Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca1-18-09007/USCOURTS-ca1-18-09007-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

---

United States Court of Appeals 

For the First Circuit 

No. 18-9007 

EDWARD T. STEWART, JR., 

Debtor. 

_____________________ 

SHEILA DEWITT and JOSEPH DEWITT, 

Plaintiffs/Creditors, Appellees, 

v. 

EDWARD T. STEWART, JR., 

Defendant/Debtor, Appellant. 

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL 

FOR THE FIRST CIRCUIT 

Before 

Howard, Chief Judge, 

Torruella and Selya, Circuit Judges. 

Nancy H. Michels, with whom David M. Stamatis and Parnell, 

Michels & McKay, PLLC were on brief, for appellant. 

Daniel M. Deschenes, with whom Seth M. Pasakarnis and 

Hinckley, Allen & Snyder LLP were on brief, for appellees. 

February 3, 2020 

Case: 18-9007 Document: 00117546223 Page: 1 Date Filed: 02/03/2020 Entry ID: 6314316
-2- 

TORRUELLA, Circuit Judge. In this bankruptcy case, 

appellant Edward T. Stewart ("Stewart") -- the debtor -- asks that 

we reverse a decision by the Bankruptcy Appellate Panel ("BAP") 

concluding that Stewart's debt to Joseph and Sheila DeWitt ("the 

DeWitts") was not dischargeable because it was exempted under 

§ 523(a)(2)(A) of the U.S. Bankruptcy Code, 11 U.S.C § 523 

(a)(2)(A). 

The DeWitts hired Stewart and his company, Boardwalk 

North ("BN"), in 2013 to remodel their New Hampshire home. During 

the course of their dealings, the DeWitts alleged that Stewart 

misrepresented, among other things, the financial health of his 

company and that he would use so-called "milestone payments" to 

both "fund" their renovation project and "leverage" 

subcontractors. As matters devolved, after the DeWitts had 

already paid ninety percent of the project costs but Stewart and 

his company had only completed forty-five percent of the 

renovations, Stewart abandoned the project in the summer of 2014. 

The DeWitts ultimately hired another company to finish the 

renovations for a cost of $736,786.30 -- $558,335.38 in excess of 

their pending balance with Stewart and BN. 

On September 29, 2014, BN filed for Chapter 7 bankruptcy. 

With his personal finances similarly underwater, Stewart also 

filed for relief under Chapter 7 on February 23, 2015. The DeWitts 

Case: 18-9007 Document: 00117546223 Page: 2 Date Filed: 02/03/2020 Entry ID: 6314316
-3- 

thereafter filed a proof of claim in Stewart's bankruptcy case, 

indicating that they held an unsecured claim for $558,335.38. On 

May 26, 2015, the DeWitts commenced an adversary proceeding against 

Stewart seeking to exempt their unsecured claim from discharge. 

The centerpiece of the DeWitts' thirteen-count complaint was that 

their claim against Stewart was ineligible for discharge, per 

§ 523(a)(2)(A), because the debt resulted from Stewart's false 

statements and misrepresentations. The bankruptcy court disagreed 

with the DeWitts, and on August 18, 2017, it entered a final 

judgment concluding that their unsecured claim against Stewart was 

dischargeable. Unsatisfied, the DeWitts appealed to the BAP, 

which reversed the bankruptcy court. Stewart filed a timely 

appeal before our Court on November 29, 2018. 

For the following reasons, we now vacate the BAP's 

decision and remand with instructions that the case be returned to 

the bankruptcy court. First, the bankruptcy court misapplied the 

standard for fraudulent intent under § 523(a)(2)(A) -- best 

articulated by our decision in Palmacci v. Umpierrez, 121 F.3d 781 

(1st Cir. 1997) -- which it was required to employ when determining 

whether Stewart intended to deceive the DeWitts. Second, instead 

of reviewing for "clear error," as it was supposed to, the BAP 

exceeded the bounds of appellate review by engaging in fact-finding 

when it reversed the bankruptcy court. 

Case: 18-9007 Document: 00117546223 Page: 3 Date Filed: 02/03/2020 Entry ID: 6314316
-4- 

I.

A. Factual Background 

We begin by offering an overview of the relevant facts, 

gleaned from five days of trial testimony and several hundred 

exhibits, noting disputes as they arise. Stewart owned BN, which 

was a design-build firm based in New Hampshire.1 Even though she 

had no formal training in accounting, Stewart's wife Linda managed 

BN's accounts, while Stewart focused on the company's management 

and business development. Stewart left the finances to Linda and 

BN's accountant, Peter Pike. During the lean years of the Great 

Recession, starting in 2008, the Stewarts ceased taking personal 

salaries and loaned money to the company. It was not until April 

2013 that the Stewarts began taking a salary from BN again, 

although at a reduced rate. 

For their part, in early 2013, the DeWitts were looking 

to renovate and expand their home ("the project") to better 

accommodate their community outreach activities. Sheila DeWitt, 

a scientist and entrepreneur, and her husband Joe DeWitt, a high 

school teacher with degrees in Divinity and Economics, had settled 

on an initial budget for the project between $700,000 and $1 

 

1 A design-build firm is hired to put together architectural plans 

for a construction project and then serves as the general 

contractor throughout.

Case: 18-9007 Document: 00117546223 Page: 4 Date Filed: 02/03/2020 Entry ID: 6314316
-5- 

million. Searching for the right contractor, the DeWitts attended 

a New Hampshire Home Builders Association home show on March 3, 

2013. There, the DeWitts met Stewart at BN's company booth. The 

DeWitts described their project to Stewart, who indicated that BN 

was well qualified for the job. After this conversation, BN joined 

the shortlist of contractors the DeWitts would potentially hire 

for the project.

On March 23, 2013, as part of their vetting process, the 

DeWitts emailed Stewart with questions about BN's financials, 

including its revenues and number of projects for recent years, as 

well as its revenue projections for 2013 without the DeWitt 

project. According to the DeWitts, their purpose in asking these 

questions was to confirm that their project "would not be a large 

portion of [BN's] revenues and that [BN] was healthy and 

prospering." In response to the DeWitts' request for information, 

Stewart claimed that BN's revenue numbers were approximately as 

follows: $2.3 million in 2011; $1.7 million in 2012; and $1.2 

million as of March 2013. Stewart projected that BN's 2013 revenue 

would be between $2.4 and $2.9 million without the DeWitts' 

project. His reply did not answer the question about the number 

of projects. According to BN's tax returns submitted into 

evidence, BN's actual revenues for those years were approximately 

$1.95 million in 2011, $1.55 million in 2012, and only $335,000 

Case: 18-9007 Document: 00117546223 Page: 5 Date Filed: 02/03/2020 Entry ID: 6314316
-6- 

through March 2013. At trial, Joe DeWitt testified that had BN 

disclosed the real numbers, it "would have dropped out of the 

running." During an in-person conversation around this time, 

according to the DeWitts' testimony, they also inquired about 

Stewart's relationships with subcontractors, which Stewart 

described as "excellent." Brian Lessard, the project lead, 

testified at trial that some of the relationships with 

subcontractors were "good, [and] some were bad" due to "payment 

history." 

