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Casablanca Lofts LLC v. Abrham

August 30, 2010


The opinion of the court was delivered by: Judge Ronald A. Guzmán

Appeal from: Adv. Pro. No. 08 A 00971 and Case No. 08 B 27606


Appellant Richard James Abrham ("Abrham") has appealed the judgment of the bankruptcy court in which it granted Casablanca Lofts LLC's ("Casablanca") summary judgment motion, denied Abrham's cross-motion and held that Abrham's debt owed to Casablanca was non-dischargeable under 11 U.S.C. § ("Section") 523(a)(2)(A). For the reasons provided in this Memorandum Opinion and Order, the Court affirms the decision of the bankruptcy court.

or int. Procedural History he In 2005, Casablanca brought an arbitration proceeding against Abrham and co-defendant DWG Construction, Inc. ("DWG"). (R., Attach. 1, Doc. 1-1, at 70-87.) The arbitration panel held that DWG was liable for breach of contract and fraud and Abrham was liable as a partner of DWG as well as individually for his negligent misrepresentations and contract breaches. (Id. at 84-85.) The arbitration panel found Abrham and DWG jointly and severally liable to Casablanca in the amount of $1,469,520.61. (Id. at 84.) A state court affirmed the award. (R., Attach. 3, Doc. 1-3, at 78.) The judgment was among the debts scheduled by Abrham when he filed a voluntary petition for relief under Chapter 7 of Title 11 of the U.S. Bankruptcy Code on October 15, 2008 in the U.S. Bankruptcy Court for the Northern District of Illinois. (R. at 34.) On November 26, 2008, Casablanca filed an adversary complaint seeking a finding of nondischargebaility of the debt owed to it by Abrham as a result of the arbitration award. (R. at 74-84.) The parties filed cross-motions for summary judgment, and the Honorable Carol A. Doyle granted Casablanca's motion and denied Abrham's motion. (R., Attach. 3, Doc. 1-3, at 77.) Abrham appealed. (R. at 2.)

Statement of Facts

In their cross-motions for summary judgment filed in the bankruptcy court, Casablanca and Abrham stipulated to be bound by the arbitration panel's findings of fact and conclusions of law. (R., Attach. 3, Doc. 1-3, at 58.) The dispute at issue arose from the improvement of a warehouse located at 1736 S. Michigan Avenue in Chicago, Illinois ("the project"). (Id. at 59.) Abrham, a licensed Illinois architect, Daniel Hernandez, an interior designer, and DWG, a general contractor, formed a partnership ("the GC Team") to bid on and complete the project. (Id. at 60.) Under the partnership agreement, Abrham provided architectural services and acted as "Inspecting Architect," Hernandez provided interior design and construction services and DWG assumed all other general construction responsibilities. (Id. at 61.)

On December 4, 2003 Casablanca, DWG, Hernandez and Abrham agreed in writing to a standard AIA General Contract ("the agreement"). (R., Attach. 1, Doc. 1-1, at 2-42.) According to the agreement, DWG agreed to substantially complete the project by March 30, 2005 for $4,950,965.00 plus extras and less credits. (R., Attach. 3, Doc. 1-3, at 60.) All parties involved understood that as the "GC Team," Abrham and Hernandez would assist DWG in performing its obligations under the agreement. (Id.) Abrham, DWG and Hernandez agreed to share profits equally, and they shared $60,000.00 of the deposit paid by Casablanca after it entered the agreement without disclosing to Casablanca that part of the deposit would be used for this purpose. (Id. at 60-61.)

As the project progressed in 2004, the parties began to dispute various issues such as work quality, progress, change orders and DWG's use of funds that were initially received for the project. (Id. at 62.) Prior to the execution of the agreement, no party made any false representation of material fact. (Id.) However, the general conditions of the agreement required DWG to maintain and follow a schedule throughout the project, which it failed to do. (Id.) Because there was no working schedule, it was difficult to measure progress, but DWG only once mentioned that it was behind schedule despite numerous delays. (Id. at 63-64.)

The general contracting team made several misrepresentations throughout its performance of its obligations. First, it requested a deposit of $385,000.00 and claimed $64,000.00 of the deposit was needed to acquire a favorable price on hardwood flooring. (Id. at 64.) However, the money was never allocated or used to acquire the hardwood flooring. (Id.) Additionally, DWG represented that $20,000.00 of the deposit was for a deposit on an elevator, although it was never used for that purpose. (Id.) In both instances, lien waivers were falsely provided and submitted to the title company as proof that the deposits were made. (Id.) Also, DWG paid its demolition subcontractor $225,000.00 from the initial deposit but only reported to the title company that it paid him $168,000.00. (Id.) Further, the payout applications, which were signed by DWG and certified by Abrham, inaccurately reported the overall progress of the project. (Id. at 64-65.)

On September 28, 2004, Abrham informed Casablanca that the relocation of the elevator and color selection of the elevator's panel was holding up production. (Id. at 65.) However, All Types Elevator informed Casablanca in November that the elevator was never in production because the deposit was not received. (Id.)

On November 10, 2004, Casablanca demanded that the hardwood flooring either be delivered or that the deposit be refunded. (Id.) On November 23, 2004, the general contracting team assured Casablanca that the flooring had been purchased and identified the type of flooring but admitted after the termination of the agreement that it was never purchased. (Id.) DWG also represented that ANE, the initial electrical subcontractor, had completed 33% of the electrical work when less than 15% had been completed. (Id. at 66.) ANE was also paid $135,000.00, although it had completed only $19,000.00 worth of work. (Id.)

The parties also agreed to reduce the contract by $100,000.00 by allowing a portion of the restaurant equipment to come from the $1,000,000.00 budget for the restaurant, but DWG never paid this amount to Casablanca. (Id. at 66-67.) Additionally, DWG failed to install the type of furnace required by the agreement. (Id. at 65-66.) DWG also used a gauge of C-channel structural framing for the third floor mezzanine support system that was thinner than the type required by the contract. (Id. at 67.) Further, Abrham and DWG changed the blueprints of the building, but they refused to provide them to Casablanca unless it approved a number of change orders that the arbitration panel held were without merit. (Id.)

On December 7, 2004, Casablanca terminated the agreement for cause in a letter sent to DWG and Abrham. (Id. at 62.) At that time, Casablanca had not been informed as to when the project would be completed although it was at least several months late. (Id. at 68.) Further, the reasonable cost of completion was $7,173,695.00. (Id.) The ultimate cost to Casablanca was substantially greater, but it did not meet its burden of showing that DWG and Abrham should be responsible for other additional costs. (Id.) This estimate includes what Casablanca already paid to DWG, the cost of settling pending obligations and the amount to pay another company to complete the work. (Id.) The estimate also takes in account overpayments including deposits for the elevator and flooring, most of the ANE payments and part of the payment to DWG's demolition subcontractor. (Id.)

The arbitration panel found that DWG had committed fraud and was liable to Casablanca in the amount of $1,469,520.61. (Id. at 73-74 (stating that DWG . . . committed fraud . . . but the resulting damages are the same as, and do not increase, the amounts set forth").) The panel also found Abrham liable to Casablanca, both as a formal partner of DWG and individually, because his negligent misrepresentations and contract breaches substantially contributed to the damages. (Id. ...

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