United States Court of Appeals
For the First Circuit
No. 04-2234
IN RE CARL J. HANNIGAN,
Debtor,
CARL J. HANNIGAN,
Appellant,
v.
ROBERT R. WHITE,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Boudin, Chief Judge,
Campbell, Senior Circuit Judge,
and Howard, Circuit Judge.
Thomas M. Bovenzi with whom James M. Donovan and Bovenzi &
Donovan were on brief for appellant.
Robert White with whom Levy & White was on brief for appellee.
June 2, 2005
CAMPBELL, Senior Circuit Judge. Carl J. Hannigan (the
"Debtor") filed a voluntary Chapter 7 petition at the age of 69.
On Schedule A - Real Property - he listed his ownership interest in
a single-family dwelling at 106 Haynes Road, Townsend,
Massachusetts, indicating that the market value of the property was
$135,000. On Schedule C - Property Claimed as Exempt - he claimed
a Massachusetts homestead exemption under Mass. Gen. Laws ch. 188,
§ 1A1 for the same real estate in the amount of $135,000.
In the course of the bankruptcy proceedings, the Debtor
filed a motion to amend his homestead exemption from $135,000, as
previously claimed in respect to that property in his Chapter 7
petition, to "the value of the property to the extent of
$300,000.00," the full amount allowed under Mass. Gen. Laws ch.
188, § 1A. The bankruptcy court denied the motion on the ground
that the Debtor had intentionally undervalued his property, which
consisted of a 1.36-acre house parcel ("House Parcel") and an
adjoining, 33-acre parcel ("Back Parcel"), and that doing so in
this case "amount[ed] to bad faith." The district court affirmed,
1
Mass. Gen. Laws ch. 188, § 1A (2004) provides in pertinent
part:
The real property . . . of persons sixty-two years of age
or older . . . shall be protected against attachment,
seizure or execution of judgment to the extent of
$300,000; provided, however, that such person has filed
an elderly . . . declaration of homestead protection as
provided in section two; and, provided further, that such
person occupies or intends to occupy such real property
. . . as his principal residence.
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see Hannigan v. White, No. 03-40232 (D. Mass. Aug. 3, 2004), and
this appeal followed.
Rule 1009(a) of the Federal Rules of Bankruptcy Procedure
permits a debtor to amend a schedule "as a matter of course at any
time before the case is closed." However, a bankruptcy court has
discretion to deny the amendment of exemptions where the amendment
would prejudice creditors or where the debtor has acted in bad
faith or concealed assets. See, e.g., Kaelin v. Bassett (In re
Kaelin), 308 F.3d 885, 888 (8th Cir. 2002); Doan v. Hudgins (In re
Doan), 672 F.2d 831, 833 (11th Cir. 1982); Snyder v. Rockland Trust
Co. (In re Synder), 279 B.R. 1, 5 (B.A.P. 1st Cir. 2002). Courts
have held that it is permissible to deny an amendment where the
debtors had intentionally undervalued their home in bad faith.
See, e.g., Bauer v. Iannacone (In re Bauer), 298 B.R. 353, 357
(B.A.P. 8th Cir. 2003); In re Rolland, 317 B.R. 402, 415-16 (Bankr.
C.D. Cal. 2004).
The Debtor challenges the bankruptcy court's finding that
he intentionally and in bad faith undervalued his property. In
passing on the Debtor's appeal, we give no actual deference to the
district court's review of the bankruptcy court's decision,
although we of course may consider it for its persuasive value.
HSBC Bank USA v. Branch (In re Bank of New England Corp.), 364 F.3d
355, 361 (1st Cir. 2004). Instead, we directly review the decision
of the bankruptcy court, examining its legal conclusions de novo
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and its factual findings for clear error. Id. The question of a
debtor's intent is a question of fact reviewed under the clearly
erroneous standard. See Smith v. Grondin (In re Grondin), 232 B.R.
274, 277 (B.A.P. 1st Cir. 1999).
The bankruptcy court relied on the following facts to
support the inference that "the Debtor's intentional undervaluing
of the Property in this case amounts to bad faith":
[T]he Section 341 meeting [of the creditors] was
suspended by the Trustee for the specific purpose of the
Debtor's providing the Trustee with an accurate appraisal
of the Property. This suspension occurred after [the
Debtor's only creditor] questioned the Debtor about
whether the values he listed on Schedule A and Schedule
C included both the House Parcel and the Back Parcel, or
just the House Parcel. Thus, the Debtor should have been
aware of exactly what information the Trustee was seeking
and, in fact, the Debtor testified on cross-examination
that he knew as he left the Section 341 meeting that the
Trustee wanted to know the value of both the House Parcel
and the Back Parcel. Accordingly, the Debtor and his
counsel cannot credibly assert that they did not know
that they were supposed to provide an appraisal for the
entire Property.
