Court Opinion

ID: 4220667
Source: CourtListenerOpinion
Date Created: 2017-11-15 21:00:20.761512+00
Date Added: 2024-06-11T14:15:29.469987
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 17-1463

                      IN RE: KIMBERLY ANN ZIZZA,

                               Debtor.

                         KIMBERLY ANN ZIZZA,

                              Appellant,

                                  v.

                        WILLIAM K. HARRINGTON,

                 UNITED STATES TRUSTEE FOR REGION 1,

                              Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Indira Talwani, U.S. District Judge]

                                Before

                      Lynch, Stahl, and Barron,
                           Circuit Judges.

     David G. Baker, on brief for appellant.
     Eric K. Bradford, Stephen E. Meunier, and John Postulka, Trial
Attorneys for the Office of the US Trustee, on brief for appellee.
November 15, 2017
          STAHL, Circuit Judge.      Kimberly Ann Zizza appeals an

order from the bankruptcy court denying her Chapter 7 discharge on

the grounds that she made material, knowing, and fraudulent false

oaths in the course of her bankruptcy proceedings.         11 U.S.C.

§ 727(a)(4).   The bankruptcy court found that Zizza had failed to

disclose in her schedules and at her first creditors' meeting,

with reckless indifference to the truth, two lawsuits to which she

was a party.   After careful consideration, we affirm.

                                I.

          Zizza is a licensed attorney in Massachusetts.     In 2007

and 2008, she was involved in two separate automobile accidents in

which she claims she sustained injuries.     On November 23, 2010,

she filed suit against the driver in the first accident in Essex

Superior Court in Lawrence ("the Duffy action").   On February 11,

2011, she filed suit against the driver in the second accident in

Essex Superior Court in Salem ("the Sapienza action"). On February

25, 2011, the Superior Court dismissed the Duffy action for failing

to meet the court's $25,000 jurisdictional threshold.

          On March 6, 2011, Zizza filed a voluntary bankruptcy

petition under Chapter 13, retaining Anthony Rozzi as her attorney

for the bankruptcy case.    In her initial Statement of Financial

Affairs, Zizza was asked to identify all suits to which she was a

party within one year of filing her bankruptcy case.     In her filed

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schedules, she did not disclose either the Duffy or Sapienza

actions.

           At the first meeting with her creditors on April 8, 2011,

Zizza, accompanied by Attorney Rozzi, testified under oath and

when asked whether there were any changes she wanted to make to

her initial filings, she said "No."      Attorney Rozzi stepped in and

stated that "[t]here are lawsuits . . . [t]hat need to be added .

. . both lawsuits that Ms. Zizza or Attorney Zizza has out.      And,

uh, and she also has a personal injury claim."           Later at the

meeting, Attorney Rozzi said that he was "going to add any lawsuits

that are important" in an amended filing.          Finally, when the

Chapter 13 trustee asked about a $20,000 payment listed in the

plan, Zizza responded that she had "several judgments right now"

and was "anticipating that one of those judgments would come

through by the end of the plan."      Four days after the creditors'

meeting, Zizza appeared in Essex Superior Court to argue a motion

to reinstate the Duffy action.

           Attorney Rozzi filed amended schedules on Zizza's behalf

on September 23, 2011, which added several accounts receivable and

money judgments, but did not list either the still pending Duffy

or Sapienza actions.     In September of 2012, Zizza settled the

Sapienza action for $20,000, but she did not seek bankruptcy court

approval for the settlement.     On October 5, 2012, the Chapter 13

trustee, still unaware of the two lawsuits or the settlement, filed

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a motion to dismiss Zizza's bankruptcy case for failure to make

plan payments.      In response, on October 30, 2012, Zizza again

amended her filings, finally disclosing the Duffy and Sapienza

actions, as well as the settlement in Sapienza.

           In light of Zizza's failure to disclose the Duffy and

Sapienza actions in a timely manner, the Chapter 13 trustee moved

to convert Zizza's Chapter 13 petition to a Chapter 7 petition.

