Liddell v. Peckham

UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
WALTER G.. PECKHAM and
COURTNEY E. PECKHAM, 	Chapter 7
Debtors 	Case No. 08-14319-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
RAYMOND LIDDELL,
Plaintiff
v. 	Adv. P. No. 08-1246
WALTER G. PECKHAM,
Defendant
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the five-count Complaint commenced by Raymond
Liddell (“Liddell” or the “Plaintiff”) against Walter G. Peckham (“Peckham”), pursuant to
11 U.S.C. § 523(a)(2)(A) and (a)(6). The Court conducted a trial on June 23, 2010 and July
1, 2010 at which four witnesses testified and 41 exhibits were introduced into evidence. At
the conclusion of the trial, both parties submitted post-trial briefs.
The issues presented include whether the Plaintiff sustained his burden of proof
under 11 U.S.C. § 523(a)(2)(A) and (a)(6), by establishing, based upon the preponderance
of the evidence, that Peckham obtained money for repairs to a piano owned by the Plaintiff
by means of false pretenses, false misrepresentations, or actual fraud, and whether
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Peckham willfully and maliciously injured the Plaintiff by failing to respond to post-
judgment discovery with respect to a default judgment obtained by the Plaintiff from the
Cambridge District Court, resulting in this issuance of a civil arrest warrant and significant
legal fees incurred by the Plaintiff. Resolution of the issues depends in large measure on
the credibility of the Plaintiff and Peckham.
The Court now makes its findings of fact and rulings of law in accordance with Fed.
R. Bankr. P. 7052.
II. FACTS
Peckham and his spouse, Courtney E. Peckham (collectively, the “Debtors”), filed
a voluntary Chapter 7 petition on June 12, 2008. At the time of the commencement of their
Chapter 7 case, the Debtors owed significant debts to unsecured creditors, including a debt
owed by Peckham to the Plaintiff arising out of a default judgment obtained on March 9,
2007 for conversion and unfair and deceptive trade practices under Mass. Gen. Laws ch.
93A in the sum of $27,988. 	Additionally, the Debtors’ residence, located at 66 Sumner
Street, Gloucester, Massachusetts, which they purchased in 2001 for $200,000, was
encumbered by an adjustable rate mortgage,1 multiple recorded executions and an
1 The adjustable rate promissory note secured by a mortgage in the amount of
$336,000 had indicia of a subprime loan as, among other things, the loan was
conditioned upon payment of a yield spread premium payable to the lender in the sum
of $3,360. Additionally, though Peckham grossly exaggerated his income on the loan
application, the value of the property in relation to the amount of the loan was the
obvious basis for the amount of loan, whose proceeds were used to pay over $50,000 to
Alpha Holding Corporation, an entity which participated in the transfer of the property
from the Debtors to a trust which held the deed to the property as part of a foreclosure
rescue transaction.
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attachment, arising out of a terminated commercial real estate lease for property formerly
used by Peckham for his piano repair business. 2
Peckham is a high school graduate. At the time of trial, he was in his early 50s and
unemployed. 	Prior to the commencement of his bankruptcy case, he operated a piano
repair business. After employment at a piano repair shop for five years, he opened his own
piano repair shop in Gloucester, Massachusetts, known as Peckham Piano & Music Center,
Inc., although the Debtors in their tax returns treated the business as a sole proprietorship.
Initially, Peckham conducted his business from premises located on Washington Street in
Gloucester. Subsequently, he moved his business operations at least three times, first to
Maplewood Avenue, then to 72 Rogers Street, and finally to premises near the Walgreens
Plaza in downtown Gloucester after he was evicted from the Rogers Street location by his
landlord, Marshall A. Dana and David I. Stone, Trustees under the Will of Herman Dana;
Marshall A. Dana, Surviving Trustee under the Will of Gertrude Dana Gordon; and
Marshall A. Dana and Myer R. Dana, Trustees of Remdana Trust u/d/t dated January 2,
1990 (the “Landlord”). After his eviction from the Rogers Street premises in January of
2007, Peckham’s business failed.
2 Wells Fargo Bank, as Trustee for Option One Mortgage Loan Trust 2007-5
Asset-Backed Certificates, Series 2007-5 and/or Its Successors filed its Motion for Relief
from the Automatic Stay approximately 45 days after the commencement of the
Debtors’ case. The motion contains a list of the executions and attachments on the
property. According to the mortgagee, liens and encumbrances totaled $493,666.74.
