Tully, In re, 86-2071

• Decision Date: 04 May 1987
• Docket Number: No. 86-2071,86-2071
• Parties: Bankr. L. Rep. P 71,787 In re John E. TULLY, Debtor. Henry J. BOROFF, Trustee In Bankruptcy of John E. Tully, Plaintiff, Appellee, v. John E. TULLY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 106

818 F.2d 106

Bankr. L. Rep. P 71,787

In re John E. TULLY, Debtor Henry J. BOROFF, Trustee In Bankruptcy of John E. Tully Plaintiff, Appellee, v. John E. TULLY, Defendant, Appellant.

No. 86-2071.

United States Court of Appeals First Circuit.

Argued March 2, 1987.

Decided May 4, 1987.

George R. Desmond, Framingham, Mass., for defendant, appellant.

Henry J. Boroff, Boston, Mass., for plaintiff, appellee.

Before CAMPBELL, Chief Judge, BOWNES and SELYA, Circuit Judges.

SELYA, Circuit Judge.

It was Sir Walter Scott who remarked the inevitability of the "tangled web we weave, when first we practice to deceive." W. Scott, Marmion, canto VI, st. 17 (1808). This appeal sounds much that same theme. It centers around the quest of John E. Tully, debtor/appellant, for a discharge in bankruptcy. The bankruptcy court refused to grant the discharge on the ground that Tully knowingly failed to disclose material information when required. The district court upheld the denial. We affirm.

I. STATEMENT OF THE CASE

The appellant operated a rubbish disposal business as a sole proprietorship under the name and style of Nashoba Disposal Services (NDS). His father and brother each ran independent businesses in the same line of work. During 1983, the appellant began to feel a financial pinch. At about the same time, he, his father, and his brother entered into serious discussions with a national firm, Waste Management Partners (WMP), aimed at creating a mini-conglomerate which could profitably combine the business interests of the various members of the Tully family under one roof, so to speak.

The details of the ensuing negotiations are unimportant to this appeal. It suffices to catalog the results. The debtor, his father, and his brother organized Tully Disposal Corporation (Tully Disposal). The same trio, in combination with WMP, then formed a joint venture corporation. The debtor became an officer, director, and shareholder of Tully Disposal. In December 1983, a whirlwind series of interconnected transactions occurred. Among other things, the appellant transferred critical assets of NDS (e.g., its accounts, customer lists, goodwill) to Tully Disposal; these were simultaneously conveyed by Tully Disposal to the joint venture corporation. The latter agreed to perform certain bookkeeping and collection services for Tully Disposal in return for a share of the collections. Tully Disposal "paid" the debtor for NDS's asset contribution by agreeing to assume all of NDS's liabilities and giving the appellant two demand notes (Notes) aggregating $88,200. Similar deals were struck with respect to the businesses previously operated by the debtor's father and brother, respectively. As seasoning for the dish, another (unrelated) firm, Dudley Rubbish Company, was contemporaneously acquired and sprinkled into the mix.

Such a multifaceted package required plenty of ribbon. A master agreement (Agreement) was executed among the various parties in interest. One provision of the Agreement obligated the joint venture corporation to pay to Tully Disposal, the debtor, his father, and his brother certain sums which it would "hold back" from collections of the preexisting accounts receivable. The holdback was to be remitted, with interest, one year after the transfer date. ¹ The appellant signed the Agreement in three separate capacities: individually, as sole proprietor of NDS, and as president of Tully Disposal.

A gestation period elapsed. On or about October 4, 1984, some nine months after the Agreement was executed and the agglomeration of the businesses had been accomplished, the debtor filed a voluntary petition for straight bankruptcy under chapter 7 of the Code, 11 U.S.C. Secs. 701 et seq. As required, his petition included sworn statements listing his assets (Schedules). Though alluding to the Tully Disposal stock, he omitted any reference to three significant items: his interests in the joint venture, the Notes, and the holdback. Two weeks later, he amended the Schedules to reflect the first of these items--but again failed to mention the Notes or the holdback.

The initial meeting of creditors, see 11 U.S.C. Sec. 341, took place on November 16, 1984. After some pointed questioning, information as to the Notes surfaced for the first time. The holdback was not discussed. In March 1985, the debtor moved to amend the Schedules once more, this time to bring the Notes into the picture. (The delay was never explained.) Although the proposed (second amended) Schedules were also submitted under oath, they still neglected to disclose the debtor's interest in the holdback. Shortly thereafter, the trustee (appellee before us) filed a complaint against the debtor, objecting to any discharge and seeking other relief not now material.

