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USCA1 Opinion

March 20, 1995


[Not for Publication]
[Not for Publication]
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 94-1991
IN RE ANDREW J. LANE
Debtor.
____________________
PETER H. MCCALLION, FRANK LOOMIS, GREGORY O'NEILL,
WILLIAM FOWLER, RICHARD DELORENZO,
Appellants,
v.
ANDREW J. LANE,
Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
___________________
____________________
Before
Torruella, Chief Judge,
___________
Aldrich, Senior Circuit Judge,
____________________

and Stahl, Circuit Judge.


_____________
____________________

Kenneth J. Parsigian and Goodwin Proctor & Hoar argued


______________________
_________________________
appellant; Peter H. McCallion was on brief pro se.
__________________
Charles R. Dougherty with whom Sara Miron Bloom and Hill & Bar
____________________
________________
__________
were on brief for appellee.
____________________
____________________

STAHL, Circuit Judge.


STAHL, Circuit Judge.
_____________
we

again

review

issues

plaintiffs-appellants

arising

In this bankruptcy

from

("appellants"),

a
who

appeal,

dispute

between

were the

former

shareholders of Indian Hill Associates, Inc. ("Indian Hill"),


and defendant-appellee Andrew J.

Lane ("Lane") over the sale

of all Indian Hill shares to Lane.


was a contract to

purchase 165 acres

Indian Hill's sole asset


of land in New

York's

Westchester and Putnam


appellants sought
estate

and

counties ("the

Land").

a constructive trust on

determination

that

Originally,

Lane's Chapter 11

Lane's

indebtedness

to

appellants is nondischargeable under various subsections of


523 of the Bankruptcy Code, 11

U.S.C.

523.

On our initial

review, we upheld the bankruptcy court's dismissal as to


of

appellants'

523(a)(2)(A).1
("Lane I").
______

claims

except

In re Lane,
___________

the

one

937 F.2d

arising

694 (1st

all

under
Cir. 1991)

On remand, the bankruptcy court conducted a one-

day trial and held that the debt owed appellants did not fall
under

this

district

dischargeability

court

affirmed.

exception.
After careful

On

review,

review,

we

the
now

affirm.

____________________
1. Section 523(a)(2)(A) provides that
money, property,
services, or an extension, renewal, or refinancing of credit
is not discharged to the extent it is obtained by: "false
pretenses, a false representation, or actual fraud, other
than a statement respecting the debtor's or an insider's
financial condition."
-22

I.
I.
__
This

dispute

years, generating
only

those

has

lingered

for

more than

an intricate factual background.

facts

relevant

to

this

appeal.

appellants formed Indian

Hill to acquire the

its

Gargan,

treasurer,

contract

Terence

under which

Indian

it agreed

Putnam Limited Partners


Hill placed a deposit

("Putnam") for

We cull
In

1987,

Land.

Hill

to purchase

seven

Through

executed

the

Land from

$3,425,000.

of $300,000 in escrow and

Indian

closing was

set for November 4, 1987.


Appellants,
develop the

Land.

both money
that

one of

whom

Critically,

is a

however, they were

and experience in land

became

obvious

as

lawyer, wanted

president, appellant Peter H. McCallion,

Indian

Massachusetts-based

developer,

residential

development on

Land.

McCallion

said

Negotiations
tentative
outstanding

that

he

ensued and
agreement
Indian

help

eventually

Hill

joint
that

was available, he

entire tract from Indian Hill.


would

under

about

Lane rejected

indicated that, if financing

would consider purchasing the

Hill's

approached Lane, an

experienced

proposal but

short on

development, inadequacies

events unfolded.

the

to

which

shares

for

secure

the

financing.

parties reached

Lane

would

$1,675,000,

buy

a
all

thereby

acquiring all of Indian Hill's rights under the land-purchase

-33

contract.

In

October 1987,

Indian Hill

sent Lane

a draft

agreement to that effect.


