In re Carp

• Decision Date: 18 August 2003
• Docket Number: No. 02-2323.,02-2323.
• Citation: 340 F.3d 15
• Parties: In re Joan E. CARP, Debtor. Richard W. Gannett, Plaintiff, Appellant, v. Joan E. Carp, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

340 F.3d 15

In re Joan E. CARP, Debtor.

Richard W. Gannett, Plaintiff, Appellant, v. Joan E. Carp, Defendant, Appellee.

No. 02-2323.

United States Court of Appeals, First Circuit.

Heard July 30, 2003.

Decided August 18, 2003.

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Stephanie L. Moon, with whom Richard W. Gannett and Gannett & Associates were on brief, for appellant.

Richard S. Hackel, for appellee.

Before SELYA, Circuit Judge, STAPLETON^* and BALDOCK,^** Senior Circuit Judges.

SELYA, Circuit Judge.

This appeal arises out of a creditor's quest to block a debtor's discharge in bankruptcy. The bankruptcy court declined to default or sanction the debtor for claiming her Fifth Amendment privilege against self-incrimination, determined that she had not transgressed the strictures of 11 U.S.C. § 727(a), and granted the discharge. The district court affirmed these rulings, and the creditor now appeals.

We agree with the creditor that there are suspicious circumstances here. As an appellate court, however, we are not free to second-guess the management of pretrial discovery, weigh the evidence afresh, or make independent judgments about the credibility of witnesses. Instead, our function is to examine the record with care, defer to the properly supported factual findings of the court of first instance, determine the applicable law, and ensure that the trier properly applied it to the facts as found. Having performed these tasks, we conclude, as did the district court, that the decision of the bankruptcy court is impervious to the creditor's attack. Consequently, we affirm the judgment below.

I. Background

The underlying bankruptcy proceeding has been pending since 1995. We do not here attempt to rehearse the entire history of the case, but, rather, offer a synopsis of the facts designed to give needed context to the issues on appeal.

Joan E. Carp (the debtor) and her husband, Stephen Carp, filed a joint petition for Chapter 7 bankruptcy relief in February 1995. See 11 U.S.C. §§ 701-784. Among the affected creditors was the appellant, Richard W. Gannett. Gannett filed a timely proof of claim for $82,093.85, plus interest and costs, arising out of the rendition of legal services.

Several months later, Gannett commenced an adversary proceeding, objecting to the Carps' proposed discharge in bankruptcy. He relied on 11 U.S.C. § 727(a)(2) and (4), arguing that the Carps had willfully failed to disclose their ownership interests in a number of assets, including a parcel of real property located at 824 Dedham Street, Newton, Massachusetts (the Newton property) and three automobiles. With regard to the Newton property Gannett asserted that the Carps owned an equitable interest in it even though legal title reposed in one Mordechay Pupkin. Gannett further asserted that the Carps were using Pupkin as a straw in order to defraud creditors; that they had funded Pupkin's mortgage payments; and that any semblance of rental payments was a sham. With respect to the cars, Gannett alleged that the Carps had attempted to defraud their creditors by giving their children legal title to the automobiles. He argued that it was absurd to think that the children owned three vehicles while the parents themselves owned none. The Carps denied the material allegations of Gannett's complaint.

To say that matters did not proceed smoothly would be a gross understatement. Gannett served deposition notices and interrogatories in October 1995 and added a request for production of documents in January of the following year. On February 29, 1996, he moved to compel, pointing out that the Carps had not replied to these discovery requests. The bankruptcy court granted the motion. When the Carps still did not cooperate, Gannett moved for the entry of a default judgment. The Carps responded that they would not submit to discovery because they were the targets of a criminal investigation for bankruptcy fraud being conducted by the United States Department of Justice.

On May 16, 1996, the bankruptcy court again ordered the Carps to provide discovery. The court also imposed a $750 monetary sanction and continued Gannett's motion for entry of a default judgment. On August 22, 1996, the bankruptcy court denied that motion.

Meanwhile, the criminal investigation went forward. On October 14, 1996, the government filed a criminal information against Stephen Carp, charging him with one count of bankruptcy fraud, 18 U.S.C. § 152, related to his alleged failure to disclose an equitable ownership interest in the Newton property. On April 27, 1997, Stephen Carp pled guilty to this charge. The district court sentenced him the next day.¹

The bankruptcy court had wisely continued the case until the outcome of the criminal prosecution was finally determined. In the interim, the court maintained careful watch, holding no fewer than five status conferences from the fall of 1996 through the spring of 1997. From time to time, Gannett mentioned that he was still awaiting discovery materials but no action was taken. At a status conference held on April 24, 1997, Gannett again raised the issue, and the debtor acknowledged that she had not yet complied with the discovery orders because of her asserted Fifth Amendment privilege. The court stated that there was no point in attempting to press forward with discovery if the debtor was going to plead the Fifth Amendment and directed the parties to file a joint status report following Stephen Carp's sentencing.

