Privitera v. Curran
855 F.3d 19
| 1st Cir. | 2017Background
- In 2007 Curran borrowed $30,000 from Privitera; he provided a handwritten "List" of sixteen landscaping items (with purchase prices) that he owned or possessed; plaintiff's lawyer attached it to a loan agreement as a "List of Collateral."
- The List included two trucks; unbeknownst to Privitera at the time, at least one truck remained encumbered (titled to a lender). No security agreement or UCC financing statement was ever filed to perfect any security interest.
- Curran repaid less than $5,000 and defaulted; Privitera obtained a state-court default judgment (about $137,000) and Curran later filed Chapter 7 bankruptcy.
- Privitera sued in bankruptcy court seeking a nondischargeability determination under 11 U.S.C. § 523(a)(2)(B) (false written statement respecting debtor's financial condition) and moved to amend to add a § 523(a)(2)(A) claim (false pretenses/representations).
- The bankruptcy court dismissed the § 523(a)(2)(B) claim for failure to state a claim (reliance unjustifiable in part due to failure to perfect) and denied leave to amend as futile; the BAP affirmed; First Circuit affirmed on the ground that Privitera failed adequately to plead material falsity and that amendment would be futile.
Issues
| Issue | Privitera's Argument | Curran's Argument | Held |
|---|---|---|---|
| Whether the List is a "statement respecting the debtor's financial condition" under § 523(a)(2)(B) | The List (as annexed to the loan agreement as "List of Collateral") was a written statement about Curran's financial condition and thus subject to § 523(a)(2)(B) | Even if it is, dismissal is proper for other reasons (e.g., no material falsity pleaded); question need not be decided here | Court assumed arguendo the List could qualify but resolved case on other grounds — did not decide the circuit split definitively |
| Whether the complaint plausibly alleged the List was materially false | Failure to disclose preexisting encumbrances on trucks rendered the List materially false/ misleading | The List accurately described items Curran owned or possessed; no affirmative misrepresentations pleaded; no obligation to disclose encumbrances alleged | Dismissed: plaintiff failed to plead facts supporting a reasonable inference of material falsity |
| Whether Privitera reasonably/justifiably relied on the List | Relied on the List (and its incorporation as collateral) to make the loan | Reliance was unjustified in part because she failed to perfect any security interest; and she did not plead that she believed items were unencumbered | Court affirmed dismissal for lack of plausible material falsity (did not rest solely on reliance) |
| Whether leave to amend to add a § 523(a)(2)(A) claim should have been granted | Proposed amendment alleged false pretenses/representation by omission (failure to disclose encumbrances) | Amendment would be futile because facts do not show knowingly false representation, intent to deceive, or implication of facts contrary to reality | Denial of leave to amend affirmed as non-abusive: proposed § 523(a)(2)(A) claim would have been futile |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (standard that bankruptcy discharge is for "honest but unfortunate" debtors)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (distinguishing § 523(a)(2)(A) and (B) and incorporation of common-law fraud principles)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (two-step plausibility review and disregard of conclusory allegations)
- Harrington v. Simmons (In re Simmons), 810 F.3d 852 (1st Cir. 2016) (bankruptcy appellate procedure and discharge principles)
- Premier Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1 (1st Cir. 2016) (fraud exceptions to discharge construed strictly)
- Shay v. Walters, 702 F.3d 76 (1st Cir. 2012) (Rule 12 standard and plausibility review)
- Bethpage Fed. Credit Union v. Furio (In re Furio), 77 F.3d 622 (2d Cir. 1996) (material falsity test: whether statement would normally affect creditor's decision)
- Prudential Ins. Co. v. SW Bos. Hotel Venture, LLC (In re SW Bos. Hotel Venture, LLC), 748 F.3d 393 (1st Cir. 2014) (encumbered property can serve as collateral up to debtor's equity)
- McCrory v. Spigel (In re Spigel), 260 F.3d 27 (1st Cir. 2001) (exemptions from discharge are construed narrowly)