Café Hanah, Inc. v. Sung (In re Jung)

655 B.R. 474

IN RE: Francisca J. JUNG and BJ Byungjoon Sung, Debtors.

Café Hanah, Inc. and Yun Seok Baek, Plaintiffs, v. BJ Byungjoon Sung, Defendant.

Case No. 19 B 554

Adv. No. 19 A 604

United States Bankruptcy Court, N.D. Illinois, Eastern Division

Signed December 4, 2023

Attorney for Plaintiff: Douglas K. Morrison, Morrison & Mix, 120 N. LaSalle Street, Suite 2750, Chicago, IL 60602.

Attorney for Defendant: Joel A. Schechter, Law Offices Of Joel Schechter, 53 W. Jackson Blvd, Suite 1522, Chicago, IL 60604.

MEMORANDUM OPINION

DAVID D. CLEARY, United States Bankruptcy Judge

This matter comes before the court on the complaint filed by Café Hanah, Inc. ("Café Hanah") and Yun Seok Baek ("Baek" and collectively, "Plaintiffs") against BJ Byungjoon Sung ("Sung" or "Defendant"). Plaintiffs seek a finding that any debt Sung owes to them is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The court held a trial at which Baek, Sung and an employee of the Village of Skokie testified. Having heard the testimony of the witnesses, reviewed the exhibits, and read the papers and briefs submitted by the parties, the court will enter judgment in favor of the Defendant.

I. JURISDICTION

The court has subject matter jurisdiction under 28 U.S.C. § 1334(b) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. § 1409(a).

II. FINDINGS OF FACT

A. The parties enter into a contract for a restaurant buildout

Café Hanah is an Illinois corporation located at 4907 Oakton Street in Skokie, Illinois. Baek is the sole shareholder of Café Hanah, which was a restaurant business. (Tr. at 11.)

Sung was the owner, manager and president of AMG Construction Group, LLC ("AMG"). (Answer at ¶ 8.)¹ While the Illinois Secretary of State no longer shows AMG as active, AMG is still registered with the Missouri Secretary of State as an active limited liability company and lists Sung as its registered agent and sole organizer. (Answer at ¶ 9.)

On or about November 7, 2012, Sung, on behalf of AMG, and Baek, on behalf of Café Hanah, executed an agreement whereby AMG would construct a restaurant for Plaintiffs in Skokie, Illinois. (Joint Pretrial Statement ("JPS"), Undisputed Fact 1; Plaintiff's ("Pl.") Ex. 1; Defendant's ("Def.") Ex. 1.) Baek discussed and negotiated the contract with Sung, and with no one else. (Tr. at 14-15.)

Sung was the person in charge of the project for AMG. (Tr. at 79.) He "was responsible for writing up a proposal and actually doing the general contracting, hiring all the subcontractors, and providing construction . . . management services" in order to build out the restaurant. (Tr. at 80, line 25 - 81, line 3.) Sung told Baek that construction would be finished by February 2013. (Tr. at 75-76.)

Shortly before the parties signed the contract, Sung learned about a TIF grant that was available for development in downtown Skokie (the "Village"). He informed Baek, they signed a contract for Sung to prepare the necessary documents, and Sung worked with a Village employee. A TIF grant was approved in October 2012, and Baek received $98,000. (Tr. at 129-30.)

The total contract price for the buildout of Café Hanah was $167,700, with 30% due at signing, 60% due at rough-in inspection approval, and the remaining 10% to be paid at completion. (Pl. Ex. 1.) This price did not include extras, change orders and equipment. (JPS, Undisputed Fact 2.) The contract obligated AMG to provide all construction needed to be able to open the restaurant. (Tr. at 15.)

Plaintiffs paid $50,310 to AMG, or 30% of the contract price, on or about November 8, 2012. (Tr. at 15; JPS, Undisputed Fact 4.) Of that amount, Plaintiffs paid $5,000 prior to execution of the contract. (Tr. at 64; Pl. Ex. 1.) Plaintiffs do not claim that the $50,310 paid on or before November 8 was obtained by false pretenses or false representations. (JPS, Undisputed Fact 4.)

B. Construction commences and the Village inspects AMG's work

Construction began immediately. (Tr. at 16; 82.) There was a pre-existing restaurant on site, so AMG had to tear "down the restaurant that was in there and, in effect, start[ ] from scratch to build a new one." (Tr. at 82, lines 19-21.) Sung was at the job site almost every day. (Tr. at 81.) He worked from architectural plans and coordinated communications between Baek and the architect as well as between the architect and the Village. (Tr. at 116-17.)

