Court Opinion

ID: 197500
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:31:39+00
Date Added: 2024-06-11T17:26:47.656536
License: Public Domain

For the First Circuit

                                        

No. 96-2202

                    STEPHEN A. PALMACCI,

                         Appellant,

                             v.

                   P. FERNANDO UMPIERREZ,

                          Appellee.

                                        

                    RICHARD B. ERRICOLA,

                          Trustee.
                                        

        APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF NEW HAMPSHIRE

       [Hon. Steven J. McAuliffe, U.S. District Judge]

                                        

                           Before

               Torruella, Chief Circuit Judge,

                Bownes, Senior Circuit Judge,

                  and Lynch, Circuit Judge.

                                        

Dorothy F. Silver for appellant.
Edward Foye, with whom Ian Crawford and Todd & Weld were on
brief, for appellee.
                                        

                       August 11, 1997
                                        

          BOWNES, Senior Circuit Judge. This case arises out

of a speculative investment that went bad. Plaintiff Stephen

A. Palmacci invested $75,000 in a project, known as "the Chase

project," to purchase and develop distressed real estate. He

had heard that the defendant's brother, Gus Umpierrez, who was

a real estate agent and knowledgeable in real estate matters,

had "turned a pretty fast profit" on similar ventures, and he

wanted to reap some of the same type of profits.

          Palmacci acknowledges that he understood the risks

inherent in any investment and, in particular, the increased

risk involved in the speculative type of investment in which he

was getting involved. He claims that he took this risk because

his friend P. Fernando Umpierrez ("Umpierrez"), the defendant,

and Umpierrez's brother, Gus, promised to invest $75,000 of

their own personal funds in the project. According to

Palmacci's testimony, he "decided that if they thought it was

worth the risk with the knowledge that Gus had, that [Palmacci]

would do the same." Palmacci also claims that he relied on the

representation that project funds would be placed in a trust,

which he believed would reduce the chance of "things going

bad." The project failed (for reasons that are not set forth

in the record), and Palmacci received only 80% of his principal

back. 

          Umpierrez filed a petition for bankruptcy protection

under Chapter 7 of the United States Bankruptcy Code, and

                             -2-
                                          2

Palmacci filed an adversary proceeding pursuant to 11 U.S.C.

S 523 (a)(2)(A), claiming that the debt owed him should not be

discharged because it was the product of false representations.

The United States Bankruptcy Court for the District of New

Hampshire held a trial in the matter, and at the close of the

plaintiff's evidence, entered a judgment as a matter of law in

favor of the debtor, holding that the debt was dischargeable

in bankruptcy. This ruling was affirmed by the United States

District Court for the District of New Hampshire. We affirm.

          A court reviewing a decision of the bankruptcy court

may not set aside findings of fact unless they are clearly

erroneous, giving "due regard . . . to the opportunity of the

bankruptcy court to judge the credibility of the witnesses."

Fed. R. Bankr. P. 8013;   see Commerce 
                                                    Bank 
                                                         &  
                                                            Trust 
                                                                  Co.  
                                                                       v.

Burgess 
                    (In 
                        re 
                           Burgess), 955 F.2d 134, 137 (1st Cir. 1992);

Fed. R. Civ. P. 52(c), advisory committee's note to 1991

Amendment (applying clearly erroneous standard in the case of

a judgment on partial findings). The bankruptcy court's legal

conclusions, drawn from the facts so found, are reviewed de

novo. Martin v. Bajgar (In re Bajgar)
                                                 , 104 F.3d 495, 497 (1st

Cir. 1997). Although the district court has already reviewed

the bankruptcy court's decision, on appeal we independently

1.  The trial court styled its ruling as the grant of
defendant's motion for a directed verdict. In essence,
however, the ruling was a judgment as a matter of law on
partial findings. See Fed. R. Bankr. P. 7052; Fed. R. Civ. P.
52(c). We will treat it as such.

                             -3-
                                          3

review that decision, applying the same standard of review that

the district court applied. See 
                                            In re Bajgar
                                                       , 104 F.3d at 497;

In 
               re 
                  G.S.F. 
                         Corp., 938 F.2d 1467, 1474 (1st Cir. 1991). No

special deference is owed to the district court's

determinations.  Grella v. Salem Five Cent Sav. Bank, 42 F.3d

26, 30 (1st Cir. 1994).

          A finding of fact is clearly erroneous, although

there is evidence to support it, when the reviewing court,

after carefully examining all the evidence, is "left with the

definite and firm conviction that a mistake has been

committed."  Anderson v. City of Bessemer City, 470 U.S. 564,

573 (1985) (internal quotation marks omitted). Deference to

the bankruptcy court's factual findings is particularly

appropriate on the intent issue "[b]ecause a determination

concerning fraudulent intent depends largely upon an assessment

of the credibility and demeanor of the debtor." 
                                                           In re Burgess
                                                                        ,

955 F.2d at 137 (internal quotation marks omitted) (applying

S 727(a), relating to fraud by the debtor in representations in

the course of the court proceeding). Particular deference is

also due to the trial court's findings that depend on the

credibility of other witnesses and on the weight to be accorded

to such testimony.   See Fed. R. Bankr. P. 8013;   Keller 
                                                                       v.

