Palmacci v. Umpierrez ( 1997 )


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  • For the First Circuit
    No. 96-2202
    STEPHEN A. PALMACCI,
    Appellant,
    v.
    P. FERNANDO UMPIERREZ,
    Appellee.
    RICHARD B. ERRICOLA,
    Trustee.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF NEW HAMPSHIRE
    [Hon. Steven J. McAuliffe, U.S. District Judge]
    Before
    Torruella, Chief Circuit Judge,
    Bownes, Senior Circuit Judge,
    and Lynch, Circuit Judge.
    Dorothy F. Silver for appellant.
    Edward Foye, with whom Ian Crawford and Todd & Weld were on
    brief, for appellee.
    August 11, 1997
    BOWNES, Senior Circuit Judge. This case arises out
    of a speculative investment that went bad. Plaintiff Stephen
    A. Palmacci invested $75,000 in a project, known as "the Chase
    project," to purchase and develop distressed real estate. He
    had heard that the defendant's brother, Gus Umpierrez, who was
    a real estate agent and knowledgeable in real estate matters,
    had "turned a pretty fast profit" on similar ventures, and he
    wanted to reap some of the same type of profits.
    Palmacci acknowledges that he understood the risks
    inherent in any investment and, in particular, the increased
    risk involved in the speculative type of investment in which he
    was getting involved. He claims that he took this risk because
    his friend P. Fernando Umpierrez ("Umpierrez"), the defendant,
    and Umpierrez's brother, Gus, promised to invest $75,000 of
    their own personal funds in the project. According to
    Palmacci's testimony, he "decided that if they thought it was
    worth the risk with the knowledge that Gus had, that [Palmacci]
    would do the same." Palmacci also claims that he relied on the
    representation that project funds would be placed in a trust,
    which he believed would reduce the chance of "things going
    bad." The project failed (for reasons that are not set forth
    in the record), and Palmacci received only 80% of his principal
    back.
    Umpierrez filed a petition for bankruptcy protection
    under Chapter 7 of the United States Bankruptcy Code, and
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    2
    Palmacci filed an adversary proceeding pursuant to 11 U.S.C.
    S 523 (a)(2)(A), claiming that the debt owed him should not be
    discharged because it was the product of false representations.
    The United States Bankruptcy Court for the District of New
    Hampshire held a trial in the matter, and at the close of the
    plaintiff's evidence, entered a judgment as a matter of law in
    favor of the debtor, holding that the debt was dischargeable
    in bankruptcy. This ruling was affirmed by the United States
    District Court for the District of New Hampshire. We affirm.
    A court reviewing a decision of the bankruptcy court
    may not set aside findings of fact unless they are clearly
    erroneous, giving "due regard . . . to the opportunity of the
    bankruptcy court to judge the credibility of the witnesses."
    Fed. R. Bankr. P. 8013;   see Commerce
    Bank
    &
    Trust
    Co.
    v.
    Burgess
    (In
    re
    Burgess), 
    955 F.2d 134
    , 137 (1st Cir. 1992);
    Fed. R. Civ. P. 52(c), advisory committee's note to 1991
    Amendment (applying clearly erroneous standard in the case of
    a judgment on partial findings). The bankruptcy court's legal
    conclusions, drawn from the facts so found, are reviewed de
    novo. Martin v. Bajgar (In re Bajgar)
    , 
    104 F.3d 495
    , 497 (1st
    Cir. 1997). Although the district court has already reviewed
    the bankruptcy court's decision, on appeal we independently
    1.  The trial court styled its ruling as the grant of
    defendant's motion for a directed verdict. In essence,
    however, the ruling was a judgment as a matter of law on
    partial findings. See Fed. R. Bankr. P. 7052; Fed. R. Civ. P.
    52(c). We will treat it as such.
    -3-
    3
    review that decision, applying the same standard of review that
    the district court applied. See
    In re Bajgar
    , 
    104 F.3d at 497
    ;
    In
    re
    G.S.F.
    Corp., 
    938 F.2d 1467
    , 1474 (1st Cir. 1991). No
    special deference is owed to the district court's
    determinations.  Grella v. Salem Five Cent Sav. Bank, 
    42 F.3d 26
    , 30 (1st Cir. 1994).
    A finding of fact is clearly erroneous, although
    there is evidence to support it, when the reviewing court,
    after carefully examining all the evidence, is "left with the
    definite and firm conviction that a mistake has been
    committed."  Anderson v. City of Bessemer City, 
    470 U.S. 564
    ,
    573 (1985) (internal quotation marks omitted). Deference to
    the bankruptcy court's factual findings is particularly
    appropriate on the intent issue "[b]ecause a determination
    concerning fraudulent intent depends largely upon an assessment
    of the credibility and demeanor of the debtor."
    In re Burgess
    ,
    
    955 F.2d at 137
     (internal quotation marks omitted) (applying
    S 727(a), relating to fraud by the debtor in representations in
    the course of the court proceeding). Particular deference is
    also due to the trial court's findings that depend on the
    credibility of other witnesses and on the weight to be accorded
    to such testimony.   See Fed. R. Bankr. P. 8013;   Keller
    v.
