Emerick v. ECKERDT
4:11-ap-02147-JMM
Bankr. D. Ariz.Oct 15, 2012Background
- Debtor purchased Unit 127 of Mountain Vista Villas in 2005 for $93,175; she and Penny Webb also bought Unit 126 nearby and did not reside there.
- The complex was managed by Rossmar & Graham; repairs were performed by Spectre West upon notice of needed fixes.
- Unit 127 was listed for sale in Oct 2007; Emerick offered to purchase in Nov 2007 for $125,000 and entered a sale.
- Sellers disclosed items in a SPDS and later fixed agreed repairs following a November 2007 inspection.
- Close of escrow occurred January 2, 2008; Emerick financed and took possession; post-closing, HO A reports and later litigation arose from construction defects.
- Plaintiff filed an adversary proceeding seeking non-dischargeability under 11 U.S.C. § 523(a)(2); court later granted defendant’s motion and dismissed the complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Eckerdt’s debt is non-dischargeable for fraud under § 523(a)(2) | Emerick alleges misrepresentation/omission about defects | Eckerdt lacked knowledge of material defects | Not proven by a preponderance; debt discharged |
| Whether pre-closing minor items constituted material concealment | Even minor items waived fraud by pre-closing disclosure | Minor items not material or disclosed; no fraud shown | Fraud not proven for minor items; no material concealment |
| Did Eckerdt know of construction defects or HOA investigation and fail to disclose | Evidence shows knowledge of defects and HOA actions | No direct evidence of knowledge; disclosures on SPDS were adequate | No proven knowledge or concealment; disclosure adequate |
| Whether post-closing communications established knowledge of defects | Post-closing notices implied awareness | No evidence of awareness pre-closing; credible testimony supports lack of knowledge | Post-closing notices did not establish pre-closing knowledge or fraud |
Key Cases Cited
- In re Slyman, 234 F.3d 1081 (9th Cir. 2000) (elements for non-dischargeability under § 523(a)(2))
- In re Sabban, 600 F.3d 1219 (9th Cir. 2010) (preponderance standard and reliance requirements)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (clear standard for dischargeability under § 523(a)(2))
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (justifiable reliance requirement)
- Muegler v. Bening, 413 F.3d 980 (9th Cir. 2005) (recognizes that benefit of fraud is not required element)
- Cohen v. de la Cruz, 523 U.S. 213 (U.S. 1998) (imposes elements of fraudulent misrepresentation)