Signal Asset Mgmt., LLC v. Rodriguez (In re Rodriguez)

In the Matter of: CIRO A. RODRIGUEZ Debtor(s).

SIGNAL ASSET MANAGEMENT, LLC Plaintiff(s), v. CIRO A. RODRIGUEZ Defendant(s).

CASE NO. 19-81378-CRJ-7

A.P. 19-80063-CRJ-7

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA NORTHERN DIVISION

March 30, 2021

CHAPTER 7

MEMORANDUM OPINION

This Adversary Proceeding came before the Court on December 21, 2020 for trial on the Complaint for Determination of Dischargeability and Objecting to Debtor's Discharge Pursuant to Section 523 and 727 of the Bankruptcy Code (hereinafter the "Complaint") filed by Signal Asset Management, LLC (hereinafter the "Plaintiff") against Ciro A. Rodriguez (hereinafter the "Defendant"). The Plaintiff seeks a determination that the Defendant is liable for damages arising out of a construction contract and that the debt is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A).

At the conclusion of the trial, the Court entered an Order Requiring Post-Trial Briefs, directing the parties to address relevant Eleventh Circuit case law and how the testimony and the evidence adduced at trial relates to the Plaintiff's cause of action under the Bankruptcy Code.¹ On February 1, 2021, the parties filed their respective briefs.²

The Court has carefully considered the briefs, testimony, documentary evidence, the arguments of counsel, and the applicable law, and finds that the Plaintiff failed to prove by a preponderance of the evidence that its claim against the Defendant for damages should be excepted from discharge pursuant to § 523(a)(2)(A) as a debt for money obtained by "false pretenses, a false representation, or actual fraud . . ."³ Further, to the limited extent the Plaintiff requested denial of the Defendant's discharge as alternative relief in the Complaint, the Court finds that the Plaintiff failed to establish by a preponderance of the evidence adduced at trial that the Debtor's Chapter 7 discharge should be denied. The Plaintiff has generally proceeded under § 523(a)(2)(A) of the Bankruptcy Code throughout the pendency of this Adversary Proceeding. Further, in the Complaint the Plaintiff failed to even specify which subsection under § 727 might support denial of the Defendant's discharge.⁴ Accordingly, the Plaintiff's request under § 727, to the extent plead, is denied, and will not be further addressed in this Memorandum Opinion.

The Court makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure as made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure.⁵

FINDINGS OF FACT

A. Background and Procedural History

On May 23, 2017, the Plaintiff filed a Complaint against the Defendant and William Michael ("Michael") in the Circuit Court of Madison County, Alabama, 47-CV-2017-900875, alleging negligence, wantonness, breach of contract, breach of implied warranty of good workmanship, breach of express warranty, suppression, reckless misrepresentation, fraudulent misrepresentation, and innocent misrepresentation.⁶ On September 25, 2017, the Circuit Court of Madison County, Alabama, entered default judgment against the Defendant and Michael for $37,247.67 plus court costs. On September 16, 2019, the Plaintiff obtained $16,000.00 in a pro tanto settlement with Michael's estate, which was paid by his insurer after his death.⁷

On May 3, 2019, the Defendant filed his petition for relief under Chapter 7 of the Bankruptcy Code and listed the Plaintiff as an unsecured creditor. On July 30, 2019, the Plaintiff commenced this Adversary Proceeding seeking to liquidate its claim against the Defendant and to except the debt from discharge pursuant to 11 U.S.C. § 523(a)(2)(A).

On June 11, 2020, the Defendant moved to dismiss the Adversary Proceeding, arguing that the Plaintiff was seeking damages in excess of previous amounts recovered pursuant to the Pro Tanto Release with Michael's estate.⁸ On June 25, 2020, this Court entered an order limiting the amount of any recovery in this Adversary Proceeding to $21,247.67 based on the Plaintiff's recovery against Michael's estate ("Order Limiting Damages").⁹

B. The Construction Contract

The Plaintiff is a Virginia limited liability company registered to conduct business in the State of Alabama. The Plaintiff is primarily engaged in the business of purchasing and remodeling homes for profit. Mark Paniccia is the Plaintiff's Managing Partner (hereinafter "Paniccia" or collectively the "Plaintiff"). In April of 2016, the Plaintiff purchased a home located in Huntsville, Alabama and hired the Defendant to renovate the property. Prior to purchasing the home, the Plaintiff had "flipped" twenty to twenty-five houses in other states.