    United
    States, 
    38 F.3d 16
    , 25 (1st Cir. 1994). Of course, a
    trial court may not
    insulate [its] findings from review by
    denominating them credibility
    -4-
    4
    determinations, for factors other than
    demeanor and inflection go into the
    decision whether or not to believe a
    witness. Documents or objective evidence
    may contradict the witness' story; or the
    story itself may be so internally
    inconsistent or implausible on its face
    that a reasonable factfinder would not
    credit it. Where such factors are
    present, the court of appeals may well
    find clear error even in a finding
    purportedly based on a credibility
    determination.
    Anderson, 
    470 U.S. at 575
    .
    Section 523(a)(2)(A) of the Bankruptcy Code
    provides:
    S 523. Exceptions to discharge
    (a) A discharge under section 727, 1141,
    1228(a), 1228(b), or 1328(b) of this title
    does not discharge an individual debtor
    from any debt --
    (2) for money, property, services, or an
    extension, renewal, or refinancing of
    credit, to the extent obtained by --
    (A) false pretenses, a false
    representation, or actual fraud, other
    than a statement respecting the debtor's
    or an insider's financial condition.
    See 11 U.S.C. S 523(a)(2)(A).
    "Exceptions to discharge are narrowly construed in
    furtherance of the Bankruptcy Code's 'fresh start' policy,"
    and, for that reason, the claimant must show that his "claim
    comes squarely within an exception enumerated in Bankruptcy
    Code S 523(a)." Century 21 Balfour Real Estate v. Menna (In re
    Menna), 
    16 F.3d 7
    , 9 (1st Cir. 1994);  see In
    re
    Bajgar, 104
    -5-
    5
    F.3d at 498 n.1. The statutory requirements for a discharge
    are "construed liberally in favor of the debtor" and "[t]he
    reasons for denying a discharge to a bankrupt must be real and
    substantial, not merely technical and conjectural." Boroff v.
    Tully
    (In
    re
    Tully), 
    818 F.2d 106
    , 110 (1st Cir. 1987)
    (internal quotation marks omitted). On the other hand, we have
    noted that "the very purpose of certain sections of the law,
    like [S 727(a)(2)], is to make certain that those who seek the
    shelter of the bankruptcy code do not play fast and loose with
    their assets or with the reality of their affairs."       
    Id.
    Likewise, other sections of the law, like S 523(a)(2)(A), are
    intended to make certain that bankruptcy protection is not
    afforded to debtors who have obtained property by means of a
    fraudulent misrepresentation.
    Palmacci alleges that Umpierrez made three
    misrepresentations which induced him to invest $75,000 in the
    project: (1) that Umpierrez and his brother would invest
    $75,000 of their own money in the project; (2) that the project
    would have a total investment of $250,000; and (3) that a trust
    would be established to hold the funds and to supervise the
    project.
    With respect to each of these three claims, Palmacci
    was required to establish both that he had a valid claim
    against Umpierrez and that the claim should not be discharged
    in bankruptcy. See
    Grogan v. Garner
    , 
    498 U.S. 279
    , 283 (1991).
    -6-
    6
    Here, the claim and the reason for exemption from discharge are
    essentially the same: the common law        tort of false
    representation, also known as deceit.
    Under the traditional common law rule, a defendant
    will be liable if (1) he makes a false representation, (2) he
    does so with fraudulent intent, i.e., with "scienter," (3) he
    intends to induce the plaintiff to rely on the
    misrepresentation, and (4) the misrepresentation does induce
    reliance, (5) which is justifiable, and (6) which causes damage
    (pecuniary loss). 2 F. Harper, et al., Law of Torts
    S 7.1, at
    381 (2d ed. 1986); Restatement (Second) of Torts S 525 (1977).
    Regarding the first element, the concept of
    misrepresentation includes a false representation as to one's
    intention, such as a promise to act. "A representation of the
    maker's own intention to do . . . a particular thing is
    fraudulent if he does not have that intention" at the time he
    2.  In Field
    v.
    Mans, 
    116 S. Ct. 437
    , 443 & n.9 (1995), the
    Court construed S 523(a)(2)(A) to incorporate the "general
    common law of torts," i.e., the "dominant consensus of common-
    law jurisdictions, rather than the law of any particular
    State." Of course, if we were to hold that Umpierrez was not
    entitled to discharge them in bankruptcy, Palmacci's claims
    themselves would be determined in accordance with the common
    law of New Hampshire.
    3.  We set forth a similar, but not identical, list of elements
    in In
    re
    Burgess, 
    955 F.2d at 140
    . We interpret   Burgess to
    apply the same test we have articulated in the text here,
    except for the fifth element. In Burgess our reliance element
    required "reasonable" reliance, but the Supreme Court has since
    held that "justifiable" reliance is the proper test.      See
    Field, 
    116 S. Ct. at 445-46
    .
    -7-
    7
    makes the representation. Restatement (Second) of Torts
    S 530(1);
    see
    Anastas v. American Sav. Bank (In re Anastas)
    , 
    94 F.3d 1280
    , 1285 (9th Cir. 1996). "The state of a man's mind is
    as much a fact as the state of his digestion." Restatement
    (Second) of Torts S 530 cmt. a. Likewise, "a promise made
    without the intent to perform it is held to be a sufficient
    basis for an action of deceit." W. Page Keeton, et al.,
    Prosser and Keeton on the Law of Torts S 109, at 763 (5th ed.
