Varrasso v. Desmond

• Court: Court of Appeals for the First Circuit
• Decided: October 18, 1994
• Docket: 94-1583
• Status: Published

Opinion

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

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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