Sharfarz v. Goguen (In re Goguen)

Summarized by Bodie Colwell , Preti Flaherty LLP
13 years 6 months ago

Citation:

In re Goguen, No. 11-9004 (B.A.P. 1st Cir. Aug. 15, 2012)

Tag(s):

Ruling:

VACATING and REMANDING, the First Circuit Court of Appeals found that Sharfarz adequately proved causation (both cause in fact and legal cause) and Goguen did not bear his burden of showing an intervening or superseding cause. As to cause in fact, the court found that had Goguen not lied to Sharfarz about the building permit status, Sharfarz would have cancelled the contruction contract and gotten back all or most of the intial payment. As to legal cause, the court found that Sharfarz foresaw that without adequate precautions pouring concrete in cold weather could lead to cracking, and Sharfarz's reliance on Goguen's misrepresentations resulted in a loss that could reasonably been expected to occur from the reliance. The court remanded to determine the precise amount of the debt that is nondischargeable.

Procedural context:

David Sharfarz (creditor) appeals from the Bankruptcy Appellate Panel (finding that he did not show nondischargeability under 11 USC 523) which reversed the Bankruptcy Court for the District of Massachusetts.

Facts:

David Sharfarz hired Peter Goguen (the debtor) to put an addition on his house. Part of their contact included pouring the concrete foundation before winter and obtaining the necessary permits. Goguen told Sharfarz he applied for the permits in October 2009, but in reality he did not apply for the permits until November 29, 2006 and did not obtain the permits until December 11--two months after he told Sharfarz. After much back and forth about whether the cold weather would affect the foundation, Goguen poured the foundation around Christmas 2006. The foundation cracked, and Goguen threatened not to finish the job without more money. Sharfarz refused as he had already paid the contract price and then some and paid additional contractors $88,000 to finish the job. Eventually Sharfarz sued Goguen and obtained a state court judgment against Goguen. The state court set damages at $88,000 which was trebled to $264,000 under state consumer protection law. The state court also awarded attorney fees and costs at $8,745.50. After Goguen filed his chapter 7 petition, Sharfarz petitioned to have his judgment against Goguen declared nondischargeable under 11 USC 523(a)(2)(A) -- barring discharge of any debt for money to the extent obtained by false pretenses, a false representation, or actual fraud. The bankruptcy judge sided with Sharfarz, finding that all of the $88,000 was not dischargeable. Goguen appealed to the BAP which reversed the bankruptcy court's ruling. The BAP found cause in fact was absent in that Sharfarz did not show that Goguen's permit misrepresentations induced him to enter into the construction contract. The BAP also found that legal cause was absent as Goguen could not have forseen that Sharfarz would have to pay an extra $88,000 over the original contract price because Goguen had misrepresented the status of the permit application for ten weeks and it was forseeable that Goguen could have finished the project in a timely manner. Sharfarz appealled to the First Circuit Court of Appeals.

Judge(s):

Boudin, Souter, and Thompson

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!