Liddell objected to the motion, arguing that the trustee would obtain a better price for
the property than the mortgagee at a foreclosure sale. The Chapter 7 trustee eventually
sold the property in the summer of 2009 for $150,000.
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In addition to repairing pianos and giving piano lessons, Peckham served as a City
Councilor in Gloucester. He was active in city politics in 2007, but failed to win re-election.
He listed a small pension from the City of Gloucester on Schedule B-Personal Property.
With respect to his piano repair business, Peckham, as guarantor, executed a lease
with respect to the 72 Rogers Street premises on January 23, 2004. The annual rent was
$18,000 for the period between February 1, 2004 and January 31, 2005; $21,000 for the
period February 1, 2005 through January 31, 2006, and $24,000 for the period February 1,
2006 through January 31, 2009. Peckham Piano & Music Center, Inc. defaulted under the
terms of the lease, and Peckham, as president and guarantor, and the Landlord executed
an amendment to the lease on January 31, 2005. Pursuant to the amendment, the Landlord
abated the amount in default, namely $6,134.61, and the parties agreed that the annual rent
for the lease year commencing February 1, 2005 would be $22,200 and that the annual rent
for the lease year commencing February 1, 2006 through January 31, 2009 would be $25,200.
Despite the accommodations made by the Landlord, Peckham was not able to make
payments under the lease, and on July 6, 2006, he executed an Agreement for Judgment in
the sum of $11,538.78, as well as a Judgment for Possession, waiving all rights of appeal.
The agreement contained the proviso that the Landlord would hold the judgment, subject
to payment of the July 2006 rent in the sum of $2,100 by July 12, 2006 and the execution of
“a promissory note with an open line of credit to pay for any unpaid rent or additional
rent, including but not limited to the $11,538.78 owed presently,” secured by a second
mortgage on the Sumner Street property. The parties further agreed that the first mortgage
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lien would not exceed $300,000 and that all monies owed would be paid on or before
November 1, 2006. As will be discussed below, when Peckham refinanced the couple’s
property in 2007, the first mortgage lien exceeded $300,000.
Peckham’s piano business never generated significant revenues, and the couple’s
annual gross income never exceeded $40,000. On Schedule C - Profit or Loss from Business
(Sole Proprietorship) to the couple’s individual federal tax return, Peckham reported a
business loss of $87 in 2004; a net profit of $6,265 in 2005; and a net profit of $637 in 2006.
In 2007, Peckham did not report any income from his business. Indeed, he disclosed that
he was employed as a real estate agent. In 2007, the couple reported annual income of
$27,479, an amount less than Liddell’s March 9, 2007 judgment in the sum of $27,988.
During the term of the tenancy at Rogers Street, Peckham was struggling to make
ends meet due to his inability to use the premises to lacquer or spray paint pianos he had
in his possession to repair. Within a few months of relocating to Rogers Street, officials
from the City of Gloucester’s Fire Department informed Peckham that he could not spray
any chemicals or finishes in the building because it lacked a sprinkler system and adequate
ventilation. 	The couple’s financial troubles were compounded by the their mounting
mortgage debt. The Debtors acquired the Sumner Street property in 2001 and refinanced
it multiple times. With property values appreciating, they utilized the property to obtain
cash. In June of 2003, the Debtors both executed a mortgage in the sum of $222,300 in favor
of H&R Block Mortgage Corporation. Courtney Peckham was the sole signatory on the
note, however, and the couple obtained $17,545.66 in cash from the transaction. In the
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mortgage application which she executed, she untruthfully reported her monthly income
from her position as Director of the Essex Ship Building Museum as $7,000. 	Courtney
Peckham testified that she did not review the mortgage application and relied upon
Peckham with respect to the refinancing transaction.
In February of 2004, the couple refinanced the Sumner Street property again,
executing a mortgage in the amount of $273,750 in favor of H & R Block Mortgage
Corporation. In that transaction, pursuant to which the couple obtained $14,915.69 in cash,
Courtney Peckham was the sole signatory to the note. In the loan application, she reported
her income as $8,000 per month when in fact it was substantially less.
