DocketNumber： 94-1583
Filed Date： 10/18/1994
Status： Precedential
Modified Date： 9/21/2015
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1583
IN RE:
PETER C. VARRASSO and MILDRED R. VARRASSO,
Debtors.
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JOHN O. DESMOND, TRUSTEE, ETC.,
Appellee,
v.
PETER C. VARRASSO, ET AL.,
Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
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Before
Selya, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Ann Brennan, with whom Stephen E. Shamban was on brief, for
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appellants.
John O. Desmond for appellee.
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October 18, 1994
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SELYA, Circuit Judge. In this case, the bankruptcy
SELYA, Circuit Judge.
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court entered a summary judgment sustaining the trustee's
objection to the debtors' discharge. The district court
affirmed. Because we find that the courts below grasped for the
blossom though only the bud was ready, we vacate the judgment.
I.
I.
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Background
Background
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Appellants Peter and Mildred Varrasso, husband and wife
(collectively, the debtors), participated in several speculative
real estate ventures. Like many others similarly situated, they
encountered financial distress when the real estate boom
sputtered and fizzled. Sporting over $5,000,000 in debt without
assets to match, they filed a voluntary Chapter 11 bankruptcy
petition on October 1, 1991. When it became apparent three
months later that reorganization was unattainable, their case was
converted to a straight bankruptcy under Chapter 7. Appellee
John O. Desmond accepted an appointment as the trustee.
Matters did not proceed smoothly. In the schedules
annexed to their bankruptcy petition, the debtors listed $650 in
assets, viz., $150 in a bank account and $500 worth of apparel.
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Their papers specifically disclaimed any other money, household
goods, or furnishings. Yet, at a meeting of the creditors'
committee on March 9, 1992, questioning revealed that the debtors
had not listed either a second bank account (having a balance of
$100) or home furnishings (having a value of more than $2,000).
Displeased with these inaccuracies, the trustee filed a
2
complaint in which he sought to block the debtors' discharge. In
his complaint, he alleged that the debtors knowingly and
fraudulently made false statements in violation of 11 U.S.C.
727(a)(4)(A) (a statute providing, inter alia, that the
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bankruptcy court may withhold a discharge if it determines that
"the debtor knowingly and fraudulently, in or in connection with
the case . . . made a false oath or account").
In due course, the trustee moved for summary judgment
under Bankruptcy Rule 7056. He filed a supporting affidavit in
which he narrated the events described above, and pointed out the
obvious: that the debtors had stated their assets differently in
their original filings and in their subsequent admissions. The
debtors opposed the motion and proffered an affidavit in which
their attorney swore to little more than that full disclosure had
been made to the creditors' committee at the earliest possible
opportunity. In an accompanying memorandum, the debtors argued
that they "ha[d] no intent to hinder, delay or defraud
creditors."
On this sparse record, the bankruptcy court granted
summary judgment in the trustee's favor, ruling that "[t]he
debtors' failure to list accurately their assets violate[d]
727(a)(4)(A)." In re Varrasso, No. A92-1281, slip op. at 2
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(Bankr. D. Mass. Nov. 19, 1992). Consequently, the court
sustained the trustee's complaint and refused to issue a
discharge.
When the debtors appealed, the district court affirmed
3
the entry of summary judgment. The court hypothesized that
whether the debtors had violated section 727(a)(4)(A) "is a
question of fact that has been decided adversely to [them] by the
bankruptcy judge," and that the judge's finding was not "clearly
erroneous." In re Varrasso, No. 92-13077, slip op. at 4 (D.
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Mass. Apr. 14, 1994). The debtors retained new counsel and
sought further appellate review.
II.
II.
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Analysis
Analysis
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A.
A.
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Legal Principles
Legal Principles
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In bankruptcy, summary judgment is governed in the
first instance by Bankruptcy Rule 7056. By its express terms,
the rule incorporates into bankruptcy practice the standards of
Rule 56 of the Federal Rules of Civil Procedure. See Bankr. R.
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7056; see also In re Colonial Discount Corp., 807 F.2d 594, 597
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(7th Cir. 1986), cert. denied, 481 U.S. 1029 (1987). The
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jurisprudence of Rule 56 teaches that we must review orders
granting summary judgment de novo. See Maldonado-Denis v.
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Castillo-Rodriguez, 23 F.3d 576, 581 (1st Cir. 1994); Garside v.
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Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). This standard
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of review is not diluted when, as now, the underlying proceeding
originates in the bankruptcy court. See In re Fussell, 928 F.2d
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712, 715 (5th Cir. 1991), cert. denied, 112 S. Ct. 1203 (1992);
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In re Contractors Equip. Supply Co., 861 F.2d 241, 243 (9th Cir.
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1988); In re Mullet, 817 F.2d 677, 678-79 (10th Cir. 1987); In re
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4
Martin, 761 F.2d 1163, 1166 (6th Cir. 1985); see also In re
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G.S.F. Corp, 938 F.2d 1467, 1474 (1st Cir. 1991) (explaining that
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in connection with "appeals from the decision of a district court
on appeal from the bankruptcy court, the court of appeals
independently reviews the bankruptcy court's decision, applying .
