Deitz v. Ford (In re Deitz)

Summarized by Jamie Edmonson , Robinson & Cole LLP
13 years 10 months ago

Citation:

BAP No. EC-11-1427-PaDMk (Apr. 23, 2012)

Tag(s):

Ruling:

Notwithstanding possible Stern v. Marshall implications, the Bankruptcy Appellate Panel of the Ninth Circuit held that a judgment against the debtor was excepted from discharge under Bankruptcy Code sections 523(a)(2)(A), (a)(4), and (a)(6).

Procedural context:

Appeal from the United States Bankruptcy Court for the Eastern District of California (J. Ford) determining the consitutionality of a federal statute and dischargeability of a debt under 11 U.S.C. sections 523(a)(2)(A), (a)(4), and (a)(6). Reviewed de novo.

Facts:

Shawn Deitz ("Deitz") was a general building contractor in the Sacramento area. In late August or September 2006, creditors Wayne and Patricia Ford (the "Fords") met with Deitz in a housing development where Deitz was building new homes. Deitz represented to the Fords that he could build a home for them that met the specifications of the Americans with Disabilities Act and that would comply with Veterans Administration standards for providing financial support for the Fords. Deitz also represented to the Fords that he was a licensed general contractor in good standing in the State of California. After several more meetings, Deitz and the Fords entered into a final contract for a home to be built by Deitz for a total price of $444,105.00. At the time the contract was signed, Deitz's contractor's license had been suspended and, while reinstated the following month, it was suspended again and ultimately revoked during construction of the Fords’ home. The Fords paid Deitz a total of $511,800.00 to build the home but never received an accounting from Deitz. Deitz filed a chapter 7 bankruptcy petition on June 20, 2008. The Fords brought an adversary proceeding against Deitz on September 9, 2008, alleging that their claims for damages against Deitz should be excepted from discharge under Bankruptcy Code sections 523(a)(2)(A), (a)(4), and (a)(6). At trial in April 2011, Deitz admitted that he failed to complete construction, and an expert witness testified that the home was approximately 65 percent completed. On July 28, 2011, the Bankruptcy Court issued its findings of fact and conclusions of law that Deitz's debt was nondischargeable and entered a money judgment in favor of the Fords in the amount of $386,092.76. Deitz timely appealed the decision. On appeal, Deitz challenged the constitutionality of the Bankruptcy Court's entry of a final judgment against him and to liquidate the amount of the claim, relying on the United States Supreme Court's decision in Stern v. Marshall. In reviewing the decision of the Bankruptcy Court, the BAP determined that the Bankruptcy Court's entry of a final judgment against Deitz was constitutional. Citing to Farooqui v. Carroll (In re Carroll), 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011), the BAP held that bankruptcy judges have the authority to hear and finally determine the dischargeability of claims in bankruptcy cases. The BAP also noted that the Ninth Circuit, pre-Stern, in Cowen v. Kenney (In re Kennedy), 108 F.3d 1015 (9th Cir. 1997), held that bankruptcy courts may enter monetary judgment on a disputed state law fraud claim as it pertains to the dischargeability of a debt. The BAP determined that it was bound by the Kennedy decision until the Ninth Circuit indicates that it is no longer good law. The BAP also held that, for purposes of section 523(a)(2)(A), the Bankruptcy Court did not err in holding that Deitz's debt was nondischargeable because of Deitz's intent to deceive the Fords and the Fords' justifiable reliance on Deitz's representations. Because Deitz failed to address the Bankruptcy Court's ruling as to sections 523(a)(4) and (a)(6) in his opening brief, and only presented a conclusory statement in his reply brief, the BAP held that Deitz waived his challenge to those claims on appeal. Judge Markell, in a concurrence, noted that the Supreme Court's decision in Stern may present issues for nondischargeability actions, including a bankruptcy court's subject matter jurisdiction over discharge and entering money judgments against a debtor. Because the Ninth Circuit, however, has not reconsidered its prior rulings, including Kennedy, Judge Markell concurred in the decision.

Judge(s):

PAPPAS, DUNN, MARKELL (Bankruptcy Judges)

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