IN RE: WILLIAM IRA SHAW                             CASE NO. 98-51067

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

 

WILLIAM IRA SHAW                                                                           CASE NO. 98-51067

d/b/a Bill Shaw Enterprises;

B-S Enterprises; Horse Farm Construction;

& Sales; Bill Shaw Real Estate; Bed & Breakfast

 

DEBTOR

 

MANFRED ECKER

CHERIE ECKER                                                                                                PLAINTIFFS

 

V.                                                                                                 ADVERSARY NO. 98-5140

 

WILIAM I. SHAW                                                                                              DEFENDANT

 

AND

 

WILLIAM I. SHAW                                                                                                PLAINTIFF

 

V.                                                                                                 ADVERSARY NO. 98-5142

 

MANFRED ECKER

CHERIE ECKER

WOODFORD STEEL, INC.                                                                         DEFENDANTS

 

 

MEMORANDUM OPINION

 

 

            These adversary proceedings have been consolidated for purposes of trial and are awaiting trial.

            Adversary Proceeding No. 98-5142 is before the court on the motion of the defendant Woodford Steel, Inc. ("Woodford Steel”) for summary judgment on an indemnity claim asserted in the complaint of the debtor, William I. Shaw (“Shaw”), against Woodford Steel and on the cross-claim of the defendants Manfred and Cherie Ecker (the “Eckers”) against Woodford Steel.  The motion for summary judgment is grounded on the defenses of claim preclusion and issue preclusion.

FINDINGS OF FACT:

            In July of 1996 the Eckers, who were residents of Lake Forest, Illinois, a suburb of Chicago, came to Lexington, Kentucky to attend a miniature horse show at the Kentucky Horse Park.  They liked the area and were interested in acquiring a small farm and relocating near Lexington.  Mr. Ecker, a blacksmith and ferrier, could continue his work in that specialty and the Eckers could continue their avocation of raising and showing miniature horses.

            On July 19, 1996, while driving on or near Yarnallton Road, they inquired of a resident about the availability of farmland.  The resident referred them to Shaw, whom he identified as a realtor and builder.

            The Eckers visited with Shaw at his home at 1201 Yarnallton Road, Lexington, Kentucky.  Shaw showed them plans he had prepared for improvements on a horse farm and told them of 11.2 acres of farmland for sale just down the road from his residence.  On July 23, 1996, a few days after the Eckers had returned to their home in Lake Forest, Shaw sent them a fax advising them the farmland was available.  Shaw included a contract for the purchase of the land for $80,000 plus payment to Shaw of $4,800 as a real estate commission.  On July 24, 1996 the Eckers agreed to the purchase and forwarded the good faith deposit as called for by the contract.

            Also on July 24, 1996 the Eckers entered into a Retainer Agreement handwritten and faxed to them by Shaw, whereby Bill Shaw, d/b/a Horse Farm Construction, Leasing and Sale, agreed to complete the necessary drawings and to construct a combination house and barn complex on the property the Eckers had agreed to purchase.  Shaw agreed to obtain all permits, licenses, materials, labor and tradesmen and to construct the facility in a professional and workmanlike manner for a fee of 20% of the actual cost of labor and materials.

            Shaw also faxed to the Eckers drawings for the facility, which the Eckers, with some suggested modifications by Mr. Ecker, found to be acceptable.

            Upon acceptance of the Retainer Agreement for construction of the facility the Eckers forwarded to Shaw a $5,000 good faith deposit to be credited on the last $25,000 worth of work performed by Shaw.  According to the Eckers, Shaw represented that the cost of labor and materials to complete the project would not exceed $150,000.

            Shaw, with the approval of the Eckers, arranged for Woodford Steel to erect four barns on the Eckers’ property.

            On October 2, 1996, Mr. Ecker entered into a contract with Woodford Steel for the construction of two barns on the premises, described in the contract as Barn #1, a stall barn, and Barn #2, containing an arena.  The contract price for erection of these barns was $24,000 and $24,800 respectively.

            On October 8, 1996, Mr. Ecker entered into two separate contracts with Woodford Steel for the construction of two additional barns on the premises.

            One contract provided for the construction of Barn #3 at a cost of $29,750.

