McGuinness v. Gannon (In re Gannon), Case No. 15-11576-MSH

598 B.R. 72

IN RE Patrick J. GANNON, Debtor

Michelle McGuinness and Wiiliam Duggan, Plaintiffs

v.Patrick J. Gannon, Defendant

Case No. 15-11576-MSH

Adversary Proceeding No. 15-1160

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

Signed February 15, 2019

Robert Cabana, Esq., Quincy, MA, for the plaintiffs, Michelle McGuinness and William Duggin

Gary W. Cruickshank, Esq., Boston, MA, for the defendant, Patrick J. Gannon

MEMORANDUM OF DECISION

Melvin. S. Hoffman, United States Bankruptcy Judge

I. Introduction

This adversary proceeding was initiated by the filing of a two-count complaint by Michelle McGuinness and her husband, William Duggan, against the defendant and the debtor in the main case, Patrick J. Gannon. The plaintiffs seek a judgment that, pursuant to subparts (a)(2) and (a)(4) of Bankruptcy Code § 523,¹ a debt they claim is owed to them by Mr. Gannon is excepted from Mr. Gannon's bankruptcy discharge. The plaintiffs contend that Mr. Gannon, a building contractor, engaged in misrepresentation, fraud, and fiduciary defalcation in obtaining payment from them in connection with his construction of an addition and other work on their home. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

II. The Bankruptcy Case and This Adversary Proceeding

On April 24, 2015, Mr. Gannon filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. In schedule F of the schedules of assets and liabilities filed in support of his petition, he listed the plaintiffs as general unsecured creditors in the undisputed amount of $ 161,692 and described them as "Plaintiffs in construction litigation." He listed his ownership in "Patrick J. Gannon Construction Incorporated," which I presume to be the same entity that contracted with the plaintiffs, as an asset on schedule B.²

The plaintiffs filed their complaint in this court against Mr. Gannon on September 3, 2015, seeking to exclude their claims from Mr. Gannon's discharge based on Code § 523(a)(2)³ (count 1) and Code § 523(a)(4) (count 2). The plaintiffs attached to their complaint a copy of a state court complaint they had filed in 2015 against Mr. Gannon and Patrick J. Gannon Construction Incorporated which asserted claims for breach of contract, negligence, fraud, misrepresentation, and lack of good faith and fair dealing. Their breach of contract count claimed damages of $ 161,692 (the same amount set forth in Mr. Gannon's schedule F).

In defense to the plaintiffs' claims in this adversary proceeding, Mr. Gannon asserts that the plaintiffs have no claim against him personally but instead have a claim against his construction company exclusively and that, in any event, they brought their damages upon themselves by unilaterally terminating the construction project before he could complete it. Additionally, he maintains that the plaintiffs failed to carry their burden to establish the requisite elements for a determination of non-dischargeability under either Code § 523(a)(2)(A) or (4).

A trial in this proceeding took place on December 14, 2017. I now set forth my findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

III. Findings of Fact

Ms. McGuinness and Mr. Duggan are the owners of a home located at 98 Prospect Street in Easton, Massachusetts. In 2013 they decided to add an attached garage and home office to their home. Mr. Duggan was introduced to Mr. Gannon, a general contractor, by a mutual friend. [Tr. 8] When asked during the trial if Mr. Gannon gave him any specific assurances about his background and abilities, Mr. Duggan, who himself was a licensed plumbing and HVAC contractor, testified: "[Mr. Gannon said] we're going to get this up and do this[,]" and "it's going to be great and you're going to love it." [Tr. 51, 54] When asked if he checked any of Mr. Gannon's references, Mr. Duggan testified that he relied on his friend's opinion that Mr. Gannon could handle the project. [Tr. 53]

Mr. Duggin and Mr. Gannon had several meetings to develop a plan to construct a garage and a home office to be attached to the home. [Tr. 9-10, 53-54] Mr. Gannon represented to Mr. Duggan at the outset that he was a licensed and insured contractor. [Tr. 8, 11] Mr. Duggan, who has experience with construction projects and permitting requirements, considered licensing and insurance to be a prerequisite for hiring Mr. Gannon. [Tr. 11] He added that, in his experience, towns typically did not issue building permits to contractors unless they could certify their insurance coverage or obtain a homeowner's written waiver. [Tr. 11, 48, 49]

The plaintiffs signed an initial contract for the project with Mr. Gannon's company, Gannon Construction Inc., on July 23, 2013. [Tr. 15, 59-60, 64, 93, 122-23] The original total contract price was $ 93,000. [Tr. 68] The plaintiffs paid a deposit of $ 10,000. [Tr. 68] The record does not establish to whom the deposit was made. Ms. McGuinness testified that the contract provided that the contractor was licensed and insured. [Tr. 68] Because the contract was not introduced into evidence and the testimony was inconclusive, I cannot determine whether the provisions in the contract regarding insurance related to Mr. Gannon individually or to the construction company or whether Mr. Gannon, in his individual capacity, was also a signatory to the contract.

