Jordan v. Pritchard (In re Pritchard)
| Decision Date | 30 September 2021 |
| Docket Number | Adv. No. 1:21-ap-01010-SDR,No. 1:20-bk-13207-SDR,1:20-bk-13207-SDR |
| Citation | 633 B.R. 314 |
| Parties | IN RE: Brian Ashley PRITCHARD, Debtor; Nathanel Jordan and Rachel Jordan, Plaintiffs, v. Brian Ashley Pritchard, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
Chanse Joseph Hayes, Duncan, Hatcher, Holland & Fleenor, PC, Chattanooga, TN, for Plaintiffs Nathanel Jordan, Rachel Jordan.
Richard L. Banks, Richard Banks & Associates, P.C., Cleveland, TN, for Defendant.
In the summer of 2018, plaintiffs Nathanael Jordan and Rachel Jordan bought a house from defendant Brian Pritchard ("Pritchard"), the debtor in Main Case No. 1:20-bk-13207-SDR. Soon after buying the house, the Jordans discovered that it had a leaky roof, mold in the basement, and other structural problems that they contend they could not have discovered before the sale closed. The Jordans, in their view, could not have discovered all of the problems with the house in large part because Pritchard gave them a property condition disclosure statement that either downplayed the severity of the problems or denied them outright. Making any recovery for the Jordans’ injuries more difficult, Pritchard transferred his interest in a different property while going through his Chapter 7 proceedings; the Jordans believe that he did so intentionally to thwart their attempts to recover damages. The Jordans commenced state-court litigation, currently stayed by the state court, and this adversary proceeding to unwind the property transfer and to seek compensation for extensive repairs to the house that they bought. The Jordans additionally seek declarations that any damages that they recover would not be subject to discharge under 11 U.S.C. § 523(a)(2)(A) ; and that Pritchard should not receive any discharge in the Main Case under 11 U.S.C. § 727(a)(2)(A) and (B).
In response to the Jordans’ first amended complaint, Pritchard filed a motion to dismiss under Federal Civil Rule 12(b)(6), made applicable by Federal Bankruptcy Rule 7012. (Doc. No. 8.) Pritchard argues that the Jordans have not pled any fraudulent statements or failure to disclose with respect to his property transfer. Pritchard argues further that the Jordans arranged for a home inspection before buying their house and could have discovered any problems before closing, leaving them with only conclusory allegations about misrepresentations.
The Court held oral argument on May 28, 2021. For the reasons below, the Court grants Pritchard's motion with respect to Count I of the first amended complaint and denies it, without prejudice, with respect to Count II. The Court denies Pritchard's motion with respect to Count III.
This case concerns allegations1 that Pritchard deceived the Jordans about the condition of the house that he and his first ex-wife Jennifer sold them in 2018. The house that Pritchard sold is located at 1301 Harrison Pike in Cleveland, Tennessee. The Jordans purchased the house for $150,000. (Doc. No. 9-1 at 3.) The parties recorded the sale on August 13, 2018 with the filing of a warranty deed. (Id. at 1–2.)
The sale of the Harrison Pike property closed in accordance with a Purchase and Sale Agreement (the "Agreement") that the parties entered in early July 2018.2 The Agreement contains several provisions that are relevant to the pending motion. In Section 2(C)(2), the parties agreed that the sale would be contingent on an appraisal that set a value for the house at least as high as the purchase price. (Doc. No. 3-1 at 15.) In Section 7(A), a home inspection was optional, but the Jordans agreed that any third-party home inspection would be conducted by a licensed home inspector. (Id. at 17.) In the same section, the Jordans agreed that they had "no right to require repairs or alterations purely to meet current building codes, unless required to do so by governmental authorities." (Id. ) Section 7(B) contains a paragraph governing how a home inspection would occur:
Buyer and/or his inspectors/representatives shall have the right and responsibility to enter the Property during normal business hours, for the purpose of making inspections and/or tests of the Property. Buyer and/or his inspectors/representatives shall have the right to perform a visual analysis of the condition of the Property, any reasonably accessible installed components, the operation of the Property's systems, including any controls normally operated by Seller including the following components: heating systems, cooling systems, electrical systems, plumbing systems, structural components, foundations, roof coverings, exterior and interior components, any other site aspects that affect the Property, and environmental issues.
