In Re: Robert Spigel

• Decision Date: 08 May 2001
• Docket Number: No. 00-9010,00-9010
• Citation: 260 F.3d 27
• Parties: (1st Cir. 2001) IN RE: ROBERT T. SPIGEL Debtor GLENN MCCRORY & ANN MCCRORY, Plaintiffs, Appellants, v. ROBERT T. SPIGEL, Defendant, Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 27

260 F.3d 27 (1st Cir. 2001)

IN RE: ROBERT T. SPIGEL Debtor

GLENN MCCRORY & ANN MCCRORY, Plaintiffs, Appellants, v. ROBERT T. SPIGEL, Defendant, Appellee.

No. 00-9010

United States Court of Appeals For the First Circuit

Heard May 8, 2001

Decided August 13, 2001

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL OF THE FIRST CIRCUIT

[Copyrighted Material Omitted]

James A. Currier for Appellants.

Marty C. Marran for Appellee.

Before Lynch, Circuit Judge, Bownes, Senior Circuit Judge, and Lipez, Circuit Judge.

LIPEZ, Circuit Judge.

Glenn and Ann McCrory appeal from the judgment of the Bankruptcy Appellate Panel (BAP) reversing the bankruptcy court and holding that the debt owed them by Robert Spigel as a result of a Rhode Island Superior Court judgment was not exempt from discharge pursuant to 11 U.S.C. §a523(a)(2)(A). The McCrorys claim that the collateral estoppel effect of the Superior Court judgment creating the debt establishes that Spigel committed fraud in a transaction related to that debt, and hence that debt should be exempt from discharge. The BAP disagreed, concluding that the Superior Court did not find that Spigel engaged in fraud, thereby precluding reliance on collateral estoppel. We disagree with the BAP's analysis because the Superior Court judgment reflected findings that Spigel engaged in fraudulent conduct. However, that judgment did not establish a sufficient link between Spigel's fraudulent conduct and the debt Spigel owes the McCrorys to allow an exception to discharge under §a523(a)(2)(A) on the basis of collateral estoppel. Consequently, we affirm for a different reason.

I.

The facts in this case are drawn from the judgment and record of the Rhode Island Superior Court. The McCrorys are owners of an unincorporated business, Frenchtown Auto Sales, that services and sells automobiles in North Kingstown, Rhode Island. At some point prior to the events at issue here, the McCrorys entered into a verbal agreement with Spigel concerning Frenchtown's business. First, the McCrorys wanted an independent contractor to perform all of their service work. Spigel formed a corporation called A Smiling Mr. Bob Enterprises, Inc. (Smiling Mr. Bob), and the McCrorys agreed to have that corporation service automobiles at the Frenchtown lot. Second, the McCrorys hired Spigel individually as a sales agent. Under Rhode Island law, an individual can only sell six cars per year. To sell more, a special license is required. Spigel did not have the requisite license, so the McCrorys extended to him the authority to use their license to sell and buy cars, provided that Spigel did so either at auctions or on the Frenchtown lot.

The transaction that underlies the debt at issue here began when Spigel received a phone call from a nephew who sold cars in New York. This nephew had three cars with New Jersey titles that he wished Spigel to sell for him. Spigel took delivery of the cars and sold all three, one to Tarbox Motors and two to Apollo Auto Sales. Both buyers were Rhode Island dealers. Spigel used the McCrorys' license number to authorize all three sales, even though none of the sales were conducted in accordance with the limited grant of authority given to him by the McCrorys. The sales did not occur at auction or on the Frenchtown lot.

Although Spigel claimed that he had called an unidentified police officer to run the cars' vehicle identification numbers (VIN's) to ensure their legitimacy, the cars were, in fact, stolen.¹ Apollo discovered this problem soon after the sale, when it performed its own check of the VIN's. Informed of the problem, Spigel refunded the purchase price of both cars and then called Tarbox to stop any sale of the car he had sold them. Spigel did not, however, refund the purchase price to Tarbox or take any other action to reimburse Tarbox, apparently lacking the funds to do so. Tarbox submitted a claim to its insurer for the loss associated with the stolen car. The insurer paid the claim and then, rather than suing Spigel for the loss, proceeded before the Rhode Island Motor Vehicles Dealers Commission to get reimbursement from the McCrorys through Spigel's use of the McCrorys' license to sell a stolen car. Before the commission contacted them concerning this complaint, the McCrorys had not known of Spigel's sales to Tarbox and Apollo. The McCrorys claimed, in their defense, that Spigel had acted on his own. The commission rejected this defense and ordered the McCrorys to reimburse Tarbox's insurer the $18,000 purchase price that Tarbox had paid Spigel for the car.²

