Varrasso v. Desmond

USCA1 Opinion









UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

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No. 94-1583

IN RE:

PETER C. VARRASSO and MILDRED R. VARRASSO,

Debtors.

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JOHN O. DESMOND, TRUSTEE, ETC.,

Appellee,

v.

PETER C. VARRASSO, ET AL.,

Appellants.

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APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]
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Before

Selya, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Ann Brennan, with whom Stephen E. Shamban was on brief, for
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appellants.
John O. Desmond for appellee.
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October 18, 1994
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SELYA, Circuit Judge. In this case, the bankruptcy
SELYA, Circuit Judge.
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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.
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Background
Background
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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.
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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


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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
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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
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(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.
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Mass. Apr. 14, 1994). The debtors retained new counsel and

sought further appellate review.

II.
II.
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Analysis
Analysis
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A.
A.
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Legal Principles
Legal Principles
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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.
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7056; see also In re Colonial Discount Corp., 807 F.2d 594, 597
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(7th Cir. 1986), cert. denied, 481 U.S. 1029 (1987). The
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jurisprudence of Rule 56 teaches that we must review orders

granting summary judgment de novo. See Maldonado-Denis v.
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Castillo-Rodriguez, 23 F.3d 576, 581 (1st Cir. 1994); Garside v.
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Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). This standard
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of review is not diluted when, as now, the underlying proceeding

originates in the bankruptcy court. See In re Fussell, 928 F.2d
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712, 715 (5th Cir. 1991), cert. denied, 112 S. Ct. 1203 (1992);
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In re Contractors Equip. Supply Co., 861 F.2d 241, 243 (9th Cir.
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1988); In re Mullet, 817 F.2d 677, 678-79 (10th Cir. 1987); In re
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Martin, 761 F.2d 1163, 1166 (6th Cir. 1985); see also In re
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G.S.F. Corp, 938 F.2d 1467, 1474 (1st Cir. 1991) (explaining that
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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
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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.
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Corporacion Azucarera de Puerto Rico, 938 F.2d 1510, 1517 (1st
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Cir. 1991); Bias v. Advantage Int'l, Inc., 905 F.2d 1558, 1560-61
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(D.C. Cir.), cert. denied, 498 U.S. 958 (1990); cf. Mendez v.
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Banco Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir. 1990) ("The
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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


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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.
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v. Catrett, 477 U.S. 317, 325 (1986). The burden of production
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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
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Lobby, Inc. 477 U.S. 242, 248 (1986); Garside, 895 F.2d at 48-49.
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inferences from the facts must be drawn in the manner most

favorable to the nonmovant. See, e.g., Morris v. Government Dev.
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Bank, 27 F.3d 746, 748 (1st Cir. 1994); Garside, 895 F.2d at 48;
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Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932,
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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.
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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.
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Applying the Law
Applying the Law
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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
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2In actuality, the bankruptcy court made no findings of
fact; instead, it granted summary judgment.

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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.
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56(c); see also Lopez, 938 F.2d at 1517. Undisputed facts do not
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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
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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
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Bank & Trust Co., 824 F.2d 570, 575 (7th Cir. 1987) (similar).
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So it is here.

In order to deny a debtor's discharge under section


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727(a)(4)(A), the trustee must show that the debtor "knowingly

and fraudulently" misstated a material matter. See, e.g., In re
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Tully, 817 F.2d 106, 110 (1st Cir. 1987). Here, the undisputed
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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.
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Related Points
Related Points
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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-
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Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990)
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(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
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836, 841-42 (1st Cir. 1993), cert. denied, 114 S. Ct. 1398
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(1994); Local 48 v. United Bhd. of Carpenters & Joiners, 920 F.2d
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1047, 1051 (1st Cir. 1990). But courts must be exceptionally

cautious in granting brevis disposition in such cases, see
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Stepanischen v. Merchants Despatch Transp. Corp., 722 F.2d 922,
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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
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Resources v. Pateman, 958 F.2d 448, 459 (1st Cir. 1992) ("It is
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black letter law that fraud may be established by inference from

circumstantial facts."); In re Roco Corp., 701 F.2d 978, 984-85
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(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
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Therefore, summary judgment should not have been granted.

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3We contrast this situation with situations like Medina-
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Munoz, in which the nonmovant bears the burden of proving the
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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.
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4Indeed, the district court tacitly recognized as much,
saying only that the bankruptcy court's "findings" were not
"clearly erroneous."

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III.
III.
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Conclusion
Conclusion
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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.
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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
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Cir. 1983).

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