Varrasso v. Desmond, 37 F.3d 760, 1st Cir. (1994)

37 F.
3d 760
Bankr. L. Rep. P 76,145

In re Peter C. VARRASSO and Mildred R. Varrasso, Debtors.
John O. DESMOND, Trustee, etc., Appellee,
v.
Peter C. VARRASSO, et al., Appellants.
No. 94-1583.
United States Court of Appeals,

First Circuit.
Heard Sept. 14, 1994.
Decided Oct. 18, 1994.
Ann Brennan, with whom Stephen E. Shamban was on brief, for

appellants.
John O. Desmond, for appellee.
Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and
STAHL, Circuit Judge.
SELYA, Circuit Judge.
In this case, the bankruptcy court entered a summary judgment sustaining the
trustee's objection to the debtors' discharge. The district court affirmed.
Because we find that the courts below grasped for the blossom though only the
bud was ready, we vacate the judgment.
I.
Background
2
Appellants Peter and Mildred Varrasso, husband and wife (collectively, the
debtors), participated in several speculative real estate ventures. Like many
others similarly situated, they encountered financial distress when the real
estate boom sputtered and fizzled. Sporting over $5,000,000 in debt without
assets to match, they filed a voluntary Chapter 11 bankruptcy petition on
October 1, 1991. When it became apparent three months later that

reorganization was unattainable, their case was converted to a straight
bankruptcy under Chapter 7. Appellee John O. Desmond accepted an
appointment as the trustee.
3
Matters did not proceed smoothly. In the schedules annexed to their bankruptcy
petition, the debtors listed $650 in assets, viz., $150 in a bank account and $500
worth of apparel. Their papers specifically disclaimed any other money,
household goods, or furnishings. Yet, at a meeting of the creditors' committee
on March 9, 1992, questioning revealed that the debtors had not listed either a
second bank account (having a balance of $100) or home furnishings (having a
value of more than $2,000).
Displeased with these inaccuracies, the trustee filed a complaint in which he

sought to block the debtors' discharge. In his complaint, he alleged that the
debtors knowingly and fraudulently made false statements in violation of 11
U.S.C. Sec. 727(a)(4)(A) (a statute providing, inter alia, that the bankruptcy
court may withhold a discharge if it determines that "the debtor knowingly and
fraudulently, in or in connection with the case ... made a false oath or account").
In due course, the trustee moved for summary judgment under Bankruptcy
Rule 7056. He filed a supporting affidavit in which he narrated the events
described above, and pointed out the obvious: that the debtors had stated their
assets differently in their original filings and in their subsequent admissions.
The debtors opposed the motion and proffered an affidavit in which their
attorney swore to little more than that full disclosure had been made to the
creditors' committee at the earliest possible opportunity. In an accompanying
memorandum, the debtors argued that they "ha[d] no intent to hinder, delay or
defraud creditors."
On this sparse record, the bankruptcy court granted summary judgment in the
trustee's favor, ruling that "[t]he debtors' failure to list accurately their assets
violate[d] Sec. 727(a)(4)(A)." In re Varrasso, No. A92-1281, slip op. at 2
(Bankr.D.Mass. Nov. 19, 1992). Consequently, the court sustained the trustee's
complaint and refused to issue a discharge.
When the debtors appealed, the district court affirmed the entry of summary
judgment. The court hypothesized that whether the debtors had violated section
727(a)(4)(A) "is a question of fact that has been decided adversely to [them] by
the bankruptcy judge," and that the judge's finding was not "clearly erroneous."
In re Varrasso, No. 92-13077, slip op. at 4 (D.Mass. Apr. 14, 1994). The
debtors retained new counsel and sought further appellate review.

II.
Analysis
A.
Legal Principles
8
In bankruptcy, summary judgment is governed in the first instance by

Bankruptcy Rule 7056. By its express terms, the rule incorporates into
bankruptcy practice the standards of Rule 56 of the Federal Rules of Civil
Procedure. See Bankr.R. 7056; see also In re Colonial Discount Corp., 807 F.2d
594, 597 (7th Cir.1986), cert. denied, 481 U.S. 1029, 107 S.Ct. 1954, 95
L.Ed.2d 526 (1987). The jurisprudence of Rule 56 teaches that we must review
orders granting summary judgment de novo. See Maldonado-Denis v. CastilloRodriguez, 23 F.3d 576, 581 (1st Cir.1994); Garside v. Osco Drug, Inc., 895
F.2d 46, 48 (1st Cir.1990). This standard of review is not diluted when, as now,
the underlying proceeding originates in the bankruptcy court. See In re Fussell,
928 F.2d 712, 715 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1203, 117
L.Ed.2d 443 (1992); In re Contractors Equip. Supply Co., 861 F.2d 241, 243
(9th Cir.1988); In re Mullet, 817 F.2d 677, 678-79 (10th Cir.1987); In re
Martin, 761 F.2d 1163, 1166 (6th Cir.1985); see also In re G.S.F. Corp., 938
F.2d 1467, 1474 (1st Cir.1991) (explaining that in connection with "appeals
from the decision of a district court on appeal from the bankruptcy court, the
court of appeals independently reviews the bankruptcy court's decision,
applying ... de novo review to conclusions of law").
It is apodictic that summary judgment should be bestowed only when no