In January 2007, the couple refinanced again, executing a mortgage in favor of
Option One Mortgage Corporation in the sum of $336,000. This time Peckham completed
the Uniform Residential Loan Application, reporting that he was self-employed and doing
business as Peckham Piano with monthly income of $9,000. Peckham’s statement as to his
monthly income was false as he never came close to making $108,000 per year. Proceeds
from the loan were used to pay Option One Mortgage Corporation ($274,217.27), and
Alpha Holding Corporation ($51,416.86), and to pay a yield spread premium in the amount
of $3,360. 	The loan was 	based upon a $415,000 valuation of the Debtors’ property.
Notably, Alpha Holding Corporation was the entity which engineered the transfer of the
Debtors’ Sumner Street property to “The 66 Sumner Street Trust, Trust No. MA06013” in
June of 2006 as part of a foreclosure rescue transaction. Alpha Holding Corporation, as
trustee, deeded the Debtors’ property to them in conjunction with the Option One
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Mortgage Corporation loan.
On July 5, 2002, before the Debtors’ financial problems spiraled out of control,
Liddell purchased a 1913 Brooks grand piano at the Salvation Army for $200 and reached
an agreement with Peckham for its repair. Liddell did not rebut Peckham’s testimony as
to the price of the piano at the time Peckham retrieved it from Liddell and brought it to his
shop for storage, although the default judgment obtained by Liddell included a valuation
of the piano at the time of delivery to Peckham of $3,700. 	In July of 2002, Liddell was
residing in Gloucester and was attempting to sell his residence. Peckham picked up the
piano from Liddell’s residence and agreed to store and repair it for Liddell. He prepared
an estimate for the restoration which set forth the following:
ITEM 	AMOUNT
Replacing pin block 	$800.00
Restring piano 	$1,200.00
Restore action 	$200.00-$500.00
Regulation and tunings 	$500.00
Case restoration 	$1,800.00
Climate control system (optional) 	$325.00
TOTAL 	$4,500-$4,800.00
With climate control 	$4,825-$5,125.00
The estimate also provided the following:
All moving charges are included in the total price. Work will proceed with
a deposit of $2,250 with the balance paid in installments over a mutually
agreeable time period. . . .
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Liddell paid Peckham in installments for the repair of his piano as follows:
Dates 	Amounts
July 5, 2002 	$50.00
December 23, 2003 	$500.00
February 27, 2004 	$200.00
April 29, 2004 	$200.00
May 18, 2004 	$500.00
September 11, 2004 	$1,000.00
August 30, 2005 	$2,000
Total 	$4,450.00
Liddell testified that he and Peckham agreed that he would pay for the cost of the
restoration with payments over time for labor and materials. 	Additionally, he indicated
that he periodically checked on the condition of the piano, although he was not always able
to reach Peckham. 	Nevertheless, in August of 2005, when Peckham was conducting
business on Rogers Street and Liddell had moved to Boston from Gloucester, Liddell met
with Peckham to discuss plans to complete the restoration of his piano. Liddell testified
as follows:
I was told at that point that the only thing that remained was the refinishing
of the exterior of the piano, that this in fact wouldn’t be a problem because
he was making and had made arrangements with some friend, some other
place in Gloucester to remove the piano so that he could spray paint it which
he said he could not do in his current space, with the assurance that all that
remained was the box and the promise it would be done and completed,
delivered to my apartment by November 1 st
.
I listened to this, and then got a rather an emotional plea having to do with
financial difficulties, losing his home, et cetera, was induced to pay off the
balance of the contract, when I otherwise might not have.
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Liddell further testified that, if Peckham had not represented that the work on his piano
was substantially complete and that he would deliver the piano by November 1, 2005, he
would not have paid him $2,000 on August 30, 2005.
Liddell testified that because Peckham promised delivery of the piano on November
1, 2005 he was awaiting its arrival on that date. Peckham did not deliver the piano on that
date. 	Liddell attempted to contact Peckham but could not reach him. 	Thereafter,
communication became increasingly difficult. When he was able to reach Peckham, Liddell
stated “ . . . I had [sic] the same litany of things that had put me off repeatedly, about
politics and financial difficulties and the business about the inappropriate space he was in
. . . .” Liddell and Peckham subsequently reached a new agreement whereby Peckham
would deliver the piano on July 3, 2006. Indeed, Peckham represented to Liddell that he
had hired a truck and “everything was a go,” even though Liddell had not paid the full
amount of the estimate.