            Barn #3 is referred to in testimony as the inner or connecting barn because it is located between and connects to Barns #1 and #2.  All three of these barns have 10-foot high side walls, and are topped by a triangular shaped metal roofs.  The barns are 42 feet wide and 70 feet long.  The front of Barn #3, the inner barn, is set back somewhat from the front of Barns #1 and #2 so that from the front the barn cluster appears u-shaped.  Because Barn #3 is set back from the front of Barns #1 and #2, Barn #3 also extends or protrudes beyond the back of Barns #1 and #2.  This extended area of Barn #3 contains windows to provide light for the ferrier’s office and facilities for Mr. Ecker’s blacksmith business, for a feed room, and perhaps for a barn office from which Mrs. Ecker contemplated operating a business.

            The other October 8, 1996 contract which Mr. Ecker executed with Woodford Steel provided for the construction of Barn #4 at a price of $30,300.  Barn #4, which is located behind Barn #3, the connecting barn, is one story tall, 50 feet wide (8 feet wider than Barn #3), and 40 feet long, containing approximately 2000 square feet of space.  The living space or residence of the Eckers is located in this barn.  The roof of Barn #4 has less pitch than the roofs of the other barns, which may make it appear somewhat lower in height than the other barns.

            The contracts with Woodford steel for the construction of Barns #1, #2, and #3 specified that site work, gravel, electrical, plumbing, concrete, and permitting were not included.  The contract for construction of Barn #4 likewise excluded the above items and also excluded the wood floor, joists, and siding under the porch.

            Woodford Steel completed construction of its work on the four barns in January 1997.  At that time all four barns were under roof and enclosed with unfinished wood siding as called for by the contracts.  The doublewide barn doors were in place as were the regular size window frames and doorframes for Barns #3 and #4.  The interior of the barns were, in construction vernacular, “dried in” or “out of weather” so that construction work on the interior of Barns #3 and #4 could proceed without regard to the weather.

            The barns were ready for the interior work to be performed by Mr. Shaw, which included installation of windows and doors of the office space and living space in Barns #3 and #4, electrical work (wiring, outlets, and lighting), plumbing work (sinks, bathrooms, and kitchen facilities), heating and air conditioning, and partitioning and dry walling of the living quarters in Barn #4 and office space in Barn #3.

            As of January 1997 the Eckers had paid Woodford Steel the $108,850, the contract price for its work on the four barns, plus some additional amount for change orders or a total of $111,850.

            Including the above amount paid for the work performed by Woodford Steel, the Eckers had expended $141,177 for construction of the barn/residence barn complex.  Of that amount, at least $29,527 had been received by Shaw, who at that time had expended very little money for work performed by other tradesmen, except perhaps for site preparation and concrete.

            In January 1997 the Eckers visited their property, at which time Shaw requested additional money to complete the interior work on the living quarters in Barn #4 and the office space in Barn #3.  The Eckers paid Shaw an additional $68,000 to be expended by Shaw for the electrical work, heating and air conditioning, plumbing, interior partitioning and dry walling of the living quarters in Barn #4 and office facilities in Barn #3.

            Six months later, in July of 1997, having sold their home in Lake Forest, Illinois, the Eckers moved all of their belongings and animals to Lexington, in the expectation that the work on their living quarters and office facilities would have been completed by Shaw, who knew they were coming and had not advised them otherwise.

            When they arrived in Lexington on July 7, 1997, they discovered there was no road to the residence, no electricity, no water, and no septic tank.

            Dismayed, the Eckers nevertheless paid Shaw an additional $29,000 to complete the work he had contracted to perform.

            On or about July 31, 1997 the Eckers engaged Charles D. Clary of Poge Engineers & Associates, Inc. of Lexington, Kentucky to inspect the work performed by Shaw.  By letter dated July 31, 1997, Mr. Clary reported numerous problems and Building Code violations in the work performed by Shaw on the living quarters and office facilities.

            On August 4, 1997, based on the deficiencies and improper construction set forth in Mr. Clary’s report of July 31, 1997, the Eckers gave Shaw written notice of termination of their Retainer Agreement with him.

            On August 6, 1997 the Eckers retained their present counsel and on September 8, 1997, counsel and the Eckers, Jack Sellars, a structural engineer, and David Clubb, of Anderson and Clubb Builders, met with Shaw for the purpose of inspecting the work on the Eckers’ residence performed by Shaw.  Upon being informed by Sellars and Clubb that the work was substandard and would have to be torn out and reconstructed, Shaw “stormed out” of the meeting.