genuine issue of material fact exists and the movant has successfully
demonstrated an entitlement to judgment as a matter of law. See Fed.R.Civ.P.
56(c). As to issues on which the movant, at trial, would be obliged to carry the
burden of proof, he initially must proffer materials of evidentiary or quasievidentiary quality--say, affidavits or depositions--that support his position.1
See Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510, 1517 (1st
Cir.1991); Bias v. Advantage Int'l, Inc., 905 F.2d 1558, 1560-61 (D.C.Cir.),
cert. denied, 498 U.S. 958, 111 S.Ct. 387, 112 L.Ed.2d 397 (1990); cf. Mendez
v. Banco Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir.1990) ("The mere fact
that plaintiff failed to file a timely opposition does not mean that defendant's
Rule 56 motion should be granted"). When the summary judgment record is
complete, all reasonable inferences from the facts must be drawn in the manner
most favorable to the nonmovant. See, e.g., Morris v. Government Dev. Bank,
27 F.3d 746, 748 (1st Cir.1994); Garside, 895 F.2d at 48; Greenburg v. Puerto
Rico Maritime Shipping Auth., 835 F.2d 932, 934 (1st Cir.1987). This means,
of course, that summary judgment is inappropriate if inferences are necessary
for the judgment and those inferences are not mandated by the record. See
Blanchard v. Peerless Ins. Co., 958 F.2d 483, 488 (1st Cir.1992) (warning that
summary judgment is precluded "unless no reasonable trier of fact could draw
any other inference from the 'totality of the circumstances' revealed by the
undisputed evidence").
B.
Applying the Law
10
In this case, the district court applied the wrong standard of review. The court
refrained from drawing reasonable inferences in the debtors' favor. To the
contrary, it ruled that the bankruptcy court's "findings" had to be upheld
because they were not "clearly erroneous."2 Thus, the district court's approach
missed the mark.
11
Having uncovered this error, we could now remand to the district court for
reconsideration under a more appropriate standard of review. But doing so
would serve no useful purpose. The validity vel non of a summary judgment
entails a pure question of law and, therefore, we are fully equipped to resolve
the question as a matter of first-instance appellate review. We choose to follow
this path.
12
Insofar as the summary judgment record reflects, the underlying facts are
undisputed; the debtors misstated their assets when compiling their bankruptcy
petition and soon thereafter corrected their representations. Nonetheless, more
is exigible; the absence of a dispute over material facts is a necessary condition
for granting summary judgment, but it is not a sufficient condition. The moving
party must also show that he is entitled to judgment as a matter of law. See
Fed.R.Civ.P. 56(c); see also Lopez, 938 F.2d at 1517. Undisputed facts do not
always point unerringly to a single, inevitable conclusion. And when facts,
though undisputed, are capable of supporting conflicting yet plausible
inferences--inferences that are capable of leading a rational factfinder to
different outcomes in a litigated matter depending on which of them the
factfinder draws--then the choice between those inferences is not for the court
on summary judgment. See Azrielli v. Cohen Law Offices, 21 F.3d 512, 517
(2d Cir.1994) (stating that "all choices between available inferences are matters
to be left for a jury, not matters to be decided by the court on summary
judgment"); Greenburg, 835 F.2d at 934 (similar); Cameron v. Frances Slocum
Bank & Trust Co., 824 F.2d 570, 575 (7th Cir.1987) (similar). So it is here.
13
In order to deny a debtor's discharge under section 727(a)(4)(A), the trustee

