IN RE Joseph M. CURRAN, Debtor. Carolyn Privitera, Plaintiff, Appellant, v. Joseph M. Curran, Defendant, Appellee.
No. 16-9006
United States Court of Appeals, First Circuit.
April 20, 2017
855 F.3d 19
To be sure, it is unfortunate when a potentially important claim is lost because a deadline is missed. However, that is the necessary result of the statutory limitations periods that our elected representatives have seen fit to enact, without which there would be no repose and claims might be filed long after the ability to recreate what happened has much diminished. Plaintiff is a layperson who suspected that he might have a valid claim arising out of his father‘s death. Based on what he knew, the law anticipates that he would do what he did in fact do: promptly consult a lawyer. Plaintiff‘s knowledge of his father‘s injury, combined with what his lawyer should have known about how to investigate and preserve any potential claims arising from that injury, left him well able to file the appropriate claim form with HHS within the two-year limitations period established by Congress. That he did not do so is not the fault of EBNHC or the government.
For the foregoing reasons, we affirm.
Louis S. Haskell, with whom Joy D. Hotchkiss and Law Office of Louis S. Haskell, Lowell, MA, were on brief, for appellee.
Before HOWARD, Chief Judge, SELYA and LYNCH, Circuit Judges.
SELYA, Circuit Judge.
In this bankruptcy appeal, the parties ask us to resolve an issue that has divided our sister circuits: whether the phrase “statement ... respecting the debtor‘s ... financial condition,” as used in
I. BACKGROUND
We begin with a brief description of the legal foundation on which this case rests. Chapter 7 liquidation proceedings enable an individual debtor to gain a “fresh start” by granting him a discharge that releases him from almost all debt previously incurred. Grogan v. Garner, 498 U.S. 279, 283 (1991); Harrington v. Simmons (In re Simmons), 810 F.3d 852, 855 (1st Cir. 2016). Such a discharge is available, though, only to the “honest but unfortunate debtor.” Premier Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1, 7 (1st Cir. 2016) (quoting Grogan, 498 U.S. at 286-87). To this end, the bankruptcy code exempts some debts—especially those rooted in fraud and deceit—from discharge. See
This case, which deals with a creditor‘s attempt to avail herself of two such exemptions, was resolved on what amounts to a motion for judgment on the pleadings. Accordingly, we rehearse the facts as they appear in the plaintiff‘s complaint (and the documents incorporated by reference therein) and draw all reasonable inferences in the plaintiff‘s favor. See Shay v. Walters, 702 F.3d 76, 78 (1st Cir. 2012).
In November of 2007, the debtor, Joseph M. Curran, and the plaintiff, Carolyn Privitera, were romantically involved. In need of funds, the debtor turned to the plaintiff, who promised to loan him $30,000. During negotiations, the plaintiff (represented by counsel) asked the unrepresented debtor to draw up a list of his property. In response, the debtor gave her a list of property (the List), comprising property “belonging” to him “either by title or by physical possession” and used in his landscaping business. The plaintiff‘s attorney made only minor changes to the List before converting it into what he unilaterally styled as a “List of Collateral.” The attorney then prepared a loan agreement (the Agreement) and attached the List as an exhibit.
The List included sixteen different landscaping-related items ranging from a variety of clippers and trimmers to two trucks. The purchase price of each item was listed beside the item in a column labeled “cost.” Excluding the trucks, the total cost of the remaining items was slightly over $22,000. With the trucks, the total cost of all the items ballooned to more than $86,000. Unbeknownst to the plaintiff, the debtor was still making installment payments on at least one of the trucks and that truck remained titled to the lender.
Article II of the Agreement specified that the debtor would execute and deliver a security agreement and financing statements “covering” the property included in the List. It further provided that the debtor would record and file all documents necessary to “perfect and protect” the plaintiff‘s security interest. To ensure this protection, Article II empowered the plaintiff to sign and file financing statements on the debtor‘s behalf.
The Agreement was executed in November of 2007, and the plaintiff transferred $30,000 to the debtor‘s bank account. Even so, no security agreement or financing statement was presented, and neither the plaintiff nor the debtor took any steps to perfect the plaintiff‘s security interest in the property. The loan proved to be a poor investment: the debtor repaid less than $5,000 before defaulting in 2012.
