30,000, which Mr. Jones paid.¹⁴

24. Mr. Dawson told Mr. Markides that 100% of the cost had to be provided before the building component for the Hangar could be delivered to the work site.¹⁵ On December 1, 2011, Mr. Dawson issued an invoice with a total percentage of 100% for the building.¹⁶ Because the building had not been delivered to the construction site, Mr. Jones paid $30,000 of $32,000 invoice, which funding was enough for the building to be delivered.

25. The building was delivered shortly after the invoice was issued, but Mr. Markides questioned Mr. Dawson about the height of the building. Mr....