    1984) (footnotes omitted); see Restatement (Second) of Torts
    S 530(1) cmt. c. On the other hand, if, at the time he makes
    a promise, the maker honestly intends to keep it but later
    changes his mind or fails or refuses to carry his expressed
    intention into effect, there has been no misrepresentation.
    Restatement (Second) of Torts at S 530 cmts. b, d. This is
    true "even if there is no excuse for the subsequent breach. A
    debtor's statement of future intention is not necessarily a
    misrepresentation if intervening events cause the debtor's
    future actions to deviate from previously expressed
    intentions." 4  Collier on Bankruptcy q 523.08[1][d], at 523-
    43.
    The test may be stated as follows. If, at the time
    he made his promise, the debtor did not
    intend to perform
    , then
    he has made a false representation (false as to his intent) and
    the debt that arose as a result thereof is not dischargeable
    (if the other elements of S 523(a)(2)(A) are met). If he did
    -8-
    8
    so intend at the time he made his promise, but subsequently
    decided that he could not or would not so perform, then his
    initial representation was not false when made. See, e.g.
    ,
    In
    re Anastas, 
    94 F.3d at 1285
    ; Milwaukee Auction Galleries Ltd.
    v.
    Chalk, 
    13 F.3d 1107
    , 1109 (7th Cir. 1994) (more than mere
    nonperformance of a contract was necessary to establish
    misrepresentation); Mellon
    Bank
    Corp.
    v.
    First
    Union
    Real
    Estate, 
    951 F.2d 1399
    , 1410-11 (3d Cir. 1991) (same);
    Craft v.
    Metromedia, 
    766 F.2d 1205
    , 1219, 1221 (8th Cir. 1985).
    The scienter element refers to a different type of
    intent, namely, intent to deceive, manipulate, or defraud.
    Ernst
    &
    Ernst
    v.
    Hochfelder, 
    425 U.S. 185
    , 193 (1976). This
    requirement may be met in one of several ways: if the maker of
    the misrepresentation "(a) knows or believes that the matter is
    not as he represents it to be; (b) does not have the confidence
    in the accuracy of his representation that he states or
    implies; or (c) knows that he does not have the basis for his
    representation that he states or implies." Restatement
    (Second) of Torts S 526; see Keeton, et al., supra, S 107, at
    740-42.
    Clause (b) of Restatement S 526 includes the
    situation where the maker of a misrepresentation asserts
    something "so positively as to imply that he has knowledge" of
    its factual basis, even though he is conscious that he does not
    know the fact to be true. Keeton, et al.,   supra, S 107, at
    -9-
    9
    742. Scienter exists even if he believes the "fact" is true,
    if he is aware that he does not in fact possess the certitude
    that he implies by the manner in which he makes his
    representation.   See Restatement (Second) of Torts S 526
    cmt. e. One who makes a statement as if it were one of
    positive fact ("as though he knew it") engages in a "conscious
    deception" if he realizes he does not know the truth of his
    statement, even though he honestly believes its truth. 2
    Harper, et al., supra, S 7.3, at 393-94. In such a case, the
    person is deemed to have the intent to deceive (scienter), not
    so much as to the fact itself, but rather as to the extent of
    his information.  Id. ("He has in effect represented that he
    knew a thing to be true when he knew that he only believed or
    surmised it to be true."); see Metropolitan
    Life
    Ins.
    Co.
    v.
    Ditmore, 
    729 F.2d 1
    , 5 (1st Cir. 1984) (Mass. law); Myron
    N.
    Navison Shoe Co. v. Lane Shoe Co., 
    36 F.2d 454
    , 459 (1st Cir.
    1929); Keeton, et al., supra S 107, at 742. "This is often
    expressed by saying that fraud is proved if it is shown that a
    false representation has been made . . . recklessly, careless
    of whether it is true or false." Restatement (Second) of Torts
    S 526 cmt. e;  see  In
    re
    Burgess, 
    955 F.2d at 140
     ("false
    representation" under section 523(a)(2)(A)); Harper,   supra,
    S 7.3, at 391-95.
    The standard of proof of each element of a S 523
    claim is by a preponderance of the evidence. Grogan, 498 U.S.
    -10-
    10
    at 291. The burden of proof and the burden of production as to
    each element rests with the party contesting the
    dischargeability of a particular debt under Bankruptcy Code
    S 523. See
    In re Burgess
    , 
    955 F.2d at 136
    ;
    see also
    Insurance
    Co. of N. Am. v. Cohn (In re Cohn)
    , 
    54 F.3d 1108
    , 1120 (3d Cir.
    1995) (regarding S 523(a)(2)(B)). Thus, if Palmacci failed to
    establish any one of the elements by a preponderance of the
    evidence, then the court should reject his claim.  See In
    re
    Burgess, 
    955 F.2d at 139
    ; 9A Wright & Miller,
    supra, S 2579, at
    542-43 (a factual finding that negates one element of the
    plaintiff's prima facie case renders findings concerning other
    elements unnecessary).