The plaintiff sued the debtor in a Massachusetts state court and, in March of 2014, secured a default judgment in the amount of $137,030.78 (a sum that included damages, interest, and costs). Later that year, the debtor—without making any payment on the judgment—filed for Chapter 7 bankruptcy protection. See
In due course, the plaintiff commenced an adversary proceeding in the bankruptcy court seeking an order declaring the debt non-dischargeable. She claimed that the List was a false statement submitted to induce her to make the loan, thus bringing the debt within the purview of
After a hearing, the bankruptcy court granted the debtor‘s motion to dismiss. In a bench decision, the court concluded that, with respect to the
The plaintiff took a first-tier appeal to the Bankruptcy Appellate Panel for the First Circuit (the BAP). Because the debtor had answered the complaint before moving to dismiss, the BAP construed his motion as a motion for judgment on the pleadings. See
II. ANALYSIS
In this circuit, appeals in bankruptcy cases proceed through a two-tiered framework. See In re Simmons, 810 F.3d at 856. A party who loses in the bankruptcy court has a choice: he may take his initial appeal either to the district court or to the BAP. See
Here, the plaintiff‘s challenge is twofold. First, she asserts that the bankruptcy court erred when it dismissed her complaint. Second, she asserts that the bankruptcy court compounded this initial error by refusing to allow her to add a
In litigating adversary proceedings in bankruptcy, the standards embedded in
In order to survive dismissal, a complaint need not set forth “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), but it must “contain sufficient factual matter ... to state a claim to relief that is plausible on its face,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). If the facts articulated in the complaint are “too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture,” the complaint is vulnerable to a motion to dismiss. SEC v. Tambone, 597 F.3d 436, 442 (1st Cir. 2010) (en banc).
This sort of plausibility review requires courts to undertake a two-step pavane. See Shay, 702 F.3d at 82. First, the court must set aside the complaint‘s conclusory averments. See id. Second, it must evaluate whether the remaining factual content supports a “reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quoting Grajales, 682 F.3d at 45); see Banco Santander de P.R. v. Lopez-Stubbe (In re Colonial Mortg. Bankers Corp.), 324 F.3d 12, 15 (1st Cir. 2003) (similar). In conducting this tamisage, the court “need not give weight to bare conclusions, unembellished by pertinent facts.” Shay, 702 F.3d at 82-83.
Much of the briefing in this case focuses on whether the List is a statement respecting the debtor‘s financial condition. Here, though, that issue need not be resolved because—even if we assume, for argument‘s sake, that the List constitutes a statement of financial condition—the judgment below must be affirmed. The critical datum is that the plaintiff has failed plausibly to allege that the List was materially false.1 We explain briefly.
Material falsity is an element of a claim under
Viewed against this backdrop, the plaintiff‘s complaint needed plausibly to plead either that the debtor affirmatively misrepresented the status of the items enumerated in the List or that he omitted information he was obligated to furnish. In this case, the complaint does not identify any affirmative misrepresentations. Instead, it alleges only that the plaintiff expected the debtor to supply a list of property “belonging to [him], either by title or by physical possession.” In response, the debtor gave her exactly what she had requested: a list of items that he either owned or possessed. He added the cost (that is, the purchase price) of each of the items. The plaintiff does not claim that the substance of the List was in any way untrue, nor does she claim that the debtor made any affirmative misrepresentations about the nature of his interest in the enumerated items.
Stripped to its essence, then, the plaintiff‘s case rests on a claim that it is what the debtor did not say that created a materially false impression. She points specifically to his failure to disclose that at least one of the trucks was encumbered. But a failure to speak becomes a misrepresentation by omission only if the context requires the debtor to speak (that is, to provide the missing information). See id. Here, however, the complaint contains no facts indicating that the debtor was obliged to tell the plaintiff that the trucks were encumbered.
To begin, the plaintiff does not assert that the debtor agreed to identify only unencumbered property when compiling the List. As we already have explained, her complaint relates that she asked him to prepare a list of property that he either owned or possessed. Including encumbered property on the List was entirely consistent with her request.
