Summary of a Recent
Judicial Development in
Bankruptcy

Pre-Petition Damages for Nuisance Are Subject to Bankruptcy Discharge

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Hammen, 399 B.R. 867, 2009 WL 213107 (Bankr. N.D. Iowa 2009), the United States Bankruptcy Court for the Northern District of Iowa held that a defendant had no express or implied easement to construct a pond and dam that encroached on the plaintiff's property, but further held that the plaintiff's claim as to permanent trespasses was barred by the statute of limitations, and that damages for continuing nuisance that arose prior to the defendant's filing for bankruptcy were dischargeable.

Background

The estate of a deceased landowner brought this action against the defendants, Chapter 7 bankruptcy debtors and neighboring landowners, for constructing a pond that encroached onto the decedent's property. Id. at *1. The defendants argued that the decedent had granted them an express easement to construct the pond, or alternatively that the action was barred by estoppel and/or the statute of limitations. Id. In support of their arguments, the defendants produced a letter from the conservation district approving their plans for construction, and also a "group planning" agreement signed by both parties stating that they agreed to cooperate with the conservation district's investigations and surveys. Id. The executor of the estate (also the decedent's child) testified that the signature on the agreement was not the decedent's, but an expert forensic document examiner testified that she found no signs of forgery. Id. at *2. There was conflicting testimony regarding the decedent's opinion of the project, although the defendants testified that the decedent had "no objection to the pond whatsoever as long as she did not need to pay for anything," and claimed that they witnessed her sign the agreement. Id. at *3-4. Defendants further claimed that in a subsequent conversation with the decedent, she had expressed interest in selling some property to them, but later changed her mind "because her children would get mad." Id. at *4.

Arguments

Plaintiffs argued that the defendants did not have the decedent's legal consent to construct the pond because the signature on the agreement was either forged or obtained by misrepresentation, and further argued that the forgery or misrepresentation constituted fraud or willful injury sufficient to bar the defendant's bankruptcy discharge under § 523(a)(2)(A) or § 523(a)(6) of the Bankruptcy Code. Id. They also argued that the pond constituted a continuing nuisance for which they were entitled damages, and that their claim was not barred by the statute of limitations because they were not aware of the encroachment until a survey was done after the decedent's death. Id. They sought injunctive relief, including removal of the pond and dam, cleanup costs, and attorney fees. Id.

Defendants argued that they had either an express easement or an easement by promissory estoppel by virtue of the signed agreement, and that the pond was not a nuisance because the decedent had consented to its construction. Id. at *5. Alternatively, they argued that the pond and dam constituted a permanent rather than a continuing trespass, and thus the action was barred by the statute of limitations. Id. Finally, they argued that if damages were awarded, they should be limited to diminution of market value of the decedent's property. Id.

Analysis and Holdings

After examining the "group planning" agreement, the court concluded that although the decedent's signature was legitimate, the document was of limited scope and lacked sufficient indication of the parties' intent to give rise to an express easement. Id. at *7. The court further found that the defendants had not justifiably relied on any promises by the decedent in constructing their pond, and thus rejected their easement by estoppel argument. Id. at *9.

The court next considered whether this action was barred by the five-year statute of limitations, noting that for permanent trespasses, the limitations period is deemed to start at the time the trespass was commenced, and thus this action would be barred. Id. at *10. Also, in regard to the defendant's bankruptcy case, if the trespass claim accrued pre-petition, it would be dischargeable. Id. The court found that the construction of the pond constituted a permanent change to the land (i.e., a permanent trespass), and further concluded that the decedent knew or should have known of the construction, and therefore held that the claim was barred by the five-year statute of limitations for trespass. Id. at *11. However, the court also determined that debris that was pushed onto the decedent's property and the removal and replacement of fences, trees, and shrubs constituted continuing nuisances and that the plaintiff could recover for related damages that arose during the previous five years. Id. at *12. The court found no evidence that the defendants had intended to deceive the decedent or that their conduct was willful and malicious, and therefore held that the damages which arose prior to trespass were not excluded from the defendant's bankruptcy discharge under § 523(a)(2)(A) or § 523(a)(6). Id. at *13. Lastly, the court determined that the plaintiffs were entitled to cleanup costs of $1000 and minimal damages of $100 for continuing trespass that had occurred post-petition. Id. at *14.

The case was decided on January 23, 2009.