Plaintiffs made the following additional payments to AMG toward the contract price:

Date

Amount

12/3/2012

$10,000

12/20/2012

$10,000

1/8/2013

$10,000

2/18/2013

$1,500

3/5/2013

$10,000

3/8/2013

$10,000

3/27/2013

$5,000

3/29/2013

$5,000

(JPS, Undisputed Fact 5; Def. Ex. 2.) These payments totaling $61,500 are the payments that Plaintiffs contend were obtained by false pretenses or false representations. Sixty percent of the contract price, which was due at the rough-in inspection approval, is $100,620. (Tr. at 67, lines 14-17.)

1. Plumbing inspections

The first stage of the construction on the Café Hanah project was demolition, which does not require approval from the Village. (Tr. at 83.) After demolition was complete, AMG started the next stage - underground plumbing - and called the Village for an underground plumbing inspection. (Tr. at 83.) The Village inspector disapproved the underground plumbing on December 3, 2012, and then approved it with exceptions two days later. (Tr. at 86.) According to Sung, the underground plumbing inspection

was approved with conditions. There was minor deficiencies, and it's very common practice for the inspector to let us move on if there's a small, minor deficiencies on the work. But on -- the inspection form used by Village of Skokie did not have that line item, approval with conditions. Usually other cities have that. So that's why they mark on the disapproved section. But they usually let you move on, and they will inspect those minor deficiencies on the next inspection.

(Tr. at 84, lines 5-14.) Sung recalled that the inspector told him to "go ahead and move on. I'll inspect this at the final inspection." (Tr. at 85, lines 13-14.)

The form used by the Village had options for "approved" and "disapproved" with an area for comments. (Tr. at 146.) When asked at trial what a finding of disapproval means, Village inspector Stephen Klocko responded, "Boy, that's a vague question." (Tr. at 148 and 149, line 1.)

Baek and Sung had a conversation at the construction site on December 3, 2012, the date of the first underground plumbing inspection. Baek had an opportunity to look at the site that day; he frequently visited the premises. (Tr. at 68.) Sung told Baek that the rough-in inspection was approved, with some deficiencies that did not prevent proceeding with the project, and that he should pay. (Tr. at 16, 125.) He shared the inspection report with Baek. (Tr. at 124.) Baek "believed in him 100%" and paid $10,000 that day. (Tr. at 17, 126; Pl. Ex. 2.)

On December 20, 2012, Baek and Sung had another conversation at the construction site. Baek testified that Sung told him "that the rough inspection passed[.]" (Tr. at 18, lines 22-23.) In fact, that day the Village inspector had disapproved the next inspection, which was for rough plumbing. (Tr. at 86.)

According to Sung, the inspector's comment was "a minor deficiency, and that could have been inspected at final inspection. So they let us move on." (Tr. at 86, line 24 - Tr. at 87, line 1.) Sung testified that "[e]ven though it says disapproved, it was approved with the condition . . . . I told him [Baek] it was approve[d] - I never said disapproved; I said approved with conditions." (Tr. at 87, lines 14-15 and 24-25.) He shared the inspection reports with Baek, and informed him that construction could continue. (Tr. at 124, 127.)

2. The framing inspection

The next step in the rough-in inspection process was framing. (Tr. at 88.) On December 20, 2012, the Village inspector disapproved the rough framing inspection, providing five comments. (Tr. at 89.) Sung testified that after each inspection he told Baek "all these deficiencies . . . . I told him approved with conditions." (Tr. at 90, lines 21-22; Tr. at 91, line 1.) "[W]e can move on with these little deficiencies because these can be inspected at the final inspection." (Tr. at 102, lines 6-8.) "My definition of approval is so that we can move on to next step." (Tr. at 103, lines 3-4.)

Baek believed that AMG was entitled to 60% of the contract price, so he paid another $10,000 on December 20, 2012. (Tr. at 19, 126; Pl. Ex. 2.) Baek also believed that Sung was taking care of relationships with the building inspectors for the Village. (Tr. at 21.) Sung wanted to keep good relationships with the various inspectors, (Tr. at 107), and was never told by any of the Village inspectors that he could not continue with the next step in the construction project (Tr. at 143). It is common in the construction industry for work to continue even when deficiencies are found at the initial inspection. (Tr. at 127.)

Village inspector Klocko testified that if a rough framing inspection was not approved, he might instruct the contractor that construction could still continue, depending upon the extent of the required corrections. (Tr. at 146-47.) "I would give permission to - say, drywall. If there was an area that was completed, I would let them continue. If there was an area that needed some work done, then I would not give approval for drywall in that area." (Tr. at 147, lines 15-19.)

By March 12, 2013, a re-inspection of the framing yielded only one comment. Sung "considered that as approved with a condition because he told me to go ahead and move on with the drywall." (Tr. at 89, lines 19-21; Tr. at 92.) With one exception, the deficiencies identified by the inspector could be completed with the drywall in place. (Tr. at 129.) Sung finished the drywall, excepting the one area that had been...