Memorandum of Decision Re: Fraud

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Decisions
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re JERRY and KATARINA GULLETT,                                                                           CASE NO.: 97-12859      Debtor(s). ______________________________________/ DANIEL and GAIL IGOU,      Plaintiff(s),      v.                                                                                                                  A.P. No. 97-1297 JERRY and KATARINA GULLETT,      Defendant(s). _______________________________________/
Memorandum of Decision
     In May, 1996, plaintiffs Daniel and Gail Igou purchased a residence in Oroville, California, from debtors and defendants Jerry and Katarina Gullett. The Igous paid only $100.00 down, with the remainder financed through the Veteran's Administration. After the Igous took possession, they experienced several problems with the condition of the property. In this adversary proceeding, they allege that the Gulletts were aware of the problems and misrepresented the condition of the property, so that they have a nondischargeable claim for fraud pursuant to §523(a)(2) of the Bankruptcy Code.      Both Gulletts are real estate brokers. Because of the greater responsibility of brokers to make sure that persons who purchase property from them are treated fairly, the court was initially solicitous of the Igous' position. However, their case quickly became a tangle of vague complaints, contradictory testimony, unsubstantiated allegations and inadmissible hearsay. The Igous were unable to set forth a clear case of fraud, let alone prove it.      The only allegation the court can identify with any kind of certainty is that the Gulletts supposedly told the Igous that repairs and additions to the residence were all done with proper permits. However, the Igous did not prove that a permit was required for the work, or that there was a failure to obtain such a permit, or that the Gulletts knew that a permit was required and not obtained. In order to prove fraud, a plaintiff must show both false statement or nondisclosure and that the defendant made the false statement or withheld information with intent to defraud. The Igous did not establish a single element of fraud.      The evidence showed that the property was carefully inspected before the sale according to Veterans Administration requirements, as the Igous were financing the entire purchase price. The evidence also showed that the Gulletts agreed to and did make substantial repairs to the septic system on the property which were known to them at the time of sale. These repairs related to the condition of the septic tank. There is no evidence that the Gulletts had any knowledge of a problem with the leach field which surfaced after the tank was repaired.      The Igous allege that instead of obtaining a new termite report on the property, the Gulletts altered the date on an older report. This allegation was vigorously contested. There is insufficient evidence for the court to make such a finding. The Igous' case is not helped by the allegation of Daniel Igou that his signatures on the termite report and other documents are forgeries, as the court did not find this testimony convincing.      Most fatally, the Igous failed to introduce any evidence whatsoever as to damages. Instead, they argued that this court should decide only whether or not there was fraud and then allow the issue of damages to be decided in state court. Such procedural notions have long since been abandoned (See, e.g., In re McLaren, 990 F.2d 850, 853 (6th Cir. 1993); In re Choi, 135 B.R. 649 (Bkrtcy.N.D.Cal. 1991)), and the court never gave the Igous any suggestion that it would abandon its responsibility to determine damages. The court notes that the amount suggested by the Igous in their proposed findings is almost the entire amount of the purchase price. The court can see absolutely no justification for such a large amount. The property was clearly worth a substantial percentage of the purchase price, even with the defects the Igous allege.      The court finds that the Igous have failed badly to prove their case against the Gulletts. Accordingly, the Igous will take nothing and their complaint shall be dismissed with prejudice. The Gulletts shall recover their costs of suit.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for the prevailing party shall submit an appropriate form of judgment forthwith.
Dated: August 27, 1998                                                                      ________________________________                                                                                                             Alan Jaroslovsky                                                                                                            U.S. Bankruptcy