Meanwhile, McCallion arranged for a meeting between
Lane and Bankers Trust Company in Manhattan.
held on

November 3, 1987,

At the meeting,

and attended by

Lane, McCallion,

and their associates, Lane's prospects for financing appeared


good,

but not

Indian Hill
closing

at

However, McCallion

shareholders faced

and

the other

an imminent problem:

their

with Putnam was scheduled for the next day and, with

no financing
was

certain.

to complete the purchase,

risk.

Immediately

the $300,000 deposit

following

the

Bankers

Trust

meeting, Lane, McCallion, and others in their group adjourned


to a nearby
secure
contract

restaurant.

an extension
to acquire

McCallion

of the

indicated that he

closing date

Indian Hill's

shares.

if Lane

could

signed a

Lane testified

that

he made

project

clear that

unless financing

however, the

was

deal presented

Lane, and prospects for


Hill

he would

shareholders.

restaurant meeting,
("November 3rd

not go through

available.
an

With

financing,

attractive opportunity

a substantial profit for

Eventually,
Lane and

with the

during the

agreement") for sale of

the Indian

course of

McCallion signed

for

the

an agreement

Indian Hill's shares

to Lane.
The terms
Lane to pay a

of the November

3rd agreement

$300,000 deposit into escrow upon

required

signing the

-44

agreement,

$75,000

installments
$250,000.
have

on November

of $350,000

4,

each, and

1987,

three additional

a final

There was no financing contingency.

his checkbook

with him in

New York

installment of
Lane did not

but said

that he

would send the deposit check by mail.


With the agreement in

hand, McCallion secured from

Putnam

an extension

1988.

Lane,

of the

however,

McCallion pressed

closing date

never

Lane for

sent

until

the

January 4,

deposit

the deposit.

check.

On November

30,

1987, Lane sent a letter to appellants proposing to amend the


November

3rd agreement by making Lane's obligation expressly

contingent upon
and,

financing.

on January

The new

4, 1988, the

closing deadline loomed

Indian Hill

shareholders and

Lane agreed to amend the November 3rd agreement ("January 4th


amendment").
provided:

The basic terms


(1)

Indian

of the January

Hill's original

4th amendment

deposit

would

be

released to Putnam, thereby supporting a further extension of


the closing
original

until February

$1,675,000

conditional
schedule

on
was

installments,
Lane

Lane

share

12, 1988;
sale price

securing

established

under

development, and;

governmental

were

the

were made

approval

the

made expressly
(3)

which

(4) appellants agreed

-55

payments on

financing;

totalling $600,000,

securing

(2)

for

payment

final

two

conditional on
residential

to "forever release

and will bring

no claims

against Lane

arising or

alledged

[sic] to arise" from the November 3rd agreement.


Pursuant to the January 4th amendment, Lane secured
a bridge loan and

paid appellants $375,000 (representing the

$300,000 down payment plus


November

4,

deposit

was

financing

1987),

and

released to

for Lane.

the $75,000 that had been


Indian

Hill's

Putnam.

original

$300,000

Bankers Trust

approved

In August 1988, Lane paid appellants an

additional installment of $350,000, plus interest.


then arose regarding
Lane

made no

state

court

failing

to

zoning of

the Land and,

further payments
charging
disclose

due on

and filed

appellants
facts

with

about

A dispute

as a

suit in

result,
New York

misrepresenting

the

Land.

or

Appellants

counterclaimed and ultimately secured a judgment against Lane


for

$468,313.2

Indian

Hill

For

reasons

dispute, Lane

apparently

filed

unrelated to

Chapter 11

the

bankruptcy

petition in March 1989.3


In
original
Lane.

the

end, appellants

investment, receiving
In October

1989,

more

than doubled

$785,000

appellants

in

payments

began this

their
from

adversary

____________________
2. The state
court dismissed
appellants except McCallion.

the

claims

against

all

3. Lane and his companies were among the largest real estate
developers in New England.
According to the record in this

case, at one point Lane's assets totalled $90 million. Lane


filed his bankruptcy petition on the same day the New York
state court awarded appellants their judgment.
-66

bankruptcy

proceeding

dischargeability

of,

installments, which

seeking

to

alternatively,

determine

the

balance

totalled $950,000 plus

the
of

the

interest, or the

amount of the state court judgment, $468,313.