Ultimately, the DeWitts hired BN. First, the DeWitts 

and BN entered into a "Design Fee Purchase Agreement" on April 19, 

2013. For a fee of $2,895, BN would come up with a conceptual 

drawing using the DeWitts' project goals and proposed budget. The 

contract terms provided for two office visits of approximately 

three hours each with additional visits to be invoiced at $90 per 

hour. The contract included a penalty provision of eight percent 

of the high end of the project price range ($1 million at that 

point) if the DeWitts were to unilaterally withdraw. 

Approximately two months later, the parties executed the 

Purchase Agreement with a price tag of $1,649,936. The day before, 

on June 26, 2013, the DeWitts had wired a $200,000 "good faith 

deposit" to Stewart, an amount in excess of the ten to fifteen 

percent deposit provided for in the design agreement. Having 

Case: 18-9007 Document: 00117546223 Page: 6 Date Filed: 02/03/2020 Entry ID: 6314316
-7- 

second thoughts because of the high final price, on July 2, 2013, 

Joe DeWitt informed Stewart that they wanted out of the agreement, 

which, Stewart testified, did not surprise him. Stewart also 

stated that, at that point, BN was prepared to return the $200,000 

deposit, although the DeWitts never asked for it back.2 Despite 

the DeWitts' misgivings, negotiations resumed, and on August 2, 

2013, the parties settled on changes to the project's design that 

reduced costs to $1.3 million; this reduction was reflected in an 

amendment to the original contract. 

The contract contained a "milestone" payments schedule 

so that at the start of most construction activities, a milestone 

was triggered, and the DeWitts were required to pay a uniform 

amount of $40,619.05. Stewart told the DeWitts that these 

"milestone payments" would allow them to "fund their own project." 

The DeWitts testified that they interpreted the milestone payment 

scheme, in light of Stewart's representations, to mean that their 

payments would be used specifically for their own project and would 

never have given this money in advance if they had known it was 

going to pay off BN's existing debts. Stewart countered that he 

never said that the DeWitts' payments would only go toward their 

 

2 The DeWitts presented evidence that a portion of the deposit 

was spent within days of BN's receipt. Stewart responded that he 

still would have been able to pay back the deposit even a month 

after it was received.

Case: 18-9007 Document: 00117546223 Page: 7 Date Filed: 02/03/2020 Entry ID: 6314316
-8- 

project and, like with all of BN's projects, "the money went into 

the business" and "funded [the DeWitts'] project indirectly."

Stewart also offered the DeWitts a five percent discount 

on the milestone payments if they paid in advance of the 

corresponding construction phase. Stewart told the DeWitts that 

the prepayment of milestones would allow him to "leverage" 

subcontractors.3 The DeWitts opted for the prepayment discount, 

and on August 27, 2013, at Stewart's request, paid a second deposit 

of $172,000, plus the price of two milestones. The DeWitts 

presented evidence at trial that BN expended this payment within 

weeks primarily on "Non-DeWitt Project Costs."

Work began in August, but from the get-go, the project 

suffered from delay and inefficiencies. Stewart and Lessard 

testified at trial that the DeWitt project was BN's most 

 

3 Later, the DeWitts would raise concern about how early they 

were being asked to prepay the milestones. In an email sent on 

March 6, 2014, Lessard offered the following explanation: 

As far as the pre-payment goes, as you imagine in 

order for us to offer this discount the idea is that 

we are leveraging your money to save money. So we 

would need to leverage your money for more then [sic] 

a couple days to off set [sic] the ($20,000.00 over 

all [sic]) discount being applied. This program was 

designed with the intention that there would be 

multiple payments made at a time and that would allow 

us plenty of time to leverage and save money, with 

time being the catch. Having the benefit of your 

funds for a mere few days in return for such a large 

amount of money would be ill advised by even the most 

liberal accounts . . . . 

Case: 18-9007 Document: 00117546223 Page: 8 Date Filed: 02/03/2020 Entry ID: 6314316
-9- 

comprehensive and complex. This was consistent with what Stewart 

had relayed to the DeWitts during their due diligence process -- 

that BN's highest ranging job was for $825,000 -- and Lessard's 

April 1, 2014 email to the DeWitts comparing the 850 hours of 

redesign time spent on their project to the ten hours that usually 

were required for BN's average sale of $80,000.

When the DeWitts asked about delays, Lessard explained 

they were because the subcontractors had failed to show up, never 

disclosing to the DeWitts that certain products or services had 

not arrived because BN actually lacked the money to purchase them. 

Having witnessed the project unfold firsthand from the vantage of 

the basement apartment where the DeWitts resided during 

construction, Joe DeWitt testified to examples of what he believed 

to be improper sequencing of phases of the project, like the 

erecting of a stone veneer prior to completing electrical wiring 

which would have to go behind it, concluding that this progression 

"was geared to getting to the next milestone." Lars Traffie, the 

head of Hutter Construction whom the DeWitts eventually hired to 

complete the project, also testified to this mis-sequencing, 

stating that, as he found it, the sequencing was "so inexplicable 

I guess that one could, you know, jump to the opinion then that it 

was more motivated by payment schedules and -- and based on the 

contract than to quality of a construction project." Countering 

Case: 18-9007 Document: 00117546223 Page: 9 Date Filed: 02/03/2020 Entry ID: 6314316
-10- 

these allegations of abusing the milestone payment scheme, 

Stewart, by way of Lessard, offered the following explanation: 

payments were triggered to "keep the business moving forward," and 

it was better to make some progress than none at all. Stewart 

opined on the project schedule: "there's just too many reasons for 

things to go bump in the night in the remodeling business."

Meanwhile, as the DeWitt project was playing out, BN's 

financial problems deepened, and in February 2014, Stewart met 

with Pike to explore a possible way forward, including a sale of 

the business, potential avenues for additional credit, or a 

bankruptcy filing. By July 2014, BN's coffers were entirely 

depleted. Unable to continue work on the DeWitts' project, 

Stewart and Lessard met with the DeWitts on July 22, 2014 to inform 

them of the firm's financial collapse and that a subcontractor had 

placed a mechanic's lien on the DeWitts' property. Two more liens 

from other subcontractors were to follow. Within the prior three 

weeks, the DeWitts had paid BN almost $80,000. From the inception 

of their tumultuous relationship up to that point, the DeWitts had 

paid BN $1,178,245.12, approximately ninety percent of the project 

price, for only forty-five percent of the work and a home that was 

reportedly in "shambles." Two days after the July 22 meeting, 

Stewart emailed the DeWitts that BN's financial problems had been 

resolved; the DeWitts were unconvinced.

Case: 18-9007 Document: 00117546223 Page: 10 Date Filed: 02/03/2020 Entry ID: 6314316
-11- 

On August 5, 2014, Stewart borrowed $50,000 from his 

401(k) account to put into the company after trying to access the 

entire amount for this purpose. But this and any other last-ditch 

effort to save BN and the DeWitt project would eventually fail. 

After a complete breakdown of communications, BN sent the DeWitts, 

on or around August 15, 2014, an "as-built policy invoice" charging 

them $183,629.45 ostensibly for unbilled time. The DeWitts did 

not render any payments on account of this invoice.

On September 29, 2014, BN filed for Chapter 7 bankruptcy. 