United 
                   States, 38 F.3d 16, 25 (1st Cir. 1994). Of course, a

trial court may not

          insulate [its] findings from review by
          denominating them credibility

                             -4-
                                          4

          determinations, for factors other than
          demeanor and inflection go into the
          decision whether or not to believe a
          witness. Documents or objective evidence
          may contradict the witness' story; or the
          story itself may be so internally
          inconsistent or implausible on its face
          that a reasonable factfinder would not
          credit it. Where such factors are
          present, the court of appeals may well
          find clear error even in a finding
          purportedly based on a credibility
          determination.

Anderson, 470 U.S. at 575. 

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

provides:

          S 523. Exceptions to discharge

          (a) A discharge under section 727, 1141,
          1228(a), 1228(b), or 1328(b) of this title
          does not discharge an individual debtor
          from any debt -- 

          (2) for money, property, services, or an
          extension, renewal, or refinancing of
          credit, to the extent obtained by --

          (A) false pretenses, a false
          representation, or actual fraud, other
          than a statement respecting the debtor's
          or an insider's financial condition.

See 11 U.S.C. S 523(a)(2)(A).

          "Exceptions to discharge are narrowly construed in

furtherance of the Bankruptcy Code's 'fresh start' policy,"

and, for that reason, the claimant must show that his "claim

comes squarely within an exception enumerated in Bankruptcy

Code S 523(a)." Century 21 Balfour Real Estate v. Menna (In re

Menna), 16 F.3d 7, 9 (1st Cir. 1994);  see In 
                                                          re 
                                                             Bajgar, 104

                             -5-
                                          5

F.3d at 498 n.1. The statutory requirements for a discharge

are "construed liberally in favor of the debtor" and "[t]he

reasons for denying a discharge to a bankrupt must be real and

substantial, not merely technical and conjectural." Boroff v.

Tully  
                  (In  
                       re  
                           Tully), 818 F.2d 106, 110 (1st Cir. 1987)

(internal quotation marks omitted). On the other hand, we have

noted that "the very purpose of certain sections of the law,

like [S 727(a)(2)], is to make certain that those who seek the

shelter of the bankruptcy code do not play fast and loose with

their assets or with the reality of their affairs."       Id.

Likewise, other sections of the law, like S 523(a)(2)(A), are

intended to make certain that bankruptcy protection is not

afforded to debtors who have obtained property by means of a

fraudulent misrepresentation.

          Palmacci alleges that Umpierrez made three

misrepresentations which induced him to invest $75,000 in the

project: (1) that Umpierrez and his brother would invest

$75,000 of their own money in the project; (2) that the project

would have a total investment of $250,000; and (3) that a trust

would be established to hold the funds and to supervise the

project. 

          With respect to each of these three claims, Palmacci

was required to establish both that he had a valid claim

against Umpierrez and that the claim should not be discharged

in bankruptcy. See 
                               Grogan v. Garner
                                              , 498 U.S. 279, 283 (1991).

                             -6-
                                          6

Here, the claim and the reason for exemption from discharge are

essentially the same: the common law        tort of false

representation, also known as deceit. 

          Under the traditional common law rule, a defendant

will be liable if (1) he makes a false representation, (2) he

does so with fraudulent intent, i.e., with "scienter," (3) he

intends to induce the plaintiff to rely on the

misrepresentation, and (4) the misrepresentation does induce

reliance, (5) which is justifiable, and (6) which causes damage

(pecuniary loss). 2 F. Harper, et al., Law of Torts
                                                                S 7.1, at

381 (2d ed. 1986); Restatement (Second) of Torts S 525 (1977).

          Regarding the first element, the concept of

misrepresentation includes a false representation as to one's

intention, such as a promise to act. "A representation of the

maker's own intention to do . . . a particular thing is

fraudulent if he does not have that intention" at the time he

2.  In Field 
                         v. 
                            Mans, 116 S. Ct. 437, 443 & n.9 (1995), the
Court construed S 523(a)(2)(A) to incorporate the "general
common law of torts," i.e., the "dominant consensus of common-
law jurisdictions, rather than the law of any particular
State." Of course, if we were to hold that Umpierrez was not
entitled to discharge them in bankruptcy, Palmacci's claims
themselves would be determined in accordance with the common
law of New Hampshire.

3.  We set forth a similar, but not identical, list of elements
in In 
                  re 
                     Burgess, 955 F.2d at 140. We interpret   Burgess to
apply the same test we have articulated in the text here,
except for the fifth element. In Burgess our reliance element
required "reasonable" reliance, but the Supreme Court has since
held that "justifiable" reliance is the proper test.      See
Field, 116 S. Ct. at 445-46. 

