In Re John Richards Homes Building Co.

291 B.R. 727 (2003)

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Nature of the Case

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Facts

P is in the business of constructing new homes priced at over $1 million. D's claim against P arose from a contract for the sale of property and the construction of a new home. Pursuant to the contract, P agreed to sell to D a 1.8-acre parcel of property in Bloomfield Hills, Michigan, and to construct a home for D on the property. D agreed to pay a total of $3,030,000. P was required to commence construction 'within a reasonable time after this Agreement is signed and plans are completed and permit is issued.' The sale of the property closed on February 28, 2002. D agreed to allocate $1,750,000 for the purchase of the property and the balance to the building construction. Disputes developed. and D asserted that the true value of the real property was $1 million rather than the $1.75 million stated in the closing papers and in the deed. D contended that the excess of $750,000 was actually an improper initial construction draw to which P was not entitled. D asserted that the delays in commencing construction were unreasonable. On June 6, 2002, D filed suit alleging fraud and misrepresentation, silent fraud, innocent fraud, breach of contract, Consumer Protection Act violations, unjust enrichment, accounting, and constructive trust. P denied D's' claims and counter sued alleging breach of contract, business defamation, business libel, injurious falsehood, tortious interference with business relations, and extortion. P filed an emergency motion for a temporary restraining order and a preliminary injunction. Six days later, on June 24, 2002, Dl filed this involuntary petition against P. Ds claim was $800,000 for fraud and breach of contract, and that he was eligible to file the petition under 11 U.S.C. § 303(b), i.e., that his claim was not subject to a bona fide dispute. P filed a motion to dismiss claiming there was a bona fide dispute. P claimed the petition was filed in bad faith and that P was entitled to substantial compensatory and punitive damages along with attorney fees and costs. The Court dismissed D's petition, finding that D 'knew or surely must have known that his claim was the subject of a bona fide dispute, and therefore that he was not qualified to be a petitioning creditor.' The Court retained jurisdiction to resolve P’s requests for compensatory and punitive damages and attorney fees.