Once the criminal prosecution had ended² and the adversary proceeding against Stephen Carp had been resolved, see supra note 1, the bankruptcy court set a trial date for the adversary proceeding against the debtor. Prior to the scheduled start of trial, the trustee in bankruptcy moved to consolidate that proceeding with an adversary proceeding that he (the trustee) had brought against Pupkin. The court consolidated the two actions and vacated the scheduled trial date. The trustee eventually settled with Pupkin, thus undoing the consolidation.

The next bump in this long and winding road occurred in April of 2001 when the bankruptcy court scheduled an evidentiary hearing on the debtor's discharge for October 3 of that year. Gannett dawdled for several months and then, on August 23, filed a renewed motion for entry of a default judgment or, in the alternative, for additional time to conduct discovery. At a hearing held on September 24, the court denied both prayers on condition that the debtor submit to a deposition prior to trial and produce the previously requested documents before the deposition. The debtor delivered the designated documents and appeared for a deposition on October 1. Although she did not assert her Fifth Amendment privilege, she nonetheless refused to answer certain questions pursuant to her counsel's instructions.

Gannett made no further complaint about inadequate or untimely discovery, and the bankruptcy court conducted the previously scheduled bench trial on October 3. The debtor testified without asserting any privilege against self-incrimination. In an ore tenus decision, the bankruptcy court found the debtor credible and concluded that there was insufficient proof that she had either knowingly concealed property or vouchsafed a false oath. Discerning no basis for the denial of a discharge, the court entered judgment accordingly. The district court affirmed, see Gannett v. Carp (In re Carp), No. 02-10086 (D.Mass. Aug. 30, 2002) (unpublished), and this appeal followed. We have jurisdiction under 28 U.S.C. § 158(d).

II. Standard of Review

Notwithstanding the fact that we are the second-in-time reviewers, we cede no special deference to the district court's determinations. Brandt v. Repco Printers & Lithographics, Inc. (In re Healthco Int'l, Inc.), 132 F.3d 104, 107 (1st Cir.1997). Rather, our review directly addresses the bankruptcy court's decision. Gronan v. Watman (In re Watman), 301 F.3d 3, 7 (1st Cir.2002). We scrutinize that court's findings of fact for clear error and its conclusions of law de novo. Id.

The application of the Bankruptcy Code to a particular case poses a mixed question of law and fact, which this court reviews for clear error unless the bankruptcy court's analysis was based on a mistaken view of the legal principles involved. See Miller v. Peterson (In re Indep. Eng'g Co.), 197 F.3d 13, 16 (1st Cir.1999). Under the clear error standard, the trier's findings of fact and the conclusions drawn therefrom ought not to be set aside "unless, on the whole of the record, we form a strong, unyielding belief that a mistake has been made." Cumpiano v. Banco Santander, 902 F.2d 148, 152 (1st Cir.1990). It follows that if the bankruptcy court's findings are supportable on any reasonable view of the record, we are bound to uphold them. See Boroff v. Tully (In re Tully), 818 F.2d 106, 109 (1st Cir.1987); see also Anderson v. Beatrice Foods Co., 900 F.2d 388, 392 (1st Cir.1990) (warning that appellate review of "fact-dominated issues cannot be allowed to descend to the level of Monday-morning quarter-backing").

III. The Merits

Although Gannett's asseverations are not neatly segregated, we distill them into two principal lines of argument. First, he challenges the bankruptcy court's decision to allow the debtor to testify without penalty after repeatedly having invoked the Fifth Amendment to insulate herself from furnishing discovery — and he couples this challenge with a more general objection to the court's oversight of the discovery process. Second, he calumnizes the bankruptcy court for its refusal to block the debtor's discharge under 11 U.S.C. § 727(a). We discuss these two lines of argument sequentially.

A. The Fifth Amendment

We turn first to those contentions related to the debtor's invocation of the Fifth Amendment. We review a bankruptcy court's discovery decisions for abuse of discretion — and that discretion is very wide. Brandt...