                             -7-
                                          7

makes the representation. Restatement (Second) of Torts

S 530(1); 
                     see 
                         Anastas v. American Sav. Bank (In re Anastas)
                                                                     , 94

F.3d 1280, 1285 (9th Cir. 1996). "The state of a man's mind is

as much a fact as the state of his digestion." Restatement

(Second) of Torts S 530 cmt. a. Likewise, "a promise made

without the intent to perform it is held to be a sufficient

basis for an action of deceit." W. Page Keeton, et al.,

Prosser and Keeton on the Law of Torts S 109, at 763 (5th ed.

1984) (footnotes omitted); see Restatement (Second) of Torts

S 530(1) cmt. c. On the other hand, if, at the time he makes

a promise, the maker honestly intends to keep it but later

changes his mind or fails or refuses to carry his expressed

intention into effect, there has been no misrepresentation.

Restatement (Second) of Torts at S 530 cmts. b, d. This is

true "even if there is no excuse for the subsequent breach. A

debtor's statement of future intention is not necessarily a

misrepresentation if intervening events cause the debtor's

future actions to deviate from previously expressed

intentions." 4  Collier on Bankruptcy q 523.08[1][d], at 523-

43. 

          The test may be stated as follows. If, at the time

he made his promise, the debtor did not 
                                                  intend to perform
                                                                   , then

he has made a false representation (false as to his intent) and

the debt that arose as a result thereof is not dischargeable

(if the other elements of S 523(a)(2)(A) are met). If he did

                             -8-
                                          8

so intend at the time he made his promise, but subsequently

decided that he could not or would not so perform, then his

initial representation was not false when made. See, e.g.
                                                                     , 
                                                                       In

re Anastas, 94 F.3d at 1285; Milwaukee Auction Galleries Ltd.

v. 
               Chalk, 13 F.3d 1107, 1109 (7th Cir. 1994) (more than mere

nonperformance of a contract was necessary to establish

misrepresentation); Mellon  
                                        Bank  
                                             Corp.  
                                                    v.  
                                                       First  
                                                              Union  
                                                                     Real

Estate, 951 F.2d 1399, 1410-11 (3d Cir. 1991) (same); 
                                                                 Craft v.

Metromedia, 766 F.2d 1205, 1219, 1221 (8th Cir. 1985).

          The scienter element refers to a different type of

intent, namely, intent to deceive, manipulate, or defraud.

Ernst 
                  & 
                    Ernst 
                          v. 
                             Hochfelder, 425 U.S. 185, 193 (1976). This

requirement may be met in one of several ways: if the maker of

the misrepresentation "(a) knows or believes that the matter is

not as he represents it to be; (b) does not have the confidence

in the accuracy of his representation that he states or

implies; or (c) knows that he does not have the basis for his

representation that he states or implies." Restatement

(Second) of Torts S 526; see Keeton, et al., supra, S 107, at

740-42.

          Clause (b) of Restatement S 526 includes the

situation where the maker of a misrepresentation asserts

something "so positively as to imply that he has knowledge" of

its factual basis, even though he is conscious that he does not

know the fact to be true. Keeton, et al.,   supra, S 107, at

                             -9-
                                          9

742. Scienter exists even if he believes the "fact" is true,

if he is aware that he does not in fact possess the certitude

that he implies by the manner in which he makes his

representation.   See Restatement (Second) of Torts S 526

cmt. e. One who makes a statement as if it were one of

positive fact ("as though he knew it") engages in a "conscious

deception" if he realizes he does not know the truth of his

statement, even though he honestly believes its truth. 2

Harper, et al., supra, S 7.3, at 393-94. In such a case, the

person is deemed to have the intent to deceive (scienter), not

so much as to the fact itself, but rather as to the extent of

his information.  Id. ("He has in effect represented that he

knew a thing to be true when he knew that he only believed or

surmised it to be true."); see Metropolitan 
                                                        Life 
                                                             Ins. 
                                                                  Co. 
                                                                       v.

Ditmore, 729 F.2d 1, 5 (1st Cir. 1984) (Mass. law); Myron 
                                                                       N.

Navison Shoe Co. v. Lane Shoe Co., 36 F.2d 454, 459 (1st Cir.

1929); Keeton, et al., supra S 107, at 742. "This is often

expressed by saying that fraud is proved if it is shown that a

false representation has been made . . . recklessly, careless

of whether it is true or false." Restatement (Second) of Torts

S 526 cmt. e;  see  In 
                                   re 
                                      Burgess, 955 F.2d at 140 ("false

representation" under section 523(a)(2)(A)); Harper,   supra,

S 7.3, at 391-95.

          The standard of proof of each element of a S 523

claim is by a preponderance of the evidence. Grogan, 498 U.S.

                            -10-
                                         10

at 291. The burden of proof and the burden of production as to

each element rests with the party contesting the

dischargeability of a particular debt under Bankruptcy Code

S 523. See 
                       In re Burgess
                                    , 955 F.2d at 136; 
                                                       see also
                                                                
                                                                Insurance

Co. of N. Am. v. Cohn (In re Cohn)
                                            , 54 F.3d 1108, 1120 (3d Cir.

