Opinion ID: 4294629
Heading Depth: 2
Heading Rank: 2

Heading: The January 9, 2017 Order

Text: We refocus our lens on the plaint before us. Amongst the claims that Patriot pleaded in its complaint were requests for denial of discharge of Fustolo's debt under 11 U.S.C. § 727(a)(3), which allows for a denial when a debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, and 11 U.S.C. § 727(a)(4), which allows for denial if a debtor has knowingly and fraudulently, in or in connection with the case . . . made a false oath or account. In its motion to conform, Patriot requested that the bankruptcy court allow it to assert a claim and obtain a judgment against Fustolo under 11 U.S.C. § 727(a)(6), which provides for denial of discharge of a debtor [that] has refused, in the case . . . to obey any lawful order of the court, other than to respond to a material question or to testify. -15- As previously noted, the bankruptcy court allowed Patriot's request for amendment and judgment on the unpleaded claim, finding that Fustolo had been put on notice of a possible § 727(a)(6) claim prior to trial, and that the unpleaded claim was foreseeable as early as March 17, 2016. In re Fustolo, 563 B.R. at 106-08. The court reasoned that Fustolo impliedly consented to the litigation of the unpleaded § 727(a)(6)(A) claim by filing the JPM, and through his silent acquiescence and failure to object to the introduction of evidence directly relevant to that claim. Id. at 106, 108. According to the court, Fustolo's acceptance occurred through: 1) the inclusion of the discovery misconduct issue in the JPM; 2) his failure to object to the court taking judicial notice of the December 31 Order and accompanying memorandum, and the transcript of the March 17, 2016 hearing; and, 3) his acquiescence to Patriot's line of questioning about the December 31 Order. Id. at 108. The court also found the introduction of the December 31 Order, the accompanying memorandum, the March 17, 2016 hearing transcript, and Patriot's questioning of Fustolo were all more strongly relevant to a § 727(a)(6)(A) claim than alternative explanations offered by Fustolo. Id. (citing Haught v. Maceluch, 681 F.2d 291, 305 (5th Cir. 1982)). -16- Further, while acknowledging the belated timing of Patriot's motion to conform, the bankruptcy court pointed out that Patriot raised the issue in its post-trial brief, and that Rule 15(b)(2) allows for amendments to pleadings at any time, even after judgment. Id. at 108-09 (quoting Fed. R. Civ. P. 15(b)(2)) (quotation marks omitted). The court next found that Fustolo would not suffer any undue prejudice as he had a full and fair opportunity to address his compliance with the December 31st Order at trial, and because the court could not imagine what additional evidence Fustolo could offer as to this claim. Id. at 109. Finally, after conducting an analysis under § 727(a)(6), the bankruptcy court concluded that Patriot had show[n] by a preponderance of the evidence that Fustolo willfully and intentionally refused to obey a lawful order of this Court, which warranted denial of his discharge. Id. at 113. In this appeal, Fustolo disputes the contention that he was put on notice about a potential § 727(a)(6) claim, and argues that the pre-trial filings, Patriot's request for judicial notice, and his testimony all related to the existing § 727(a)(3) or § 727(a)(4) claims and ongoing discovery disputes. He avers that these pieces of evidence at most constituted incidental evidence, which created nothing more than an inferential suggestion of a possible § 727(a)(6) claim. Fustolo faults the bankruptcy court -17- for utilizing the most strongly relevant test to find implied consent, and employing a double standard by imputing Fustolo's notice of a potential § 727(a)(6) claim in March 2016 while failing to require Patriot to justify its delayed amendment until September 2016. Patriot's delay, he claims, was unfairly prejudicial as it precluded him the opportunity to consider the need for additional evidence. Patriot, on the other hand, maintains the accuracy of the bankruptcy court's discretionary decision, asserting that evidence of Fustolo's Protocol violation was relevant only to the unpleaded claim. Therefore, says Patriot, because Fustolo was on fair notice of the possible new claim and engaged on the merits at trial without objection, he impliedly consented to its addition. Patriot also contests any alleged prejudice to Fustolo as it posits that he had the opportunity to address the § 727(a)(6) claims, but simply failed to do so. As for why it waited until after trial to request amendment, Patriot points to discovery and trial preparation, and its desire to prevent Fustolo from seeking further postponement.