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In re Curran

United States Court of Appeals, First Circuit

April 20, 2017

JOSEPH M. CURRAN, Defendant, Appellee. CAROLYN PRIVITERA, Plaintiff, Appellant,


          Paul W. Hughes, with whom Michael B. Kimberly, Karianne Jones, Mayer Brown LLP, William C. Parks, and Parks Law Offices were on brief, for appellant.

          Louis S. Haskell, with whom Joy D. Hotchkiss and Law Office of Louis S. Haskell 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 11 U.S.C. § 523(a)(2)(B), should be interpreted narrowly to refer only to those documents that speak directly to the debtor's overall financial condition or broadly to include those documents that merely reference a single asset or liability. Compare, e.g., Bandi v. Becnel (In re Bandi), 683 F.3d 671, 676 (5th Cir. 2012), and Cadwell v. Joelson (In re Joelson), 427 F.3d 700, 714 (10th Cir. 2005) (employing narrow approach), with Appling v. Lamar, Archer & Cofrin, LLP (In re Appling), 848 F.3d 953, 960 (11th Cir. 2017) and Engler v. Van Steinburg (In re Van Steinburg), 744 F.2d 1060, 1061 (4th Cir. 1984) (employing broad approach). But courts should not rush to decide unsettled issues when the exigencies of a particular case do not require such definitive measures. Here, we see no need to enter onto terra incognita but, rather, decide the case on less controversial principles of pleading and materiality. When all is said and done, we affirm.

         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 11 U.S.C. § 523(a). These exemptions are construed stringently and creditors must show that a debt "comes squarely" within a particular exemption. McCrory v. Spigel (In re Spigel), 260 F.3d 27, 32 (1st Cir. 2001).

         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 11 U.S.C. §§ 701-784.

         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 11 U.S.C. § 523(a)(2)(B), which renders non-dischargeable debts obtained through "use of a statement in writing - (i) that is materially false; (ii) respecting the debtor's . . . financial ...

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