. . de novo review to conclusions of law").
It is apodictic that summary judgment should be
bestowed only when no genuine issue of material fact exists and
the movant has successfully demonstrated an entitlement to
judgment as a matter of law. See Fed. R. Civ. P. 56(c). As to
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issues on which the movant, at trial, would be obliged to carry
the burden of proof, he initially must proffer materials of
evidentiary or quasi-evidentiary quality say, affidavits or
depositions that support his position.1 See Lopez v.
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Corporacion Azucarera de Puerto Rico, 938 F.2d 1510, 1517 (1st
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Cir. 1991); Bias v. Advantage Int'l, Inc., 905 F.2d 1558, 1560-61
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(D.C. Cir.), cert. denied, 498 U.S. 958 (1990); cf. Mendez v.
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Banco Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir. 1990) ("The
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mere fact that plaintiff failed to file a timely opposition does
not mean that defendant's Rule 56 motion should be granted").
When the summary judgment record is complete, all reasonable
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1As to issues on which the nonmovant has the burden of
proof, the movant need do no more than aver "an absence of
evidence to support the nonmoving party's case." Celotex Corp.
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v. Catrett, 477 U.S. 317, 325 (1986). The burden of production
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then shifts to the nonmovant, who, to avoid summary judgment,
must establish the existence of at least one question of fact
that is both "genuine" and "material." See Anderson v. Liberty
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Lobby, Inc. 477 U.S. 242, 248 (1986); Garside, 895 F.2d at 48-49.
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5
inferences from the facts must be drawn in the manner most
favorable to the nonmovant. See, e.g., Morris v. Government Dev.
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Bank, 27 F.3d 746, 748 (1st Cir. 1994); Garside, 895 F.2d at 48;
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Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932,
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934 (1st Cir. 1987). This means, of course, that summary
judgment is inappropriate if inferences are necessary for the
judgment and those inferences are not mandated by the record.
See Blanchard v. Peerless Ins. Co., 958 F.2d 483, 488 (1st Cir.
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1992) (warning that summary judgment is precluded "unless no
reasonable trier of fact could draw any other inference from the
``totality of the circumstances' revealed by the undisputed
evidence").
B.
B.
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Applying the Law
Applying the Law
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In this case, the district court applied the wrong
standard of review. The court refrained from drawing reasonable
inferences in the debtors' favor. To the contrary, it ruled that
the bankruptcy court's "findings" had to be upheld because they
were not "clearly erroneous."2 Thus, the district court's
approach missed the mark.
Having uncovered this error, we could now remand to the
district court for reconsideration under a more appropriate
standard of review. But doing so would serve no useful purpose.
The validity vel non of a summary judgment entails a pure
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2In actuality, the bankruptcy court made no findings of
fact; instead, it granted summary judgment.
6
question of law and, therefore, we are fully equipped to resolve
the question as a matter of first-instance appellate review. We
choose to follow this path.
Insofar as the summary judgment record reflects, the
underlying facts are undisputed; the debtors misstated their
assets when compiling their bankruptcy petition and soon
thereafter corrected their representations. Nonetheless, more is
exigible; the absence of a dispute over material facts is a
necessary condition for granting summary judgment, but it is not
a sufficient condition. The moving party must also show that he
is entitled to judgment as a matter of law. See Fed. R. Civ. P.
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56(c); see also Lopez, 938 F.2d at 1517. Undisputed facts do not
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always point unerringly to a single, inevitable conclusion. And
when facts, though undisputed, are capable of supporting
conflicting yet plausible inferences inferences that are
capable of leading a rational factfinder to different outcomes in
a litigated matter depending on which of them the factfinder
draws then the choice between those inferences is not for the
court on summary judgment. See Azrielli v. Cohen Law Offices, 21
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F.3d 512, 517 (2d Cir. 1994) (stating that "all choices between
available inferences are matters to be left for a jury, not
matters to be decided by the court on summary judgment");
Greenburg, 835 F.2d at 934 (similar); Cameron v. Frances Slocum
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Bank & Trust Co., 824 F.2d 570, 575 (7th Cir. 1987) (similar).
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So it is here.
In order to deny a debtor's discharge under section
7
727(a)(4)(A), the trustee must show that the debtor "knowingly
and fraudulently" misstated a material matter. See, e.g., In re
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Tully, 817 F.2d 106, 110 (1st Cir. 1987). Here, the undisputed
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facts conclusively demonstrate the omission of certain assets
from the schedules, but, beyond that, the facts are consistent
either with an inference of deliberateness or an inference of
carelessness. In other words, the undisputed facts require a
choice between competing inferences, and, since both inferences
are plausible, the choice cannot be made under the banner of
summary judgment.
C.
C.