must show that the debtor "knowingly and fraudulently" misstated a material
matter. See, e.g., In re Tully, 818 F.2d 106, 110 (1st Cir.1987). Here, the
undisputed facts conclusively demonstrate the omission of certain assets from
the schedules, but, beyond that, the facts are consistent either with an inference
of deliberateness or an inference of carelessness. In other words, the undisputed
facts require a choice between competing inferences, and, since both inferences
are plausible, the choice cannot be made under the banner of summary
judgment.
C.
Related Points
14
Before taking our leave, let us make two other points transparently clear. First,
we do not hold that issues involving a party's state of mind can never be
resolved at the summary judgment stage. The opposite can be true. See, e.g.,
Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990)
(explaining that "[e]ven in cases where elusive concepts such as motive or
intent are at issue, summary judgment may be appropriate if the nonmoving
party rests merely upon conclusory allegations, improbable inferences, and
unsupported speculation"); accord LeBlanc v. Great American Ins. Co., 6 F.3d
836, 841-42 (1st Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1398, 128
L.Ed.2d 72 (1994); Local 48 v. United Bhd. of Carpenters & Joiners, 920 F.2d
1047, 1051 (1st Cir.1990). But courts must be exceptionally cautious in
granting brevis disposition in such cases, see Stepanischen v. Merchants
Despatch Transp. Corp., 722 F.2d 922, 928 (1st Cir.1983), especially where, as
here, the movant bears the devoir of persuasion as to the nonmovant's state of
mind.3
15
Second, we acknowledge that, in certain cases, circumstantial evidence may be

sufficiently potent to establish fraudulent intent beyond hope of contradiction.
See Putnam Resources v. Pateman, 958 F.2d 448, 459 (1st Cir.1992) ("It is
black letter law that fraud may be established by inference from circumstantial
facts."); In re Roco Corp., 701 F.2d 978, 984-85 (1st Cir.1983) (affirming a
finding of fraudulent intent on the basis of circumstantial evidence). But this is
not such a case. The omitted assets are of relatively small value, especially
when compared to the overall debt, and, consequently, the debtors had far more
to lose than to gain by playing fast and loose with the schedules. Moreover, the
debtors rectified the omissions as soon as the creditors' questioning brought
them to light. While we do not doubt that a factfinder lawfully might draw an
inference of fraud from the totality of the circumstances, we simply do not
believe that this evidence compels such an illation.4 Therefore, summary
judgment should not have been granted.
III.
Conclusion
16
We need go no further. On this insufficiently developed record, the bankruptcy

court erred in awarding summary judgment in the trustee's favor, and the
district court erred in affirming the bankruptcy court's incorrect order. Hence,
we vacate the judgment below, and remand the cause to the district court with
instructions that it vacate the bankruptcy court's order and remand the matter to
that court for further proceedings. We initiate no view as to whether the debtors
are or are not entitled to a discharge. 5
17
Vacated and remanded.
As to issues on which the nonmovant has the burden of proof, the movant need
do no more than aver "an absence of evidence to support the nonmoving party's
case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-54, 91
L.Ed.2d 265 (1986). The burden of production then shifts to the nonmovant,
who, to avoid summary judgment, must establish the existence of at least one
question of fact that is both "genuine" and "material." See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986);
Garside, 895 F.2d at 48-49
In actuality, the bankruptcy court made no findings of fact; instead, it granted

summary judgment
We contrast this situation with situations like Medina-Munoz, in which the

nonmovant bears the burden of proving the movant's state of mind. In the later
situation, the movant typically denies the existence of the necessary motive or
state of mind, shifting the burden to the nonmovant to adduce some contrary
evidence in order to avoid the swing of the summary judgment ax. See supra
note 1
Indeed, the district court tacitly recognized as much, saying only that the
bankruptcy court's "findings" were not "clearly erroneous."
We do not reach, and, therefore, need not address in any detail, the debtors'
belated attempt to lay the blame for their incomplete schedules on the doorstep
of their former attorney. We remind their present counsel, however, that
"evidentiary matters not first presented to the district court are, as the greenest
of counsel should know, not properly before [the court of appeals]." United
States v. Kobrosky, 711 F.2d 449, 457 (1st Cir.1983)

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37 F.

Bankr. L. Rep. P 76,145

United States Court of Appeals,

Ann Brennan, with whom Stephen E. Shamban was on brief, for

October 1, 1991. When it became apparent three months later that

Displeased with these inaccuracies, the trustee filed a complaint in which he

debtors retained new counsel and sought further appellate review.

In bankruptcy, summary judgment is governed in the first instance by

It is apodictic that summary judgment should be bestowed only when no

In order to deny a debtor's discharge under section 727(a)(4)(A), the trustee

Second, we acknowledge that, in certain cases, circumstantial evidence may be

We need go no further. On this insufficiently developed record, the bankruptcy

Vacated and remanded.

In actuality, the bankruptcy court made no findings of fact; instead, it granted

We contrast this situation with situations like Medina-Munoz, in which the

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