Court Opinion

ID: 2962952
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:04:04.709941+00
Date Added: 2024-06-11T15:00:23.455616
License: Public Domain

USCA1 Opinion

	

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