Between July of 2013 and April of 2014, Ms. McGuinness wrote checks totaling $ 174,125, of which $ 81,125 was paid for "add-on" work such as the construction of a firewood storage room and other projects not covered in the original contract. [Tr. 70] Certain checks were made payable to the construction company and others to Mr. Gannon personally. [Tr. 120] Between September 12, 2013 and January 2014, plaintiffs wrote checks payable to Mr. Gannon personally totaling $ 81,246. [Tr. 120] No checks or other evidence of payment to Mr. Gannon or the construction company were introduced into evidence. In all, the parties executed the initial contract and seven subsequent contracts for add-on work between November 13, 2013 and February 12, 2014. [Tr. 79] Like the initial contract, none of the add-on contracts was introduced into evidence. It is unclear whether those contracts were between the plaintiffs and the construction company, Mr. Gannon personally, or both.

Work began on the project in August of 2013. [Tr. 69, 70] Things initially went well and according to plan, but by the fall of 2013 the project began encountering problems [Tr. 13-14, 69] Mr. Duggan testified at the trial that as a result of improper grading following excavation work overseen by Mr. Gannon, his property developed a water drainage problem. He testified that "once the water problem started ... [it] became pretty clear that [Mr. Gannon] was ... way over his head" and that he had "no clue" why the problem was happening. [Tr. 22, 39, 40, 55, 63] He testified that Mr. Gannon disregarded safety and building codes when he incorrectly dug a foundation and severed a pipe, resulting in flooding and mold damage to the laundry room in his home. [Tr. 15-16, 20, 35] He also testified that a concrete floor poured by Mr. Gannon cracked because he did not install necessary mesh. [Tr. 20] On another occasion, a heavy garage door motor installed by Mr. Gannon's subcontractors fell from a joist while Mr. Duggan was testing it, narrowly missing him. [Tr. 25-27] Mr. Duggan also testified that Mr. Gannon removed gutters from his house without replacing them, allowed the standing water problem he created to fester in the foundation, failed to install stairway guardrails, failed to properly install siding and hired incompetent subcontractors. [Tr. 15, 24, 37, 45] When he brought his concerns to Mr. Gannon, Mr. Duggin testified, Mr. Gannon simply replied that he would "take care of it" or was non-responsive. [Tr. 17, 20, 30, 45] I credit Mr. Duggan's testimony on these points.

With winter looming, the plaintiffs became concerned about the flooding problem and spoke many times to Mr. Gannon who said he needed more money to finish the project. [Tr. 22, 30] Mr. Duggan and Ms. McGuinness testified credibly at the trial that Mr. Gannon began double-billing them and overcharging for materials and when they complained, he blamed his secretary. [Tr. 22, 23, 25, 32, 70-72, 81-82] Mr. Duggan noted that he was working long days, and Mr. Gannon took advantage of his absence by asking Ms. McGuinness, who was at home with a newborn and young children, for payments. [Tr. 22-23, 37-38, 44]

Ms. McGuinness testified credibly that neither the work covered by the initial contract nor the add-on work covered by later contracts was ever completed. [Tr. 70-71, 78] Mr. Gannon repeatedly promised to do the add-on work if he was paid in advance but then did not complete all the work despite receiving payment. Ms. McGuinness testified: "I was not familiar with the process; I never had an addition put on, so I trusted his judgment. Apparently he misled us and I was writing checks and getting nowhere." [Tr. 70-71] For example, Ms. McGuinness testified that she paid Mr. Gannon personally for the firewood storage room on November 20, 2013 by check payable to him in the amount of $ 4,900, which check he immediately cashed. [Tr. 72-73] This represented payment in full but work on that room was never completed. [Tr. 70] Additionally, she testified that the plaintiffs paid in full for other add-on work, such as a garage stairway and door, on which Mr. Gannon did not even start to work. [Tr. 70-71]

Ms. McGuinness credibly testified that Mr. Gannon presented her with an add-on contract dated December 24, 2013, which listed $ 2,000 due and owing for the firewood storage room for which she had him paid in full on November 20, 2013. [Tr. 73] Further, she testified that she received another add-on contract from Mr. Gannon on January 21, 2014, which reflected amounts due for weather stripping for which she had also previously paid. [Tr. 73-74] On January 21,...