563 B.R. 85
Bankr. D. Mass.2017Background
- Patriot sued debtor Steven C. Fustolo in a multi-count adversary complaint seeking denial of discharge under 11 U.S.C. § 727 and nondischargeability under § 523; major discovery disputes over emails and financial records ensued.
- The Court issued a December 31, 2015 Order requiring Fustolo to produce non-privileged emails/records to Patriot and to submit for in camera inspection documents he claimed were protected by the Fifth Amendment, plus privilege logs.
- Fustolo repeatedly missed deadlines, produced voluminous but largely nonresponsive materials, failed to provide required in camera logs/submissions, and gave inconsistent explanations (AOL deletion policy; lost laptop).
- On March 17, 2016 the Court found Fustolo had willfully refused to comply with the December 31st Order, granted Patriot’s motion for sanctions, and set an expedited trial date.
- Trial occurred May–June 2016; Patriot questioned Fustolo about compliance with the December 31st Order without objection and later moved under Fed. R. Civ. P. 15(b)(2) to amend pleadings to conform to evidence to add a § 727(a)(6)(A) claim (refusal to obey lawful court order).
- The Court treated the unpleaded § 727(a)(6)(A) claim as tried by implied consent, found Fustolo’s noncompliance willful, and denied his discharge under § 727(a)(6)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 15(b)(2) permits treating an unpleaded § 727(a)(6) claim as tried by consent | Patriot: Joint pretrial memorandum, Request for Judicial Notice, questioning at trial and record show implied consent to try refusal-to-comply claim; amendment should be allowed | Fustolo: No § 727(a)(6) count pleaded; early statement that none existed waived trial on that theory; evidence could support other issues so no implied consent; amendment is prejudicial | Court: Implied consent found—Joint Pretrial Memorandum, judicial notice of prior orders, and unobjected trial questioning put Fustolo on notice; Rule 15(b)(2) amendment allowed |
| Whether denial of discharge is warranted under 11 U.S.C. § 727(a)(6)(A) for failing to obey the December 31, 2015 Order | Patriot: Court already found willful refusal; evidence at sanction hearing and trial shows intentional noncompliance and spoliation, meeting preponderance standard | Fustolo: Noncompliance assertedly based on Fifth Amendment concerns, mistaken email retention claims, lost laptop; denial is excessive and prejudicial | Court: Denial affirmed—December 31st Order was lawful; Fustolo’s noncompliance was willful/intentional, not inadvertent; § 727(a)(6)(A) satisfied |
| Whether Fifth Amendment objections justified refusal to submit documents in camera | Patriot: Protocol protected privilege while enabling in camera review; refusal was obstruction | Fustolo: Production or logging could be testimonial and jeopardize privilege; risk of adverse inference from judge reviewing documents | Court: Protocol consistent with precedent (in camera review protects privilege); Fustolo’s refusal was unjustified and obstructionist |
| Whether Fustolo suffered unfair prejudice from post-trial motion to conform | Patriot: Rule 15(b)(2) allows post-trial amendment; Fustolo had full opportunity at trial to address compliance | Fustolo: Motion filed months after trial; would be prejudicial and surprise him | Court: No unfair prejudice—Fustolo had notice and chance to litigate the issue at trial; amendment permitted |
Key Cases Cited
- Fustolo v. 50 Thomas Patton Drive, LLC, 816 F.3d 1 (1st Cir. 2016) (affirming order for relief in Fustolo’s bankruptcy case)
- Premier Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1 (1st Cir. 2016) (Rule 15(b)(2) applied where debtor failed to object to trial of unpleaded claim)
- Antilles Cement Corp. v. Fortuno, 670 F.3d 310 (1st Cir. 2012) (discussing implied consent under Rule 15(b)(2))
- Haught v. Maceluch, 681 F.2d 291 (5th Cir. 1982) (evidence relevant to existing issues does not necessarily show consent to try a new issue)
- Smith v. Jordan (In re Jordan), 521 F.3d 430 (4th Cir. 2008) (willful/intentional refusal required under § 727(a)(6)(A))
- Standiferd v. U.S. Trustee (In re Standiferd), 641 F.3d 1209 (10th Cir. 2011) (debtor must receive order and then willfully fail to comply for § 727(a)(6)(A) denial)
- United States v. Zolin, 491 U.S. 554 (1989) (in camera review appropriate to assess claims of privilege)