Date: 11-15-2017

Case Style:

Case Number: 17-1462

Judge: Stahl

Court: United States Court of Appeals for the First Circuit on appeal from the District of Massachusetts (Suffolk County)

Plaintiff's Attorney: David Baker

Defendant's Attorney: Eric K. Bradford

Description: Kimberly Ann Zizza appeals an
order from the bankruptcy court denying her Chapter 7 discharge on
the grounds that she made material, knowing, and fraudulent false
oaths in the course of her bankruptcy proceedings. 11 U.S.C.
§ 727(a)(4). The bankruptcy court found that Zizza had failed to
disclose in her schedules and at her first creditors' meeting,
with reckless indifference to the truth, two lawsuits to which she
was a party. After careful consideration, we affirm.
I.
Zizza is a licensed attorney in Massachusetts. In 2007
and 2008, she was involved in two separate automobile accidents in
which she claims she sustained injuries. On November 23, 2010,
she filed suit against the driver in the first accident in Essex
Superior Court in Lawrence ("the Duffy action"). On February 11,
2011, she filed suit against the driver in the second accident in
Essex Superior Court in Salem ("the Sapienza action"). On February
25, 2011, the Superior Court dismissed the Duffy action for failing
to meet the court's $25,000 jurisdictional threshold.
On March 6, 2011, Zizza filed a voluntary bankruptcy
petition under Chapter 13, retaining Anthony Rozzi as her attorney
for the bankruptcy case. In her initial Statement of Financial
Affairs, Zizza was asked to identify all suits to which she was a
party within one year of filing her bankruptcy case. In her filed
- 4 -
schedules, she did not disclose either the Duffy or Sapienza
actions.
At the first meeting with her creditors on April 8, 2011,
Zizza, accompanied by Attorney Rozzi, testified under oath and
when asked whether there were any changes she wanted to make to
her initial filings, she said "No." Attorney Rozzi stepped in and
stated that "[t]here are lawsuits . . . [t]hat need to be added .
. . both lawsuits that Ms. Zizza or Attorney Zizza has out. And,
uh, and she also has a personal injury claim." Later at the
meeting, Attorney Rozzi said that he was "going to add any lawsuits
that are important" in an amended filing. Finally, when the
Chapter 13 trustee asked about a $20,000 payment listed in the
plan, Zizza responded that she had "several judgments right now"
and was "anticipating that one of those judgments would come
through by the end of the plan." Four days after the creditors'
meeting, Zizza appeared in Essex Superior Court to argue a motion
to reinstate the Duffy action.
Attorney Rozzi filed amended schedules on Zizza's behalf
on September 23, 2011, which added several accounts receivable and
money judgments, but did not list either the still pending Duffy
or Sapienza actions. In September of 2012, Zizza settled the
Sapienza action for $20,000, but she did not seek bankruptcy court
approval for the settlement. On October 5, 2012, the Chapter 13
trustee, still unaware of the two lawsuits or the settlement, filed
- 5 -
a motion to dismiss Zizza's bankruptcy case for failure to make
plan payments. In response, on October 30, 2012, Zizza again
amended her filings, finally disclosing the Duffy and Sapienza
actions, as well as the settlement in Sapienza.
In light of Zizza's failure to disclose the Duffy and
Sapienza actions in a timely manner, the Chapter 13 trustee moved
to convert Zizza's Chapter 13 petition to a Chapter 7 petition.
At the hearing on the trustee's motion, Attorney Rozzi argued that
Zizza had not disclosed the lawsuits earlier because she did not
believe they were viable. Attorney Rozzi further claimed that
Zizza had not told him that the two lawsuits were active until
October 2012.
The bankruptcy judge granted the motion to convert the
case to a Chapter 7 petition, concluding that Zizza's failure to
disclose the lawsuits indicated that she had not filed her
bankruptcy case in good faith. The United States Bankruptcy
Appellate Panel for the First Circuit affirmed the bankruptcy
judge's decision. Zizza v. Pappalardo (In re Zizza), 500 B.R. 288
(B.A.P. 1st Cir. 2013).
Thereafter, on September 30, 2014, William Harrington,
the United States Trustee for Region One, commenced an action
seeking to deny Zizza's discharge on the grounds that she had made
false oaths within the meaning of 11 U.S.C. § 727(a)(4), or
alternatively, that she had concealed property of the estate within
- 6 -
the meaning of 11 U.S.C. § 727(a)(2)(B) by failing to disclose the
two lawsuits. After a trial, the bankruptcy judge denied Zizza's
discharge under 11 U.S.C. § 727(a)(4), concluding that she had
acted with reckless indifference to the truth by failing to
disclose the two lawsuits in a timely manner. The bankruptcy judge
did not address the alternative grounds for denying discharge under
11 U.S.C. § 727(a)(2)(B).
Zizza appealed to the district court, which affirmed the
bankruptcy court's decision. Zizza v. Harrington (In re Zizza),
No. 16-CV-40102-IT, 2017 WL 925002, at *1 (D. Mass. Mar. 8, 2017).
A timely appeal to this court followed.
II.
While the district court affirmed the bankruptcy court's
decision, we review the bankruptcy court's decision directly and
"cede no special deference to the district court's
determinations." Gannett v. Carp (In re Carp), 340 F.3d 15, 21
(1st Cir. 2003). We review the bankruptcy court's findings of
fact for clear error and its conclusions of law de novo. Id.
"Whether a debtor possessed the requisite intent for purposes of
§ 727 is 'a question of fact, subject to the clearly erroneous
standard of review.'" Robin Sing Educ. Servs., Inc. v. McCarthy
