Wednesday, May 22, 2013
Roughly a year ago, this blog reviewed a bankruptcy court order finding an individual’s, Greg Rollison (“Rollison”), debt was non-dischargeable. The court found Rollison made false representations under § 523(a)(2)(A) to Kelvin and Holly Knaub (the “Knaubs”), knowing such representations to be false, with the intent to deceive the Knaubs into believing a replacement house would be built for them. While the court did not find the corporate veil should be pierced in the case, it did find that Rollison made personal representations on which the Knaubs relied. In the end, the court ruled that the Knaubs suffered damages, in an amount to be determined later, arising from problems with a defective home. Thus, as to Rollison, the Knaubs’ debt was found nondischargeable under § 523(a)(2)(A).
The United States Bankruptcy Court in Denver, Colorado, through the Honorable Michael Romero, recently ruled on the damages Rollison owes to the Knaubs. Among the damages to be determined were pre and post-judgment interest as well as attorney’s fees and costs. The court found neither pre-judgment interest nor attorney’s fees were appropriate, but post-judgment interest at statutory rate and the Knaubs’ costs should be awarded.
The facts bear a quick review. In May 2003, the Knaubs purchased a home from Gemm Homes (“Gemm”), which was owned by Robert Golba (“Golba”) and which employed Rollison. Gemm was in financial trouble and transferred some of its assets to Avalon Homes (“Avalon”), primarily run by Golba, but also employing Rollison. Once foundation issues with the Knaubs’ home were identified, Rollison, around May 1, 2007, made representations to the Knaubs that he would be able to construct a new home for them. The court found Rollison made false representations because he represented he possessed the ability, through other projects, to build the Knaubs a new home.
The Knaubs sought entry of a judgment for non-dischargeable amount of $162,000, plus attorney fees and costs, pre-judgment interest at the rate of 8% per annum from May 1, 2003 through May 15, 2012, and post-judgment interest at the rate of 8% per annum. Rollison did not oppose post-judgment interest and did not challenge the underlying principal amount of $162,000, calculated pursuant to Mascio v. Gronewoller (In Re Mascio), 454 B.R. 146 (D. Colo. 2011). Rollison did oppose any awards for pre-judgment interest and attorney fees and costs.
The court briefly discussed the calculation of the underlying non-dischargeable debt of $162,000. Pursuant to Mascio, the court calculated the difference between the actual value of the Knaubs’ home with its defects on the purchase date, and the purchase price for the home without defects to be $162,000 as stipulated to by both parties.
Next, the court discussed post-judgment interest and found it appropriate. However, the court found that 28 U.S.C. § 1961(a) allowed the interest to run at a different rate. Therefore, instead of the 8% per annum the Knaubs requested, the court found that post-judgment interest would run at the federal judgment interest rate under 28 U.S.C. § 1961. The interest under the federal statute is calculated at a rate equal to the weekly average one-year constant maturity Treasury yield for the calendar week preceding the date of the judgment.
The court’s finding regarding pre-judgment interest was a bit more involved as it had to first determine when, if ever, there was any money or property wrongfully withheld. In Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821 (Colo. 2008), the Supreme Court of Colorado stated that “wrongfully withheld” means the aggrieved party lost or was deprived of something to which it was otherwise entitled. The court was quick to distinguish the fact that the date when something is “wrongfully withheld” is not necessarily the same date as when a party is “wronged” and cannot be before a party is “wronged.”
The Knaubs were seeking to get the date of their initial purchase of the house, May 1, 2003, established as the date the $162,000 they were owed was “wrongfully withheld” to begin the running of the pre-judgment interest. In the alternative, the Knaubs argued that the May 1, 2007, when Rollison made his representations should be the date when pre-judgment interest should begin. The court found the Knaubs were not wronged until the date Rollison made his representation, thus pre-judgment interest would not start on May 1, 2003. Thus, the pre-judgment interest would run from when, if ever, Rollison “wrongfully withheld” money or property in connection with his misrepresentation.
The court reviewed the evidence presented by both parties and found that neither party provided a date or a time frame for when the replacement home Rollison promised was to be built. Thus, without a definite date, the court could not find that pre-judgment interest could accrue from the date of Rollison’s representation on May 1, 2007. The court was also persuaded by the fact that there was no written contract for the replacement home between the Knaubs and Rollison, and the Knaubs were not out-of-pocket for any repairs costs. Thus, the Knaubs were not able to recover pre-judgment interest under C.R.S. § 5-12-102(1).
The attorney fees the Knaubs sought were also dismissed, largely because of the lack of contract between Rollison and the Knaubs. The American Rule maintains that attorney fees must be provided for by statue or within a contract document. Along with the fact that no contract exists between the parties, no statute which governs the case provides for attorney fees. However, the Knaubs’ complaint requested an award under § 523(a)(2)(A), plus costs, and the Fed. R. Bankr.P. 7054(b) does provide for costs to the prevailing party. The court then found that an award of costs was appropriate based on the facts of the case. In the end, Rollison is facing a judgment of $162,000 plus whatever costs the Knaubs incurred and any post-judgment interest – a heavy nondischargeable debt.
For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at firstname.lastname@example.org