At the hearing on the trustee's motion, Attorney Rozzi argued that

Zizza had not disclosed the lawsuits earlier because she did not

believe they were viable.       Attorney Rozzi further claimed that

Zizza had not told him that the two lawsuits were active until

October 2012.

           The bankruptcy judge granted the motion to convert the

case to a Chapter 7 petition, concluding that Zizza's failure to

disclose   the   lawsuits   indicated    that   she   had   not   filed   her

bankruptcy case in good faith.           The United States Bankruptcy

Appellate Panel for the First Circuit affirmed the bankruptcy

judge's decision.    Zizza v. Pappalardo (In re Zizza), 500 B.R. 288

(B.A.P. 1st Cir. 2013).

           Thereafter, on September 30, 2014, William Harrington,

the United States Trustee for Region One, commenced an action

seeking to deny Zizza's discharge on the grounds that she had made

false oaths within the meaning of 11 U.S.C. § 727(a)(4), or

alternatively, that she had concealed property of the estate within

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the meaning of 11 U.S.C. § 727(a)(2)(B) by failing to disclose the

two lawsuits.    After a trial, the bankruptcy judge denied Zizza's

discharge under 11 U.S.C. § 727(a)(4), concluding that she had

acted with reckless indifference to the truth by failing to

disclose the two lawsuits in a timely manner. The bankruptcy judge

did not address the alternative grounds for denying discharge under

11 U.S.C. § 727(a)(2)(B).

          Zizza appealed to the district court, which affirmed the

bankruptcy court's decision.     Zizza v. Harrington (In re Zizza),

No. 16-CV-40102-IT, 2017 WL 925002, at *1 (D. Mass. Mar. 8, 2017).

A timely appeal to this court followed.

                                 II.

          While the district court affirmed the bankruptcy court's

decision, we review the bankruptcy court's decision directly and

"cede   no      special   deference     to   the   district   court's

determinations."     Gannett v. Carp (In re Carp), 340 F.3d 15, 21

(1st Cir. 2003).     We review the bankruptcy court's findings of

fact for clear error and its conclusions of law de novo.         Id.

"Whether a debtor possessed the requisite intent for purposes of

§ 727 is 'a question of fact, subject to the clearly erroneous

standard of review.'"     Robin Sing Educ. Servs., Inc. v. McCarthy

(In re McCarthy), 488 B.R. 814, 825 (B.A.P. 1st Cir. 2013) (quoting

Warchol v. Barry (In re Barry), 451 B.R. 654, 658 (B.A.P. 1st Cir.

2011)); see also Toye v. O'Donnell (In re O'Donnell), 728 F.3d 41,

                                - 6 -
45 (1st Cir. 2013) ("The case for deferring to the bankruptcy

judge's factfinding is 'particularly strong' when intent is at

issue--since an intent finding depends heavily on the debtor's

credibility, and the bankruptcy judge is uniquely qualified to

make that call.").

           Under § 727(a)(4)(A), a debtor may be denied a discharge

if "(1) [he] made a false statement under oath in the course of

his   bankruptcy    proceeding;     (2)     he   did    so   knowingly    and

fraudulently; and (3) the false statement related to a material

fact."   Hannon v. ABCD Holdings, LLC (In re Hannon), 839 F.3d 63,

70 (1st Cir. 2016).    A false statement is material if it "bears a

relationship to the debtor's business transactions or estate, or

concerns   the   discovery   of   assets,    business    dealings,   or   the

existence and disposition of property."           Id. at 75.     As to the

second element, "'reckless indifference to the truth' . . . has

consistently been treated as the functional equivalent of fraud

for the purposes of § 727(a)(4)(a)."             Boroff v. Tully (In re

Tully), 818 F.2d 106, 112 (1st Cir. 1987).

           Zizza does not seriously contest the first and third

elements of falsity and materiality.             Zizza stipulated in the

bankruptcy court that she failed to disclose the two lawsuits in

her amended schedules.       Omissions from schedules can constitute

false oaths, In re Hannon, 839 F.3d at 71; see also Premier

Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1, 8 (1st Cir.