            On September 27, 1997, the Eckers, by counsel, filed suit against Shaw in the Fayette Circuit Court for compensatory and punitive damages, attorney fees and costs, and for an order pursuant to KRS 367.200 revoking Shaw’s authority to conduct business as a general construction contractor.  Recovery was sought on grounds of breach of contract, breach of warranty, violation of the Kentucky Building Code, fraud, and violation of the Kentucky Consumer Protection Act.

            Shaw failed to answer the complaint of the Eckers in the Fayette Circuit Court action and on December 4, 1997, on motion of the Eckers, by counsel, that court entered a default judgment against Shaw in favor of the Eckers for an amount of unliquidated damages to be determined upon evidence at a hearing to be scheduled for that purpose.[1]

            The hearing on damages was held by the Fayette Circuit Court on February 27, 1998, following which, on March 9, 1998, the court entered a judgment in favor of the Eckers against Shaw for compensatory damages in the amount of $268,732.00, punitive damages in the sum of $403,098.00, and attorney’s fees in the sum of $6,550.25 pursuant to KRS 367.220(3) and KRS 198B.130.

            At the hearing on damages David Clubb, of Anderson and Clubb Builders, a residential and commercial builder with 25 years experience, testified he visited the residence of the Eckers on four occasions after the Eckers arrived in Lexington, to inspect the work performed by Shaw.  The ceiling joists were fastened to the bottom of the rafters.  Nothing was plumb, doors were not hung properly.  The electrical wiring was not installed correctly.  The plumbing was marginal.  The framing in the entryway was inadequate to carry the weight load.  The heating system was installed in the ceiling, which was inadequate to carry the weight of the system.  He suggested the heating system would have to be removed and installed on the floor or the ground.  A pull-down stairway to the ceiling would not carry a person’s weight.  The interior of the residence was structurally unsound.  The walls were not nailed properly.  Only one nail held walls to rafters.  He and Mr. Ecker could rock walls back and forth.  One wall fell when Mr. Ecker pushed on it.  Windows were not properly installed.  There were open spaces around windows and doors.

            The metal roof was nailed directly on wood without any sheeting in between, which would cause the metal to shift and the roof to leak.

            Clubb estimated the time to complete work on the living quarters and office facilities after Woodford Steel completed its work and the barns were under roof and enclosed to be four months.

            Clubb also noted that a pillar (three 2” x 6” boards fastened together) which Woodford Steel had installed to support the roof of the residence had been removed by Shaw, apparently because the pillar intruded on the layout of the living space.

            The removal of this pillar was noted by Mr. Clary in his written inspection report dated July 31, 1997.  He recommended that the pillar be reinstalled immediately to provide support for the roof.

            Jack Sellers, a structural engineer with 42 years experience testified he visited the Ecker residence on two occasions.

            He did a walk through with Mr. Ecker and found a lot of substandard work.

            He noted that the Building code does not apply to be barns and that the residence was designed under the same standards as for barns.

            He found the barns to be adequate except to suggest the unfinished wood siding be treated where it touches the ground to protect against termite infestation.

            However, he found that the 50-foot trusses, with no visible support, spanning the residence/barn did not comply with the Building Code.  The Code fixes two feet as the maximum spacing for trusses for a residence.  Also, these trusses with a maximum design load of 25 pounds were inadequate for a residence.

            He suggested the residential area should be taken down entirely to the floor level and reconstructed.

            Clubb estimated the cost of redoing the construction of the residence to meet Building Code requirements to be $134,366.00.

            Mrs. Ecker testified that when she and her husband arrived in Lexington on July 7, 1997, the living quarters which Shaw was supposed to have completed were uninhabitable.  In order to protect their belongings and animals, the Eckers lived on the premises in their van.  They stayed on the premises during the summer without running water or bathroom facilities.  They put on swimsuits and went to a nearby Knight’s Inn and used the bathroom facilities and showers beside the motel’s swimming pool.  When winter came they moved into the office in the inner or connecting barn.  There was a sink in the office and apparently by this time they had electricity and water but still no bathroom facilities.  They moved a bed, a microwave oven, and three space heaters into the office and lived there through the winter.

            Mrs. Ecker explained how Shaw’s unreliability had strained their marriage and turned their dream of a new beginning in Lexington into a nightmare.