1995) (regarding S 523(a)(2)(B)). Thus, if Palmacci failed to

establish any one of the elements by a preponderance of the

evidence, then the court should reject his claim.  See In 
                                                                       re

Burgess, 955 F.2d at 139; 9A Wright & Miller, 
                                                        supra, S 2579, at

542-43 (a factual finding that negates one element of the

plaintiff's prima facie case renders findings concerning other

elements unnecessary).

          We will discuss each of Palmacci's three

misrepresentation claims in turn. First, Palmacci claims that

Umpierrez falsely represented that he and his brother would

invest $75,000 of their own personal funds into the Chase

project. Umpierrez responds that he made good on his

representation because he did contribute $75,000 of his own

personal funds, albeit by giving the bank a lien on the Chase

project property as well as a second mortgage on his home.

According to Umpierrez, encumbering the project property does

not mean that he failed to satisfy his promise to contribute

funds personally, because he never told Palmacci that he would

not mortgage the Chase project property. The district court

agreed with Umpierrez: it found that there was no

                            -11-
                                         11

misrepresentation because "there was no representation that a

mortgage would not be placed on the project." We find this

argument untenable. An ordinary lay person like Palmacci would

not think, nor would it be reasonable to expect him to think,

that Umpierrez's representation that he would invest "his own

personal funds" in the Chase project could be read to include

funds he borrowed from a bank secured by a mortgage on the

project property itself. Thus, Umpierrez cannot claim that

there was no misrepresentation.

          Umpierrez is more persuasive in contending that

Palmacci's first claim fails on the element of scienter or

fraudulent intent which is required in order to establish an

exception to discharge under S 523(a)(2)(A). See 2 Harper, et

al., 
                supra, S 7.1, at 381; Restatement (Second) of Torts S 525.

Palmacci does not dispute that Umpierrez intended to obtain

most of the funds for his contribution to the project from a

second mortgage on his residence. Palmacci's argument, in

essence, is that, at the time Umpierrez induced Palmacci's

investment with the promise to invest his own personal funds,

Umpierrez's intention was fraudulent, based on a reckless

indifference to the truth (which rose to the level of

fraudulent intent) because Umpierrez knew or should have known

that he did not have enough equity in the house to raise the

money through a second mortgage, at least without encumbering

the project property with a mortgage as well. 

                            -12-
                                         12

          We must parse this issue with some care. The factual

question to be determined by the trier of fact is not whether

Umpierrez knew or should have known that he did not have the

money available to invest, but whether in good faith he

intended to keep his promise. This is because "[a] finding

that a debt is non-dischargeable under 523(a)(2)(A) requires a

showing of actual or positive fraud, not merely fraud implied

by law
                 ."  In re Anastas
                                  , 94 F.3d at 1286 & n.3 (emphasis added)

(quoting 124 Cong. Rec. H11089 (Sept. 28, 1978) (statement of

Rep. Edwards), reprinted in 1978 U.S.C.C.A.N. 5787, 6436, 6453

("Subparagraph (A) is intended to codify current case law . . .

which interprets 'fraud' to mean actual or positive fraud

rather than fraud implied in law.")). This is not a negligence

case where the standard is whether a reasonable person would

have acted as Umpierrez did. See generally
                                                      , 2 Harper, et al.,

supra, S 7.3, at 392-95. Fraudulent intent requires an actual

intent to mislead, which is more than mere negligence. Diduck

v. 
               Kaszycki 
                        & 
                          Sons 
                               Contractors, 
                                             Inc., 974 F.2d 270, 277 (2d

Cir. 1992). An honest belief, however unreasonable, that the

representation is true and that the speaker has information to

justify it is an insufficient basis for deceit. Keeton, et

al., supra, at 742. A "dumb but honest" defendant does not

satisfy the test of scienter. 2 Harper, et al., supra, S 7.3,

at 393. 

                            -13-
                                         13

          Of course, the very unreasonableness of such a belief

may be strong evidence that it does not in fact exist.    See

Pullman-Standard v. Swint
                                    , 456 U.S. 273, 289 (1982); 
                                                                Norris v.

First Nat'l Bank in Luling (In re Norris)
                                                    , 70 F.3d 27, 30 n.12

(5th Cir. 1995); In 
                                re 
                                    Cohn, 54 F.3d at 1118-19 (permitting

reckless disregard to be relied on as an evidentiary factor

that is probative of intent to defraud, if the totality of

circumstances supports that inference) (involving 11 U.S.C.

S 523(a)(2)(B)). Where this conclusion is reached as an

inference of fact, there is nothing inconsistent with that

unreasonableness forming an evidentiary basis for a finding of

intent.   See Keeton, et al.,    supra, at 742. But then

unreasonableness would be providing evidentiary ballast, not

serving by itself as an element of the tort. 
                                                        Id. For example,

"[i]f [the] defendant had no adequate grounds for believing his

statement to be true this may afford a rational inference that

he did not in fact believe it to be true (so that there was

scienter)." 2 Harper, et al.,    supra, S 7.3, at 393. The

focus, however, should be on whether the surrounding

circumstances or the debtor's actions "appear so inconsistent

with [his] self-serving statement of intent that the proof

leads the court to disbelieve the debtor." 
                                                      In re Hunt
                                                                , 30 B.R.