    We will discuss each of Palmacci's three
    misrepresentation claims in turn. First, Palmacci claims that
    Umpierrez falsely represented that he and his brother would
    invest $75,000 of their own personal funds into the Chase
    project. Umpierrez responds that he made good on his
    representation because he did contribute $75,000 of his own
    personal funds, albeit by giving the bank a lien on the Chase
    project property as well as a second mortgage on his home.
    According to Umpierrez, encumbering the project property does
    not mean that he failed to satisfy his promise to contribute
    funds personally, because he never told Palmacci that he would
    not mortgage the Chase project property. The district court
    agreed with Umpierrez: it found that there was no
    -11-
    11
    misrepresentation because "there was no representation that a
    mortgage would not be placed on the project." We find this
    argument untenable. An ordinary lay person like Palmacci would
    not think, nor would it be reasonable to expect him to think,
    that Umpierrez's representation that he would invest "his own
    personal funds" in the Chase project could be read to include
    funds he borrowed from a bank secured by a mortgage on the
    project property itself. Thus, Umpierrez cannot claim that
    there was no misrepresentation.
    Umpierrez is more persuasive in contending that
    Palmacci's first claim fails on the element of scienter or
    fraudulent intent which is required in order to establish an
    exception to discharge under S 523(a)(2)(A). See 2 Harper, et
    al.,
    supra, S 7.1, at 381; Restatement (Second) of Torts S 525.
    Palmacci does not dispute that Umpierrez intended to obtain
    most of the funds for his contribution to the project from a
    second mortgage on his residence. Palmacci's argument, in
    essence, is that, at the time Umpierrez induced Palmacci's
    investment with the promise to invest his own personal funds,
    Umpierrez's intention was fraudulent, based on a reckless
    indifference to the truth (which rose to the level of
    fraudulent intent) because Umpierrez knew or should have known
    that he did not have enough equity in the house to raise the
    money through a second mortgage, at least without encumbering
    the project property with a mortgage as well.
    -12-
    12
    We must parse this issue with some care. The factual
    question to be determined by the trier of fact is not whether
    Umpierrez knew or should have known that he did not have the
    money available to invest, but whether in good faith he
    intended to keep his promise. This is because "[a] finding
    that a debt is non-dischargeable under 523(a)(2)(A) requires a
    showing of actual or positive fraud, not merely fraud implied
    by law
    ."  In re Anastas
    , 
    94 F.3d at
    1286 & n.3 (emphasis added)
    (quoting 124 Cong. Rec. H11089 (Sept. 28, 1978) (statement of
    Rep. Edwards), reprinted in 1978 U.S.C.C.A.N. 5787, 6436, 6453
    ("Subparagraph (A) is intended to codify current case law . . .
    which interprets 'fraud' to mean actual or positive fraud
    rather than fraud implied in law.")). This is not a negligence
    case where the standard is whether a reasonable person would
    have acted as Umpierrez did. See generally
    , 2 Harper, et al.,
    supra, S 7.3, at 392-95. Fraudulent intent requires an actual
    intent to mislead, which is more than mere negligence. Diduck
    v.
    Kaszycki
    &
    Sons
    Contractors,
    Inc., 
    974 F.2d 270
    , 277 (2d
    Cir. 1992). An honest belief, however unreasonable, that the
    representation is true and that the speaker has information to
    justify it is an insufficient basis for deceit. Keeton, et
    al., supra, at 742. A "dumb but honest" defendant does not
    satisfy the test of scienter. 2 Harper, et al., supra, S 7.3,
    at 393.
    -13-
    13
    Of course, the very unreasonableness of such a belief
    may be strong evidence that it does not in fact exist.    See
    Pullman-Standard v. Swint
    , 
    456 U.S. 273
    , 289 (1982);
    Norris v.
    First Nat'l Bank in Luling (In re Norris)
    , 
    70 F.3d 27
    , 30 n.12
    (5th Cir. 1995); In
    re
    Cohn, 
    54 F.3d at 1118-19
     (permitting
    reckless disregard to be relied on as an evidentiary factor
    that is probative of intent to defraud, if the totality of
    circumstances supports that inference) (involving 11 U.S.C.
    S 523(a)(2)(B)). Where this conclusion is reached as an
    inference of fact, there is nothing inconsistent with that
    unreasonableness forming an evidentiary basis for a finding of
    intent.   See Keeton, et al.,    supra, at 742. But then
    unreasonableness would be providing evidentiary ballast, not
    serving by itself as an element of the tort.
    Id. For example,
    "[i]f [the] defendant had no adequate grounds for believing his
    statement to be true this may afford a rational inference that
    he did not in fact believe it to be true (so that there was
    scienter)." 2 Harper, et al.,    supra, S 7.3, at 393. The
    focus, however, should be on whether the surrounding
    circumstances or the debtor's actions "appear so inconsistent
    with [his] self-serving statement of intent that the proof
    leads the court to disbelieve the debtor."
    In re Hunt
    , 
    30 B.R. 425
    , 441 (Bankr. M.D.Tenn. 1983).