            She also testified that she and her husband checked each item of material Shaw had used in constructing their living quarters and office facilities.  They also contacted the tradesmen who had performed work for Shaw to determine how much each of them had been paid for concrete work, electrical work, plumbing work and painting.  The Eckers determined that Shaw had expended for materials and labor only slightly in excess of $40,000 of the $126,527.00 they had paid him for this purpose.

            Shaw promised but never provided the Eckers an accounting of the expenditures he had made on the construction project.

            Based on the testimony presented at the hearing on damages the state court circuit judge determined the Eckers had suffered actual damages in the amount of $134,376.00; that under the Kentucky Consumer Protection statute the Eckers were entitled to compensatory damages double that amount or $268,752.00.  He further determined the Eckers were entitled to punitive damages of 150% of the amount awarded for compensatory damages, or $403,098.00, and attorney fees of $6,550.25.

            As grounds for the award of punitive damages the state court judge determined Shaw had perpetrated fraud and deceit.  The judge stated he had no doubt Shaw had engaged in fraud and falsehood.

            After entry of the March 9, 1998 Fayette Circuit Court judgment, Shaw retained his present counsel who filed a motion in the state court to set aside the default judgment of December 4, 1997 and the March 9, 1998 judgment liquidating the damage claim of the Eckers.

            At the conclusion of a hearing held on April 3, 1998 the Fayette Circuit Court judge orally overruled the motion to set aside the judgments.

            On April 29, 1998 Shaw filed a petition for relief under Chapter 13 of the Bankruptcy Code.  This filing occurred before entry by the state court of an order memorializing the oral finding of the state court judge that the motion to set aside the default and damage judgments against Shaw should be overruled.

            On May 18, 1998 Shaw, by counsel, removed to the bankruptcy court Fayette Circuit Court Action No. 97-CI-3199, in which the aforementioned judgments against Shaw were entered.  As a result, the record of the Fayette Circuit Court action is now before this court and is now denominated as Adversary Proceeding No. 98-5028.  Upon removal of the state court action to this court, Shaw, by counsel, filed therein on June 9, 1998 a “Motion to Set Aside Default Judgment and for Leave to File Verified Answer, Counterclaim and Third Party Complaint.”  By order entered July 7, 1998, for the reasons stated therein, this court overruled the debtor’s motion to set aside the judgments entered by the state court on December 4, 1997 and March 9, 1998.  By separate order entered on August 7, 1998 this court overruled the debtor’s motion to file a verified answer, counterclaim and third party complaint in the removed action.

            On November 20, 1998 the Eckers filed Adversary Proceeding No. 98-5140.  By their complaint in that action the Eckers seek to have the debt owed to them by Shaw, as evidenced by the March 9, 1998 judgment of the Fayette Circuit Court, excepted from discharge under title 11 U.S.C. 523(a)(2)(A) as a debt obtained by fraud.

            On November 28, 1998 Shaw, by counsel, filed in Adversary Proceeding No. 98-5028, the removed proceeding, a motion under Rule 9024 of the Federal Rules of Bankruptcy Procedure for relief from the December 4, 1997 and March 9, 1998 judgments of the Fayette Circuit Court.  The motion asked that the removed proceeding be held in abeyance pending the outcome of criminal proceedings pending against Shaw in the Fayette Circuit Court.  Following a hearing held on December 16, 1998 the court by order entered on December 17, 1998, abated the removed action pending the outcome of the state court criminal proceedings against Shaw and the outcome of the dischargeability proceedings of the Eckers against Shaw.

            Meanwhile, on December 3, 1998, Shaw commenced Adversary Proceeding No. 98-5142, in which by verified complaint he asserts claims against the defendants Manfred and Cherie Ecker and the defendant Woodford Steel.

            Counts I, II, and VI of the debtor’s complaint assert claims against the Eckers based on the Eckers’ postpetition conduct.  The debtor alleges that subsequent to bankruptcy the Eckers filed criminal charges against the debtor and caused him to be arrested on such charges and that the sole purpose of the Eckers in pursuing criminal charges against him was to collect a civil debt.  The debtor also alleges that subsequent to bankruptcy Mr. Ecker violated the automatic stay by contacting a Mr. Farley who was a potential purchaser of real property (the Farms at Avon property) from the debtor thereby tortiously interfering with a business transaction of the debtor and that Mr. Ecker made libelous statements to Mr. Farley about the debtor, which caused Mr. Farley not to close on the sale of the real estate for all of which the debtor seeks compensatory and punitive damages and attorney fees and costs.  This opinion does not deal with or dispose of the allegations in these counts of the debtor’s complaint.

