Gardiner v. Curtis (In re Curtis)

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IN RE: SCOTT ETHAN CURTIS and MEAGAN RAE CURTIS, Debtors.

WILLIAM GARDINER and SHANNON GARDINER, Plaintiffs, v. SCOTT ETHAN CURTIS and MEAGAN RAE CURTIS, Defendants.

No. 21-00521-NGH

Adv. No. 21-06015-NGH

United States Bankruptcy Court, D. Idaho

April 6, 2023

MEMORANDUM OF DECISION

NOAH G. HILLEN U.S. BANKRUPTCY JUDGE

Before the Court is a nondischargeability action filed by William and Shannon Gardiner ("Plaintiffs") against Scott and Meagan Curtis ("Defendants").^[1] A trial was held December 6 through December 8, 2022. The parties submitted closing arguments on January 6, 2023, Doc. Nos. 49 & 50 and replies on January 24, 2023, Doc. Nos. 51 & 52 after which the Court took the matter under advisement. After considering the record, arguments of the parties, and applicable law, the following constitutes the Court's findings, conclusions, and disposition of the issues. Fed.R.Bankr.P. 7052.^[2]

BACKGROUND

Defendants operated BFH Idaho, LLC ("BFH Idaho"), which primarily provided construction services such as fence installation and remodels. Scott had previous experience working with gutters, framing, and agriculture. While Scott handled the construction side of BFH Idaho, Meagan handled the administrative tasks and office management. In addition to Scott and Meagan, BFH Idaho had up to six employees at various times, including Glen Anderson. Neither Scott nor BFH Idaho had experience building new homes, though Anderson had significant experience. However, BFH Idaho had completed builds of "additional dwelling units" that Scott testified had similar elements as a new home build but were often smaller in size and on a lot where a home was already located.

Plaintiffs first met Defendants in the fall of 2019. Plaintiffs were looking for a builder to assist in the construction of a log-cabin home in High Valley, Idaho (the "Property") and connected with Defendants' company, BFH Idaho, via HomeAdvisors, an online platform that helps customers find local professionals for home-related projects. Plaintiffs testified that at the time, BFH Idaho's HomeAdvisor page asserted to have 20 years' experience in the field. See Ex. 149. However, after further discussions between the parties, it became clear Defendants had no experience building log cabins.

After initially connecting, Scott, Anderson, and William Gardiner visited the Property. The Property was accessible via an unpaved road connected to a highway. Defendants testified the unpaved road leading to the Property had a steep grade and could be difficult to navigate.

Though Defendants had no experience building log cabins, Defendants ultimately believed based on their experience they were capable of performing the job and agreed to act as the general contractor for the build. Defendants performed excavation work at the Property prior to beginning construction. See Ex. 101. Plaintiffs and Defendants on behalf of BFH Idaho signed a construction contract in April of 2020 that provided the total for the work would be $722,341. Ex. 101 at 16. Defendants began work on the cabin in the spring of 2020.

To fund construction, Plaintiffs obtained a loan from Idaho Central Credit Union ("ICCU"). Defendants were able to access the loan funds through draw requests, wherein Defendants would submit, via the "getbuilt.com" system, the amount necessary to cover the construction expenses as they were incurred and upload corroborating documents such as invoices. See Exs. 106-116. When Defendants submitted a request, Plaintiffs would receive a notification, and they would have to approve the draw before the funds were released. Defendants testified they believed Plaintiffs had access to the getbuilt.com system in order to see the full details of the requests and uploaded documents but Plaintiffs testified they were not able to access the system until after the parties' relationship had deteriorated. In total during the construction, Defendants submitted 11 draws, all of which were approved by Plaintiffs, for a total of $549,251.99. See Exs. 106-116.

There were various issues during construction, beginning with the delivery of the logs. Lazarus Logs was responsible for the preparation of the construction plans and provided the log cabin package. Lazarus Logs did not deliver the log package to the Property, but rather at an unauthorized location approximately 15 miles away, which resulted in Defendants having to transport the logs in several loads the remaining distance to the Property.

BFH Idaho then contracted with Frank Bachman to lay the logs. Bachman was at the job site for approximately 6-8 weeks in the fall of 2020. Bachman testified he also observed several issues with the project, including problems with how the flooring was built out by BFH Idaho and how Sonotubes (concrete supports) were poured. Further, Bachman testified the back and front of the cabin was not level due to issues with the slab and how the foundation blocks were placed.

