Rable v. Childers (In re Childers)
| Decision Date | 30 March 2023 |
| Docket Number | 21-31595,Adv. Pro. 21-03065 |
| Parties | In re: David G. Childers, Debtor. v. David G. Childers, Defendant. Michael Rable and Sue Rable, Plaintiffs, |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
This adversary proceeding is before the court on Plaintiffs Michael Rable and Sue Rable's Complaint to Determine Dischargeability against Defendant David G. Childers. [Doc #1]. In the Complaint, Plaintiffs sought a determination that Defendant is liable for any damages arising out of a home construction contract and that those damages are nondischargeable under 11 U.S.C. §§523(a)(2) and (a)(6).[1] This proceeding is now before the court for decision after a trial held on September 14, 2022.
The court has jurisdiction over this adversary proceeding under 28 U.S.C. §1334(b) as a civil proceeding arising in or related to a case under Title 11. The Chapter 7 case and all proceedings in it arising under Title 11, including this adversary proceeding, have been referred to this court for decision. 28 U.S.C. §157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. This is a core matter under 28 U.S.C §157(b)(2)(I). Venue is proper under 28 U.S.C §1409(a).
"In an action tried on the facts without a jury . . ., the court must find the facts specially and state its conclusions of law separately." Fed.R.Civ.P. 52(a)(1). The court's findings of fact and conclusions of law are set forth below. See e.g., Corzin v. Fordu (In re Fordu), 201 F.3d 693, 710 (6th Cir. 1999). Whether or not specifically referred to in this Memorandum of Decision, the court has examined all the submitted materials, weighed and observed the demeanor and credibility of the three witnesses, carefully considered all the evidence, and reviewed the entire record of the case in determining the facts pertinent to the case and drawing conclusions therefrom. Based on that review, and for the reasons set forth below, the court finds Defendant is entitled to judgment in his favor.
On October 4, 2002, Defendant formed D.G. Childers, Limited ("Childers Construction"), a limited liability company of which he was the sole member. [Doc. #1, Ex. E, p. 54]. Since that time, he has worked as a self-employed general contractor overseeing or working on the construction of approximately three or four hundred homes in the Toledo, Ohio area. (Testimony of David G. Childers, September 14, 2022, 11:50:59-51:53 ("Childers Test.")). Defendant has had an account with Carter Lumber since the late 1990s that he used for construction purposes. (Id. at 12:04:30). Detailed below, Carter Lumber, an important player in this dispute, supplied lumber and other materials for Childers Construction's projects, and usually allowed Childers Construction to make purchases on credit, to be repaid as the project progressed.
At the same time, before January 2018, Childers Construction was building a "spec house"[2]for Toledo Transformation, LLC ("Toledo Transformation"), at 1781 Grand Bay, Oregon, Ohio. (S. Rable Test., 09:45:47). Toledo Transformation owned this property. (Id. at 09:50:30). The owner of Toledo Transformation was Jeff Savage, Plaintiffs' brother-in-law. (Id. at 10:37:05).
Plaintiffs had business relationships with Toledo Transformation. Mr. Rable, a licensed realtor, assisted Toledo Transformation in purchasing rental properties and occasionally sold one of their homes. (Testimony of Michael Rable, September 14, 2022, 11:11:15 ( )). Mrs. Rable had two companies, OPM Homes and Suzzane Utter Equity Trust. One of Mrs. Rable's companies provided bookkeeping services for Toledo Transformation, such as overseeing construction of ongoing projects, including the construction at 1781 Grand Bay by Childers Construction. (S. Rable Test., 09:48:11). There was no evidence presented that Plaintiffs had any ownership interest in Toledo Transformation.
