Verbelia v. Jeffrey Metcalf Dba JM Constr. (In re Jeffrey Metcalf Dba JM Constr.)

• Decision Date: 03 December 2014
• Docket Number: No. 12-12972,Adversary Proceeding No. 12-1087,12-12972
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee
• Parties: In re: JEFFREY METCALF dba JM CONSTRUCTION & REMODELING Debtor; ROBERT W. VERBELIA and BETTY Y. VERBELIA, Plaintiffs, v. JEFFREY METCALF dba JM CONSTRUCTION & REMODELING Defendants

In re: JEFFREY METCALF dba JM CONSTRUCTION & REMODELING Debtor;

ROBERT W. VERBELIA and BETTY Y. VERBELIA, Plaintiffs,
v.
JEFFREY METCALF dba JM CONSTRUCTION & REMODELING Defendants

No. 12-12972
Adversary Proceeding No. 12-1087

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF TENNESSEE WINCHESTER DIVISION

December 3, 2014

This memorandum is not intended for publication.
The opinion has limited precedential value.

Chapter 7

Page 2

MEMORANDUM

Plaintiffs Robert ("Bob") W. Verbelia and Betty Y. Verbelia (collectively "Plaintiffs" or "Verbelias") have filed this adversary proceeding against debtor Jeffrey Metcalf, d/b/a JM Construction & Remodeling ("Mr. Metcalf" or "Defendant"). The Plaintiffs allege nine separate claims against Mr. Metcalf related to his performance of a contract to construct the Plaintiffs' residence in Tullahoma, Tennessee. See [Doc. No. 1, Complaint].¹ Their claims against him include: (1) breach of contract; (2) breach of warranty; (3) breach of the covenant of good faith and fair dealing; (4) defective design and construction; (5) violations of the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-104 ("TCPA"); (6) exaggeration of lien; (7) liens of other subcontractors; (8) rescission; and (9) punitive damages. They seek a judgment for these claims and object to the dischargeability of any judgment awarded on account of these claims pursuant to 11 U.S.C. § 523(a)(2). They contend that their claims are debts which arose from false pretenses, false representations, or actual fraud by Mr. Metcalf in either the creation or execution of a residential construction contract.

The court has considered the evidence provided by the parties during the four day trial, the pleadings and briefs filed by counsel, and the entire record in this case. The court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

In summary, the court finds that the Verbelias have allowed unsecured claims against Mr. Metcalf in the amount of $246,874.13 based on the breach of contract. Of this amount, the court finds that $4000 is a debt that is owed to the Verbelias on account of fraud, false pretenses or misrepresentations made by Mr. Metcalf during the construction of the residence and thus is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The court finds that the remaining amount of the claim is dischargeable; and as to that amount, the Verbelias' objection to the

Page 3

dischargeability of that debt based on Section 523(a)(2)(A) is denied. The court will sustain the objection to the dischargeability of $4000 and enter a nondischargeable judgment in favor of the Plaintiffs in the amount of $4000.

With respect to the Plaintiffs' additional state law claims, including breach of the covenant of good faith and fair dealing, defective design or construction, exaggeration of lien pursuant to Tenn. Code Ann. § 66-11-139, liens of other subcontractors, and rescission, the court concludes that the Plaintiffs have failed to demonstrate the requisite elements of each such claim. These claims shall be dismissed. As to breach of warranty, the court finds that the implied warranty was breached but no additional damages are appropriate. The court further declines to award the Plaintiffs punitive damages. The court does find that there was a violation of the TCPA but does not find that there are any additional nondischargeable debts created by that violation. The court will allow the Plaintiffs to put on proof as to attorney's fees pursuant to Tenn. Code Ann. §§ 62-6-136(a) and 47-18-109(e)(1) for purposes of allowance of an unsecured claim, but the court will not sustain an objection to the dischargeability of the attorney's fees.

I. FACTS

A. The Plaintiffs' Dream House

In 2006, the Verbelias retired to Tennessee from Montana to be near their daughter, her husband and their grandchildren. Trial Testimony of Robert Verbelia ("R. Verbelia Test."), April 8, 2014, 2:17 p.m., 3:27-3:28 p.m.; Trial Testimony of Betty Verbelia ("B. Verbelia Test."), April 7, 2014, 4:03 p.m. They located a 37-acre tract of land on Lake Haven Drive in Tullahoma, Tennessee, near their daughter's home and began plans to purchase the property and to build what Mrs. Verbelia described as her "dream house." Trial Ex. L; B. Verbelia Test., April 7, 2014, 4:03 p.m. She testified that she wanted a one-level structure that was "handicapped

Page 4

accessible" because of physical problems she had with stairs. B. Verbelia Test., April 7, 2014, 3:00 p.m., 3:35 p.m. See also, Trial Testimony of Tim Morrison ("T. Morrison Test."), April 7, 2014, 2:11 p.m. The Defendant testified that Mrs. Verbelia wanted the house built on a hillside with a view of a lake located on the property. Trial Testimony of Jeffrey Metcalf ("Metcalf Test."), April 9, 2014, 3:16-3:17 p.m. She also wanted a basement because she was terrified of tornadoes. B. Verbelia Testimony, April 7, 2014, 3:35-3:36 p.m. Her concern about weather also led her to want an exterior made of "all brick" capable of withstanding extreme weather. B. Verbelia Testimony, April 8, 2014 at 9:44 a.m. She worked with a home designer, Joan Bentley, who prepared drawings for a one-level structure of just under 5000 square feet to be set on a slightly sloping lot. Trial Testimony of Joan Bentley ("Bentley Test."), June 10, 2014, 1:56, 2:08, 2:10 p.m.