Stewart followed suit, filing personally for Chapter 7 in February 

2015. 

B. Procedural Background

On May 26, 2015, the DeWitts filed an adversary 

proceeding against Stewart opposing the discharge of a debt 

pursuant to 11 U.S.C. § 523 and the discharge of a debtor pursuant 

to 11 U.S.C. § 727.4 The DeWitts alleged that through numerous 

false representations, Stewart induced the DeWitts to hire BN and 

then proceeded to misuse their advance payments, directing the 

 

4 The various counts in the Amended Complaint follow: (I) piercing 

the corporate veil; (II) breach of contract; (III) breach of the 

covenant of good faith and fair dealing; (IV) negligence; 

(V) conversion; (VI) fraudulent misrepresentation and actual 

fraud; (VII) violation of N.H. Rev. Stat. Ann. ch. 358-A; 

(VIII) 11 U.S.C. § 523(a)(2)(A); (IX) 11 U.S.C. § 523(a)(2)(B); 

(X) 11 U.S.C. § 523(a)(4); (XI) 11 U.S.C. § 523(a)(6); (XII) 

11 U.S.C. § 727(a)(2); (XIII) 11 U.S.C. § 727(a)(4). 

Case: 18-9007 Document: 00117546223 Page: 11 Date Filed: 02/03/2020 Entry ID: 6314316
-12- 

funds instead to debts unrelated to the project and for Stewart's 

personal enrichment. The complaint requested the corporate veil 

be pierced because Stewart had used BN, of which he was the sole 

shareholder, President, and Treasurer, as his "alter ego" to 

"wrongfully obtain funds from the DeWitts" and "to perpetuate 

injustice and fraud." A series of decisions by the bankruptcy 

judge reduced the issues for trial.5 The trial proceeded over 

five days in February and March 2017, and the court heard testimony 

from each of the DeWitts, the Stewarts, Lessard, Pike, and Hutter. 

The bankruptcy court issued a final judgment and opinion on 

August 18, 2017.

The memorandum opinion began with the court explaining 

that it would "assume, without deciding, that the corporate veil 

ha[d] been pierced . . . [to] allow[] the Court to cut straight to 

the heart of the dispute" because if the debts to the DeWitts were 

in fact dischargeable, it would be unnecessary to determine whether 

the corporate veil should be pierced. DeWitt v. Stewart (In re 

Stewart), Adv. No. 15-1032-JMD, 2017 WL 3601196, at *9 (Bankr. 

D.N.H. Aug. 18, 2017). Then, after stating the legal framework 

 

5 On August 18, 2016, the bankruptcy court entered partial summary 

judgment for Stewart on counts related to § 523(a)(2)(B) and 

§ 523(a)(4). A scheduling order, filed on November 22, 2016, 

divided the trial into two parts: Counts VIII-XIII related to the 

remaining § 523 and § 727 claims would be heard first, followed by 

the state law claims contained in Counts I-VII.

Case: 18-9007 Document: 00117546223 Page: 12 Date Filed: 02/03/2020 Entry ID: 6314316
-13- 

for finding a debt non-dischargeable under § 523(a)(2)(A), it 

attended to the misrepresentations alleged by the DeWitts, 

checking off each one in the order it occurred during the parties' 

relationship. The court found that the DeWitts had failed to 

carry their burden with respect to (1) the incorrect revenue 

emails, (2) Stewart's failure to disclose BN's general financial 

condition, (3) fraud involving the design agreement, (4) fraud 

relating to the use of milestone payments, and (5) the solicitation 

of additional payments after the project had ended. Id. at *10-

16. Zooming out, the court assessed the "overall course of dealing 

[as] not indicative of actual fraud." Id. at *20. Next, it 

addressed the DeWitts' § 523(a)(6) arguments that Stewart had 

committed a "willful and malicious injury." Id. Focusing on the 

willfulness prong, the court found that "Stewart lacked the intent 

required to find willfulness," notwithstanding evidence of "either 

mismanagement or negligence." Id. at *21. Having found the debts 

not excepted from discharge, the court determined that the damagesrelated claims contained in Counts I-VII were moot. Id. 

The DeWitts appealed to the BAP on September 1, 2017. 

They argued that the bankruptcy court's factual findings were 

riddled with "critical clear errors," including "crediting 

Stewart's self-serving testimony," and that the court had ignored 

Case: 18-9007 Document: 00117546223 Page: 13 Date Filed: 02/03/2020 Entry ID: 6314316
-14- 

well-settled law when it failed to find false representations, 

false pretenses, actual fraud, or willful and malicious injury. 

For the most part, the BAP agreed with the DeWitts. 

According to the BAP, on appeal, Stewart did not meaningfully 

challenge the DeWitts' arguments, except as to whether Stewart had 

made express misrepresentations. Dewitt v. Stewart (In re 

Stewart), 592 B.R. 414, 434 (B.A.P. 1st Cir. 2018). Departing 

from the bankruptcy court's reasoning, the BAP found that Stewart 

made at least three sets of express misrepresentations and that 

many of the bankruptcy court's factual findings were "contrary to 

the testimony of the DeWitts, Lessard, Pike, Traffie, and Stewart, 

himself." Id. at 437. Additionally, the BAP decided the bankruptcy 

court had erred by not addressing implied misrepresentations under 

the theory of false pretenses and that "the record, viewed as a 

whole, supports a conclusion that [Stewart] impliedly made such 

false representations." Id. at 439. The BAP next found that 

Stewart had acted with the intent to deceive. Id. It considered 

any challenge to the DeWitts' contention that they had relied on 

Stewart's false representations as waived by Stewart on appeal, 

and in any event, that the record demonstrated that the DeWitts 

had satisfied their burden to show actual and justifiable reliance. 

Id. at 349-40, 440 n.17. Finally, the BAP deemed that the DeWitts 

had suffered harm, the final piece of the puzzle allowing Stewart's 

Case: 18-9007 Document: 00117546223 Page: 14 Date Filed: 02/03/2020 Entry ID: 6314316
-15- 

liability to the DeWitts to be excepted from discharge under § 

523(a)(2)(A). Id. at 440. Having reached the opposite conclusion 

as the bankruptcy court with respect to the dischargeability of 

the debt, the BAP proceeded to find that "the record shows that 

Stewart used [BN]'s corporate form to promote an injustice against 

the DeWitts," which it found sufficient to pierce the corporate 

veil under New Hampshire law. Id. at 441. The result was a 

reversal of Counts I and VIII and remand for the bankruptcy court 

to determine damages. Id. at 442. Now, Stewart appeals. 

II.

A. Section 523(a)(2)(A): False Pretenses, False 

Representation, and Actual Fraud 

We review "the bankruptcy court's findings of fact for 

clear error and afford[] de novo review to its conclusions of law." 