In January 2018, one of Mrs. Rable's companies was working for Toledo Transformation providing bookkeeping services during the construction of the "spec house" at 1781 Grand Bay by Childers Construction. (Id. at 09:48:00). Mrs. Rable did not specify which one of her companies was working for Toledo Transformation. Mrs. Rable discussed with Toledo Transformation the possibility of building a personal residence on a vacant lot located at 5418 Bay Shore, Oregon, Ohio ("Bay Shore Property"). (Id. at 09:45:47). Toledo Transformation owned the Bay Shore Property. (Id. at 10:37:53). Following this discussion, Toledo Transformation informed Plaintiffs that Childers Construction could build a personal residence on the Bay Shore Property, with Toledo Transformation funding the construction. (Id. at 09:45:47, 09:48:52). Plaintiffs would then purchase the Bay Shore Property from Toledo Transformation. (Id.) Toledo Transformation and Plaintiffs entered into a "handshake deal" pursuant to which Toledo Transformation would pay for construction and Plaintiffs would pay Toledo Transformation back after construction was complete. (S. Rable Test., 10:49:40). There was no written contract between Plaintiffs and Toledo Transformation, only an amortization schedule. (M. Rable Test., 11:20:46-21:46). Plaintiffs entered into this handshake agreement partly because Jeff Savage was their brother-in-law. (Id.)
Plaintiffs approached Defendant directly about building a personal residence for them on the Bay Shore Property. (S. Rable Test., 09:50:30). Defendant then showed them a house he had previously built and offered to build that same house on the Bay Shore Property if they liked it. (Id.) Plaintiffs walked through the house previously built by Defendant and decided to build the same home on the Bay Shore Property. (Id.)
On January 12, 2018, Plaintiffs executed an agreement ("Building Contract") hiring Childers Construction to build a personal residence on the Bay Shore Property. [Doc. #1, Ex. A, p. 6]. The Building Contract, prepared by Childers Construction, fixed the price at $247,000.00 payable in five progress payments using a draw system. [Id.] The Building Contract also outlined the specifications and scope of work, as well as the payment schedule.[3]
Plaintiffs did not make any down payment or pay a deposit at the time the Building Contract was executed.[4] Childers Construction bore the initial startup costs.
The Building Contract required Childers Construction to furnish all labors and materials necessary to complete the home under the specifications and scope of work, and in accord with applicable building codes. [Id., p. 6]. Childers Construction also promised to keep the Bay Shore Property free from any liens and to provide "all documentation necessary to provide proof of payment." [Id] Nothing in the Building Contract, including the provision about providing proof of payment, required Childers Construction to provide documentation to support the progress payments. The Building Contract stated that work was to be completed within seven months of a building permit being issued. [Id., p. 7].
Under the draw system, Childers Construction would submit a request for payment certifying work had been completed, and then it would be paid for that work. While it was Plaintiffs decision to approve the progress payments being made, the checks came from Toledo Transformation. The progress payments allocate the draws for the various stages of construction. [Id., p. 17]. Once a portion of the construction project was complete, Childers Construction would get a progress payment. (S. Rable Test., 09:59:29). Plaintiffs were under the impression Defendant would pay contractors with the progress payments Plaintiffs provided. (Id. at 09:52:01-52:30); (M. Rable Test., 10:55:46).
There is no language in the Building Contract that required Childers Construction to use the progress payments solely to pay construction costs for the Bay Shore Property. Progress payments were not dependent on providing proof of payment to subcontractors or for materials. The Building Contract did not specify how much of the contract price was for direct construction costs and how much represented profit. Defendant testified that each progress payment was to include some portion for Childers Construction's profit. (Childers Test., 12:50:11).
Defendant began performing the work in January 2018, but encountered several issues at the outset. (Id. at 11:58:16). The Bay Shore Property was in a flood plain, which required constructing the foundation at a certain elevation to put the Bay Shore Property above the flood plain. (Id. at 11:55:53-56:32). It also required filing paperwork with the Federal Emergency Management Agency ensuring that certain elevation requirements were met. (Id.) Additionally, the Bay Shore Property needed to be rezoned from multifamily to single-family with the City of Oregon, (id. at 11:56:32), and there was no sewer tap, which required negotiating with the City of Oregon to provide one. (Id. at 11:57:17).
Although the Building Contract provided that the various progress dates would start when the building permit was issued, this was work done before the building permit. (Id. at 11:55:26). Childers Construction did not receive any payment for any work done prior to the commencement of construction.
On March 27, 2018, Childers Construction submitted "Draw Request Number 1 of 5," which certified that 20% of the work specified in the Building Contract had been completed and that $49,400 was due. . The draw request did not state that subcontractors or materialmen had been paid, nor did it state that the payment would be used solely for the Bay Shore Property. Paid receipts were not provided,...
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