Robert Verbelia set about trying to find a contractor, but in 2006, builders were hard to find because of the housing boom. R. Verbelia Test., April 8, 2014, 2:25-2:26 p.m. He finally discussed a building contract with a Mr. Woodard who offered to build the house but not for a fixed price. Id. at 2:26 p.m., 2:34 p.m. Mr. Verbelia testified that they had a budget for construction of $300,000 and were very concerned that they not exceed that price. Id. at 2:29-2:32, 2:35 p.m.

Prior to purchasing the property, the Verbelias obtained a percolation test for septic tank approval on May 31, 2006. B. Verbelia Test., April 7, 2014, 2:56 p.m. Woodard Enterprises was listed as the contractor. Trial Ex. L, p. 2. No contract was ever signed with Mr. Woodard as a result of the intervention of their son-in-law. R. Verbelia Test., April 8, 2014, 3:30-3:31 p.m. His intervention is discussed in more detail below.

The Verbelias acquired the property, and on July 10, 2006, Mrs. Verbelia obtained a

Page 5

building permit for $270,000. Trial Ex. L. She indicated that "self" was the Tennessee licensed contractor. Id. at 1. She also attached an affidavit to the application stating that she was exempted from the Tennessee Workers Compensation laws, but at trial she testified that she did not know what the affidavit meant. Id. at 5. Mr. Metcalf's name did not appear as the contractor on the permit. Id. at 5. He did not even make a proposal to them until July 17, 2014. Trial Ex. 23.

B. The Selection of Mr. Metcalf and his Representations

The Verbelia's son-in-law Tim Morrison had opened a flooring store in Tullahoma, Tennessee and was aware of the trouble his in-laws were having finding a contractor. T. Morrison Test., April 7, 2014, 2:29-2:30 p.m. He spoke to Mr. Metcalf and suggested that he approach the Verbelias about bidding on the job. Id. at 2:32-2:33 p.m. Mr. Metcalf was hesitant about approaching the Verbelias, whom he had never met, but did so after being encouraged to do so a second time by Mr. Morrison. J. Metcalf Test., April 9, 2014, 3:00-3:01, 3:04 p.m. Mr. Morrison urged him to hurry because his in-laws were about to sign a contract with Mr. Woodard. Id.

On July 6 of 2006, the Debtor went to the Verbelias' home as Mr. Morrison had requested. J. Metcalf Test., April 9, 2014, 3:02, 3:04 p.m. He testified that he talked to them about making a bid to build their home for a fixed price. Id. at 3:05 p.m. Mrs. Verbelia provided him with some construction plans which he testified consisted of several pages of drawings by a home designer for the floor plan and the elevations. Id. at 3:04 p.m., 3:17-3:18, 3:24 p.m. There were no specifications for the flooring or doors. Id. at 3:05-3:06 p.m. Mr. Metcalf returned with a bid for $287,000 and requested minor changes to the plans. Trial Ex. 23; J. Metcalf Test., April 9, 2014, 3:11 p.m. Mrs. Verbelia testified that she was fine with these changes, which she also viewed as minor, and she took the plans back to her home designer to make the changes on the

Page 6

plans. B. Verbelia Test., April 7, 2014, 3:01-3:02 p.m. Ms. Bentley testified she made the changes. Bentley Test., June 10, 2014, 2:00 p.m. Ms. Bentley designed the house to be one-level to be built on a site with a "slight slope." Id. at 2:10 p.m. She estimated the size to be "a little under 5000 square feet." Id. at 2:07 p.m. As a home designer she was limited to designing homes of 5000 square feet or less. Id.

1. Representation regarding license

Mr. Verbelia testified that he wanted to use only a licensed contractor for the job and that Mr. Metcalf represented to Mr. Verbelia that he was a licensed contractor. R. Verbelia Test., April 8, 2014, 2:27 p.m. Mr. Verbelia testified that he "definitely" wanted someone with a "contractor's license" who was a "good builder." Id. Mrs. Verbelia also testified that the Debtor showed them his license. B. Verbelia Test., April 7, 2014, 2:57 p.m. The actual document that was shown to her was not offered as evidence. The Debtor did have a license; however, the amount of his license in 2006 was for only $150,000. Trial Ex. 22. Plaintiffs testified that they did not know that he did not have a license in a sufficient amount to build the house for which they were negotiating at the time they signed the contract with him. They testified that had they known that the amount of his license was not enough, they would never have entered into the contract. R. Verbelia Test., April 8, 2014, 2:27 p.m.; B. Verbelia Test., April 7, 2014, 4:02 p.m. There was no evidence that the Verbelias did any other investigation regarding...