Smith v. Pritchett (In re Smith), 586 F.3d 69, 73 (1st Cir. 2009) 

(quoting Werthen v. Werthen (In re Werthen), 329 F.3d 269, 272 

(1st Cir. 2003)). Because we owe no formal deference to the BAP 

decision, "we look through that decision and directly review the 

bankruptcy court's findings" ourselves. de Benedictis v. BradyZell (In re Brady-Zell), 756 F.3d 69, 72 n.2 (1st Cir. 2014) 

(citing In re Smith, 586 F.3d at 73); Privitera v. Curran (In re 

Curran), 855 F.3d 19, 24 (1st Cir. 2017). The clear error standard 

of review "plainly does not entitle a reviewing court to reverse 

the finding of the trier of fact simply because it is convinced 

Case: 18-9007 Document: 00117546223 Page: 15 Date Filed: 02/03/2020 Entry ID: 6314316
-16- 

that it would have decided the case differently." Dev. 

Specialists, Inc. v. Kaplan (In re Irving Tanning Co.), 876 F.3d 

384, 389 (1st Cir. 2017) (quoting Anderson v. City of Bessemer 

City, 470 U.S. 564, 573 (1985)). A finding of fact is only clearly 

erroneous when "the reviewing court on the entire evidence is left 

with the definite and firm conviction that a mistake has been 

committed." Id. (quoting Anderson, 470 U.S. at 573); see Toye v. 

O'Donnell (In re O'Donnell), 728 F.3d 41, 46 (1st Cir. 2013) 

(declining to find clear error where the judge's view was "not 

'wrong with the force of a 5 week old, unrefrigerated, dead fish'" 

(quoting S Indus., Inc. v. Centra 2000, Inc., 249 F.3d 625, 627 

(7th Cir. 2001))). "Deference to the findings of the bankruptcy 

court is especially appropriate where a determination depends upon 

an assessment of credibility" and the assignment of weight to the 

witness's testimony. In re Irving Tanning Co., 876 F.3d at 389 

(citing Palmacci, 121 F.3d at 785). 

Section 523(a)(2)(A) of the Bankruptcy Code states that 

a debt will be excepted from discharge: 

(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. 

11 U.S.C. § 523(a)(2)(A). In keeping with the Bankruptcy Code's 

Case: 18-9007 Document: 00117546223 Page: 16 Date Filed: 02/03/2020 Entry ID: 6314316
-17- 

"fresh start" policy, the "[e]xceptions to discharge are narrowly 

construed[,] . . . and, for that reason, the claimant must show 

that his 'claim comes squarely within an exception enumerated in 

Bankruptcy Code § 523(a).'" Palmacci, 121 F.3d at 786 (quoting 

Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d 7, 

9 (1st Cir. 1994)); see also McCoy v. Spigel (In re Spigel), 260 

F.3d 27, 35 (1st Cir. 2001) (explaining that the narrow exceptions 

to discharge do not always protect the inculpable creditor). 

Although sharing certain elements, false pretenses, false 

representation, and actual fraud form "three distinct categories 

of misconduct," and by proving any of the three, the claimant will 

stave off discharge of a particular debt. Privitera v. Curran (In 

re Curran), 554 B.R. 272, 284-85 (B.A.P. 1st Cir. 2016), aff'd, 

855 F.3d 19 (1st Cir. 2017); see McGuinness v. Gannon (In re 

Gannon), 598 B.R. 72, 82-83 (Bankr. D. Mass. 2019). 

To make out a claim for false representation, the 

plaintiff must prove by a preponderance of the evidence that: 

1) the debtor made a knowingly false representation 

or one made in reckless disregard of the truth, 2) 

the debtor intended to deceive, 3) the debtor intended 

to induce the creditor to rely upon the false 

statement, 4) the creditor actually relied upon the 

false statement, 5) the creditor's reliance was 

justifiable, and 6) the reliance upon the false 

statement caused damage. 

Sharfarz v. Goguen (In re Goguen), 691 F.3d 62, 66 (1st Cir. 2012) 

(quoting In re Spigel, 260 F.3d at 32); Grogan v. Garner, 498 U.S. 

Case: 18-9007 Document: 00117546223 Page: 17 Date Filed: 02/03/2020 Entry ID: 6314316
-18- 

279, 291 (1991) (holding that standard of proof for 

dischargeability exceptions is by a preponderance of the 

evidence). Each of the six elements constitutes a finding of 

fact, and failure to prove any one of them defeats the claim. 

Palmacci, 121 F.3d at 787-88 (citing Commerce Bank & Tr. Co. v. 

Burgess (In re Burgess), 955 F.2d 134, 139 (1st Cir. 1992)). "The 

requirements for false pretenses 'are largely the same, except 

that requirement of a false representation is replaced by a 

requirement of a false pretense, which is an implied 

misrepresentation or a false impression created by conduct of the 

debtor.'" Curran, 554 B.R. at 285 (quoting Meads v. Ribeiro (In 

re Ribeiro), Adv. No. 11–1188, 2014 WL 2780027, at *9 (Bankr. D. 

Mass. June 19, 2014)). False pretenses may "arise when the 

circumstances 'imply a particular set of facts, and one party knows 

the facts to be otherwise' but does not correct the counter-party's 

false impression." In re Curran, 855 F.3d at 28-29 (quoting Old 

Republic Nat'l Title Ins. Co. v. Levasseur (In re Levasseur), 737 

F.3d 814, 818 (1st Cir. 2013)) (affirming a denial of the 

plaintiff's motion to amend her complaint to add claims under § 

523(a)(2)(A) when she had failed to plead facts sufficient to show 

false pretenses or a false representation). 

Actual fraud, understood in light of the common law 

definition found in the Restatement (Second) of Torts (Am. Law 

Case: 18-9007 Document: 00117546223 Page: 18 Date Filed: 02/03/2020 Entry ID: 6314316
-19- 

Inst. 1977), is broader than misrepresentation. Sauer Inc. v. 

Lawson (In re Lawson), 791 F.3d 214, 219-20 (1st Cir. 2015) 

(holding that "actual fraud" as used in § 523(a)(2)(A) does not 

require a misrepresentation and includes the knowing receipt of 

fraudulent conveyances). It "consists of any deceit, artifice, 

trick, or design involving direct and active operation of the mind, 

used to circumvent and cheat another." Id. at 219 (quoting 4 

Collier on Bankruptcy ¶ 523.08[1][e] (A.N. Resnick & H.J. Sommer 

eds., 16th ed. 2015)). Actual fraud, compared to merely 

constructive fraud, requires wrongful intent and cannot be implied 

by law. Id. at 220; see Husky Int'l Elecs., Inc. v. Ritz, 136 S. 

Ct. 1581, 1586-87 (2016). 

While "[t]he statutory requirements for a discharge are 

'construed liberally in favor of the debtor,'" Palmacci, 121 F.3d 

at 786 (quoting Boroff v. Tully (In re Tully), 818 F.2d 106, 110 

(1st Cir. 1987)), the law limits discharge to "the honest but 

unfortunate debtor," In re O'Donnell, 728 F.3d at 42 (quoting 

Grogan, 498 U.S. at 286-87). 