425, 441 (Bankr. M.D.Tenn. 1983). 

          Thus, while fraud may not be implied in law, it may

be inferred as a matter of fact. The finder of fact may

                            -14-
                                         14

"infer[] or imply[] bad faith and intent to defraud based on

the totality of the circumstances when convinced by a

preponderance of the evidence." In re Anastas
                                                        , 94 F.3d at 1286

n.3; In re Sheridan, 57 F.3d 627, 633 (7th Cir. 1995); cf. In

re  
               Cohn, 54 F.3d at 1118-19 (S 523(a)(2)(B)). Among the

circumstances from which scienter may be inferred are: the

defendant's insolvency or some other reason to know that he

cannot pay, his repudiation of the promise soon after made, or

his failure even to attempt any performance. Keeton, et al.,

supra, at 764-65. 

          Where, as here, reckless disregard is being urged

upon us as the basis for an inference of scienter, it is

important to distinguish what the debtor is being accused of

recklessly disregarding. Scienter may be found to exist where

a debtor recklessly disregards the truth of the representation,

e.g., in Umpierrez's case, whether he was recklessly

indifferent to whether he would actually keep his promise to

invest personal funds in the Chase project.  See Restatement

(Second) of Torts S 526 cmt. e. There must, nonetheless, be an

actual finding of intent to deceive: mere inability to pay

does not constitute such a finding. 
                                               See 
                                                   In re Anastas
                                                                , 94 F.3d

at 1286 ("[T]he hopeless state of a debtor's financial

condition should never become a substitute for an actual

finding of bad faith."). This distinction is apparent from the

structure of the statute itself: 11 U.S.C. S 523(a)(2)(A)

                            -15-
                                         15

specifically excludes misrepresentations regarding a debtor's

financial condition, whereas 11 U.S.C. S 523(a)(2)(B) provides

separately for such misrepresentations. Thus, to the extent

Palmacci is claiming that Umpierrez implicitly misrepresented

his financial condition, that is not grounds for an exception

to discharge under S 523(a)(2)(A).

          In the instant case, if Umpierrez knew or clearly

should have known that there was no realistic way for him to

use his own money to invest, then that is probative of his lack

of intent to keep his promise at the time he made the promise.

But the focus must be on whether the representation was made in

bad faith, i.e., whether he induced Palmacci's investment with

the intention of reneging on his promise to invest personal

funds (or while recklessly disregarding whether or not he would

keep his promise).  See In 
                                       re 
                                          Anastas, 94 F.3d at 1286 (debt

incurred with the intention of avoiding the debt by petitioning

for bankruptcy). 

          Palmacci contends that the court erred by relying

exclusively on Umpierrez's self-serving testimony about his

subjective intent, and failing to consider the surrounding

circumstances in order to infer that Umpierrez's intent was not

as he claimed it to be. We do not think Palmacci is correct in

characterizing the trial court's reasoning as relying solely on

Umpierrez's self-serving testimony while ignoring the

circumstantial evidence Palmacci contends shows that testimony

                            -16-
                                         16

to be incredible. It is true that Umpierrez had just purchased

the residence a few months earlier, for $105,000 and that he

had an $80,000 mortgage on the residence at the time of

purchase. Based on this undisputed fact, Palmacci claims that

Umpierrez should have known that he only had $25,000 worth of

equity in the home, against which he could borrow on a second

mortgage without a likely encumbrance of the project property,

and therefore that the bankruptcy court clearly erred in

believing Umpierrez's testimony that, at the time he made his

promise, he fully intended to keep it. Umpierrez's claim that

an innocent lack of knowledge of these facts (and not a

fraudulent intent) caused him to err when he promised to

contribute the $75,000 arguably falls into the category of

"reckless disregard for the truth" such as to rise to the level

of establishing scienter.

          These were not, however, the only facts before the

trial court. There was also testimony that Umpierrez had

discussed getting a personal loan with a banker, and that the

banker had told him he thought the loan would be possible.

Moreover, Umpierrez testified that he had had the house

appraised in October (shortly before the representation that

induced Palmacci to invest his money) and the house was valued

at $185,000, more than enough to secure a loan for the full

4.  In addition, the Umpierrezes' share would include the
$5,000 down payment they invested at the time of the purchase
at auction. 

                            -17-
                                         17

amount of Umpierrez's promised contribution. Thus, even though

Umpierrez did not have a commitment letter from the bank -- a

fact that Palmacci emphasizes -- he could well have honestly

believed that he could work something out with the bank whereby

the bank could protect its security needs without encumbering

the project property and therefore without rendering his

representation to Palmacci fraudulent. The court's decision

mentioned this possible interpretation, noting that the market

value of the house in early November (when Palmacci was induced

to make his investment in the Chase project) was not

necessarily limited to the price that Umpierrez paid when he

bought it in July.

          Absent a showing to the contrary, and bearing in mind

that the burden of proof was on Palmacci, we must assume that

the trial court considered all the testimony (and other

evidence before it) in its entirety, as well as all reasonable

inferences therefrom, before making its determination that

Umpierrez did not intend to defraud Palmacci at the time he

promised to contribute $75,000 of his personal funds to the

project. We perforce reject Palmacci's claim that the court

relied exclusively on Umpierrez's testimony and failed to

consider the surrounding circumstances.