In August 1985, the matter was tried in the bankruptcy court. After completion of the trial but prior to the rendition of any decision, the judge retired. The case was then assigned to a visiting judge, ² who met with counsel on February 20, 1986. Although the record is less than explicit, the trustee represented at oral argument--and the appellant did not contradict--that Judge Goodman offered the parties a choice between two alternatives: retry the matter before him, in its entirety, or allow him to decide it on the original trial record. The protagonists agreed to the latter option. Thereafter, in a lengthy memorandum of decision, Judge Goodman found that the debtor's monkeyshines anent the Notes and the holdback were tantamount to "a reckless indifference to truth equivalent to fraud," thereby estranging Tully from the safe haven of a discharge. The district court agreed. This appeal followed.

II. STANDARD OF REVIEW

The threshold dispute between the parties concerns the appropriate standard of review. They agree that, in bankruptcy parlance, this is a "core" proceeding, such that the appeal arises under 28 U.S.C. Secs. 157(b), 158. In the usual such instance, as the appellant concedes, findings of fact by the nisi prius court must be accepted unless they are clearly erroneous. In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1252 (5th Cir.1986); In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985); In re Morrissey, 717 F.2d 100, 104-05 (3d Cir.1983); In re Roco Corp., 64 B.R. 499, 500 (D.R.I.1986). And, "the standard adheres with undiminished force to inferences which the judge below has drawn from facts of record." Id. See Commissioner v. Duberstein, 363 U.S. 278, 290-91, 80 S.Ct. 1190, 1199-1200, 4 L.Ed.2d 1218 (1960).

In an effort to evade the consequences of this approach, the appellant notes that the implementing procedural rule, effective August 1, 1983, promulgated under the Supreme Court's statutory authority, 28 U.S.C. Sec. 2075, states:

Findings of fact [by the bankruptcy court] shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

Bankruptcy Rule 8013 (emphasis supplied). From the underscored language, the debtor deduces that since Judge Goodman, who did not preside at the trial, had no chance to see and hear the witnesses, an appellate court must view his findings through a less deferential glass.

We need not tarry long over this asseveration. In Anderson v. City of Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985), the Court considered whether or not, under Fed.R.Civ.P. 52(a) ³--which stands as a virtual twin to Bankruptcy Rule 8013--an appellate court may review de novo findings of fact not premised on credibility determinations. 470 U.S. at 573-76, 105 S.Ct. at 1511-13. The Court concluded that the clearly erroneous rule loses none of its vigor "even when the [lower] court's findings do not rest on credibility determinations, but are based instead on physical or documentary evidence or inferences from other facts." Id. at 574, 105 S.Ct. at 1512. Justice White, writing for the majority, explained:

The rationale for deference to the original finder of fact is not limited to the superiority of the trial judge's position to make determinations of credibility. The trial judge's major role is the determination of fact, and with experience in fulfilling that role comes expertise. Duplication of the trial judge's efforts in the court of appeals would very likely contribute only negligibly to the accuracy of fact determination at a huge cost in diversion of judicial resources. In addition, the parties to a case on appeal have already been forced to concentrate their energies and resources on persuading the trial judge that their account of the facts is the correct one; requiring them to persuade three more judges at the appellate level is requiring too much. As the Court has stated in a different context, the trial on the merits should be "the 'main event' ... rather than a 'tryout on the road.' " Wainwright v. Sykes, 433 U.S. 72, 90 [97 S.Ct. 2497, 2508, 53 L.Ed.2d 594] (1977). For these reasons, review of factual findings under the clearly-erroneous standard--with its deference to the trier of fact--is the rule, not the exception.

Id. at 574-75, 105 S.Ct. at 1512-13. We have applied Anderson unconditionally to factfinding emanating from a "paper" record. E.g., Valedon Martinez v. Hospital Presbiteriano de la Comunidad, Inc., 806 F.2d 1128, 1132 (1st Cir.1986) (Anderson rule governs district court's resolution of conflicting facts anent diversity of citizenship, decided "on documentary evidence"). See also In re Morrissey, 717 F.2d at 104 (discussing meaning and effect of, and standard of review required by, Bankruptcy Rule 8013). Indeed, we anticipated Anderson in Custom Paper Products Co. v. Atlantic Paper Box Co., 469 F.2d 178 (1st Cir.1972), where we gave "clearly erroneous" deference to findings of fact stemming from evidence which was totally documentary and by affidavit, concluding that the "appellate function does not differ just because the parties...