Accardi et al v. Bartel

In re
DENNIS M. BARTEL,
Debtor
______________________________________
ALEXANDRA ACCARDI and
BRIAN KENNY,
Plaintiffs
v.
DENNIS M. BARTEL,
Defendant
U NITED STATES BANKRUPTCY COURT
D ISTRICT OF MASSACHUSETTS
Chapter 7
Case No. 05-13134-JR
Adversary Proceeding
No. 07-1018
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT
Plaintiffs Alexandra Accardi and Brian Kenny jointly entered into a contract with the
debtor’s construction corporation, New Dimensions Construction LLC, for renovation of their
home. New Dimensions did not complete the project, leaving the plaintiffs with substantial
claims under the contract. The defendant and debtor, Dennis Bartel, was subsequently convicted
of larceny for his handling of monies received under this and other contracts. By their complaint
in this adversary proceeding, the plaintiffs seek, among other things, (i) a determination that the
defendant and debtor, Dennis Bartel, is liable under a piercing-the-corporate veil theory for the
debts of New Dimensions, (ii) a determination that their unliquidated claim against him is
excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (iii) denial of Bartel’s discharge under
11 U.S.C. § 727(a)(4)(A) for knowingly and fraudulently making false statements under oath in
his Statement of Financial Affairs, and (iv) denial of Bartel’s discharge under § 727(a)(6) for
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1 By error, the complaint contains two counts numbered V. 	All references to Count V
herein shall be to the second, an objection to discharge under § 727(a)(4)(A).
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refusing on the ground of privilege against self-incrimination to respond to a material question
approved by the court. The adversary proceeding is before the court on the plaintiffs’ motion for
summary judgment as to the above matters; Bartel opposes the motion. For the reasons set forth
below, the court will deny summary judgment.
PROCEDURAL HISTORY
Dennis Bartel filed a petition for relief under chapter 13 of the Bankruptcy Code on April
13, 2005. He subsequently converted his case to one under chapter 11. On April 4, 2006, the
court converted his case to one under Chapter 7. The plaintiffs filed the complaint commencing
this adversary proceeding on January 15, 2007.
By their motion for summary judgment, filed August 21, 2008, the plaintiffs seek
summary judgment on Counts I, II, V (the second), 1 and VII of their complaint. Bartel opposes
the motion and, in support of his opposition, has adduced his own affidavit and various exhibits.
Bartel also separately moved to deny the motion as untimely because filed after the court-
established deadline for filing dispositive motions. After hearing, the court extended the
deadline for filing dispositive motions and, accordingly, declined to deny the motion as
untimely. The court heard arguments on the merits of the Motion for Summary Judgment on
October 21, 2008, and took the matter under advisement.
SUMMARY JUDGMENT STANDARD
A party is entitled to summary judgment only upon a showing that there is no genuine
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issue of material fact and that, on the uncontroverted facts, the movant is entitled to judgment as
a matter of law. FED. R. CIV. P. 56(c). Where, as here, the burden of proof at trial would fall on
the party seeking summary judgment, that party must support its motion with evidence—in the
form of affidavits, admissions, depositions, answers to interrogatories, and the like—as to each
essential element of its cause of action. The evidence must be such as would permit the movant
at trial to withstand a motion for directed verdict under FED. R. CIV. P. 50(a). Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). If the motion is properly supported, the burden
shifts to the adverse party to submit evidence demonstrating the existence of a genuine issue as
to at least one material fact. If the adverse party does not so respond, “summary judgment, if
appropriate, shall be entered against the adverse party.” FED. R. CIV. P. 56(e); Jaroma v.
Massey, 873 F.2d 17, 20 (1st Cir. 1989).
In order to prevail on their counts under § 523(a)(2)(A) and § 727(a)(4)(A), the plaintiffs
will have to establish scienter and fraudulent intent, and they will seek to do so by inference
from circumstantial evidence. When faced with an attempt to establish scienter or specific intent
on summary judgment by inference, litigants and courts should keep ever before them a basic
rule of summary judgment practice—that “all reasonable inferences from the facts must be
drawn in the manner most favorable to the nonmovant,” In re Varrasso, 37 F.3d 760, 763 (1st
Cir. 1994)—and the consequent guidance from Varrasso: “[S]ummary judgment is inappropriate
if inferences are necessary for the judgment and those inferences are not mandated by the
record.” Id.
Undisputed facts do not always point unerringly to a single,
inevitable conclusion. And when facts, though undisputed, are
capable of supporting conflicting yet plausible inferences—
inferences that are capable of leading a rational factfinder to
different outcomes in a litigated matter depending on which of
them the factfinder draws—then the choice between those
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inferences is not for the court on summary judgment.