(Id. ) The Jordans had ten days from the Agreement becoming final to conduct a home inspection and to provide written notice, based on the results of the inspection, that they were terminating the Agreement; that they were accepting the house in its present condition; or that they were requesting repairs. (Id. at 18.)
As part of the sale process, the parties also signed a property condition disclosure statement. (Id. at 26–30.) Several provisions in the disclosure statement are relevant to the pending motion. At the top of the first page, Pritchard disclosed that he acquired the Harrison Pike property on November 15, 2006. (Id. at 26.) In the first numbered paragraph on the first page, Pritchard had to "disclose all known material defects and must answer the questions on the Disclosure form in good faith to the best of the seller's knowledge as of the Disclosure date." (Id. ) In Section B, Pritchard checked the boxes indicating that he was not aware of any roof defects but was aware of basement defects. (Id. at 28.) To supplement the checked box about the basement, Pritchard added the comment that "basement will get minor water intrusion during heavy extended rainfall, pump is installed to dispose of water." (Id. ) In Section C of the disclosure statement, Pritchard checked that he was not aware of potential environmental hazards at the house including asbestos and mold. (Id. ) Pritchard further checked that he was not aware of room additions or structural modifications that either were made without necessary permits or were not in compliance with building codes. (Id. ) Pritchard did disclose problems with "flooding, drainage, or other interior water intrusions." (Id. at 29.) For these disclosures, Pritchard added the comment that the "basement will get minor water intrusion during heavy extended rainfall, pump is installed to dispose of water." (Id. )
Problems with the Harrison Pike property arose just a few months after the sale closed. On or about November 14, 2018, according to the Jordans, water entered the interior of the house through leaks in the roof. A roofing contractor inspected the roof and found patches suggesting attempts at repair, while the Jordans found a can of roof sealant hidden in the basement. The roofing contractor estimated that repairing the roof would cost about $10,500. Not long after the incident with the roof leaks, the Jordans discovered mold and asbestos in the house. "After the water entry, Plaintiffs recalled the distinct presence of candles and perfume in The Property prior to their purchase of the Property." (Doc. No. 3 at 7.) The Jordans received estimates totaling about $43,000 for full mold and asbestos remediation. Additionally, around February 2020 the Jordans found a "newly discovered area" of the house that they described in their first amended complaint as follows:
Upon reasonable information and belief, between 1998 and 2002, Defendant built or hired agents to build an addition onto The Property. This construction occurred after Defendant purchased The Property from his father, which evidences Defendant's knowledge of concealed, material defects. During the construction of said addition, a portion of the crawl space was made inaccessible by the builder or agent of Defendant. After the purchase, Plaintiffs were able to remove a part of a cinder block wall in the basement and discovered that work had been performed on The Property without pulling construction permits. Plaintiff Nathanael Jordan obtained access to this inaccessible portion of The Property and saw that a load bearing, untreated support beam of The Property was rotten and structurally compromised. Upon reasonable information and belief, the prior work did not comply with building codes. Plaintiff Nathanael Jordan also discovered multiple two-by-four boards nailed to the subject floor joist(s) with framing nails. Upon reasonable information and belief, the use of the two-by-fours in this manner does not meet building code requirements and evidence additional material defects with The Property that Defendant knew about and willfully failed to disclose. In addition to the deterioration of the floor beams, which Plaintiffs contributes to water intrusion due to the aforementioned roof defects, Plaintiff Nathanael Jordan also discovered a substantial amount of mold in this newly discovered area of The Property.
(Id. at 8–9.)
The Jordans began their efforts to seek redress in state court. On October 31, 2019, the Jordans sued Pritchard in Bradley County Circuit Court. The Court does not have a copy of the original state-court complaint, but in the first amended state-court complaint, dated July 30, 2020, the Jordans recited the same facts that the Court summarized above and asserted four causes of action: fraudulent misrepresentation and concealment; negligent misrepresentation; a violation of the statutory requirement in Tenn. Code Ann. § 66-5-201 to make disclosures honestly and in good faith; and breach of contract, specifically the property condition disclosure statement. (Doc. No. 3-1 at 1–11.) When the Jordans became aware of Pritchard's bankruptcy proceedings, they filed a motion for relief from the automatic...
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