On appeal, Stewart defends the bankruptcy court's 

opinion allowing the discharge of the DeWitts' claims and charges 

that the BAP erred when it reweighed the evidence, decided 

arguments not properly preserved below, and conducted its own factfinding. Meanwhile, the DeWitts present their position that the 

Case: 18-9007 Document: 00117546223 Page: 19 Date Filed: 02/03/2020 Entry ID: 6314316
-20- 

bankruptcy court's findings were clearly erroneous and its 

interpretations of the evidence implausible. They posit that the 

"uncontested" facts in evidence -- the false revenue numbers and 

misrepresentation of subcontractor relationships, the 

"misappropriation" of falsely induced deposit payments, and 

finally, the project mis-sequencing aimed at eliciting additional 

payments -- are sufficient to meet their burden of proof under 

§ 523(a)(2)(A) and the BAP was correct in so concluding.

First, we address the issue of false pretenses or implied 

misrepresentations, which Stewart claims was not properly before 

the lower courts. The bankruptcy court acknowledged that the 

DeWitts were seeking exception to discharge for either "false 

pretenses or representations," but did not differentiate between 

the two when laying out the legal framework or walking through its 

analysis. In re Stewart, 2017 WL 3601196, at *10. The BAP found 

that "[t]he bankruptcy court committed clear error when: (1) it 

did not analyze whether Stewart obtained the DeWitts' money through 

false pretenses; and (2) it did not find that the DeWitts proved 

that Stewart obtained their money through false pretenses." In 

re Stewart, 592 B.R. at 439. Stewart now argues on appeal that 

the DeWitts did not clearly present this theory to the bankruptcy 

court (or to the BAP for that matter), other than by citing the 

entirety of § 523(a)(2)(A), and instead focused their arguments on 

Case: 18-9007 Document: 00117546223 Page: 20 Date Filed: 02/03/2020 Entry ID: 6314316
-21- 

false representations and actual fraud. Therefore, he claims the 

BAP effectively decided an issue not before the bankruptcy court. 

The DeWitts counter this waiver argument by pointing out that the 

claim for false pretenses is nearly identical to that for false 

representation, "lumped together" if you will, and "'mirrors' the 

argument before the trial court." 

We note that a "legal theory may not be preserved by 

bare reference in a pleading if it is thereafter abandoned until, 

freshly discovered on appeal, it is raised anew." Banco Bilbao 

Vizcaya Argentaria v. Wiscovitch-Rentas (In re Net-Velázquez), 625 

F.3d 34, 40 (1st Cir. 2010). Yet, having parsed the DeWitts' 

closing brief submitted to the bankruptcy court, as well as their 

brief to the BAP, we conclude that they did in fact preserve their 

claim for false pretenses below, albeit not in the clearest of 

terms. First, the theories of false pretenses and false 

representation under § 523(a)(2)(A) overlap almost completely. 

See Kosilek v. Spencer, 774 F.3d 63, 91 n.13 (1st Cir. 2014) (en 

banc) (declining to find waiver where the issue significantly 

overlapped with the argument raised by the party). On several 

occasions, we have suggested that the two theories require a 

showing of the same elements. See, e.g., In re Goguen, 691 F.3d 

at 66; In re Spigel, 260 F.3d at 32. Other times, we have treated 

false pretenses as a subset of false representations. See, e.g., 

Case: 18-9007 Document: 00117546223 Page: 21 Date Filed: 02/03/2020 Entry ID: 6314316
-22- 

In re Curran, 855 F.3d at 28; In re Levasseur, 737 F.3d at 817-

18. The DeWitts' briefs below contain several references to 

"false pretenses," and while these references are rather 

conclusory, the DeWitts did explicitly state that they were 

advancing a false pretenses argument. In addition, the DeWitts 

cited and discussed many cases that found both false pretenses 

and/or false representations that reflect the overlap of these 

arguments. See, e.g., Fornet v. Miller (In re Miller), 5 B.R. 

424, 428 (Bankr. W.D. La. 1980) (finding "the debtor made a false 

pretense or representation in order to obtain money to pay other 

creditors" (emphasis added)). Perhaps most helpful for their 

cause is their mention of Fensick v. Segala (In re Segala), 133 

B.R. 261 (Bankr. D. Mass. 1991), where the bankruptcy court found 

that when "funds are deemed to have been entrusted to the debtor 

for a specific purpose, the debtor is regarded as impliedly 

representing his intention to use the funds accordingly." Id. at 

264. There, the plaintiffs had hired the debtor to update their 

home, and despite no formal payment schedule, id. at 262, the 

plaintiffs had made payments in response to the debtor's nonspecific assertion that he needed the funds to continue the job, 

"impliedly represent[ing] that the funds would be used on the job," 

id. at 264. Although the court's conclusion in In re Segala did 

not actually use the term "false pretenses," that was clearly its 

Case: 18-9007 Document: 00117546223 Page: 22 Date Filed: 02/03/2020 Entry ID: 6314316
-23- 

meaning.6 In light of the overlap between the theories of false 

pretenses and false representation, the DeWitts' curt references 

to false pretenses, along with their detailed discussion of various 

false representations, sufficiently preserved the issue of implied 

misrepresentation. Accordingly, we decline to find the false 

pretenses argument waived and agree with the BAP that it was error 

not to address whether Stewart obtained the DeWitts' money through 

conduct amounting to implied misrepresentations. In re Stewart, 

592 B.R. at 439. 

This, however, is where our agreement with the BAP on 

the issue of false pretenses ends. After drawing this conclusion, 

the BAP proceeded to find that "the record, viewed as a whole, 

supports a conclusion that [Stewart] impliedly made such false 

representations." Id. Given the complexity of the record and the 

contested nature of the testimony, we leave this sort of factfinding to the trier of fact. See In re Irving Tanning Co., 876 

F.3d at 389-90 ("If a trial court's findings are too meager to 

allow review, the decision has run afoul of [Federal Rule of Civil 

Procedure] 52(a), and the appropriate remedy is a remand for 

further fact-finding." (citing Supermercados Econo, Inc. v. 

 

6 On appeal, Stewart argues why the facts of In re Segala are 

distinguishable. Without deciding the merits of these arguments, 

we cite this case only to illustrate that the issue of false 

pretenses was preserved below. 

Case: 18-9007 Document: 00117546223 Page: 23 Date Filed: 02/03/2020 Entry ID: 6314316
-24- 

Integrand Assurance Co., 375 F.3d 1, 5 (1st Cir. 2004))). 

Therefore, we remand to the BAP with instructions to return the 

case to the bankruptcy court for further findings on this issue. 

Next, before weighing in on the court's fact-finding on 

the elements of the false representation claims, we look to see 

whether the bankruptcy court applied the correct legal standards, 

an exercise we perform de novo. In re Goguen, 691 F.3d at 68. 

Here, we find that the bankruptcy court erred when determining 

what is required to prove a false representation. In particular, 

the bankruptcy court took too narrow a view of what constitutes 

intent to deceive. Intent to deceive may be found if any of the 

following are true: 

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." 

Palmacci, 121 F.3d at 787 (quoting Restatement (Second) of Torts 

§ 526). A "false representation as to one's intention, such as a 

promise to act," can qualify as a misrepresentation under 

§ 523(a)(2)(A). Id. at 786. In the context of such a 

misrepresentation, the question of fraudulent intent centers on 

the debtor's state of mind with regard to his promise. See id. 

at 788. The trier of fact must ask whether the representation was 

made in bad faith, i.e., with either an "intention of reneging on 

Case: 18-9007 Document: 00117546223 Page: 24 Date Filed: 02/03/2020 Entry ID: 6314316
-25- 

his promise" or "recklessly disregarding whether or not he would 

keep his promise." Id. at 789. Simply breaking one's contractual 

obligations does not, therefore, evidence such fraudulent intent. 