Moreover, when the debtor signed the Agreement, he vouchsafed only that he would not further encumber the enumerated items. In this respect, the Agreement states that the debtor would not “create, incur, assume, or suffer to exist” any encumbrances “upon the use of [his] property or assets.” Giving these terms their natural meaning, they refer only to future encumbrances, not to preexisting ones. See LifeWise Master Funding v. Telebank, 374 F.3d 917, 920 & n.4 (10th Cir. 2004) (interpreting promise that funding recipient would not “create, incur, assume or suffer to exist any Lien” on described property as prohibiting recipient from allowing any future liens).
By the same token, the plaintiff‘s complaint does not aver that the debtor promised to provide a list of items sufficient to secure the loan fully. Without such a promise, the debtor may reasonably have believed that the unencumbered property on the List (which cost around $22,000 when purchased), together with whatever equity he had in any encumbered property,2 was sufficient for the plaintiff‘s purposes, so no further information was required.
That the plaintiff‘s attorney subsequently titled the list “List of Collateral,” annexed it to the Agreement, and had the debtor initial it did not—as the plaintiff suggests—transmogrify the debtor‘s representations into misrepresentations. Importantly, the plaintiff‘s complaint presents no facts indicating that the parties reached a meeting of the minds regarding either the purpose of the List or the implications of its recharacterization. Nor does the complaint supply facts suggesting that the
Striving to blunt the force of this reasoning, the plaintiff insists that it should have been clear to the debtor that he was expected to disclose any preexisting encumbrances. In support, she cites a compendium of cases acknowledging that the existence of encumbrances is often salient information. See, e.g., In re Van Steinburg, 744 F.2d at 1061. But she cites no case holding that a debtor is required to disclose prior encumbrances simply because he has been asked to provide a list of property that he owns and/or possesses,3 and we are aware of none.
The short of it is that, without pleaded facts adequate to support a reasonable inference of material falsity, the plaintiff‘s
This leaves only the plaintiff‘s claim that the bankruptcy court abused its discretion when it denied her motion to amend her complaint to add a
Courts are instructed to “freely give leave when justice so requires.”
We review a bankruptcy court‘s denial of leave to amend for abuse of discretion. See Zullo v. Lombardo (In re Lombardo), 755 F.3d 1, 3 (1st Cir. 2014). That review is satisfied if we discern some “arguably adequate basis” for the district court‘s decision. Hatch, 274 F.3d at 19.
In the case at hand, the bankruptcy court denied the plaintiff‘s motion for leave to amend on futility grounds. Where, as here, a party seeks leave to amend before any discovery has occurred, a reviewing court assays futility with reference to the
In her proposed amended complaint, the plaintiff claims that the debt is exempt from discharge under
Unlike
1) the debtor made a knowingly false representation or one made in reckless disregard of the truth, 2) the debtor intended to deceive, 3) the debtor intended to induce the creditor to rely upon the false statement, 4) the creditor actually relied upon the false statement, 5) the creditor‘s reliance was justifiable, and 6) the reliance upon the false statement caused damage.
Sharfarz v. Goguen (In re Goguen), 691 F.3d 62, 66 (1st Cir. 2012) (quoting In re Spigel, 260 F.3d at 32). The first element includes false pretenses, which arise when the circumstances “imply a particular set of facts, and one party knows the facts to be otherwise” but does not correct the counter-party‘s false impression. Old Republic Nat‘l Title Ins. Co. v. Levasseur (In re Levasseur), 737 F.3d 814, 818 (1st Cir. 2013) (citation omitted).
The circumstances here do not imply a particular set of facts that the debtor knew to be untrue. The debtor was never asked about whether or to what extent the listed items were encumbered, and the mere fact of an encumbrance was not inconsistent with their use as collateral. See, e.g., In re SW Bos. Hotel Venture, 748 F.3d at 398; Harley-Davidson, 897 F.2d at 613. Seen in this light, the plaintiff‘s
To say more would be to paint the lily. We conclude, as did the BAP, that an adequate basis existed for the bankruptcy court‘s denial of the plaintiff‘s motion to amend: the new claim, like the old claim, would have been futile. It follows that the bankruptcy court did not abuse its discretion in denying the motion for leave to amend.
III. CONCLUSION
We need go no further. For the reasons elucidated above, the judgment is
Affirmed.