    Thus, while fraud may not be implied in law, it may
    be inferred as a matter of fact. The finder of fact may
    -14-
    14
    "infer[] or imply[] bad faith and intent to defraud based on
    the totality of the circumstances when convinced by a
    preponderance of the evidence." In re Anastas
    , 
    94 F.3d at
    1286
    n.3; In re Sheridan, 
    57 F.3d 627
    , 633 (7th Cir. 1995); cf. In
    re
    Cohn, 
    54 F.3d at 1118-19
     (S 523(a)(2)(B)). Among the
    circumstances from which scienter may be inferred are: the
    defendant's insolvency or some other reason to know that he
    cannot pay, his repudiation of the promise soon after made, or
    his failure even to attempt any performance. Keeton, et al.,
    supra, at 764-65.
    Where, as here, reckless disregard is being urged
    upon us as the basis for an inference of scienter, it is
    important to distinguish what the debtor is being accused of
    recklessly disregarding. Scienter may be found to exist where
    a debtor recklessly disregards the truth of the representation,
    e.g., in Umpierrez's case, whether he was recklessly
    indifferent to whether he would actually keep his promise to
    invest personal funds in the Chase project.  See Restatement
    (Second) of Torts S 526 cmt. e. There must, nonetheless, be an
    actual finding of intent to deceive: mere inability to pay
    does not constitute such a finding.
    See
    In re Anastas
    , 
    94 F.3d at 1286
     ("[T]he hopeless state of a debtor's financial
    condition should never become a substitute for an actual
    finding of bad faith."). This distinction is apparent from the
    structure of the statute itself: 11 U.S.C. S 523(a)(2)(A)
    -15-
    15
    specifically excludes misrepresentations regarding a debtor's
    financial condition, whereas 11 U.S.C. S 523(a)(2)(B) provides
    separately for such misrepresentations. Thus, to the extent
    Palmacci is claiming that Umpierrez implicitly misrepresented
    his financial condition, that is not grounds for an exception
    to discharge under S 523(a)(2)(A).
    In the instant case, if Umpierrez knew or clearly
    should have known that there was no realistic way for him to
    use his own money to invest, then that is probative of his lack
    of intent to keep his promise at the time he made the promise.
    But the focus must be on whether the representation was made in
    bad faith, i.e., whether he induced Palmacci's investment with
    the intention of reneging on his promise to invest personal
    funds (or while recklessly disregarding whether or not he would
    keep his promise).  See In
    re
    Anastas, 
    94 F.3d at 1286
     (debt
    incurred with the intention of avoiding the debt by petitioning
    for bankruptcy).
    Palmacci contends that the court erred by relying
    exclusively on Umpierrez's self-serving testimony about his
    subjective intent, and failing to consider the surrounding
    circumstances in order to infer that Umpierrez's intent was not
    as he claimed it to be. We do not think Palmacci is correct in
    characterizing the trial court's reasoning as relying solely on
    Umpierrez's self-serving testimony while ignoring the
    circumstantial evidence Palmacci contends shows that testimony
    -16-
    16
    to be incredible. It is true that Umpierrez had just purchased
    the residence a few months earlier, for $105,000 and that he
    had an $80,000 mortgage on the residence at the time of
    purchase. Based on this undisputed fact, Palmacci claims that
    Umpierrez should have known that he only had $25,000 worth of
    equity in the home, against which he could borrow on a second
    mortgage without a likely encumbrance of the project property,
    and therefore that the bankruptcy court clearly erred in
    believing Umpierrez's testimony that, at the time he made his
    promise, he fully intended to keep it. Umpierrez's claim that
    an innocent lack of knowledge of these facts (and not a
    fraudulent intent) caused him to err when he promised to
    contribute the $75,000 arguably falls into the category of
    "reckless disregard for the truth" such as to rise to the level
    of establishing scienter.
    These were not, however, the only facts before the
    trial court. There was also testimony that Umpierrez had
    discussed getting a personal loan with a banker, and that the
    banker had told him he thought the loan would be possible.
    Moreover, Umpierrez testified that he had had the house
    appraised in October (shortly before the representation that
    induced Palmacci to invest his money) and the house was valued
    at $185,000, more than enough to secure a loan for the full
    4.  In addition, the Umpierrezes' share would include the
    $5,000 down payment they invested at the time of the purchase
    at auction.
    -17-
    17
    amount of Umpierrez's promised contribution. Thus, even though
    Umpierrez did not have a commitment letter from the bank -- a
    fact that Palmacci emphasizes -- he could well have honestly
    believed that he could work something out with the bank whereby
    the bank could protect its security needs without encumbering
    the project property and therefore without rendering his
    representation to Palmacci fraudulent. The court's decision
    mentioned this possible interpretation, noting that the market
    value of the house in early November (when Palmacci was induced
    to make his investment in the Chase project) was not
    necessarily limited to the price that Umpierrez paid when he
    bought it in July.
    Absent a showing to the contrary, and bearing in mind
    that the burden of proof was on Palmacci, we must assume that
    the trial court considered all the testimony (and other
    evidence before it) in its entirety, as well as all reasonable
    inferences therefrom, before making its determination that
    Umpierrez did not intend to defraud Palmacci at the time he
    promised to contribute $75,000 of his personal funds to the
    project. We perforce reject Palmacci's claim that the court
    relied exclusively on Umpierrez's testimony and failed to
    consider the surrounding circumstances.