          Moreover, while Palmacci is correct that intent to

deceive may be inferred from the totality of the circumstances,

including inferences from circumstantial facts, 
                                                           see 
                                                               Desmond v.

                            -18-
                                         18

Varrasso 
                     (In 
                         re 
                            Varrasso), 37 F.3d 760, 764 (1st Cir. 1994),

scienter cannot be presumed, 
                                        id. at 764-65; 
                                                      In re Cohn
                                                                , 54 F.3d

at 1120. "The mere breach of a promise is not enough in itself

to establish the fraudulent intent." Keeton, et al.,   supra,

S 108, at 764.

          Thus, although the evidence here might "support the

bankruptcy court's decision had it inferred an intent to

deceive from the circumstantial evidence admitted in this case,

[it does] not compel such a finding and [does] not require us

to reverse the court's holding." National Union Fire Ins. Co.

of Pittsburgh v. Bonnanzio (In re Bonnanzio)
                                                       , 91 F.3d 296, 301

(2d Cir. 1996) (emphasis added) (quoting  In 
                                                         re 
                                                            Sheridan, 57

F.3d at 634); see also In re Varrasso, 37 F.3d at 764-65. It

is the province of the trial court to determine this issue:

the court may choose to infer intent or not to draw that

inference, based on all the evidence.  Bonnanzio, 91 F.3d at

301; In re Varrasso, 37 F.3d at 764-65. The determination of

whether scienter exists based on certain circumstantial facts

must be treated merely as "a   permissible inference of fact

. . . and not a presumption of law, or else the distinction

between fraud and negligence will be largely obliterated." 2

Harper, supra, S 7.3, at 393 (emphasis added). Even where "a

factfinder lawfully might draw an inference of fraud from the

totality of the circumstances," we accept the trial court's

findings unless the evidence "compels" such a conclusion. See

                            -19-
                                         19

In re Varrasso, 37 F.3d at 764-65; In re Burgess, 955 F.2d at

137.
          If the [bankruptcy] court's account of the
          evidence is plausible in light of the
          record reviewed in its entirety, the court
          of appeals may not reverse it even though
          convinced that had it been sitting as the
          trier of fact, it would have weighed the
          evidence differently. Where there are two
          permissible views of the evidence, the
          factfinder's choice between them cannot be
          clearly erroneous.

Anderson v. City of Bessemer City, 470 U.S. at 573-74.

          In the instant case, Umpierrez testified that he

thought he would be able to come up with his $75,000 investment

from his personal funds, and the judge believed him, apparently

taking into account all circumstances including the weight of

the alleged unreasonableness of his belief. The bankruptcy

court found, as a matter of fact, that Umpierrez did not intend

to defraud Palmacci when he promised to contribute $75,000 of

his own personal funds to the project. In the context of the

record in this case, we read this as a determination that there

was no scienter, i.e., that there was no knowing

misrepresentation and no reckless disregard for the truth such

as would rise to the level of fraudulent intent. After

carefully reviewing the record in its entirety, we conclude

that there is sufficient evidence for the trial court to have

concluded that Umpierrez's intent was not fraudulent. We

cannot say the trial court clearly erred in its choice of which

inferences to draw from the evidence presented to it.

                            -20-
                                         20

Therefore we affirm the court's rejection of the first alleged

misrepresentation claim.

          Palmacci's second claim is that Umpierrez

misrepresented to him that the project would have a total

capital contribution of $250,000. This claim is derivative

from the first: to whatever extent Umpierrez fell short on his

contribution of $75,000, there would result a like shortfall in

the total project capitalization. Palmacci does not make any

argument as to his second claim that differs from his arguments

on the first claim. Therefore, our rejection of the second

flows ineluctably from our conclusion as to the first. 

          Palmacci's third claim is that Umpierrez

misrepresented the role of the trust that was created in

connection with the Chase project. According to Palmacci's

brief, Umpierrez represented that "the project was to be held

in trust supervised by a New Hampshire attorney." Palmacci

concedes that a trust was indeed set up after he made his

investment, but he argues that "[t]he reality of the situation

was that the trust had no role to play in the supervision of

the project." Palmacci does not make it clear exactly what was

allegedly represented to him regarding the trust's supervision

5.  Palmacci also argues that the bankruptcy court erred in
holding that he was not justified in relying on Umpierrez's
representations. We need not decide this issue because, having
failed to meet his burden on the intent element, it does not
avail him that he may have met the remaining elements; he must
satisfy all requirements in order to establish his claim.