II.
II.
___
Bankruptcy
"[f]indings

of fact,

evidence, shall
and

due

Rule

be given

938

the court's

or documentary

clearly erroneous,

the opportunity

of the

the credibility of the witnesses."

conclusions of law de
__

F.2d 1467, 1474

to

that

on oral

set aside unless

bankruptcy court to judge


We review

provides

whether based

not be

regard shall

8013

novo.
____

(1st Cir. 1991).

In re G.S.F. Corp.,
___________________
In an

appeal from a

district

court

independently

review

of

bankruptcy

review the bankruptcy

court

order,

court's decision.

e.g., In re Winthrop Old Farm Nurseries, Inc., ___


____ ________________________________________

we
See,
___

F.3d ___

(1st Cir. 1995).


Appellants'
Lane acquired title
under the

under

so.

is that

by promising,

to pay the

$300,000 down

the appellants without ever having

the intent to

To

establish

appellants must
(2) that at

523(a)(2)(A)

to the Indian Hill shares

November 3rd agreement,

payment to
do

theory

claim

prove: (1) that

the time he

under

Lane made

knew were false;

this

subsection,

representations;
(3) that he

made

-77

them with the intent and purpose of deceiving the appellants;


(4) that

the appellants relied on

such representations; and

(5) that the appellants sustained the alleged loss and damage
as the

proximate result

made.4

See, e.g., In

of the representations

having been

re Ophaug, 827 F.2d 340, 342

n.1 (8th

___

____

_____________

Cir. 1987).
A
fraud.

misrepresentation

with

intention can

See, e.g., In re Zachary,


___ ____ _____________

N.D. Tex. 1992) (citing


523-54

of

not

147 B.R. 881, 883 (Bankr.

3 Collier on Bankruptcy
_____________________

(15th ed. 1991)).


the intent

constitute

523.08 at

If a debtor enters into a contract

to comply

with

its terms

and

later

defaults under the contract, the contract may provide a basis


for an

exception to discharge on the grounds of fraud if the

other remaining elements are established.


B.R. 582, 606 (Bankr. N.D. Ind. 1988).
to

perform is

subsequent

not sufficient

conduct contrary

In re Krause, 114
____________

However, mere failure

evidence of
to the

necessarily indicative of fraudulent

scienter

nor is

original representation
intent.

In re Zachary,
_____________

147 B.R. at 883 (collecting cases).


The

bankruptcy court

misrepresent his intent.


times

informed the

found

that

Lane did

The court found that Lane

[appellants]

of the

not

"at all

necessity that

he

____________________
4. As we noted in our earlier decision in this case, whether
appellants must prove reasonable reliance is an open question
__________
in this court.
Lane I, 937 F.2d at 698 n.8. As we do not
____
reach the issue in this case, we continue to take no position
in the matter.
-88

obtain complete financing


perform the

agreement

[appellants]."
did

not

of the

which he

Thus, the

fall

exception.

for the project.

under

believed

he had

with

to
the

court held that

appellants' debt

523(a)(2)(A)

dischargeability

the

Alternatively, the court

January 4th

He intended

held that, by the terms

amendment, appellants had

released Lane

from all claims arising from the November 3rd agreement.5


Appellants raise numerous arguments challenging the
bankruptcy court's

conclusion,

most of

which

have

little

bearing on the issue before us.