    Moreover, while Palmacci is correct that intent to
    deceive may be inferred from the totality of the circumstances,
    including inferences from circumstantial facts,
    see
    Desmond v.
    -18-
    18
    Varrasso
    (In
    re
    Varrasso), 
    37 F.3d 760
    , 764 (1st Cir. 1994),
    scienter cannot be presumed,
    
    id. at 764-65
    ;
    In re Cohn
    , 
    54 F.3d at 1120
    . "The mere breach of a promise is not enough in itself
    to establish the fraudulent intent." Keeton, et al.,   supra,
    S 108, at 764.
    Thus, although the evidence here might "support the
    bankruptcy court's decision had it inferred an intent to
    deceive from the circumstantial evidence admitted in this case,
    [it does] not compel such a finding and [does] not require us
    to reverse the court's holding." National Union Fire Ins. Co.
    of Pittsburgh v. Bonnanzio (In re Bonnanzio)
    , 
    91 F.3d 296
    , 301
    (2d Cir. 1996) (emphasis added) (quoting  In
    re
    Sheridan, 
    57 F.3d at 634
    ); see also In re Varrasso, 
    37 F.3d at 764-65
    . It
    is the province of the trial court to determine this issue:
    the court may choose to infer intent or not to draw that
    inference, based on all the evidence.  Bonnanzio, 
    91 F.3d at 301
    ; In re Varrasso, 
    37 F.3d at 764-65
    . The determination of
    whether scienter exists based on certain circumstantial facts
    must be treated merely as "a   permissible inference of fact
    . . . and not a presumption of law, or else the distinction
    between fraud and negligence will be largely obliterated." 2
    Harper, supra, S 7.3, at 393 (emphasis added). Even where "a
    factfinder lawfully might draw an inference of fraud from the
    totality of the circumstances," we accept the trial court's
    findings unless the evidence "compels" such a conclusion. See
    -19-
    19
    In re Varrasso, 
    37 F.3d at 764-65
    ; In re Burgess, 
    955 F.2d at 137
    .
    If the [bankruptcy] court's account of the
    evidence is plausible in light of the
    record reviewed in its entirety, the court
    of appeals may not reverse it even though
    convinced that had it been sitting as the
    trier of fact, it would have weighed the
    evidence differently. Where there are two
    permissible views of the evidence, the
    factfinder's choice between them cannot be
    clearly erroneous.
    Anderson v. City of Bessemer City, 
    470 U.S. at 573-74
    .
    In the instant case, Umpierrez testified that he
    thought he would be able to come up with his $75,000 investment
    from his personal funds, and the judge believed him, apparently
    taking into account all circumstances including the weight of
    the alleged unreasonableness of his belief. The bankruptcy
    court found, as a matter of fact, that Umpierrez did not intend
    to defraud Palmacci when he promised to contribute $75,000 of
    his own personal funds to the project. In the context of the
    record in this case, we read this as a determination that there
    was no scienter, i.e., that there was no knowing
    misrepresentation and no reckless disregard for the truth such
    as would rise to the level of fraudulent intent. After
    carefully reviewing the record in its entirety, we conclude
    that there is sufficient evidence for the trial court to have
    concluded that Umpierrez's intent was not fraudulent. We
    cannot say the trial court clearly erred in its choice of which
    inferences to draw from the evidence presented to it.
    -20-
    20
    Therefore we affirm the court's rejection of the first alleged
    misrepresentation claim.
    Palmacci's second claim is that Umpierrez
    misrepresented to him that the project would have a total
    capital contribution of $250,000. This claim is derivative
    from the first: to whatever extent Umpierrez fell short on his
    contribution of $75,000, there would result a like shortfall in
    the total project capitalization. Palmacci does not make any
    argument as to his second claim that differs from his arguments
    on the first claim. Therefore, our rejection of the second
    flows ineluctably from our conclusion as to the first.
    Palmacci's third claim is that Umpierrez
    misrepresented the role of the trust that was created in
    connection with the Chase project. According to Palmacci's
    brief, Umpierrez represented that "the project was to be held
    in trust supervised by a New Hampshire attorney." Palmacci
    concedes that a trust was indeed set up after he made his
    investment, but he argues that "[t]he reality of the situation
    was that the trust had no role to play in the supervision of
    the project." Palmacci does not make it clear exactly what was
    allegedly represented to him regarding the trust's supervision
    5.  Palmacci also argues that the bankruptcy court erred in
    holding that he was not justified in relying on Umpierrez's
    representations. We need not decide this issue because, having
    failed to meet his burden on the intent element, it does not
    avail him that he may have met the remaining elements; he must
    satisfy all requirements in order to establish his claim.
    -21-
    21
    of the Chase project. In his brief he seems to imply that
    Umpierrez actually told him the trust would supervise the
    investment project itself (as opposed to being simply a vehicle
    for controlling the flow of funds). Scrutiny of Palmacci's
    factual assertions, however, in his testimony and in the
    factual portion of his brief, reveal a claim merely that
    Palmacci's "idea of the role of the trust" was that the trustee
    would be responsible for and control how funds were used by the
    builders. Because of this "idea," Palmacci "felt assured" that
    the project "would be supervised correctly, and there was less
    chance of things going bad." Palmacci did not testify as to
    the basis for his subjective understanding. For all we know,
    the basis could have been merely that Palmacci himself thought
    a trust always does so supervise, without any representation by
    Umpierrez beyond the mere creation of a trust.