                            -21-
                                         21

of the Chase project. In his brief he seems to imply that

Umpierrez actually told him the trust would supervise the

investment project itself (as opposed to being simply a vehicle

for controlling the flow of funds). Scrutiny of Palmacci's

factual assertions, however, in his testimony and in the

factual portion of his brief, reveal a claim merely that

Palmacci's "idea of the role of the trust" was that the trustee

would be responsible for and control how funds were used by the

builders. Because of this "idea," Palmacci "felt assured" that

the project "would be supervised correctly, and there was less

chance of things going bad." Palmacci did not testify as to

the basis for his subjective understanding. For all we know,

the basis could have been merely that Palmacci himself thought

a trust always does so supervise, without any representation by

Umpierrez beyond the mere creation of a trust.

          The bankruptcy court dismissed the trust issue on the

ground that Palmacci could not have "justifiably relied" on the

role of the trust as supervising the real estate project. The

court reasoned that the trust was not established until

November 11, 1991, several days after November 7, when Palmacci

made his investment, so Palmacci could not have known the terms

of the trust instrument and therefore could not have been

justified in relying on any such terms. (The district court

decision did not specifically address the alleged

misrepresentation regarding the role of the trust.) 

                            -22-
                                         22

          Palmacci is correct that the bankruptcy court's

analysis is flawed. Even if the trust was not actually created

until after he invested his money, Palmacci could conceivably

have relied on verbal (or written) representations from

Umpierrez -- made on or before November 7 -- as to how the

trust would be structured or what its role would be once the

trust was created. And it might well have been justifiable for

Palmacci to rely on such representations regardless of whether

the trust instrument had yet been drafted. If such

representations were false and made with scienter, then this

third claim could not be dismissed based on the trial court's

reasoning.

          Nevertheless, we will affirm a correct result reached

by the court below "on any independently sufficient ground made

manifest by the record."  AIDS Action Comm. of Mass. v. MBTA,

42 F.3d 1, 7 (1st Cir. 1994) (internal quotation marks

omitted). Although the bankruptcy court's stated reason for

rejecting Palmacci's argument concerning the establishment of

a trust was based on flawed reasoning, its conclusion was

correct. Our review of the record, including Palmacci's own

testimony, reveals absolutely no evidence clearly indicating

that Umpierrez's statements or actions were the basis for

Palmacci's subjective "idea" or feeling that the trust would

supervise the project. Indeed, as the bankruptcy court pointed

out, the attorney who drew up the trust testified that the

                            -23-
                                         23

concept of a trust was not even discussed by the investors

before Palmacci invested his money in the project. Thus, the

only representation that is supportable on this record is that

a trust would be created and that the trustee would be an

attorney. This much was indisputably carried out. It is not

enough for Palmacci to testify that his "idea of the role of

the trust" was to supervise the operation of the project,

without specifying the source of this idea. Because the record

is devoid of evidence that would support a finding that a

misrepresentation was made on the trust issue, we need not

consider the dispute as to whether Palmacci was justified in

relying on any alleged representation about the role of the

trust.

          Finally, Palmacci alleges that the bankruptcy court

erred as a matter of law when it restricted the testimony of

Palmacci's expert witness to events that took place only prior

to or soon after the transaction at issue. A trial court has

wide discretion in determining the admissibility of expert

testimony, especially where the issue is being tried directly

to the bench.   Allied 
                                    Int'l,  
                                           Inc. 
                                                 v. 
                                                    Int'l  
                                                           Longshoremen's

Ass'n, 814 F.2d 32, 40 (1st Cir. 1987). Of course, this

latitude does not mean that, on appeal, we will abdicate our

responsibility to review such a determination. But, like other

evidentiary rulings, the exclusion of all or part of an

expert's proffered testimony is subject to review for abuse of

                            -24-
                                         24

discretion.  Williamson v. Busconi, 87 F.3d 602, 603 n.1 (1st

Cir. 1996). The trial court's decision will be "sustained

unless [its] discretion has been abused."  Allied 
                                                              Int'l, 814

F.2d at 40.

          In the instant case, the trial judge had heard

testimony from the creditor, the debtor, and the attorney for

the real estate project (who drew up the trust), as well as

some of the testimony of the expert in dispute (i.e., that part

of the expert's testimony relating to events that took place

prior to or soon after Palmacci's investment in the project).

The portion of the expert's proffered testimony that the court

excluded related to whether, when the trust was dissolved in

1993, Umpierrez "received a disproportionate return on his

investment, compared to other investors, which would be to the

detriment of Mr. Palmacci." 

          Palmacci acknowledges, as we discussed 
                                                            supra at 7-9,

that the alleged fraud must exist at the inception of the debt,

and statements or actions which were neither false nor

fraudulent when made will not be made so by the happening of

subsequent events. Nor does failure to carry out one's

intentions constitute a basis for finding a debt

nondischargeable under S 523(a)(2)(A) absent a showing that the

claimed fraud existed at the inception of the debt. 

          Palmacci argues, however, that a promissor's

subsequent conduct may reflect his state of mind at the time he

                            -25-
                                         25

made the promise, and thus may be considered in determining

whether he possessed the requisite fraudulent intent 
                                                               ab initio
                                                                        .

