Botelho v. Buscone (In re Buscone)

• Decision Date: 21 December 2021
• Docket Number: BAP NO. MB 21-005,Adversary Proceeding No. 19-01037-FJB,Bankruptcy Case No. 19-10594-FJB
• Citation: 634 B.R. 152
• Parties: Mary E. BUSCONE, d/b/a FroYo To Go, Debtor. Ann Tracy Botelho, Plaintiff-Appellee, v. Mary E. Buscone, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

634 B.R. 152

Mary E. BUSCONE, d/b/a FroYo To Go, Debtor.Ann Tracy Botelho, Plaintiff-Appellee,

v.Mary E. Buscone, Defendant-Appellant.

BAP NO. MB 21-005

Bankruptcy Case No. 19-10594-FJB

Adversary Proceeding No. 19-01037-FJB

United States Bankruptcy Appellate Panel of the First Circuit.

December 21, 2021

David G. Baker, Esq., Boston, on brief for Defendant-Appellant.

Thomas C. LaPorte, Esq., on brief for Plaintiff-Appellee.

Before Godoy, Harwood, and Fagone, United States Bankruptcy Appellate Panel Judges.

Fagone, U.S. Bankruptcy Appellate Panel Judge.

Ann Tracy Botelho filed a complaint seeking a determination that the debt owed to her by Mary E. Buscone was excepted from discharge in Buscone's chapter 7 case. Buscone responded with a motion to dismiss, arguing that judicial estoppel barred Botelho's complaint because Botelho had failed to disclose, in Botelho's own chapter 7 case, the existence of her claim against Buscone. After this effort failed, the litigation devolved into a bitter discovery dispute resulting in the entry of a default judgment against Buscone and the imposition of monetary sanctions against her attorney.

Buscone now appeals from the default judgment and several interlocutory orders preceding that judgment. For the reasons discussed below, we AFFIRM all the challenged rulings except to the extent they imposed sanctions against Buscone's attorney. The appeal of those rulings is DISMISSED for lack of jurisdiction because Buscone lacks standing to appeal them.

BACKGROUND

I. Relevant Events Pre-Dating the Filing of Buscone's Bankruptcy Case

Buscone and Botelho entered into a partnership to operate T & M Desserts, which did business as FroYo To Go from July 2012 through January 2014. In October 2014, Botelho filed a chapter 7 bankruptcy petition. Although the parties' partnership had ended in turmoil, Botelho did not list a claim against Buscone on her schedules. Botelho received a chapter 7 discharge and her case was closed soon after.

Several years later, Botelho commenced a state court action against Buscone. After Buscone failed to respond, a default judgment was entered against her.¹ Botelho then recorded a judicial lien against Buscone's residence in the amount of $92,669.

II. Proceedings in Buscone's Bankruptcy Case

The recording of the lien prompted Buscone to commence a chapter 7 case. Buscone scheduled Botelho as a judgment creditor holding an undisputed claim of $91,673. On Buscone's motion, the bankruptcy court avoided Botelho's lien, and, in due course, Buscone received a chapter 7 discharge.

A. The Adversary Proceeding

In the meantime, Botelho commenced an adversary proceeding seeking a determination that the debt owed to her was excepted from Buscone's chapter 7 discharge. In her complaint, Botelho alleged that she had contributed $31,000 to T & M Desserts from her savings "to pay for startup costs" and that she loaned the partnership another $95,000 to cover outstanding obligations. Botelho further alleged that she later withdrew the rest of her savings, including retirement funds, to defray other obligations of the partnership, and that Buscone failed to repay her as agreed and, in fact, used partnership funds to pay for her daughter's college tuition. Botelho sought a determination of nondischargeability under §§ 523(a)(2)(A) and 523(a)(4).²

B. Buscone's Motion to Dismiss

Buscone moved to dismiss the complaint on judicial estoppel grounds, asserting that Botelho's failure to list any claim against Buscone in Botelho's bankruptcy schedules barred the nondischargeability action. Botelho countered by asserting that her failure to disclose Buscone's debt had been inadvertent. Botelho submitted an affidavit, indicating she "had no idea" she was required to disclose contingent or unliquidated claims.

