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A contractor showed up at Henry's house with the firemen during a fire and said "I'm here to help"

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Home » A contractor showed up at Henry's house with the firemen during a fire and said "I'm here to help"
 

A contractor sued Henry for inflated bills and tried to bar the debt from bankruptcy. We counter sued, got the contractor's claim dismissed and won Henry compensation

Henry was ambitious, but in the middle of some bad luck.  He owned an expensive house in the Silicon Valley during the real estate downturn and business was slow, so he started renting out rooms.  Eventually, he'd rented five of the six bedrooms in his comfortable Los Altos Hills home, but he was still having trouble.

On his way home one day he noticed smoke rising from the house.  He called the fire department.  Minutes after fire engines arrived, a man appeared from a company that specialized in cleaning and repairing fire damaged structures.  Henry didn't call them, or anyone else except the fire department.  He assumed someone had called the company and forgot about it in the scene's chaos.
 
As it turned out, two hours earlier after a whisky drenched morning reading the newspaper, a tenant named Zubin knocked over a table lamp in his bedroom on his way out to lunch.  The lamp fell into a chair and smoldered for hours until the chair caught fire.  A fireman had questioned the tenants and Zubin said that he was reading in the chair with the light on, he didn't remember if he turned it off when he left, and that he had drunk some whisky that morning only to help with digestion.
 
The damage to the house was not severe and it was not possible to tell from the outside that there had been a fire at all save for some light smoke stains.  The company representative said they could immediately begin restoration work that included cleaning smoke stains, removing smoke stench, reparing the electrical box and fixing some wiring that the fire damaged. Henry agreed and signed a contract. The company's team began work within hours.
One of the firemen had said the restoration would probably cost $20,000.
 
About 48 hours into the cleaning Henry started asking questions.  The company said it so far completed about $7,000 of electrical work and $40,000 of cleaning.  Henry was stunned. $40,000 for cleaning?  It was one room that held most of the smoke and the cleaning consisted mostly of wiping down walls and furniture, moping floors, laundering clothes. The whole house was 1,700 square feet, so it simply couldn't take that long to clean it. New drywall and floors would cost less in a house that small. Even more stunning was that they weren't nearly finished.  Henry ordered all work to stop.  The company noted that Henry's insurance was supposed to pay so why did the amount matter? Henry was furious.
 
Henry's insurance didn't pay.  It turned out that his insurance covered losses only if he had two or fewer tenants and for this and additional reasons unrelated to the tenants, the insurance company denied the claim.
 
The construction company filed two liens on Henry's house: one for $45,000 and another for $25,000.  The construction company sent Henry a one line bill: "Cleaning.... $45,000."  Henry didn't pay it and about 60 days later, the company sought a judgment to foreclose on Henry's house.  Henry filed for bankruptcy and listed the cleaning company's debt in the petition.  Then the company filed an action under 11 U.S.C. § 523(a)(2)(A), which says that money, property or services obtained by false pretesnes, misrepresentation, or fraud may not be discharged in bankruptcy.  To claim a § 523(a) exemption, a creditor has to file a complaint in the bankruptcy court to begin a type of litigation called an adversary proceeding, which is a bit like a civil lawsuit tried in the bankruptcy court, or at least within the bankruptcy proceeding.
 
The bankrupt debtor has a bankruptcy attorney and the bankruptcy trustee has its own bankruptcy attorney.  But in an adversary proceeding, a separate attorney who focuses on litigation usually enters the process to litigate the 529(a) claim and often the debtor retains a separate attorney to defend the 529(a) claim and sometimes the debtor or the bankruptcy trustee will hire a separate attorney to pursue counterclaims against the 529(a) claimant or sue other parties who may be liable to the bankruptcy debtor.
 