            Counts III and V of the complaint assert avoidance actions against the Eckers which can only be asserted by a trustee in bankruptcy.  On April 21, 1999, on motion of the creditors’ committee, an order was entered converting the debtor’s chapter 11 case to a case under chapter 7.  A trustee has been appointed in the case.  The debtor is no longer a debtor in possession.  The avoidance claims in Counts III and V of the debtor’s complaint are property of the estate which now can be asserted only by the chapter 7 trustee.

            Count IV of the complaint asserts a claim against the Eckers for breach of contract (the Retainer Agreement) and for failure to pay for work performed under the contract by the debtor.  This is a compulsory counterclaim which should have been asserted by the debtor in the state court action of the Eckers against the debtor.  Also,  this prepetition claim is property of the estate which now may be pursued, if at all, only by the chapter 7 trustee.

            Under the heading “Claims Against Woodford Steel” the complaint of the debtor alleges Woodford Steel performed work on the improvements on the Eckers’ property both as a subcontractor of the debtor and as principal contractor on contracts entered into by the Eckers with Woodford Steel; that Woodford Steel performed all the structural work on the construction project on the Eckers’ property; that, to the extent the debtor has been held liable for defective work of a structural nature on the improvements on the Eckers’ property, Woodford Steel should be required to indemnify the debtor for any damages asserted against the debtor with respect thereto; that the Eckers and Woodford Steel should be required to account to the debtor for the amount of damages assessed against the debtor for defective structural work and the court should find the debtor is entitled to credit the amount of such damages against the March 9, 1998 judgment the Eckers obtained against the debtor.

            It is this indemnity claim of the debtor against Woodford Steel and the Eckers, and the cross-claim of the Eckers against Woodford Steel that is the focus of Woodford Steel’s motion for summary judgment.

            The Eckers assert a three count cross-claim against Woodford Steel.  In Count I of their cross-claim, entitled Breach of Contract, the Eckers allege there were structural deficiencies and defects in the work performed by Woodford Steel and that the work does not conform to the Kentucky Building Code.  In Count II, entitled Breach of Warranties, the Eckers allege Woodford Steel breached its express and implied duty to perform the work in a workmanlike manner, according to standard building practices, in accordance with applicable building codes.  In Count III, entitled Violation of Kentucky Building Code, the Eckers allege that pursuant to KRS 198B.130 they are entitled to recover damages from Woodford Steel based on alleged Building Code violations.

            The forgoing findings of fact and analysis of the pleadings in Adversary Proceeding No. 98-5142 frames the claim preclusion and issue preclusion defenses raised by Woodford Steel’s motion for summary judgment.

            In a concurrent memorandum opinion and order ruling on pending fee applications of counsel for the debtor the court takes judicial notice of the records of the court in setting out a chronology of events that inform with respect to this matter as well.

            The debtor, d/b/a Bill Shaw Real Estate and Horse Farm Consultation Service filed a petition for relief under chapter 7 of the Bankruptcy Code in this court on September 29, 1987, Case No. 87-51021.  On September 12, 1988 he received a discharge from nonpriority, unsecured debt in excess of $391,000 primarily business debts arising from a downturn in the real estate market and from failed business ventures.  The case was closed in November of 1992.

            On July 26, 1996, the debtor d/b/a Bill Shaw Real Estate and B-S Enterprises filed a petition for relief under chapter 13 of the Bankruptcy Code, Case No. 96-51538.  This was only two days after the debtor entered into the July 24, 1996 Retainer Agreement with the Eckers.

            The schedules to the debtor’s chapter 13 petition revealed that his 10.765-acre farm with the residence thereon was encumbered by four mortgages, several tax liens, numerous judgment liens and was the subject of a foreclosure action then pending in the Fayette Circuit Court.  The chapter 13 petition was filed to stay the foreclosure action.  The debtor did not reveal the contract with the Eckers in the original schedules or by way of amendment of the schedules to the petition.