Indeed, appellants appear to

misapprehend

issue

fundamentally the

determine whether

on appeal:

the bankruptcy court, after

committed clear error

in its factual

we

must

a full trial,

finding that Lane

did

not misrepresent his intent when he entered into the November


3rd

agreement.6

must point
state

the issue

to evidence, direct or

of mind

Instead,

Because

sufficient to

appellants

offer

is intent,

appellants

circumstantial, of Lane's

overcome the
arguments

evidence and substantive contract rules.

court's finding.

grounded

in

parol

These arguments may

be material to the legal effect of the November 3rd agreement


____________
____________________
5. Because we resolve this case under
523(a)(2)(A), we do
not reach the issue of the enforceability of the release
contained in the January 4th amendment.
6. We note that in
their reply brief, appellants do
correctly state the issue before the court, but then launch
into an extended discussion of issues wholly extraneous to
the question of intent, including res judicata,
parol
___ ________
evidence, and substantive contract law.
-99

and

the January 4th amendment, but they have no relevance to

the issue of Lane's intent to misrepresent.7


Appellants do make a

lame pass at a state-of-mind

argument by averring that Lane's fraudulent intent is evident


from

his general

conduct.

pattern of seemingly
"Lane

general conduct

refer to

inconsistent statements, alleging that,

consistently makes

without regard for

Specifically, they

up

stories to

the truth."

subsequent

They also

to the

suit his

purposes

point to

November 3rd

Lane's

agreement,

focusing particularly on his failure to attempt to secure the


necessary
a

government approval for the development, which was

precondition for

payment to

appellants of

the last

two

installments.

____________________
7. At oral argument, appellants offered a new theory.
Seizing on language contained in In re Krause, 114 B.R. 582,
____________
606 (Bankr. N.D. Ind. 1988), a case cited by the panel in
Lane I, and which we cite above, supra at 8, appellants argue
______
_____
that fraud occurred because Lane never intended to comply
with the contract's terms.
They argue that the bankruptcy
_____
court erred by failing to analyze Lane's intent to comply
with the terms of the November 3rd contract, which purports
to be fully integrated, and thus cannot incorporate any parol
agreement regarding financing.
On this record, we do not
agree.
As discussed more fully below, Lane could not have
the intent to misrepresent when, as the court found, he
repeatedly made clear that the agreement was expressly
conditioned on securing financing, the legal effect of the
underlying document notwithstanding.
We think the court was
correct to look to Lane's statements to appellants as direct
evidence of his intent to comply with the "terms" that he
announced, rather than to infer fraud from the fact that
those "terms" may have had no legal effect under the language
of the contract.
-1010

Appellants'

argument

establishing clear error.


the

trial

efforts

record

to

far

short

of

With regard to Lane's statements,

reveals

impeach

falls

that

Lane's

appellants

testimony.

made strenuous

In

reaching

its

conclusion, the court simply made a credibility determination


by

choosing to believe Lane,

deference.
record

As to

contains

Lane's

ample

a decision to
post-November

evidence

conclusion that

Lane's intent

clear

beginning:

from the

corroborating

that

is,

it

Lane not only reiterated


30,

1987

the

the court's
agreement was

was

merely

an

extension of the November 4,

and that his performance

was contingent upon securing

his November

3rd conduct,

in signing the

accommodation to facilitate the


1987 closing date

which we accord

financing.

of the agreement

Most significantly,

his position regarding financing in


letter,

but he

also

performed

as

promised by paying the disputed down payment after he secured


financing.

In the

the principal
determined that

end, after the benefit of

players in this dispute,

exception

the bankruptcy court

appellants had failed to

of establishing the elements


to apply.

Upon

testimony from

carry their burden

required for the


our own review

523(a)(2)(A)

of the record, we

find ample support for the bankruptcy court's finding.


III.
III.
____
As we

noted in Lane I, appellants


_______

took a

credit

risk by surrendering their interests in Indian Hill in return

-1111

for Lane's
699.
we

Lane I, 937
_______

F.2d at

Unfortunately for them, bankruptcy intervened.

Because

find

unsecured promise to

no

determination

clear

that Lane

523(a)(2)(A) does
litigation is

error
had

not apply

pay.

with

respect

no intent

to

the

to misrepresent,

to appellants' claim,

finally brought to

an end.

decision of the bankruptcy court is


affirmed. Costs to appellee.
affirmed. Costs to appellee.
_____________________________

court's

and this

Accordingly, the

-1212