    The bankruptcy court dismissed the trust issue on the
    ground that Palmacci could not have "justifiably relied" on the
    role of the trust as supervising the real estate project. The
    court reasoned that the trust was not established until
    November 11, 1991, several days after November 7, when Palmacci
    made his investment, so Palmacci could not have known the terms
    of the trust instrument and therefore could not have been
    justified in relying on any such terms. (The district court
    decision did not specifically address the alleged
    misrepresentation regarding the role of the trust.)
    -22-
    22
    Palmacci is correct that the bankruptcy court's
    analysis is flawed. Even if the trust was not actually created
    until after he invested his money, Palmacci could conceivably
    have relied on verbal (or written) representations from
    Umpierrez -- made on or before November 7 -- as to how the
    trust would be structured or what its role would be once the
    trust was created. And it might well have been justifiable for
    Palmacci to rely on such representations regardless of whether
    the trust instrument had yet been drafted. If such
    representations were false and made with scienter, then this
    third claim could not be dismissed based on the trial court's
    reasoning.
    Nevertheless, we will affirm a correct result reached
    by the court below "on any independently sufficient ground made
    manifest by the record."  AIDS Action Comm. of Mass. v. MBTA,
    
    42 F.3d 1
    , 7 (1st Cir. 1994) (internal quotation marks
    omitted). Although the bankruptcy court's stated reason for
    rejecting Palmacci's argument concerning the establishment of
    a trust was based on flawed reasoning, its conclusion was
    correct. Our review of the record, including Palmacci's own
    testimony, reveals absolutely no evidence clearly indicating
    that Umpierrez's statements or actions were the basis for
    Palmacci's subjective "idea" or feeling that the trust would
    supervise the project. Indeed, as the bankruptcy court pointed
    out, the attorney who drew up the trust testified that the
    -23-
    23
    concept of a trust was not even discussed by the investors
    before Palmacci invested his money in the project. Thus, the
    only representation that is supportable on this record is that
    a trust would be created and that the trustee would be an
    attorney. This much was indisputably carried out. It is not
    enough for Palmacci to testify that his "idea of the role of
    the trust" was to supervise the operation of the project,
    without specifying the source of this idea. Because the record
    is devoid of evidence that would support a finding that a
    misrepresentation was made on the trust issue, we need not
    consider the dispute as to whether Palmacci was justified in
    relying on any alleged representation about the role of the
    trust.
    Finally, Palmacci alleges that the bankruptcy court
    erred as a matter of law when it restricted the testimony of
    Palmacci's expert witness to events that took place only prior
    to or soon after the transaction at issue. A trial court has
    wide discretion in determining the admissibility of expert
    testimony, especially where the issue is being tried directly
    to the bench.   Allied
    Int'l,
    Inc.
    v.
    Int'l
    Longshoremen's
    Ass'n, 
    814 F.2d 32
    , 40 (1st Cir. 1987). Of course, this
    latitude does not mean that, on appeal, we will abdicate our
    responsibility to review such a determination. But, like other
    evidentiary rulings, the exclusion of all or part of an
    expert's proffered testimony is subject to review for abuse of
    -24-
    24
    discretion.  Williamson v. Busconi, 
    87 F.3d 602
    , 603 n.1 (1st
    Cir. 1996). The trial court's decision will be "sustained
    unless [its] discretion has been abused."  Allied
    Int'l, 
    814 F.2d at 40
    .
    In the instant case, the trial judge had heard
    testimony from the creditor, the debtor, and the attorney for
    the real estate project (who drew up the trust), as well as
    some of the testimony of the expert in dispute (i.e., that part
    of the expert's testimony relating to events that took place
    prior to or soon after Palmacci's investment in the project).
    The portion of the expert's proffered testimony that the court
    excluded related to whether, when the trust was dissolved in
    1993, Umpierrez "received a disproportionate return on his
    investment, compared to other investors, which would be to the
    detriment of Mr. Palmacci."
    Palmacci acknowledges, as we discussed
    supra at 7-9,
    that the alleged fraud must exist at the inception of the debt,
    and statements or actions which were neither false nor
    fraudulent when made will not be made so by the happening of
    subsequent events. Nor does failure to carry out one's
    intentions constitute a basis for finding a debt
    nondischargeable under S 523(a)(2)(A) absent a showing that the
    claimed fraud existed at the inception of the debt.
    Palmacci argues, however, that a promissor's
    subsequent conduct may reflect his state of mind at the time he
    -25-
    25
    made the promise, and thus may be considered in determining
    whether he possessed the requisite fraudulent intent
    ab initio
    .
    It is true that subsequent conduct may be relevant to an
    earlier state of mind. In  Williamson
    v.