            While his chapter 13 case was in progress and while his farm and residence were the subject of a pending foreclosure action the debtor, without the knowledge or approval of the court, incurred debt and expended monies on an addition to his residence to make the residence suitable for a bed and breakfast business which the debtor started operating in approximately April of 1997.  At the hearing held by the Fayette Circuit Court for the purpose of liquidating the damage claim of the Eckers there was speculation, but no definite proof, that monies received by the debtor from the Eckers and materials ordered for the improvements of the Eckers’ property may have been used instead by the debtor to improve his property.

            At the hearing held by the Fayette Circuit Court for the purpose of liquidating the damage claim of the Eckers, counsel for the Eckers advised the court his clients were not asserting a claim for damages against Woodford Steel. Mr. Clubb testified the only work he found to be proper was the prefabricated trusses installed by Woodford Steel. He indicated the pillar installed by Woodford Steel to support the trusses in Barn #4, the living quarters, had been removed by Shaw.  Mr. Sellers testified the barns constructed by Woodford Steel were adequate as barns.  The contracts with Woodford Steel excluded permitting as an obligation of Woodford Steel.  Permits were an obligation of Shaw under the Retainer Agreement.  Shaw did not obtain a permit to construct Barn #4 as a residence.  Such a permit would have resulted in periodic inspection by local authorities as the work on Barn #4 progressed.  The entire amount of the damage claim of the Eckers as fixed by the court was assessed against the debtor.

            As set out in the accompanying memorandum opinion ruling on the fee application of counsel for the debtor in the present case, the debtor defaulted on plan payments in his prior chapter 13 case in October of 1997, and the case was dismissed on January 20, 1998.  However, the prior chapter 13 case had not been closed and was pending when the debtor commenced the present proceeding as a chapter 13 case on April 29, 1998, which was subsequently converted to a case under chapter 11 and then to a case under chapter 7.

CONCLUSIONS OF LAW:

            The Kentucky Court of Appeals has adopted the doctrines of claim preclusion and issue preclusion.  Sedley v. City of Buechel, Ky., 461 S.W.2d 556 (1971).  In 1971 the Kentucky Court of Appeals was the highest court of the state.

            Res judicata and collateral estoppel are the two primary devices for ensuring the finality of judicial decisions.  Res judicata or “claim preclusion” as it is called by the Restatement (Second) of Judgments prevents relitigation of claims and defenses available to the parties in a prior suit.  Collateral estoppel, or “issue preclusion” prevents parties from relitigating only those issues actually and necessarily litigated in a prior proceeding.  Together, their purpose is to “encourage reliance on judicial decisions, bar … vexatious litigation, and free … the courts to resolve other disputes.”  See Ferriell, The Preclusive Effect of State Court Decisions in Bankruptcy, 58 Am. Bankr.L.J. 349-350 (Fall 1984).

            When the debtor was sued by the Eckers in the action in the Fayette Circuit Court the debtor was afforded an opportunity to assert by answer any defenses to the Eckers’ claims and by counterclaim any offsetting claims he may have had against the Eckers.  Accordingly, the claims which the debtor is attempting to assert against the Eckers in Count IV of the complaint are compulsory counterclaims arising out of the contractual relationship between the parties and are barred by the doctrine of claim preclusion, as well as by the fact that if these claims remain viable they are property of the bankruptcy estate which can only be pursued by the chapter 7 trustee.  11 U.S.C. 1306.

            The debtor likewise was afforded an opportunity by the Eckers’ action against him in the Fayette Circuit Court to assert by third party complaint the claims which he is now attempting to assert against Woodford Steel in this action.  These claims arise out of the contractual relationship among the parties, relate to the same construction project, and involve common questions of fact which were heard and adjudicated by the Fayette Circuit Court.  Thus the claims asserted in the complaint herein by the debtor against Woodford Steel are barred by the doctrines of claim preclusion and issue preclusion.