After working out an arrangement to pay Tarbox's insurer, the McCrorys instituted an action against Spigel in the Rhode Island Superior Court. In due course, the McCrorys filed a motion for summary judgment seeking to ground the liability of Spigel on a theory of equitable indemnification. Although the Superior Court found that both Spigel and the McCrorys were liable to Tarbox, it also concluded that Spigel had, through a transaction that failed to "bear any indicia of legitimacy," been entirely at fault in causing Tarbox's loss. The court noted the cars' illicit background and Spigel's unauthorized use of the McCrorys' Rhode Island auto sales license. The cars' New Jersey titles had obvious misspellings and two of the titles, though "with two different previous owners," had the same control number.³ Spigel also listed Frenchtown on the back of the titles as the buyers of the vehicles, even though Frenchtown had no involvement at all with the cars. Moreover, Spigel created a new Bill of Sale designed to further the false impression that he was acting as agent for Frenchtown. This Bill of Sale bore the heading "Specializing in high quality one owner reconditioned vehicles. You just made a great deal. A Smiling Mr. Bob Enterprises, Incorporated d/b/a Frenchtown Auto Sales."⁴ In contrast to the opprobrium it directed at Spigel, the court found that the McCrorys were blameless. Consequently, the court ordered Spigel to indemnify the McCrorys for the money they paid to Tarbox's insurer.

Spigel appealed to the Rhode Island Supreme Court. During the pendency of that appeal, Spigel filed for bankruptcy. The McCrorys responded with the present adversary proceeding, seeking to have the debt created by the Superior Court judgment deemed nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The bankruptcy court stayed the proceeding pending the Rhode Island Supreme Court's decision. Shortly after the Supreme Court affirmed, Spigel and the McCrorys filed cross-motions for summary judgment in the bankruptcy court, agreeing that the court should take judicial notice of the decision and record in the Rhode Island courts. In a terse order, the bankruptcy court granted the McCrorys' motion and denied Spigel's, thereby ruling that Spigel's debt to the McCrorys was nondischargeable. Spigel appealed to the BAP, which reversed and ordered judgment in favor of Spigel. The McCrorys now appeal.

II.

A motion for summary judgment in an adversary proceeding under § 523(a)(2)(A) to have a debt declared nondischargeable is governed by the same standards applicable to motions under Fed. R. Civ. P. 56. Fed. R. Bankr. P. 7056. In reviewing the application of those standards by the bankruptcy court, we apply "the same regimen that the intermediate appellate tribunal must use, [while] exhibit[ing] no particular deference to the conclusions of that tribunal (be it the district court or the BAP)." In re Healthco Int'l, Inc., 132 F.3d 104, 107 (1st Cir. 1997). Consequently, we review the grant of summary judgment de novo. Stoehr v. Mohamed, 244 F.3d 206, 208 (1st Cir. 2001); In Re I Don't Trust, 143 F.3d 1, 3 (1st Cir. 1998) ("In an appeal from a bankruptcy court decision, this court--like the district court or the bankruptcy appellate panel--affords de novo review to the bankruptcy court's conclusions of law."). Under the familiar summary judgment standards, we must "determine whether the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Century 21 Balfour Real Estate v. Menna, 16 F.3d 7, 9 (1st Cir. 1994) (quotations and citations omitted). Although we view the evidence in the light most favorable to the nonmovant, "[a]s to any essential factual element of its claim on which the nonmovant would bear the burden of proof at trial, its failure to come forward with sufficient evidence to generate a trial worthy issue warrants summary judgment to the moving party." Id. (quoting Ralar Distribs., Inc. v. Rubbermaid, Inc., 4 F.3d 62, 67 (1st Cir. 1993)) (alteration in original).

III.

The Bankruptcy Code offers debtors, through discharge, "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). "By seeking discharge, however, [the debtor] place[s] the rectitude of his prior dealings squarely in issue, for as the Court has noted, the Act limits th[e] opportunity [for discharge] to the 'honest but unfortunate debtor.'" Brown v. Felsen, 442 U.S. 127, 128 (1979) (quoting Local Loan Co., 292 U.S. at 244). Nevertheless, the Bankruptcy Code does not condition discharge upon a generalized determination of the moral character of the debtor. Instead, it specifies the types of debts that the Code deems exempt from discharge. See, e.g., 11 U.S.C. § 523(a). Moreover, "[e]xceptions to discharge are narrowly construed . . . and the claimant must show that its claim comes squarely within an exception enumerated in Bankruptcy Code §a523(a)." Century 21 Balfour Real Estate, 16 F.3d at 9.

A. The scope of the exception to discharge.

As the party seeking to prevent Spigel from discharging his debt to them, the McCrorys bear this burden to show that...