C. The Order Converting the Motion to Dismiss and the Order Denying Summary Judgment

The court announced in an order following a hearing that it would treat the motion as one for summary judgment under Rule 12(d) and authorized Buscone to file additional supporting material. Buscone submitted a response in support of summary judgment, challenging Botelho's explanation that she "lack[ed] knowledge about what she must disclose" as "implausible." Relying heavily on Guay v. Burack, 677 F.3d 10 (1st Cir. 2012), Buscone asserted that the two requirements for application of judicial estoppel were present: successful reliance on one position in a prior judicial proceeding (i.e., Botelho's chapter 7 case), and the assertion of a conflicting position in a second proceeding (i.e., the adversary proceeding).³

The bankruptcy court entered an order denying Buscone's motion (the "Order Denying Summary Judgment"), ruling:

The Court having converted the Defendant's Motion to Dismiss [#15] to one for summary judgment; the motion being based on an affirmative defense; the party bearing the burden of proof as to the defense having submitted no evidence; the Court being bound for purposes of summary judgment to view the evidence in the light most favorable to the non-moving party, which in this instance would require the Court to assume that the omission in question was unknowing and not intended to deceive; and the standard for judicial estoppel being less than wholly settled and, in any event, involving considerable judicial discretion; the Motion to Dismiss, now as motion for summary judgment, is hereby denied[.]

D. The Seeds of the Discovery Dispute

In November 2019, the court entered an order setting a deadline for the completion of discovery. That order warned: "The parties and counsel shall cooperate during all aspects of discovery. Failure by any party or counsel to make required disclosures or cooperate in discovery may warrant the imposition of sanctions under Fed. R. Civ. P. 37. " (emphasis added). Upon a series of joint motions, the court later extended the discovery deadline several times.

A deposition of Buscone was suspended in March 2020, apparently due to her failure to appear. The following week, Botelho propounded her first discovery request upon Buscone, consisting of 7 interrogatories, 16 requests for admission, and a request for production of documents. In June 2020, Botelho served a second set of interrogatories on Buscone consisting of 3 interrogatories apparently left unanswered from the first set of interrogatories. On the same date, Botelho also served a second request for production of documents. After Buscone failed to produce the requested documents, Botelho reported the failure to the court, resulting in an off-the-record conference and an order authorizing Botelho to "file discovery motions."

E. Botelho's First Motion to Compel

In September 2020, Botelho filed a motion to compel under Rule 37 (the "First Motion to Compel"), seeking reimbursement of attorney's fees, sanctions, and other relief for Buscone's failure to comply with discovery obligations. Botelho stated that Buscone still had not produced documents in response to certain requests for production or answers to specific interrogatories. Accompanying Botelho's motion was the affidavit of her attorney, Thomas LaPorte, indicating that Botelho had "unnecessarily incurred" nearly $10,000 in attorney's fees due to Buscone's failure to comply with discovery. After Buscone filed a motion to strike the First Motion to Compel, LaPorte filed a supplemental affidavit, seeking additional attorney's fees of more than $2,000. Buscone then responded to Botelho's outstanding interrogatories with unresponsive answers. For example, in response to an interrogatory asking Buscone to "describe all communications ... relating to the decision to transfer" Botelho's personal funds to the partnership, Buscone responded, in part: "I cannot possibly answer this question with any semblance of accuracy or certainty." In response to Botelho's request that Buscone supplement her response to all prior interrogatories, Buscone answered: "I have no idea what you are talking about."

F. The Order Granting the First Motion to Compel and Buscone's Response

In October 2020, following a telephonic hearing, the bankruptcy court entered an order granting the First Motion to Compel (the "Order Granting First Motion to Compel"), explicitly directing Buscone to "serve a written response that fully complies with [Rule] 34 ... to [Botelho's] requests for production of documents #10-14 and to produce any and all documents responsive to such requests on or before October 20, 2020." The court also ruled that any objections to those requests were deemed to have been waived by virtue of Buscone's "failure to timely respond to the request even after a motion to compel was on file." The Order Granting First Motion to Compel further provided:

Pursuant to [ Rule] 37(a)(5)(A), made applicable by [Bankruptcy Rule] 7037, the Court finding the Plaintiff attempted in good faith to resolve the matter without court action, the Defendant's failure to timely respond to discovery requests or appear for her scheduled deposition was not substantially justified, and no other circumstances exist to make an award of expenses unjust, the Court must require the Defendant, or her counsel, to pay the Plaintiff's reasonable expenses incurred in making the motion, including attorney's fees. The Defendant's counsel shall pay, or reimburse the Plaintiff, for the cost of the stenographer hired for the unattended deposition, and pay the Plaintiff's attorney's fees in the amount of $500 for the same. With respect to the additional attorney's fees and costs incurred in making this motion ..., the Defendant shall file any response on or before October 20, 2020 at 4:30 PM so the Court may make a determination as to the reasonableness of those expenses.

Finally, in the event Botelho "require[d] further relief concerning pending discovery requests," the court authorized her to "seek such relief by motion" without first seeking an off-the-record conference.

Buscone filed a response to Botelho's request for attorney's fees,...