            The claims asserted by the Eckers in their cross-claim against Woodford Steel are barred by the doctrines of claim preclusion and issue preclusion.  The Eckers chose not to name Woodford Steel as a co-defendant in their action against the debtor in the Fayette Circuit Court.  During the hearing on damages held by the Fayette Circuit Court one of the witnesses for the Eckers stated that the only thing right about the construction project with respect to the living quarters was the prefabricated trusses installed by Woodford Steel.  Another witness described the work of Woodford Steel as attractive and the work which Woodford Steel performed as adequate for barn structures, which are not subject to Building Code requirements.  The contracts between the Eckers and Woodford Steel specified Woodford Steel was not responsible for obtaining permits.  The Retainer Agreement between the Eckers and the debtor stated that the debtor was to obtain the necessary permits for the building project.  The debtor was obligated to obtain a permit for Barn #4, which was to be the residence of the Eckers.  Finally, at the hearing on damages counsel for the Eckers stated they were not asserting a claim for damages against Woodford Steel, and the entire damage claim of the Eckers was assessed against the debtor.  Thus, both the doctrines of claim preclusion and issue preclusion are applicable to bar the cross-claim of the Eckers against Woodford Steel.  The Eckers should not now be permitted to seek recovery from Woodford Steel because their claim against the debtor, even if excepted from discharge, may not be collectible.

            Accordingly, the motion of Woodford Steel for summary judgment with respect to the claims asserted in the complaint against Woodford Steel shall be sustained.  The motion of Woodford Steel for summary judgment on the cross-claim of the Eckers against Woodford Steel likewise is sustained.

            In conformity with this opinion an order will be entered dismissing Counts III, IV and V of the complaint unless within 20 days from the date of the order the chapter 7 trustee intervenes in this action for the purpose of asserting these claims, assuming without deciding that the doctrine of claim preclusion does not bar the trustee from pursuing the claims asserted in Count IV.

            The claims asserted in the complaint by the debtor against Woodford Steel shall be dismissed.  The cross-claim of the Eckers against Woodford Steel shall be dismissed.

            The only claims remaining to be tried are those asserted in Counts I, II and VI of the debtor’s complaint.

            Dated:

                                                                                    By the court –

 

                        ________________________________
                                                                                    JOE LEE, U.S. BANKRUPTCY JUDGE

 

Copies to:

 

Philip L. Hanrahan, Esq.

Phillip M. Moloney, Esq.

J. Gregory Troutman, Esq.

John Morgan, Esq.

Anna C. Johnson, Esq.

U.S. Trustee


UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

 

WILLIAM IRA SHAW                                                                           CASE NO. 98-51067

d/b/a Bill Shaw Enterprises;

B-S Enterprises; Horse Farm Construction;

& Sales; Bill Shaw Real Estate; Bed & Breakfast

 

DEBTOR

 

MANFRED ECKER

CHERIE ECKER                                                                                                PLAINTIFFS

 

V.                                                                                                 ADVERSARY NO. 98-5140

 

WILIAM I. SHAW                                                                                              DEFENDANT

 

AND

 

WILLIAM I. SHAW                                                                                                PLAINTIFF

 

V.                                                                                                 ADVERSARY NO. 98-5142

 

MANFRED ECKER

CHERIE ECKER

WOODFORD STEEL, INC.                                                                         DEFENDANTS

 

ORDER

 

            In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED AND ADJUDGED AS FOLLOWS:

            1.  The motion of Woodford Steel, Inc. for summary judgment with respect to claims asserted in the complaint of the debtor against Woodford Steel, Inc. should be and hereby is sustained.  Such claims should be and hereby are dismissed.

            2.  The motion of Woodford Steel, Inc. for summary judgment on the cross-claim of the Eckers against Woodford Steel, Inc. should be and hereby is sustained.  The cross-claim of the Eckers against Woodford Steel, Inc. is dismissed.

            3.  The chapter 7 trustee is allowed 20 days from the date of this order within which to intervene and assert the claims set out in Counts III, IV, and V of the complaint in Adversary Proceeding No. 98-5142.  The trial on Counts I, II, and VI of the debtor’s complaint shall be set by further order of the court.

            Dated:

                                                                                    By the court –

 

                        ________________________________
                                                                                    JOE LEE, U.S. BANKRUPTCY JUDGE

 

Copies to:

Philip L. Hanrahan, Esq.

Phillip M. Moloney, Esq.

J. Gregory Troutman, Esq.

John Morgan, Esq.

Anna C. Johnson, Esq.

U.S. Trustee



[1]  It is not contended Shaw did not receive a copy of this judgment which should have placed him on notice to inquire as to the date of the hearing for the purpose of fixing damages.  Shaw is no stranger to default judgments.  The proofs of claim in his present case reveal that at least five of the judgment liens on his residence are based on default judgments.  He is a defendant in numerous collection actions pending in the Fayette Circuit Court.  See Item 4a of the Statement of Financial Affairs to the debtor’s petition.