See id. at 787. Nevertheless, the trier of fact may infer the 

requisite intent or recklessness if the debtor knew or should have 

known that he could not keep his promise. See id. at 788-89. And 

this inference may be derived from the totality of circumstances, 

including from circumstantial facts and post-transaction conduct. 

Id. at 789, 792-93. 

On appeal to the BAP, the DeWitts -- then appellants, 

now appellees -- focused their arguments on Stewart's 

representations regarding the use of their payments which would go 

to "fund their project" and "leverage subcontractors." Thus, we 

limit our ensuing analysis to those representations.7

 

7 In this appeal, the DeWitts, as appellees, have renewed their 

arguments regarding Stewart's misrepresentations of BN's finances 

and subcontractor relations, which were not clearly presented as 

arguments to the BAP. We recently noted in Popular Auto, Inc. v. 

Reyes-Colón (In re Reyes-Colón) that "[a]t least two circuits have 

held that the losing party in the bankruptcy court cannot raise on 

appeal to the circuit court arguments not presented to the district 

court on intermediate review." 922 F.3d 13, 18 (1st Cir. 2019) 

(citing Bradley v. Ingalls (In re Bradley), 501 F.3d 421, 433 (5th 

Cir. 2007); United States v. Olson, 4 F.3d 562, 567 (8th Cir. 

1993)). And we accept this non-extraordinary position, at least 

as it applies here to the facts of this case. Also, on the subject 

of waiver, while the BAP found that Stewart made express 

misrepresentations related to BN's ability to complete the 

DeWitts' renovation within budget and as to the purposes of the 

first and second deposits, In re Stewart, 592 B.R. at 434-35, the 

DeWitts do not stress these arguments on appeal before us. Thus, 

Case: 18-9007 Document: 00117546223 Page: 25 Date Filed: 02/03/2020 Entry ID: 6314316
-26- 

The bankruptcy court dealt with the DeWitts' claims that 

Stewart misrepresented the milestone payment structure to "fund 

their project" and that BN would use these advance payments to 

"leverage subcontractors" as distinct issues. In re Stewart, 2017 

WL 3601196, at *14. As to the first issue, the court rejected 

that Stewart "either intended to convey false information to the 

DeWitts or to deceive them." Id. It proceeded to find the 

representations too general to be false and accepted as plausible 

Stewart's explanation that Stewart only meant that BN would not be 

able to perform the project without the milestone payment scheme. 

Id. 

Next, the court turned to statements about "leveraging 

subcontractors," finding no actual reliance by the DeWitts and 

insufficient evidence of an intent to mislead because Stewart "was 

simply providing an explanation of why BN was offering the 

discount," which the DeWitts ended up receiving. Id. The problem 

with the court's reasoning that Stewart lacked the intent to 

deceive because these statements were merely explanations of a 

discount is that it fails to consider whether Stewart actually 

 

although the DeWitts have waived any argument that these sets of 

representations were fraudulent, we recognize that they may be 

relevant in a totality of the circumstances analysis of Stewart's 

fraudulent intent with regard to the promise that he would use 

milestone payments to leverage subcontractors. 

Case: 18-9007 Document: 00117546223 Page: 26 Date Filed: 02/03/2020 Entry ID: 6314316
-27- 

planned to keep his promise to invest the milestone payments to 

the benefit of the DeWitts' project. For all its thoroughness, 

the bankruptcy court failed to take into consideration whether 

Stewart recklessly disregarded the truth of these representations. 

And the correct analysis to answer this question would focus on 

the totality of the circumstances surrounding these statements, 

particularly in tandem with testimony from the DeWitts that Stewart 

represented that the payments would be used "to fund [their] 

project," along with other evidence that the funds were being spent 

elsewhere. Palmacci, 121 F.3d at 789 ("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."). In addition, the accusations that the project was 

mis-sequenced for the purposes of generating milestone payments 

might serve as helpful context that bear on these alleged 

misstatements.8

As for what the court found Stewart meant when he said 

the payment scheme was to "fund your own project" (i.e., provide 

 

8 To be sure, later in its opinion, the bankruptcy court did offer 

an overview of the entire course of dealing, but only in the 

context of whether Stewart had committed actual fraud by way of a 

complex scheme against the DeWitts. In re Stewart, 2017 WL 3601196, 

at *16-20. 

Case: 18-9007 Document: 00117546223 Page: 27 Date Filed: 02/03/2020 Entry ID: 6314316
-28- 

cash flow to the company), we doubt this reading squares with our 

analysis of what constitutes a misrepresentation in Palmacci. Id. 

at 788 (finding an express misrepresentation because "[a]n 

ordinary lay person like [the creditor] would not think, nor would 

it be reasonable to expect him to think, that [the debtor's] 

representation that he would invest 'his own personal funds' in 

the . . . project could be read to include funds he borrowed from 

a bank secured by a mortgage on the project property itself"). We 

wager that a lay person presented with a payment scheme, whereby 

payments are triggered at the start of certain construction 

milestones so as to "fund your own project," would not think that 

this instead means that the money would be used to pay off a 

company's old debts and extraneous expenses. However, we do not 

belabor this point. Instead, we hold that, while the "fund your 

own project" statements might not amount to express 

misrepresentations in their own right, as the bankruptcy court 

found, they still might serve to elucidate Stewart's intent when 

assuring the DeWitts that the advance payments were being used to 

leverage subcontractors. Finally, while perhaps the initial 

representation about the goals of the milestone payments to 

leverage subcontractors may have been a theoretical explanation of 

the payment plan's goals, as Lessard and Stewart testified, BN's 

subsequent requests for early milestone payments, and the 

Case: 18-9007 Document: 00117546223 Page: 28 Date Filed: 02/03/2020 Entry ID: 6314316
-29- 

specificity offered by Lessard as to how the DeWitts' money would 

then be leveraged in his March 6 email (i.e., to the benefit of 

the DeWitts' project), should be considered by the bankruptcy court 

in light of the context at the time these representations were 

made. 

Also relevant to this analysis, the bankruptcy court 

separately addressed the DeWitts' arguments related to the 

solicitation of payments at the end of the project. In re Stewart, 

2017 WL 3601196, at *15-16. It concluded that the DeWitts' 

evidence on this point, i.e., the amounts owed to vendors on the 

DeWitts' project at the end of 2014 and exchanges between 

subcontractors illustrating BN's inability to pay, was 

"insufficient for the Court to conclude that Stewart either knew 

that BN would not be able to complete the project or recklessly 

disregarded the truth of that fact with an intent to deceive the 

DeWitts." Id. at *16. However, rather than disposing of this 

evidence as support for a stand-alone argument insufficient to 

show fraudulent intent, this evidence should have been viewed as 

context for the aforementioned misrepresentations. To be clear, 

intent under § 523(a)(2)(A) does not require the intent to harm. 