The company's complaint alleged that part of the fraud was that Henry "intentionally" caused the loss, which could mean nothing less than that he set the fire on purpose himself.
Henry was devastated.  He reread the contract and it carried 18% interest on an overdue balance.  If he couldn't discharge the debt in bankruptcy, in 10 years it would grow to $417,852.60.  Henry was already 50 years old.  He felt trapped.  His first action was to not leave his house for two weeks.  He did not go outside.  He talked to no one.  He cried.  He thought.  He considered suicide.  Things weren't that bad, but when things are bad, it's often hard to imagine that some day soon they'll not be so bad.
 
A trial lawyer friend of Henry's referred him to us.  The objective was to defend his case in the bankruptcy court for a low, fixed fee - Henry had just a week left to file an answer to the complaint, or lose his case.  But it was more complicated than that. Because of a rule called res judicata, Henry would have to make any counterclaims against the company with his answer or lose them forever.  A week remained.
 
We prepared an answer and counterclaims and filed it with a few hours to spare.
 
At this point no one knew that a fireman had spoken to one of the tenants and learned that the tenant had accidentally left the lamp lit and likely knocked it over on his way out.  The fireman's notes of Zubin's statement were just a paragraph and buried deep in the fire department's long and otherwise uneventful report of the day's activities.
 
After a careful review of more than 1,000 pages of reports, documents and evidence, we found that paragraph.
 
The company's attorney's offered to settle for nothing, each side bearing its own costs.  My client refused.  It is likely that the company's law firm, which did not usually practice in the bankruptcy courts, failed to notice an important rule in 529(a) claims: if the creditor who brings the adversary action loses, it must pay the debtor's attorney fees.  This rule is designed as a disincentive for creditors to use section 529(a) to bring frivolous claims that the bankruptcy debtor cannot afford to defend and for the purpose of trying to get a default judgment.  Now the company was facing the unsavory prospect of litigating a $40,000 claim against the creditor, which if they lost could cost them $75,000 to $125,000 for their opponent's attorney fees after a trial.
 
The company's attorneys decided to file a motion to dismiss the counterclaims against it for fraud because the debtor lacked standing to sue.  Since Henry was bankrupt, it was the bankruptcy trustee and not Henry who was the proper person to bring those claims.  While this was technically true, the bankruptcy trustee can delegate this authority to the debtor.  The company's goal wasn't to ensure that the proper claimant litigated the counterclaims against it.  The company's objective was to derail the litigation and escape.  Sean Olender called the bankruptcy trustee and explained the situation.  She decided to ask the court to appoint Sean special counsel to represent the estate's interests in the counterclaims against the construction company.
 
At the motion to dismiss hearing, the judge simply substituted the trustee in for the bankruptcy debtor and then appointed Sean as special counsel to represent the bankruptcy trustee in the adversary proceeding.  A lot of wasted time and the counterclaims were not dismissed and the risk of the company having to pay Henry's attorney fees if they lost was still there.
 
After several cross motions for summary judgment, meetings, and after finding the fireman's report of tenant Zubin's recollection of a potential source of the fire, we were able to negotiate a settlement that resulted in the company paying Henry an amount roughly equal to what they alleged he owed them.  Henry's alleged debt to the company was discharged in bankruptcy.
 

Past outcomes are not a guarantee of future results. All cases are different. Different decision makers behave differently. We NEVER guarantee or promise that we can get any client any specific result in the future. The facts, circumstances, and quoted endorsements of clients in our case studies series are true and documented in archived case files in our possession. However, unless otherwise indicated, we have changed the identities of the clients described in the case studies series to protect their privacy, avoid undue embarrassment or attention, and sometimes to comply with confidential settlement agreements that may result in financial and other liability if we reveal the identities of the parties involved with the result described.

Related Subjects: 
litigation

Attorneys and Staff

 
Sean Olender
Attorney
   

Karina Esquivel
Administrator

 

 
 

Call us at 408.797.0000

Call us at 408.797.0000

Call us for a consultation at 408.797.0000. We offer expert services and proven experience with complex issues that others can overlook.

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