It is true that subsequent conduct may be relevant to an

earlier state of mind. In  Williamson 
                                                  v. 
                                                     Busconi, 87 F.3d at

603, we concluded that the bankruptcy court abused its

discretion by excluding evidence as to conduct 
                                                          subsequent to a

real estate closing, from which a factfinder reasonably could

have inferred that Busconi had not intended to pay the note 
                                                                       at

the time
                    it was executed. The lower court in 
                                                        Busconi said this

evidence was irrelevant, and then expressly credited Busconi's

testimony (although Williamson testified too). Finding that

Williamson had failed to establish the requisite fraudulent

intent, the bankruptcy court ruled the debt dischargeable. 
                                                                      Id.

          We rejected that reasoning, noting that: 

          As direct evidence is seldom available,
          fraudulent intent normally is determined
          from the totality of the circumstances.
          And since "subsequent conduct may reflect
          back to the promissor's state of mind and
          thus may be considered in ascertaining
          whether there was fraudulent intent" at
          the time the promise was made, proper
          application of the "totality" test in this
          context often warrants consideration of
          post-transaction conduct and
          contemporaneous events.

Id. at 603 (citation omitted) (quoting 
                                                 Krenowsky v. Haining (In

re 
               Haining), 119 B.R. 460, 464 (Bankr. D. Del. 1990));    cf.

United States v. Rodriguez, 858 F.2d 809, 816 (1st Cir. 1988)

("later events often may shed light on earlier motivations").

                            -26-
                                         26

          In the instant case, however, that relevance is very

attenuated. The facts of this case are nothing like the facts

in the cases relied upon by Palmacci,   where an overarching

scheme to defraud the creditor was shown. In  In 
                                                             re 
                                                                 Haining,

119 B.R. at 464, the debtor engaged in a pattern of

transferring all her assets to a third party to the detriment

of her creditors. The court reasonably concluded that the

debtor's fraudulent scheme began prior to the debt in dispute,

and continued throughout the period. Similarly, in   Comerica

Bank v. Weinhardt (In re Weinhardt)
                                              , 156 B.R. 677, 680 (Bankr.

M.D. Fla. 1993), the business into which the debtor was to have

invested the creditor's funds never existed, and the debtor

spent all the money on a gambling spree. The court concluded

that evidence of the subsequent pattern of conduct helped to

show that the debtor did not, even at the outset, intend to use

the funds obtained for the purposes stated. 

          In the instant case, the disputed testimony simply

does not rise to the same level of probative value on the issue

of Umpierrez's intent to defraud in the inducement. The

proffered testimony related to events almost two years after

Palmacci's investment was induced. Moreover, the allegations

6.  The timing and other aspects of relevance were not
delineated in our opinion in Busconi. There we simply stated
that the proffered evidence of subsequent conduct was evidence
"from which a factfinder reasonably could have inferred that
Busconi had not intended to pay the note at the time it was
executed." 87 F.3d at 603. A similar conclusion cannot be
drawn in the instant case.

                            -27-
                                         27

Palmacci sought to prove through his proffered expert -- that

the losses on the investment were not proportionately shared

and that the project's 1992 and 1993 financial statements

indicated that Umpierrez did not spend all project money

exactly as originally stated in the business proposal (although

they did not indicate that he failed to apply the funds to the

Chase project in some way) -- would not have been directly

probative of Umpierrez's intent to deceive in 1991. Certainly

the bankruptcy court, which heard all the evidence, did not

abuse its discretion in refusing to hear the proffered expert

testimony.

          Even if we were to conclude on the present facts that

the bankruptcy court erred in excluding the expert testimony,

we need not reverse on this issue because excluding this

evidence did not affect Palmacci's substantial rights.    See

Busconi, 87 F.2d at 603. In order to win a reversal, an

appellant who claims error in the admissibility of evidence

must also show that the evidentiary ruling adversely affected

his "substantial rights."  See Fed. R. Bankr. P. 9005, 9017

(incorporating Fed. R. Civ. P. 61; Fed. R. Evid. 103(a)).

Here, as in Busconi, "[i]n light of all the evidence in the

record, we are not persuaded that the challenged judgment was

substantially influenced by the [presumptively] erroneous

evidentiary ruling." Busconi, 87 F.2d at 603 (citing 
                                                                 Lubanski

v. Coleco Indus., Inc., 929 F.2d 42, 46 (1st Cir. 1991)).

                            -28-
                                         28

          In conclusion, we see no basis in the record for

second-guessing the trial court's determination that the Chase

project did not implicate fraudulent misrepresentation, and

that it was simply a failed real estate investment in which all

investors (including both the debtor and the creditor) lost a

portion of their investments. Palmacci had hoped to "turn[] a

pretty fast profit on it," as he had seen Gus Umpierrez do on

prior real estate deals. At the same time, Palmacci understood

that he was taking a risk; he might not only not make a "fast

profit" but he might lose money on the deal. Now that the

project has gone sour, Palmacci cannot prevent Umpierrez from

discharging his debts in bankruptcy unless he demonstrates all

the elements of fraud or false representation. He has failed

to meet this burden with respect to at least one element of

each of the three misrepresentations that he has alleged.

Accordingly, the judgment is 
                                        affirmed. Costs on appeal awarded

to appellee.

                            -29-
                                         29