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Related Points
Related Points
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Before taking our leave, let us make two other points
transparently clear. First, we do not hold that issues involving
a party's state of mind can never be resolved at the summary
judgment stage. The opposite can be true. See, e.g., Medina-
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Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990)
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(explaining that "[e]ven in cases where elusive concepts such as
motive or intent are at issue, summary judgment may be
appropriate if the nonmoving party rests merely upon conclusory
allegations, improbable inferences, and unsupported
speculation"); accord LeBlanc v. Great American Ins. Co., 6 F.3d
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836, 841-42 (1st Cir. 1993), cert. denied, 114 S. Ct. 1398
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(1994); Local 48 v. United Bhd. of Carpenters & Joiners, 920 F.2d
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1047, 1051 (1st Cir. 1990). But courts must be exceptionally
cautious in granting brevis disposition in such cases, see
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8
Stepanischen v. Merchants Despatch Transp. Corp., 722 F.2d 922,
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928 (1st Cir. 1983), especially where, as here, the movant bears
the devoir of persuasion as to the nonmovant's state of mind.3
Second, we acknowledge that, in certain cases,
circumstantial evidence may be sufficiently potent to establish
fraudulent intent beyond hope of contradiction. See Putnam
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Resources v. Pateman, 958 F.2d 448, 459 (1st Cir. 1992) ("It is
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black letter law that fraud may be established by inference from
circumstantial facts."); In re Roco Corp., 701 F.2d 978, 984-85
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(1st Cir. 1983) (affirming a finding of fraudulent intent on the
basis of circumstantial evidence). But this is not such a case.
The omitted assets are of relatively small value, especially when
compared to the overall debt, and, consequently, the debtors had
far more to lose than to gain by playing fast and loose with the
schedules. Moreover, the debtors rectified the omissions as soon
as the creditors' questioning brought them to light. While we do
not doubt that a factfinder lawfully might draw an inference of
fraud from the totality of the circumstances, we simply do not
believe that this evidence compels such an illation.4
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Therefore, summary judgment should not have been granted.
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3We contrast this situation with situations like Medina-
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Munoz, in which the nonmovant bears the burden of proving the
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movant's state of mind. In the later situation, the movant
typically denies the existence of the necessary motive or state
of mind, shifting the burden to the nonmovant to adduce some
contrary evidence in order to avoid the swing of the summary
judgment ax. See supra note 1.
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4Indeed, the district court tacitly recognized as much,
saying only that the bankruptcy court's "findings" were not
"clearly erroneous."
9
III.
III.
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Conclusion
Conclusion
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We need go no further. On this insufficiently
developed record, the bankruptcy court erred in awarding summary
judgment in the trustee's favor, and the district court erred in
affirming the bankruptcy court's incorrect order. Hence, we
vacate the judgment below, and remand the cause to the district
court with instructions that it vacate the bankruptcy court's
order and remand the matter to that court for further
proceedings. We initiate no view as to whether the debtors are
or are not entitled to a discharge.5
Vacated and remanded.
Vacated and remanded.
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5We do not reach, and, therefore, need not address in any
detail, the debtors' belated attempt to lay the blame for their
incomplete schedules on the doorstep of their former attorney.
We remind their present counsel, however, that "evidentiary
matters not first presented to the district court are, as the
greenest of counsel should know, not properly before [the court
of appeals]." United States v. Kobrosky, 711 F.2d 449, 457 (1st
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Cir. 1983).
10
In Re Roco Corporation, D/B/A Standard Supply Company, ... , 701 F.2d 978 ( 1983 )
bankr-l-rep-p-71552-in-re-colonial-discount-corporation-debtor-james , 807 F.2d 594 ( 1986 )
Morris v. Government Development Bank , 27 F.3d 746 ( 1994 )
19-collier-bankrcas2d-1254-bankr-l-rep-p-72527-7-ucc-repserv2d , 861 F.2d 241 ( 1988 )
Anderson v. Liberty Lobby, Inc. , 106 S. Ct. 2505 ( 1986 )
Celotex Corp. v. Catrett, Administratrix of the Estate of ... , 106 S. Ct. 2548 ( 1986 )
Milissa Garside v. Osco Drug, Inc. , 895 F.2d 46 ( 1990 )
United States v. Milton L. Kobrosky , 711 F.2d 449 ( 1983 )
In Re G.S.F. CORPORATION, Debtor, Chase Commercial ... , 938 F.2d 1467 ( 1991 )
Julio Mendez A/K/A Julio Mendez Rodriguez v. Banco Popular ... , 900 F.2d 4 ( 1990 )
Victor Lopez v. Corporacion Azucarera De Puerto Rico , 938 F.2d 1510 ( 1991 )
Maldonado-Denis v. Castillo-Rodriguez , 23 F.3d 576 ( 1994 )
Simion Stepanischen v. Merchants Despatch Transportation ... , 722 F.2d 922 ( 1983 )
Emmlee K. Cameron v. Frances Slocum Bank & Trust Company, ... , 824 F.2d 570 ( 1987 )
Jose MEDINA-MUNOZ, Etc., Et Al., Plaintiffs, Appellants, v. ... , 896 F.2d 5 ( 1990 )
Putnam Resources v. Ronald M. Pateman, Ronald M. Pateman v. ... , 958 F.2d 448 ( 1992 )
Richard Blanchard v. Peerless Insurance Company , 958 F.2d 483 ( 1992 )
Laurence B. Greenburg, Etc. v. Puerto Rico Maritime ... , 835 F.2d 932 ( 1987 )