Defendants acknowledged that several issues were present during construction. However, Defendants point to difficulties with subcontractors such as ICF of Idaho. ICF of Idaho was responsible for providing the ICF blocks for the foundation. Defendants found ICF of Idaho through a list of distributors provided by an ICF block dealer. Ex. 126 at 2. However, ICF of Idaho did not timely deliver the product, failed to provide sufficient quantities, and appears to have incorrectly installed the blocks. See id. at 4-18.

There were also several accidents involving vehicles and construction equipment at the Property during the construction. Several vehicles slid off the unpaved road and Defendants wrecked a Skid-Steer owned by Plaintiffs and had to have it repaired. See Ex. 128 at 3. In November 2020, two employees of BFH Idaho were involved in an accident while driving back from the Property, resulting in significant injuries for one employee.

Work on the cabin stalled in December 2020. Due to the winter weather and unsafe conditions, Defendants did not feel safe travelling to the Property, especially considering the accident involving one of BFH Idaho's employees in late November. The relationship between the parties deteriorated around this time. The parties dispute how exactly their relationship broke down: Defendants claimed they believed they were simply pausing work on the project for the winter and point to the fact they had been communicating with Plaintiffs about purchases for the project through December 3, 2020. Ex. 361. However, Plaintiffs claim they believed Defendants were quitting. On December 14, 2020, the parties met to discuss the status of the project. Defendants testified they told Plaintiffs at this meeting they would not be able to complete the project within budget and would need approximately $120,000 in additional funds to complete construction. On December 15, 2020, Plaintiffs sent Defendants an email seeking the collection of $13,681.38 which Plaintiffs asserted was owing for items Defendants had received loan funds for but had not yet paid. Ex. 130. At this point, Defendants testified they obtained counsel. See Ex. 127. Plaintiffs proceeded with the construction on the cabin with another contractor, spending over $120,000 in additional funds to complete the project.

Defendants filed a voluntary chapter 7 petition on August 10, 2021. Case No. 21-00521. On November 8, 2021, Plaintiffs initiated this adversary proceeding against Defendants, Doc. No. 1, and filed an amended complaint on January 20, 2022, seeking a judgment and declaration of nondischargeability pursuant to § 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6). Doc. No. 9. However, Plaintiffs abandoned their § 523(a)(2)(B) claim prior to trial. Doc. No. 35 at 2.

ANALYSIS

A. Defendants' Liability

The first issue the Court must address is whether Defendants can be held liable based on Plaintiffs' contract with BFH Idaho. Under Idaho law, "'members of an LLC are not liable for the misconduct of the company unless it is proven that the company is the alter ego of the member or manager.'" T Street LLC v. Jacques (In re Jaques), 615 B.R. 608, 627 (Bankr. D. Idaho March 12, 2020) (quoting Drug Testing Compliance Grp., LLC v. DOT Compliance Serv., 383 P.3d 1263, 1276 (Idaho 2016)). To establish that BFH Idaho was the alter ego of Defendants, Plaintiffs must establish "(1) a unity of interest and ownership to a degree that the separate personalities of the [company] and individual no longer exist and (2) if the acts are treated as acts of the [company] an inequitable result would follow." Id. at 630.

However this protection does "not extend to a member's actions when the member causes the company to act illegally or fraudulently, or when the member is not acting within the bounds of her duties or obligations as a member of the company, but in his or her own self-interest." Id. at 628. Thus, Defendants can be found liable for their own personal wrongful or tortious conduct. See also Murray v. Woodman (In re Woodman), 451 B.R. 31 (Bankr. D. Idaho 2011) (finding a debtor personally liable for a nondischargeable debt under § 523(a)(4) where the debtor played an active role in the misappropriation of funds); see also FTE Networks, Inc. v. Ivie (In re Ivie), 587 B.R. 729 (Bankr. D. Idaho 2018) (holding that a president of a corporation was personally liable for nondischargeable debt under § 523(a)(6) where the president intentionally interfered with the plaintiff's prospective economic advantage). Here, though Plaintiffs contracted with BFH Idaho, all their dealings with BFH Idaho went through Defendants and the allegations involve only the conduct of Defendants. As such, to the extent Defendants actively participated or were responsible for the wrongdoing of BFH...