Cf. Printy v. Dean Witter Reynolds, Inc., 110 F.3d 853, 859 (1st 

Cir. 1997) (finding that the malice element of a § 523(a)(6) claim, 

in contrast, requires an intent to cause harm exceeding negligence 

Case: 18-9007 Document: 00117546223 Page: 29 Date Filed: 02/03/2020 Entry ID: 6314316
-30- 

and recklessness). And intentionally using deception to solicit 

payments is not inconsistent with the court's other finding, based 

on Stewart's testimony, that Stewart still believed he could 

complete the project. In re Stewart, 2017 WL 3601196, at *16. 

The latter may be true, but by misrepresenting how the milestone 

payments were being used (to leverage subcontractors for the 

benefit of the DeWitts' project), in light of BN's dire financial 

situation, an inference of intent to deceive could very well 

follow. We agree with the BAP's conclusion that "[i]t does not 

necessarily follow from Stewart's attempt to rescue his own company 

. . . that he had been honest in his dealings with the DeWitts." 

In re Stewart, 592 B.R. at 438. While it may not have been 

Stewart's intent to harm the DeWitts by not completing their 

project, the right question is whether he intended to deceive them, 

through recklessly made misrepresentations, in light of the 

totality of the circumstances. 

That still leaves us with the bankruptcy court's 

alternative ground for finding no misrepresentation with respect 

to the leveraging statements – i.e., that "there is no evidence 

that the DeWitts actually relied on [them]." In re Stewart, 2017 

WL 3601196, at *15; see Palmacci, 121 F.3d at 788 ("[A] factual 

finding that negates one element of the plaintiff's prima facie 

case renders findings concerning other elements unnecessary."). 

Case: 18-9007 Document: 00117546223 Page: 30 Date Filed: 02/03/2020 Entry ID: 6314316
-31- 

The court found that the DeWitts made the prepayments in order to 

secure the discount that Stewart offered and ultimately provided 

and that there was no evidence that the DeWitts believed that they 

would receive an additional discount if BN could leverage its 

subcontractors. In re Stewart, 2017 WL 3601196, at *15. In 

reversing, the BAP found that Stewart had waived all arguments 

with respect to actual and justifiable reliance by not countering 

the DeWitts' argument on appeal that "the DeWitts actually did 

rely on Stewart's representations."9 In re Stewart, 592 B.R. at 

439-40. However, on appeal to the BAP, we find that Stewart did 

in fact respond by citing and adopting the bankruptcy court's 

reasoning that there was no reliance. Thus, we conclude it was 

error to deem this argument waived, but nevertheless, agree with 

the BAP's alternative suggestion that the bankruptcy court erred 

by taking too narrow a view of reliance. 

It is true that the DeWitts' claims must "arise[] as a 

direct result of the debtor's misrepresentations or malice." In 

re Spigel, 260 F.3d at 34 (quoting In re Menna, 16 F.3d at 10). 

"[I]f a party has not in fact relied on the misrepresentation . . . 

 

9 In their brief to the BAP, the DeWitts' entire argument on this 

point is that they "testified that they never would have agreed to 

make payments in advance of completion of different phases of the 

project if they had known that BN was using these payments for the 

general purposes of the business without reserving sufficient 

funds to complete their project."

Case: 18-9007 Document: 00117546223 Page: 31 Date Filed: 02/03/2020 Entry ID: 6314316
-32- 

in entering into a transaction in which he suffers pecuniary loss, 

then the misrepresentation is not in fact a cause of the loss." 

In re Goguen, 691 F.3d at 69 (second alteration in original) 

(internal quotation marks omitted) (quoting Restatement (Second) 

of Torts § 546 cmt. a) (holding that post-contract-formation 

misrepresentations by the debtor that lead the creditor to "stay[] 

the course" rather than opt out of the contract may constitute 

cause-in-fact of the creditor's subsequent harm). Here, the 

relevant transaction does not necessarily refer to the initial 

ill-fated decision to contract with BN. The transaction could be 

the DeWitts' continuing decision to prepay contract milestones 

when the payments were being diverted elsewhere and not as 

represented, i.e., to leverage subcontractors. For a "fraud that 

induces the creditor not to exercise a right arising from the 

contract may make the debtor's debt nondischargeable." Id. at 70 

(citing Field v. Mans, 157 F.3d 35, 39, 42-46 (1st Cir. 1998)). 

Therefore, the bankruptcy court erred by applying a standard of 

reliance that overlooked the role those statements may have had in 

continuing to string along the DeWitts. 

Justifiable reliance, on the other hand, "is a matter of 

the qualities and characteristics of the particular plaintiff, and 

the circumstances of the particular case, rather than of the 

application of a community standard of conduct to all cases." 

Case: 18-9007 Document: 00117546223 Page: 32 Date Filed: 02/03/2020 Entry ID: 6314316
-33- 

Field v. Mans, 516 U.S. 59, 71 (1995) (quoting Restatement (Second) 

of Torts § 545A cmt. b). We acknowledge that the DeWitts testified 

as to their reliance.10 But, as we have said before, "[a]t this 

stage of bankruptcy litigation, the task of an appellate court is 

not to find the facts anew, but, rather, to assay the bankruptcy 

court's factfinding for clear error." In re Brady-Zell, 756 F.3d 

at 72 (citing In re Tully, 818 F.2d at 109). Therefore, we agree 

with Stewart that the BAP erred when it proceeded to reweigh the 

 

10 The pertinent transcript of Sheila DeWitt's direct examination 

reads: 

Q: So he told you he would use your money in advance to leverage 

subcontractors? 

A: He did. 

. . . 

Q: And did you believe him? 

A: Yes, we believed him. 

Q: If the money wasn't going to your project would you have agreed 

to pay everything in advance? 

A: Never. 

Trial Transcript 2/8/2017 70:9-20.

Q: Did you rely on Mr. Stewart's statement that you were, in fact, 

funding your own project? 

A: We did. 

Q: Did you rely on that in terms of agreeing to this payment 

schedule? 

A: We did. 

Q: Did you rely on that statement in terms of following the payment 

schedule? 

A: Yes. 

Q: And you did follow it, didn't you? 

A: Yes. We paid every milestone. 

Trial Transcript 2/8/2017 77:10-20.

Case: 18-9007 Document: 00117546223 Page: 33 Date Filed: 02/03/2020 Entry ID: 6314316
-34- 

evidence and announce its own findings of fact. Here, the BAP 

found that the bankruptcy court had "excessively discounted the 

testimony of the DeWitts, seemingly in favor of Stewart's testimony 

that he transferred $50,000 in August 2014 from his 401(k) 

retirement account to [BN]." In re Stewart, 592 B.R. at 438. It 

is true that the bankruptcy court was swayed by Stewart's testimony 

on the latter point, and had we been the trier of fact, we may 

have assigned different weight to this evidence. However, because 

we did not have the benefit of seeing Stewart or the DeWitts 

testify, it is hard to know what the court was thinking, beyond of 

course what it told us (which in fact is a lot). And while many 

times the bankruptcy court explicitly explained the weight it was 

assigning testimony, it did not give us a full read on the 

credibility of the DeWitts, particularly with respect to these 

statements on reliance. On appellate review, rather than 

reassigning weight to witness testimony when it is apparent the 

trier of fact considered it and chose to assign it little weight, 

In re Stewart, 2017 WL 3601196, at *14, the proper remedy is to 

remand to give the trial court the opportunity to explain its 

rationale. Thus, rather than render the fact-based determination 

as to actual and justifiable reliance, the latter of which we have 

just explained is context-driven and plaintiff-specific, we remand 

so the bankruptcy court may determine whether the DeWitts have 

Case: 18-9007 Document: 00117546223 Page: 34 Date Filed: 02/03/2020 Entry ID: 6314316
-35- 

proved, by a preponderance of the evidence, that they actually and 

justifiably relied on BN's assurances.11

Therefore, in summary, we remand to the BAP with 

instructions to return the case to the bankruptcy court to consider 

only the statements pertaining to "leveraging subcontractors" as 

express misrepresentations and to apply the aforementioned 

standards for intentionality and actual and justifiable reliance. 

