623 B.R. 1
Bankr. D. Me.2020Background
- Rasmussen and Miller contracted LaMantia Construction (LaMantia) to renovate their home for $82,500; they paid $82,500 in staged payments but the work (notably a vault ceiling and walls) was defective and had to be demolished and redone.
- LaMantia produced an Itemized Cost Report showing ~ $70,210 in costs; vendor records later revealed nearly $25,000 of overstated charges for dumpsters, lumber, and septic work.
- Plaintiffs obtained a state-court prejudgment attachment (≈ $130,372); LaMantia learned of the suit in early March 2018, retained counsel, and within days withdrew about $30,647.48 in cash from multiple accounts.
- Withdrawn cash was used to hire lawyers, prepay living expenses (private school tuition, fuel, food), and make multiple accelerated mortgage payments to SGRF (a company owned by his uncle).
- LaMantia then filed serial bankruptcies (chapter 13, dismissed; chapter 7). Court found commingling of corporate/personal funds, credibility problems in LaMantia’s testimony, and unexplained discrepancies in financial filings.
Issues
| Issue | Rasmussen & Miller's Argument | LaMantia's Argument | Held |
|---|---|---|---|
| 1. Denial of discharge under 11 U.S.C. §727(a)(2)(A) — transfers within one year with intent to hinder/delay/defraud creditors | LaMantia emptied bank accounts after learning of the suit and used funds to place assets beyond Plaintiffs’ reach (prepay mortgage, living expenses) so he should be denied a chapter 7 discharge | Withdrawals were for legitimate purposes (legal fees, living expenses) and based on counsel’s advice; no intent to hinder creditors | Court: Denied discharge under §727(a)(2)(A); circumstantial evidence (timing, prepayments to uncle’s mortgagee, unexplained cash use, credibility problems) shows actual intent to hinder/delay Plaintiffs |
| 2. Ownership of withdrawn funds (personal vs. corporate) | Funds withdrawn were effectively LaMantia’s because he commingled corporate and personal funds and treated them as personal | Some funds were held in corporate accounts and therefore not solely his | Court: Commingling meant withdrawals were treated as debtor’s property; transfers were of debtor’s property |
| 3. Nondischargeability under 11 U.S.C. §523(a)(6) — willful and malicious injury | Plaintiffs: entire claim nondischargeable because LaMantia intentionally or maliciously injured their property and overbilled | LaMantia: defects resulted from incompetence/underbidding and mistakes, not willful malicious conduct | Court: Some parts (fraudulent misrepresentations/overbilling) qualify as willful and malicious, but court did not quantify nondischargeable amount because discharge is denied altogether |
| 4. Reliance-on-counsel defense to intent inference | LaMantia relied on counsel’s advice to withdraw funds and file bankruptcy; that negates intent to hinder/delay | Plaintiffs: reliance on counsel is not dispositive; circumstantial evidence controls | Court: Advice of counsel considered but insufficient to overcome circumstantial evidence of improper intent |
Key Cases Cited
- Marrama v. Citizens Bank of Mass., 445 F.3d 518 (1st Cir. 2006) (elements and intent analysis under §727(a)(2))
- Watman v. Groman (In re Watman), 301 F.3d 3 (1st Cir. 2002) (definition of "transfer" and application to §727)
- Putnam Res. v. Pateman, 958 F.2d 448 (1st Cir. 1992) (circumstantial evidence for fraudulent intent)
- Levasseur (In re Levasseur), 737 F.3d 814 (1st Cir. 2013) (section 523(a)(6) analysis re: willful and malicious injury)
- Printy v. Dean Witter Reynolds, 110 F.3d 853 (1st Cir. 1997) (discussing willful and malicious standards)
- Tully (In re Tully), 818 F.2d 106 (1st Cir. 1987) (bankruptcy discharge policy favors "honest but unfortunate" debtors)
- Schifano (In re Schifano), 378 F.3d 60 (1st Cir. 2004) (§727(a)(2) purpose: prevent debtors from playing "fast and loose" with assets)
- Villani (In re Villani), 478 B.R. 51 (B.A.P. 1st Cir. 2012) (denial of discharge where debtor transferred funds to defeat creditor attachment)
- Barry (In re Barry), 451 B.R. 654 (B.A.P. 1st Cir. 2011) (transfers to prefer some creditors do not excuse intent to hinder others)
- Hayes (In re Hayes), 229 B.R. 253 (B.A.P. 1st Cir. 1999) (concealment defined as placing assets beyond creditors’ reach)