Id. Despite these strictures, state-of-mind issues can be resolved at the summary judgment stage,
provided the circumstantial evidence “is sufficiently potent to establish fraudulent intent beyond
hope of contradiction.” Id. at 764; In re Marrama, 445 F.3d 518, 522 (1st Cir. 2006) (“Evidence
of fraud is conclusive enough to support summary judgment in a § 727(a)(2)(A) action when it
yields no plausible conclusion but that the debtor’s intent was fraudulent.”). Still, “courts must
be exceptionally cautious in granting brevis disposition in such cases . . . especially where . . .
the movant bears the devoir of persuasion as to the nonmovant’s state of mind.” Id. at 764.
Count I: 	Piercing the Corporate Veil
In Count I the plaintiffs seek a determination that Bartel is liable for the debts of New
Dimensions Construction LLC. Bartel admits that he owned ninety-eight percent of the equity
interest in New Dimensions and that he exercised pervasive control over its affairs, but he denies
that he intermingled his own assets and those of the LLC and that he failed to observe corporate
formalities. As evidence of the necessary commingling, the plaintiffs have adduced evidence
that Bartel on four occasions transferred funds from his own account to the corporation’s or from
the corporation’s account to his own. This, without more, is not sufficient proof of commingling
to satisfy the summary judgment standard. Even among those owners of closely-held
corporations who most scrupulously respect the distinction between the corporation and
themselves, there will be transfers, often many, between the individual and the corporation:
payments of salary, loans from the individual to the corporation, repayments of such loans,
infusions of capital, dividends, distributions, and reimbursements of the individual for corporate
expenses. The crucial question is not merely whether funds moved between the individual and
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the corporation but (1) whether the funds of each were kept in separate accounts—by the
plaintiffs’ own evidence they evidently were—and (2) whether the transfers between the
individual’s accounts and the corporation’s were so accounted for that one may determine what
is the corporation’s, what is the individual’s, and what has occurred between them. The simple
evidence cited would not permit the movants to withstand a motion for directed verdict at trial.
Summary judgment must therefore be denied as to this count.
Count II: Nondischargeability under § 523(a)(2)(A)
In Count II, the plaintiffs allege that Bartel obtained advances from them on their
construction contract by representing to them that the advances would be used for the
construction project, but that he made such representations without intent to use the advances for
the purposes represented, to their injury. They contend that Bartel’s liability to them for such
damage is excepted from discharge under § 523(a)(2)(A) as a debt for money obtained by false
pretenses, a false representation, or actual fraud. In order to prevail under this subsection, the
plaintiffs must prove, among other things, that Bartel made his statements with fraudulent intent.
Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997). In his affidavit, Bartel denies that he
intended to defraud the plaintiffs. This evidence marginally creates a genuine issue as to a
material fact and requires denial of summary judgment as to this count.
Count V: Objection to Discharge under § 727(a)(4)(A)
In Count V the plaintiffs object to discharge under 11 U.S.C. § 727(a)(4)(A) on the basis
that Bartel knowingly and fraudulently made false statements under oath in his Statement of
Financial Affairs (“SOFA”). Section 727(a)(4)(A) requires denial of discharge if “the debtor
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2 The order stated: “The debtor is directed to respond to questions the answers to which
(a) will provide details regarding matters and facts which the debtor has previously voluntarily
disclosed or (b) will not further incriminate him.”
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knowingly and fraudulently, in or in connection with the case, made a false oath or account.” In
the affidavit he filed in opposition to summary judgment, Bartel averred that he prepared his
schedules and SOFA with the assistance of his attorney, that he believed at the time that they
were true and correct, based on his attorney’s advice and instructions, and that any errors therein
were unintentional and not made with knowledge that they were false. This statement, though
thin and uncorroborated, is nonetheless evidence that creates a genuine issue of material fact as
to the scienter and fraudulent intent requirements of § 727(A)(4)(A) and requires denial of
summary judgment as to this count.
Count VII: 	Denial of Discharge under § 727(a)(6)
In Count VII, the plaintiffs object to discharge under § 727(a)(6)(B) on the basis that
Bartel refused on the ground of privilege against self-incrimination to respond to a material
question approved by the court. Subsection 727(a)(6)(B) requires denial of discharge where a
“debtor has refused, in the [bankruptcy] case, on the ground of privilege against self-
incrimination, to respond to a material question approved by the court or to testify, after the
debtor has been granted immunity with respect to the matter concerning which such privilege
was invoked.” The court must deny summary judgment as to this count on two grounds. First,
the plaintiffs have adduced no evidence, or even alleged, that Bartel was granted immunity as to
the subject matter of the questions at issue. Second, the plaintiffs have not shown that the court
approved any particular material question. The court’s order of August 14, 2007 2 was simply too
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general to constitute an approval by the court as to any given material question; it made no
determination as to whether a particular question was within the scope of the Fifth Amendment
privilege.
ORDER
For the reasons set forth above, the Plaintiff’s Motion for Summary Judgment is hereby
denied.
Date: December 23, 2008 	_______________________________
Joel B. Rosenthal
United States Bankruptcy Judge
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