In conducting the intent analysis, the bankruptcy court should 

consider the totality of the circumstances, including Stewart's 

nonactionable statements (e.g., "fund your own project"), BN's 

dire financial situation, and evidence of mis-sequencing the 

construction stages. 

Lastly on the subject of § 523(a)(2)(A), the DeWitts 

argue that the bankruptcy court clearly erred when it found that 

Stewart's overall course of dealing did not amount to actual fraud. 

The DeWitts point to Husky International Electronics, Inc. for the 

proposition that even in the absence of a misrepresentation, the 

court should find that Stewart's entire course of conduct 

demonstrates an actually fraudulent scheme. Brief for Plaintiffs-

 

11 We leave also the sixth element -- the issue of harm –- and 

any damages resulting from reliance to the bankruptcy court on 

remand, as is our appellate prerogative. See In re Goguen, 691 

F.3d at 72 (remanding the issue of damages to the bankruptcy court 

when the bankruptcy court had not made specific findings on those 

allegations). 

Case: 18-9007 Document: 00117546223 Page: 35 Date Filed: 02/03/2020 Entry ID: 6314316
-36- 

Appellees at 41, DeWitt v. Stewart (In re Stewart), No. 18-9007 

(1st Cir. Mar. 11, 2019) (citing 136 S. Ct. at 1587). For purposes 

of nondischargeability based on actual fraud, the claimant must 

demonstrate that the debtor's "underlying conduct . . . involve[d] 

'moral turpitude or intentional wrong.'" 4 Collier on Bankruptcy 

¶ 523.08[1][e] (Richard Levin & Henry J. Sommer eds., 16th ed. 

2019) (quoting Husky Int'l Elecs., Inc., 136 S. Ct. at 1586). In 

addition to the discrete alleged misrepresentations, the 

bankruptcy court made a multitude of findings related to the 

DeWitts' theory on actual fraud. For example, it found that the 

Design Fee Purchase Agreement was not "the hook of some larger 

fraudulent scheme," nor did Stewart attempt to mislead the DeWitts 

into the Purchase Agreement by obscuring the true price of the 

contract until after the DeWitts had made their first deposit. In 

re Stewart, 2017 WL 3601196, at *17. The bankruptcy court also 

rejected the argument that Stewart "viewed the DeWitts as a means 

for his company to generate revenue with no real interest in 

completing the project," id. at *20, and was "living high" 

throughout at their expense, id. at *18. On appeal, the DeWitts 

have failed to explain to us why these findings are clearly 

erroneous. Notwithstanding our holding that the bankruptcy court 

erred when it determined what was required to prove "intent to 

deceive," the DeWitts do not explain how the court's additional 

Case: 18-9007 Document: 00117546223 Page: 36 Date Filed: 02/03/2020 Entry ID: 6314316
-37- 

findings negating the scheme they allege as "actual fraud" were 

clearly erroneous. Because we find that the facts here can support 

two plausible but conflicting interpretations of a body of 

evidence, In re Brady-Zell, 756 F.3d at 72, we decline to find the 

bankruptcy court's findings on the issue of actual fraud in clear 

error and reserve our remand to the issues of false pretenses and 

false representation. 

B. Section 523(a)(6): Willful and Malicious Injury 

The Bankruptcy Code also excepts from discharge any debt 

that is "for willful and malicious injury by the debtor to another 

entity or to the property of another entity." 11 U.S.C. 

§ 523(a)(6). As referenced above, an exception to discharge under 

§ 523(a)(6) requires more than negligence or recklessness. See 

Printy, 110 F.3d at 859. Specifically, "[w]illfulness requires a 

showing of intent to injure or at least of intent to do an act 

which the debtor is substantially certain will lead to the injury 

in question." In re Levasseur, 737 F.3d at 818 (internal quotation 

marks omitted). While the BAP made no findings on the DeWitts' § 

523(a)(6) claims, the DeWitts renew their argument that "Stewart's 

actions were designed to commit injury." Convinced that the 

bankruptcy court did in fact apply the correct standard in its 

assessment of willful and malicious conduct, see In re Stewart, 

2017 WL 3601196, at *20-21, we refuse to deem the court's finding 

Case: 18-9007 Document: 00117546223 Page: 37 Date Filed: 02/03/2020 Entry ID: 6314316
-38- 

that Stewart did not actually intend to cause the DeWitts harm as 

clearly erroneous, remembering the burden of proof was again on 

the DeWitts. 

C. Piercing the Corporate Veil 

Finally, Stewart points out on appeal that it was 

inappropriate for the BAP to determine that the corporate veil 

should be pierced without the bankruptcy court first having 

conducted fact-finding on this issue. See In re Stewart, 592 B.R. 

at 440-41. We agree that the appropriate remedy is remand for the 

bankruptcy court to determine whether the corporate veil should be 

pierced in accordance with New Hampshire state law. See In re 

Irving Tanning Co., 876 F.3d at 389-90; see also Martínez v. 

Petrenko, 792 F.3d 173, 181 (1st Cir. 2015) (explaining the 

findings that New Hampshire state law requires for piercing the 

corporate veil under Druding v. Allen, 451 A.2d 390, 393 (N.H. 

1982)). 

III. 

In conclusion, we hold that the bankruptcy court erred 

in three respects: (1) by failing to consider whether Stewart had 

committed false pretenses through implied misrepresentation; 

(2) by failing to consider whether Stewart was acting without 

confidence in the accuracy of his representation or with knowledge 

that he did not have the basis for his representation in its 

Case: 18-9007 Document: 00117546223 Page: 38 Date Filed: 02/03/2020 Entry ID: 6314316
-39- 

analysis of his intent to deceive, see Palmacci, 121 F.3d at 787; 

and (3) by applying a standard of reliance that was too narrow and 

did not take into consideration continuing transactions postcontract-formation. As an appellate court, it is beyond our 

purview to make factual determinations on the elements of a 

§ 523(a)(2)(A) claim ourselves. The same goes for rendering 

findings on the appropriateness of piercing the corporate veil. 

Accordingly, we vacate the BAP's reversal of the bankruptcy court's 

judgment and remand with instructions that the case be returned to 

the bankruptcy court for further proceedings consistent with this 

opinion. Each party shall bear their own cost of this appeal. 

Reversed and Remanded. 

Case: 18-9007 Document: 00117546223 Page: 39 Date Filed: 02/03/2020 Entry ID: 6314316