The Plaintiff argues that the Defendant knowingly entered into a construction contract to perform $47,000.00 of construction work with knowledge that he could not obtain the required permits and certificate of occupancy to perform the work. The Plaintiff seeks to recover the money that it paid to another contractor to bring the house up to Code after the electrical service to the home was disrupted, plus per diem damages under the construction contract.

The Defendant is a subcontractor, licensed to perform roofing, carpeting, flooring, siding, painting, and other general repairs. The Defendant began subcontracting in Alabama in 2010 andhas operated under various entities, including C.A. Rodriguez Construction, LLC and Rodriguez Roofing Home Remodeling, LLC.

The Defendant is not, and has never been, licensed by the Alabama Homebuilders Licensure Board as home builder or licensed as a general contractor. The Defendant denies making any false representations to the Plaintiff. Rather, the Defendant asserts that he told the Plaintiff's Agent, who oversaw the renovations on behalf of the Plaintiff, that a licensed home builder would have to apply for the building permit. He further denies that either he or his employees removed the electric meter from the exterior of the home which caused the City of Huntsville to require both the interior and exterior electrical service to the home to be brought up to Code.

The Plaintiff and the Defendant were introduced to each other by the Karen Ruffin, an Associate Broker with Keller Williams Realty in Madison, Alabama. After showing him another house, Paniccia testified that Ms. Ruffin gave him a lead on a foreclosure listing at 6013 Meadow Winds Drive, NE, Huntsville, Alabama 35811 (hereinafter the "Meadow Winds Property" or "Property"). The Plaintiff purchased the Property on April 29, 2016 for $72,350.¹⁰

While the business relationship between the parties is not completely clear because Ms. Ruffin did not testify, it appears that she acted as the Plaintiff's agent or representative throughout renovation of the Property. The Plaintiff called Ms. Ruffin (hereinafter the "Plaintiff's Agent") as a witness during the trial which was held remotely using Microsoft Teams. After it became apparent that the Plaintiff's Agent was traveling and was unable to review any of the Exhibits that had been emailed to all witnesses for use during testimony, she reluctantly agreed to return to thelocation where the Exhibits were located while the trial proceeded. Thereafter, the Plaintiff elected not to recall her as a witness.

It is undisputed, however, that the Plaintiff relied upon the Plaintiff's Agent to recommend a contractor to perform the renovations and to oversee the renovation of the Property. The Plaintiff's Agent emailed pictures of the Property to the Plaintiff as progress was made and was authorized to approve the work performed.

Before the Plaintiff closed on the Property, the Plaintiff's Agent solicited a bid from the Defendant, with whom she had worked before, to perform the renovations on behalf of the Plaintiff. It appears that Paniccia, who resides in Virginia, and the Defendant never actually met in person. Instead, they generally communicated via a stream of emails which flowed between the Plaintiff's Agent, Paniccia, and the Defendant's assistant, Maria Delacruz (hereinafter "Delacruz"). Paniccia testified that he did not know that the Defendant and the Plaintiff's Agent had previously worked together when he hired the Defendant. While he assumed that she would only recommend a licensed home builder or general contractor, Paniccia further admitted that the Plaintiff's Agent never actually told him that the Defendant was a general contractor. Paniccia affirmed that he would not have hired the Defendant had he known that the Defendant was not a licensed home builder or general contractor.

In April of 2016, the Defendant emailed a one-page proposal to the Plaintiff, detailed as follows: (i) Ruffin [sic]: Demo, Electric, Plumbing, Sheetrock - $17,000; (ii) Exterior: Tear off Siding, Install New Siding, Porch, Facial, Soffit, Gutters, Handrails, Paint - $12,650; (iii) Interior:Floors, Showers, Paint, Cabinets, Hardwood, Carpet, - $12,650; and (iv) Final Punch: Touch up, Housekeeping, countertops - $4,700 (10% of Total Price, $47,000).¹¹

Accustomed to receiving more detailed bids from contractors, the Plaintiff emailed a blank construction contract, which he had used in other renovation projects, to the Plaintiff's Agent for her to provide to the Defendant.¹² On April 12, 2016, the Plaintiff's Agent emailed the Defendant explaining that the Plaintiff needed to know whether the Defendant could perform the work because the Plaintiff wanted renovations to begin as soon as it closed on the Property.¹³

On April 14, 2016, the Defendant's assistant, Delacruz, emailed the signature page of the form construction contract, page five, back to the Plaintiff (hereinafter the "Contract") with the Defendant's signature on the line under the heading "Contractor".¹⁴ Underneath the signature and title lines, the Contract contains a line for the Contractor's "License Number" which the Defendant left blank.¹⁵

The Contract included the following draw schedule: (i) first payment of $17,000...