    Busconi, 
    87 F.3d at 603
    , we concluded that the bankruptcy court abused its
    discretion by excluding evidence as to conduct
    subsequent to a
    real estate closing, from which a factfinder reasonably could
    have inferred that Busconi had not intended to pay the note
    at
    the time
    it was executed. The lower court in
    Busconi said this
    evidence was irrelevant, and then expressly credited Busconi's
    testimony (although Williamson testified too). Finding that
    Williamson had failed to establish the requisite fraudulent
    intent, the bankruptcy court ruled the debt dischargeable.
    
    Id.
    We rejected that reasoning, noting that:
    As direct evidence is seldom available,
    fraudulent intent normally is determined
    from the totality of the circumstances.
    And since "subsequent conduct may reflect
    back to the promissor's state of mind and
    thus may be considered in ascertaining
    whether there was fraudulent intent" at
    the time the promise was made, proper
    application of the "totality" test in this
    context often warrants consideration of
    post-transaction conduct and
    contemporaneous events.
    
    Id. at 603
     (citation omitted) (quoting
    Krenowsky v. Haining (In
    re
    Haining), 
    119 B.R. 460
    , 464 (Bankr. D. Del. 1990));    cf.
    United States v. Rodriguez, 
    858 F.2d 809
    , 816 (1st Cir. 1988)
    ("later events often may shed light on earlier motivations").
    -26-
    26
    In the instant case, however, that relevance is very
    attenuated. The facts of this case are nothing like the facts
    in the cases relied upon by Palmacci,   where an overarching
    scheme to defraud the creditor was shown. In  In
    re
    Haining,
    
    119 B.R. at 464
    , the debtor engaged in a pattern of
    transferring all her assets to a third party to the detriment
    of her creditors. The court reasonably concluded that the
    debtor's fraudulent scheme began prior to the debt in dispute,
    and continued throughout the period. Similarly, in   Comerica
    Bank v. Weinhardt (In re Weinhardt)
    , 
    156 B.R. 677
    , 680 (Bankr.
    M.D. Fla. 1993), the business into which the debtor was to have
    invested the creditor's funds never existed, and the debtor
    spent all the money on a gambling spree. The court concluded
    that evidence of the subsequent pattern of conduct helped to
    show that the debtor did not, even at the outset, intend to use
    the funds obtained for the purposes stated.
    In the instant case, the disputed testimony simply
    does not rise to the same level of probative value on the issue
    of Umpierrez's intent to defraud in the inducement. The
    proffered testimony related to events almost two years after
    Palmacci's investment was induced. Moreover, the allegations
    6.  The timing and other aspects of relevance were not
    delineated in our opinion in Busconi. There we simply stated
    that the proffered evidence of subsequent conduct was evidence
    "from which a factfinder reasonably could have inferred that
    Busconi had not intended to pay the note at the time it was
    executed." 
    87 F.3d at 603
    . A similar conclusion cannot be
    drawn in the instant case.
    -27-
    27
    Palmacci sought to prove through his proffered expert -- that
    the losses on the investment were not proportionately shared
    and that the project's 1992 and 1993 financial statements
    indicated that Umpierrez did not spend all project money
    exactly as originally stated in the business proposal (although
    they did not indicate that he failed to apply the funds to the
    Chase project in some way) -- would not have been directly
    probative of Umpierrez's intent to deceive in 1991. Certainly
    the bankruptcy court, which heard all the evidence, did not
    abuse its discretion in refusing to hear the proffered expert
    testimony.
    Even if we were to conclude on the present facts that
    the bankruptcy court erred in excluding the expert testimony,
    we need not reverse on this issue because excluding this
    evidence did not affect Palmacci's substantial rights.    See
    Busconi, 87 F.2d at 603. In order to win a reversal, an
    appellant who claims error in the admissibility of evidence
    must also show that the evidentiary ruling adversely affected
    his "substantial rights."  See Fed. R. Bankr. P. 9005, 9017
    (incorporating Fed. R. Civ. P. 61; Fed. R. Evid. 103(a)).
    Here, as in Busconi, "[i]n light of all the evidence in the
    record, we are not persuaded that the challenged judgment was
    substantially influenced by the [presumptively] erroneous
    evidentiary ruling." Busconi, 87 F.2d at 603 (citing
    Lubanski
    v. Coleco Indus., Inc., 
    929 F.2d 42
    , 46 (1st Cir. 1991)).
    -28-
    28
    In conclusion, we see no basis in the record for
    second-guessing the trial court's determination that the Chase
    project did not implicate fraudulent misrepresentation, and
    that it was simply a failed real estate investment in which all
    investors (including both the debtor and the creditor) lost a
    portion of their investments. Palmacci had hoped to "turn[] a
    pretty fast profit on it," as he had seen Gus Umpierrez do on
    prior real estate deals. At the same time, Palmacci understood
    that he was taking a risk; he might not only not make a "fast
    profit" but he might lose money on the deal. Now that the
    project has gone sour, Palmacci cannot prevent Umpierrez from
    discharging his debts in bankruptcy unless he demonstrates all
    the elements of fraud or false representation. He has failed
    to meet this burden with respect to at least one element of
    each of the three misrepresentations that he has alleged.
    Accordingly, the judgment is
    affirmed. Costs on appeal awarded
    to appellee.
    -29-
    29