(In re McCarthy), 488 B.R. 814, 825 (B.A.P. 1st Cir. 2013) (quoting
Warchol v. Barry (In re Barry), 451 B.R. 654, 658 (B.A.P. 1st Cir.
2011)); see also Toye v. O'Donnell (In re O'Donnell), 728 F.3d 41,
- 7 -
45 (1st Cir. 2013) ("The case for deferring to the bankruptcy
judge's factfinding is 'particularly strong' when intent is at
issue--since an intent finding depends heavily on the debtor's
credibility, and the bankruptcy judge is uniquely qualified to
make that call.").
Under § 727(a)(4)(A), a debtor may be denied a discharge
if "(1) [he] made a false statement under oath in the course of
his bankruptcy proceeding; (2) he did so knowingly and
fraudulently; and (3) the false statement related to a material
fact." Hannon v. ABCD Holdings, LLC (In re Hannon), 839 F.3d 63,
70 (1st Cir. 2016). A false statement is material if it "bears a
relationship to the debtor's business transactions or estate, or
concerns the discovery of assets, business dealings, or the
existence and disposition of property." Id. at 75. As to the
second element, "'reckless indifference to the truth' . . . has
consistently been treated as the functional equivalent of fraud
for the purposes of § 727(a)(4)(a)." Boroff v. Tully (In re
Tully), 818 F.2d 106, 112 (1st Cir. 1987).
Zizza does not seriously contest the first and third
elements of falsity and materiality. Zizza stipulated in the
bankruptcy court that she failed to disclose the two lawsuits in
her amended schedules. Omissions from schedules can constitute
false oaths, In re Hannon, 839 F.3d at 71; see also Premier
Capital, LLC v. Crawford (In re Crawford), 841 F.3d 1, 8 (1st Cir.
- 8 -
2016) ("When a debtor files her Schedules, she does so under the
equivalent of an oath."), and an omission of two pending lawsuits
clearly concerned the estate's property. In re Hannon, 839 F.3d
at 75.1
Zizza focuses her argument on the second denial of
discharge element, which concerns scienter. According to Zizza,
she informed Attorney Rozzi of the two lawsuits before the first
creditors' meeting and it was Attorney Rozzi's negligence that led
to the lengthy delay in disclosing the two lawsuits.
It is true that "an explanation by a bankrupt that he
had acted upon advice of counsel who in turn was fully aware of
all the relevant facts generally rebuts an inference of fraud."
In re Mascolo, 505 F.2d 274, 277 (1st Cir. 1974). At the same
time, "even the advice of counsel is not a defense when it is
transparently plain that the property should be scheduled." Id.
at 277 n.4.
Here, the bankruptcy judge did not clearly err when he
found that Zizza had made false statements with reckless
indifference to the truth. The bankruptcy judge found that Zizza
1 In her reply brief, Zizza argues for the first time that
any false oaths she made during her Chapter 13 proceedings were
not made "in or in connection with" her Chapter 7 proceedings, 11
U.S.C. § 727(a)(4), and therefore cannot form the basis for denying
her discharge. Because she did not develop this argument until
her reply brief, Zizza has not preserved it for appeal. Braintree
Labs., Inc. v. Citigroup Glob. Mkts. Inc., 622 F.3d 36, 43-44 (1st
Cir. 2010).
- 9 -
did not inform Attorney Rozzi that the Duffy and Sapienza actions
were pending until October 2012, and the record supports this
finding. Although Attorney Rozzi's comments at the creditors'
meeting indicate that he was aware of some pending lawsuits, he
testified at the discharge trial that he believed the lawsuits
faced jurisdictional and statute of limitations issues that
prevented them from being prosecuted. He further testified that
Zizza did not tell him the lawsuits were active until October 2012.
As to Zizza's explanation for the delay, the bankruptcy judge found
that Zizza's testimony at trial "was not credible in any respect."
Because the bankruptcy judge did not clearly err in finding that
Zizza did not disclose to Attorney Rozzi that the lawsuits were
pending until October 2012, Zizza cannot claim she made Attorney
Rozzi fully aware of all the relevant facts.
It should have been "transparently plain" to Zizza, an
experienced attorney, that she had an obligation to disclose the
two lawsuits. In re Mascolo, 505 F.2d at 277 n.4. The question
in the initial Statement of Financial Affairs could not have been
clearer; it asked her whether she was involved in any suits within
one year preceding her bankruptcy filing. Similarly, at the
creditors' meeting, she was asked directly whether she needed to
make any changes to her initial filings, and she responded "No."
Yet, only four days later, she was in state court arguing a motion
to reinstate the Duffy action. As the bankruptcy judge found, the
- 10 -
questions posed to Zizza "were in plain English, and as an
attorney, Ms. Zizza knew the meaning of signing documents under
oath."
Finally, Zizza argues that the bankruptcy judge relied
improperly on the Bankruptcy Appellate Panel's earlier decision in
making his factual determinations. A review of the record reveals
otherwise. Although the bankruptcy judge adopted "portions" of
the Bankruptcy Appellate Panel's recitation of facts in his
opinion, he did so only after reviewing the evidence submitted at
trial and finding the panel's recitation "correctly and succinctly
describe[d] the material events." The bankruptcy judge undertook
his own independent review of the evidence.
Because we affirm the denial of discharge under
§ 727(a)(4)(A), we do not address the United States Trustee's
alternative argument that Zizza concealed property of the estate
as described in § 727(a)(2).

Outcome: For the foregoing reasons, we affirm. Costs are awarded
to the United States Trustee.

Plaintiff's Experts:

Defendant's Experts:

Comments: