Memorandum of Decision Re: Alleged Fraud of Contractor

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re LESTER B. YOUNG,                                               No. 1-90-00205      Debtor. ___________________________/ SHIRLEY and JANIS BIRINS,      Plaintiffs,    v.                                                                              A.P. No. 1-90-0100 LESTER B. YOUNG,      Defendant. ______________________________/
Memorandum of Decision
     Debtor and defendant Lester B. Young is a residential contractor. In early 1987, he contracted to build a home in Glen Ellen for plaintiffs Janis and Shirley Birins. In this adversary proceeding, the Birins allege that their claim against Young should be declared nondischargeable pursuant to section 523(a)(2) and (4) of the Bankruptcy Code.      At trial, the Birins did not press their 523(a)(4) argument. The court accordingly spends no time addressing this section beyond noting that no fiduciary liability has been shown, and breach of state contracting laws does not establish such liability. In re Pedrazzini, 644 F.2d 756 (9th Cir.1981).      The Birins financed the construction through Luther Burbank Savings, which established a draw schedule based on the completion of various items. The third draw, of approximately $21,000.00, was contingent upon the county building inspector signing off on a "close-in" inspection. A "close-in" inspection involves approval of the rough electrical, rough plumbing, rough framing, and rough mechanical work.      On December 2, 1987, the county building inspector conducted an inspection of Young's work. He approved at least the rough framing and rough electrical. A bracket next to the electrical line indicates that the rough mechanical and plumbing were also approved; plaintiffs allege that this bracket was forged by Young.      As soon as the inspector was through, Young called Shirley Birin and told her that the "close-in" inspection had been passed. He asked her to obtain the third draw from the bank so that he could receive a payment. She did so, and the bank released the draw to her.      Between December 9, 1987, and December 28, 1987, Shirley paid $8,000.00 to Young and about $10,000.00 to subcontractors and suppliers. On December 28, after a contractor sent out by the bank noted problems with Young's work, the Birins terminated Young and hired the bank's contractor to finish the job. He had to re-do some of Young's work, and the Birins ended up paying $42,000.00 more than their contract price with Young for their home.      The court finds no merit whatsoever to the Birins' attempt to bootstrap their entire contractual claim into a nondischargeable debt. Exceptions to discharge are narrowly construed in favor of the debtor. In re Hunter, 780 F.2d 1577 (11th Cir.1986). Even the most inept and damaging performance of a contracting job does not establish grounds for nondischargeability. In re Kaufmann, 57 B.R. 644 (Bkrtcy.E.D.Wis.1986).      While the evidence is unclear, the court is unable to find any fraudulent conduct on Young's part. He committed fraud only if it was he, and not the building inspector, who added the bracket on Exhibit "F," the county inspection notice. Young categorically denied altering the document. The bulding inspector said the bracket "didn't look" like his, but did not go so far as to flatly deny making it. There was no other direct evidence, but it does appear that after some troubles were discovered the county building department told Janis Birins that nothing had been approved when the inspector's own notes establish that at least part of the "close-in" inspection was approved. Under these circumstances, the court must give the debtor the benefit of the doubt and find that the "close-in" inspection had been made and approved as represented by the debtor. There being no false statement, there can be no liability under section 523(a)(2).      For the foregoing reasons, plaintiffs shall take nothing by their complaint, which will be dismissed with prejudice. Young shall recover his costs of suit.      Counsel for Young shall submit an appropriate form of judgment. This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: October 18, 1990                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy