Toye, III v. O'Donnell
728 F.3d 41
| 1st Cir. | 2013Background
- O'Donnell sought bankruptcy discharge; Toye alleged nondischargeability under 523(a)(2)(B) based on a materially false PFS prepared for a loan.
- Smith prepared O'Donnell and Ferrante's PFSs using data provided by O'Donnell, emailing a signed copy to Toye; O'Donnell disputed reviewing or signing.
- Toye lent $350,000 to Alder Street Properties LLC secured by a mortgage and personal guaranties; loan later defaulted.
- State court summary judgment awarded Toye a $417,974 judgment on the personal guaranty, prompting Toye to pursue bankruptcy proceedings.
- Bankruptcy judge held O'Donnell caused the PFS to be made/published and that recklessness sufficed to prove intent to deceive under 523(a)(2)(B); BAP affirmed.
- Issue on appeal is whether O'Donnell's conduct satisfies the 'caused ... to be made or published with intent to deceive' element, given Smith acted as agent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Smith was O'Donnell's agent for the loan documents | O'Donnell asserts Smith acted for Toye, not O'Donnell. | Court recognized Smith as O'Donnell's agent based on course of dealing and authority to prepare/publish PFSs. | Agency finding affirmed; Smith acted as O'Donnell's agent for the PFS. |
| Whether O'Donnell caused the PFS to be made or published with an intent to deceive | O'Donnell did not review/sign the PFS; cannot have intended deception. | O'Donnell set in motion the process and directed Smith; reckless indifference suffices for intent to deceive. | Reckless indifference may satisfy intent to deceive; evidence supports intent to deceive. |
| Whether recklessness can satisfy the intent element under 523(a)(2)(B) | Intent requires actual purpose to deceive. | Recklessness can suffice to show intent to deceive under 523(a)(2)(B). | Recklessness can satisfy the intent element under 523(a)(2)(B). |
| Whether the evidence supports the bankruptcy judge’s reasoning on O'Donnell's knowledge and omissions | O'Donnell provided limited data and did not verify; could show recklessness. | Evidence shows O'Donnell knew Toye demanded a truthful PFS and failed to check Smith's work. | Record supports inferencing recklessness and failure to verify; no clear error found. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (Supreme Court (1991)) (fresh-start concept and narrow exceptions to discharge)
- In re Goguen, 691 F.3d 62 (1st Cir. 2012) (recklessness and intent in 523(a)(2)(B) analysis)
- In re Bonnanzio, 91 F.3d 296 (2d Cir. 1996) (recklessness can prove intent to deceive under 523(a)(2)(A))
- In re Cohn, 54 F.3d 1108 (3d Cir. 1995) (recklessness informing 523(a)(2) interpretations)
- Palmacci v. Umpierrez, 121 F.3d 781 (1st Cir. 1997) (recklessness and intent under § 523(a)(2); deferential review of fact-findings)
- Field v. Mans, 516 U.S. 59 (Supreme Court (1995)) (intent standard for fraud-based claims; guidance for recklessness)
- In re Morrison, 555 F.3d 473 (5th Cir. 2009) (recklessness suffices under § 523(a)(2)(B) in some circuits)
- Kaspar v. Bellco First Fed. Credit Union, 125 F.3d 1358 (10th Cir. 1997) (discussion on 'writing' and § 523(a)(2)(B) elements)