- Case Type:
- Case Status:
- BAP No. MB 16-026 (MA BK Case No. 14-14241-MSH, Adv Pro No. 14-01201-MSH) (1st Circuit, Feb 21,2017) Not Published
- Clearly, Above-All never provided in its complaint, in the Joint Pre-Trial Statement, in its opening statement, at trial, in its statement of issues, or in its appellate briefs developed arguments that pertain to the theories which it now urges this Panel apply—imputed and actual fraud.11 Under the First Circuit standards applicable to waiver, we are constrained to we are constrained to conclude that Above-All has waived the theories of imputed and actual fraud. Review standard for nondischargeability under 523(a)(2) is clear error. See In re Brady-Zell (424 B.R. 599 (BAP 1st Cir. 2010).
- Procedural context:
- Above-All Transportation, Inc. (“Above-Allˮ) appeals from that part of the adversary proceeding judgment wherein the bankruptcy court ruled in favor of Shannon Fraher on the count it brought under 11 U.S.C. § 523(a)(2)(A). Shortly after Shannon and Richard Fraher filed their joint chapter 13 bankruptcy petition, Above-All filed an adversary proceeding against the Frahers seeking either a judgment denying their discharge under § 727(a)(4)(A) or (a)(5) or, alternatively, ruling any debt they owed Above-All was nondischargeable under § 523(a)(2)(A) or (a)(6).2 . With respect to Count III, the one it brought under § 523(a)(2)(A), Above-All asserted that the Frahers “fraudulently induced [Above-All] to enter into the Sale Agreement, to make payment in the amount of Sixty Thousand and 00/100 ($60,000.00) Dollars thereunder, to employ Fraher and pay him a salary while diverting both SMA and Above[-]All business to their own benefit, constituting fraud and deceit.ˮ With respect to that count, the Frahers answered that they had fully disclosed SMAʼs assets prior to the sale and that they disputed Above-All had suffered damages. For an affirmative defense, Ms. Fraher asserted Above-All had failed to state a claim against her. At the close of the trial, the parties did not ask to make closing arguments or file post-trial briefs. Instead, the bankruptcy court immediately announced its decision from the bench. First, the court found for the Frahers on Counts I and II. Then it summarily ruled in favor of Ms. Fraher on Count III on the grounds that Above-All failed to establish that “she had anything to do with the debt that was created as a result of the allegations being made here . . . .ˮ In ruling against Mr. Fraher on Count III, the court first cited to the definition of actual fraud that Justice Thomas cited in his dissent in Husky Intʼl Elec., Inc. v. Ritz, 136 S.Ct. 1581, 1593 (2016) (Thomas J., dissenting) (explaining actual fraud “[c]onsists of any deceit, artifice, trick, or design involving direct and active operation of the mind used to circumvent and cheat another.ˮ). It then cited to the evidence demonstrating that after the parties signed the sale agreement, Mr. Fraher operated SMA in violation of the non-compete provisions of the sale agreement. It ruled that Mr. Fraherʼs indebtedness was nondischargeable and that that the amount of the debt should be adjudicated in state court. Two days later, the bankruptcy court entered a judgment in favor of Ms. Fraher on all counts, in favor of Mr. Fraher on Count I, II, and IV, and in favor of Above-All and against Mr. Fraher on Count III. The court also issued a supplemental order on the same date explaining Count IV was dismissed and granting Above-All relief from stay to proceed in the state court against Mr. Fraher. The bankruptcy docket reflects that neither party filed a post-judgment motion. Above-All timely appealed the judgment and Mr. Fraher did not cross-appeal. In its statement of issues, AboveAll listed only one: Whether the bankruptcy court erred in ruling in favor of Ms. Fraher on Count III of the complaint. Absent extraordinary circumstances, it is apodictic that legal theories not squarely addressed and litigated below cannot be raised for the first time on appeal. J.R. Insulation Sales & Serv., Inc. v. P.R. Elec. Power Auth., 482 B.R. 47, 54-5 (D.P.R. 2012) (explaining issues raised before trial court without developed argumentation waived); Iverson v. City of Boston, 452 F.3d 94, 102 (1st Cir. 2006) (collecting cases and explaining the “echolalic regularity” with which the First Circuit applies the waiver rule); Campos-Orrego v. Rivera, 175 F.3d 89, 95 (1st Cir. 1999) (explaining issue neither raised in pleadings nor argued before nisi prius court was waived). If a litigant has somehow changed its strategy during the course of litigation, it must seek reconsideration or run the risk of waiving the argument on appeal. See, e.g., MCI Telecommun. Corp. v. Matrix Commun. Corp., 135 F.3d 27, 33 (1st Cir. 1998). Failure to list an issue in the statement of issues and/or to brief the issue with reasoned arguments may also result in waiver. See, e.g., City Sanitation, LLC v. Allied Waste Serv. of Mass., LLC (In re Amer. Cartage, Inc.), 656 F.3d 82, 91 (1st Cir. 2011) (explaining issue waived unless explicitly listed or “the substance of the issue reasonably can be inferredˮ from the issues listed); United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) (explaining issues raised via cursory reference in appellate brief are deemed waived).