                                   - 7 -
2016) ("When a debtor files her Schedules, she does so under the

equivalent of an oath."), and an omission of two pending lawsuits

clearly concerned the estate's property.            In re Hannon, 839 F.3d

at 75.1

              Zizza focuses her argument on the second denial of

discharge element, which concerns scienter.            According to Zizza,

she informed Attorney Rozzi of the two lawsuits before the first

creditors' meeting and it was Attorney Rozzi's negligence that led

to the lengthy delay in disclosing the two lawsuits.

              It is true that "an explanation by a bankrupt that he

had acted upon advice of counsel who in turn was fully aware of

all the relevant facts generally rebuts an inference of fraud."

In re Mascolo, 505 F.2d 274, 277 (1st Cir. 1974).               At the same

time, "even the advice of counsel is not a defense when it is

transparently plain that the property should be scheduled."              Id.

at 277 n.4.

              Here, the bankruptcy judge did not clearly err when he

found       that   Zizza   had   made    false   statements   with   reckless

indifference to the truth.         The bankruptcy judge found that Zizza

        1
       In her reply brief, Zizza argues for the first time that
any false oaths she made during her Chapter 13 proceedings were
not made "in or in connection with" her Chapter 7 proceedings, 11
U.S.C. § 727(a)(4), and therefore cannot form the basis for denying
her discharge. Because she did not develop this argument until
her reply brief, Zizza has not preserved it for appeal. Braintree
Labs., Inc. v. Citigroup Glob. Mkts. Inc., 622 F.3d 36, 43-44 (1st
Cir. 2010).

                                        - 8 -
did not inform Attorney Rozzi that the Duffy and Sapienza actions

were pending until October 2012, and the record supports this

finding.   Although Attorney Rozzi's comments at the creditors'

meeting indicate that he was aware of some pending lawsuits, he

testified at the discharge trial that he believed the lawsuits

faced   jurisdictional   and   statute   of   limitations   issues   that

prevented them from being prosecuted.         He further testified that

Zizza did not tell him the lawsuits were active until October 2012.

As to Zizza's explanation for the delay, the bankruptcy judge found

that Zizza's testimony at trial "was not credible in any respect."

Because the bankruptcy judge did not clearly err in finding that

Zizza did not disclose to Attorney Rozzi that the lawsuits were

pending until October 2012, Zizza cannot claim she made Attorney

Rozzi fully aware of all the relevant facts.

           It should have been "transparently plain" to Zizza, an

experienced attorney, that she had an obligation to disclose the

two lawsuits.   In re Mascolo, 505 F.2d at 277 n.4.         The question

in the initial Statement of Financial Affairs could not have been

clearer; it asked her whether she was involved in any suits within

one year preceding her bankruptcy filing.            Similarly, at the

creditors' meeting, she was asked directly whether she needed to

make any changes to her initial filings, and she responded "No."

Yet, only four days later, she was in state court arguing a motion

to reinstate the Duffy action.    As the bankruptcy judge found, the

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questions    posed     to   Zizza   "were     in    plain   English,     and    as    an

attorney, Ms. Zizza knew the meaning of signing documents under

oath."

             Finally, Zizza argues that the bankruptcy judge relied

improperly on the Bankruptcy Appellate Panel's earlier decision in

making his factual determinations.            A review of the record reveals

otherwise.     Although the bankruptcy judge adopted "portions" of

the   Bankruptcy     Appellate      Panel's     recitation       of   facts    in    his

opinion, he did so only after reviewing the evidence submitted at

trial and finding the panel's recitation "correctly and succinctly

describe[d] the material events."             The bankruptcy judge undertook

his own independent review of the evidence.

             Because    we    affirm    the        denial   of    discharge     under

§ 727(a)(4)(A), we do not address the United States Trustee's

alternative argument that Zizza concealed property of the estate

as described in § 727(a)(2).

             For the foregoing reasons, we affirm.               Costs are awarded

to the United States Trustee.

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