Nevertheless, the assessment provided by the Town of
Townsend and submitted by Debtor's counsel only included
the House Parcel. This submission appears even more
deceitful on the part of the Debtor given that the
assessment indicates that it is for "106 Haynes Road," a
description which, when used by the Town of Townsend,
meant only the House Parcel but when used by the Debtor
on his schedules was intended to encompass the entire
34.36 acre property. The Debtor testified that he knew
[] that the information provided to the Trustee was not
what she had requested and yet did nothing to fix the
problem or even bring it to the Trustee's attention.
Therefore, the Court concludes that the Debtor
intentionally undervalued the Property in documentation
submitted to the Trustee.
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A finding is "clearly erroneous" even if there is evidence to
support it when the reviewing court "is left with the definite and
firm conviction that a mistake has been committed." Anderson v.
Bessemer City, 470 U.S. 564, 573 (1985). Our review of the record
fails to convince us that the bankruptcy court's finding that the
Debtor's intentional undervaluing of the property amounts to bad
faith was clearly erroneous.
The Debtor argues that the undervaluing of the property
cannot constitute bad faith as a matter of law because the
undervaluing was not "material," i.e., "the purported act of bad
faith [lacked] some logical connection with the consequential
facts." According to the Debtor, the amount of the homestead
exemption under Mass. Gen. Laws ch. 188, § 1A "automatically
increases to the statutory maximum as the property appreciates over
time." This shows, the Debtor contends, that the undervaluation,
which was well below the statutory maximum, must have been innocent
and unintentional since it served no purpose beneficial to himself.
While it may well be true, under Massachusetts law, that
a homeowner can claim the value of the property, which may increase
with time, to the extent of the statutory maximum, federal
bankruptcy law nonetheless requires a debtor to state the true
value of his property at the time he files his petition. See
Grogan v. Garner, 498 U.S. 279, 287 (1991) (noting that the
opportunity for a "fresh start" under the Bankruptcy Code is for
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the "honest but unfortunate debtor"). A bankruptcy court is
entitled to insist upon filings and representations made in utmost
good faith.
The circumstances here strongly suggested some attempt,
even if quite misguided, at continued, deliberate exclusion of the
value of the Back Parcel from the overall valuation of the Debtor's
real estate. The Debtor may have feared that the Back Parcel was
not entitled to the homestead exemption or that its value would
bring the property's total value above the $300,000 limit.2 He may
have simply misunderstood where his better interests lay. That
falsification was not actually in his interest was certainly a
relevant fact in determining his likely intention, but so also were
the facts that the Debtor plainly knew what information was wanted,
knew that what he provided was not that information (and was
misleading on its face as to the land included), and kept from
those involved the information they desired.3 This is not to say
2
We note that one of the subsequent appraisals of the House
Parcel and the Back Parcel would result in a total value of
$865,000, well in excess of the $300,000 exemption. The other two
appraisals indicated a total value below the exemption.
3
The Debtor has not cited any case indicating that an
intentional undervaluing of property must be of a "material"
nature, i.e., must necessarily work to the Debtor's actual
advantage, before a court can deny an amendment. Two of the cases
cited by the Debtor for the proposition do not address the issue of
so-called materiality. See In re Doan, 672 F.2d at 833-34
(debtor's action did not show intentional or fraudulent
concealment); Kobaly v. Slone (In re Kobaly), 142 B.R. 743, 749
(Bankr. W.D. Pa. 1992) (evidence was not sufficient to support
inference that debtor attempted to conceal asset). The third case,
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that mere carelessness or oversight would be sufficient to show bad
faith or concealment. But bad faith may encompass intentional
misconduct that, in retrospect, was not in the actor's best
interest. For example, in In re Bauer, the bankruptcy appellate
panel held that the bankruptcy court did not err in finding bad
faith and denying the debtors' amended claim of exemption where the
debtors had substantially undervalued their home in the schedules
to reflect no equity. 298 B.R. at 357. The court noted the
"irony" -- "if the Debtors had accurately disclosed the true value
of their home from the outset, they may have been entitled to
exempt their equity in it." Id. Instead, the "[b]ad faith"
undervaluation "cost the Debtors the equity in their home." Id.
See also Hannigan v. White, No. 03-40232 (D. Mass. Aug. 3, 2004)
(the district court's extended and thoughtful analysis of the
circumstances here).
On this record, we cannot say the bankruptcy court
committed clear error in inferring, in all the circumstances, that
the Debtor had intentionally undervalued the property, and in
refusing to permit him to amend his claimed homestead exemption as
a sanction for what the court concluded "amount[ed] to bad faith."4
Peoples Bank v. Colburn (In re Colburn), 145 B.R. 851 (Bankr. E.D.
Va. 1992), involves the denial of a general discharge of a Chapter
7 debtor's debt, and not the denial of an amendment of exemptions
pursuant to Fed. R. Bankr. P. 1009(a).
4
The appellee did not file an appeal from the bankruptcy court
or the district court's orders. Hence we do not consider his
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Affirmed.
arguments that the homestead exemption does not apply to pre-
existing debts under Mass. Gen. Laws ch. 188, § 1A or that he has
a consensual lien.
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