- Above-All alleged that although Ms. Fraher was the principal of SMA Transportation, Inc. (“SMAˮ), a livery service company, Mr. Fraher was the true owner and operator of the corporation. Above-All explained that in February 2014 and pursuant to an asset sale agreement, the Frahers sold to Above-All most of the assets of SMA including the corporate name, two vehicles, various websites, and telephone numbers, and customer lists. The sale agreement provided, inter alia, that SMA, Ms. Fraher, and Mr. Fraher would not compete in any manner with Above-All for a specified period of time after the sale. The parties then filed a Joint Pre-Trial Statement.3 In its narrative statement of the controversy, Above-All wrote that the action under § 523 was based upon the Frahersʼ “fraudulent and intentional actions in breaching [the sale agreement] . . . .ˮ In their narrative statement, the Frahers claimed they did not violate the sale agreement and that Above-All did not suffer damages. The parties included as list of issues of fact were all that remained to be litigated and acknowledged that the document “shall supersede the pleadings and govern the course of the trial of this cause.ˮ Above-All confirmed that there were no other matters that might affect the trial. In its brief, Above-All assigns error to the bankruptcy courtʼs ruling against Ms. Fraher based on a variety of arguments. First, it mentions fraud and that to prevail on this prong, a plaintiff mustdemonstrate the debtor actually intended to defraud. Next, it contends that the court should have imputed Mr. Fraherʼs fraudulent intent to Ms. Fraher, citing for support, Tsurukawa v. Nikon Precision, Inc. (In re Tsurukawa), 287 B.R. 515 (B.A.P. 9th Cir. 2002). It then explains that a plaintiff can establish intent to deceive by proving reckless indifference to or a reckless disregard of the truth. In support it cited Ins. Co. of North America v. Cohn (In re Cohn), 54 F.3d 1108, 1119 (3rd Cir. 1995) and Equitable Bank v. Miller (In re Miller), 39 F.3d 301, 305 (11th Cir. 1994).6 It further cited to cases reviewing the elements of false representation. See, e.g., Palmacci v Umpierrez, 121 F.3d 781 (1st Cir. 1997). Above-All concludes that the totality of circumstances as represented by the Frahersʼ testimony reflects that Ms. Fraher had no intent to perform her obligations under the sale agreement, the Frahers operated a livery service in violation of state court injunctions, and, as such, the Panel should reverse the grant of judgment for Ms. Fraher on Count III. In her brief, Ms. Fraher argues Above-All failed to establish that she played any role in creating the debt other than signing the sale agreement. As a result, she contends, there was no evidence to establish that she made a false representation. With respect to the agency argument, Ms. Fraher asserts Above-All failed to establish that Mr. Fraher was her agent or that she had actual knowledge or a reckless indifference regarding Mr. Fraherʼs actions after they signed the sale agreement. In its reply brief, Above-All addressed the theory of imputing fraud and also discussed how intent to deceive can be established by demonstrating a reckless disregard for the truth. At oral argument, Above-All offered that the bankruptcy court erred because Mr. Fraherʼs acts should have been imputed to Ms. Fraher—an issue it believes it raised in the Joint Pre-Trial Statement. It also discussed actual fraud and offered that Ms. Fraher was willfully ignorant of Mr. Fraherʼs fraud and she benefitted either personally or through SMA from that fraud. To support Count III, Above-All offered in its complaint that by fraudulently inducing it to enter into the agreement, to make the payment described therein, to employ Fraher while diverting both SMA and Above[-]All business to their own benefit, the Frahers engaged in fraud and deceit. It did not specify which of the three statutory prongs it was relying upon with respect to Ms. Fraher and did not raise imputed fraud. In the Joint Pre-Trial Statement, Above-All claimed the only legal issue remaining to be litigated was whether “the SMA corporate veil should be pierced.ˮ9 It did not list imputed or actual fraud in the Joint Pre-Trial Statement. At trial, Above-All did not specify which of three prongs it considered applicable and did not raise the issue of imputed fraud. The bankruptcy court did not refer to the statute when ruling in favor of Ms. Fraher and Above-All did not pursue post trial clarification from the court.
- Deasy, Tester and Finkle (Appeal from Massachusetts Bankruptcy Court Western Division, J. Hoffman)
3469 in the system
5 Being Processed