Although Liddell anticipated that the piano would be the centerpiece of his Fourth
of July party, he was distressed to receive, on July 2, 2006, a voice message on his
answering machine from Peckham advising him that he could not deliver the piano on July
3, 2006. Peckham promised another delivery date, but again he failed to deliver the piano.
Liddell later received an email from Peckham on July 17, 2006 in which Peckham stated:
“Hello Ray, Sorry for the delay. I am sending these [sic] from my home computer. I will
call you later today so we can discuss delivery.” Peckham never called.
In January of 2007, Liddell obtained access to Peckham’s former business premises
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at 72 Rogers Street. He located his piano in a locked space in the shop and observed its
condition. He testified that it was in poor condition.
I found my piano, but it was disassembled. It was still on its feet, but the top
was gone, the entire keyboard assembly which slides in to the front of the
piano was gone. I couldn’t locate it, couldn’t identify anything. Obviously
the pedal assembly was gone.
Liddell returned to 72 Rogers Street with a camera and a piano restorer from Boston by the
name of James Micaloro [sic]. He indicated that superficial work had been done to the
piano. The strings had been replaced after the box itself had been cleaned out and the
metal armature inside had been painted. The keyboard assembly was missing, however,
and the old pin block had not been replaced as specified in the contract. Based upon the
condition of the piano, Liddell decided to abandon it as he did not wish to incur additional
expenses associated with moving the piano and completing the restoration.
Peckham testified that he did a considerable amount of work on the piano and the
only thing left to do was to spray paint it. He indicated that he had new key tops made for
the piano, that the strings were back in place and labeled, that the sound board or pin block
had been repaired, and that the piano had been stripped and sanded. Indeed, he stated
that it was 99% restored.
Liddell’s piano was not the only piano that Peckham failed to restore within the time
promised. 	Virginia Bergmann (“Bergmann”), a retired nurse and vice-chair of the
Gloucester Zoning Board of Appeals, testified that in June of 2005 she employed Peckham
to repair a baby grand piano that had been a gift to her from her deceased husband.
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According to Bergmann, Peckham estimated that it would cost $5,000 to restore the piano.
She testified that she made an initial deposit of $1,000 and the following month gave
Peckham a check in the amount of $2,000. Peckham represented to her at the time that the
repairs were “coming along.” In November, Peckham called Bergmann requesting the
balance due of $2,000. Bergmann testified: “[H]is reference was not to the piano so much
but he said to me that he was in dire need, short of money and needed to make a house
payment.” 	She added: “[Because] it was the holiday season, I felt really bad for the
gentleman and I gave him the $2,000 which paid up my bill to him for my piano.”
Bergmann attempted to contact Peckham numerous times. She stated that he told
her on a number of occasions that he had hired movers to deliver the piano, but he failed
to perform. Finally, Bergmann engaged an attorney and was able to recover her piano
from the Rogers Street location two days before Christmas in 2006. Bergmann testified that
the piano was in the same condition that it was in when Peckham obtained it for purposes
of repairing it, although it had been dismantled. She engaged another piano restorer who
charged her $6,900 to renovate her piano. She commenced an action against Peckham and
recovered a judgment in the sum of $23,000.
At the commencement of his Chapter 7 case, Peckham had a number of pianos in
his possession that had been delivered to him for repairs. Indeed, he lost contact with one
customer whose piano he was engaged to repair.
Like Bergmann, Liddell commenced an action against Peckham preceded by a
demand letter dated August 2, 2006. 	In the letter, which was prepared by Liddell’s
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attorney, Harvey S. Shapiro, Esq. (“Attorney Shapiro”), and sent by certified mail, return
receipt requested, Attorney Shapiro stated: “Should you fail to promptly return the piano
as requested, you should appreciate that you will increase the likelihood that you will be
subject to treble damage remedies under the State Consumer Protection Act, as well as
incur liability for Mr. Liddell’s costs and attorneys [sic] fees.” Attorney Shapiro followed
that letter with another letter, dated August 23, 2006, enclosing the certified letter and again
demanding the return of Liddell’s piano.
On October 18, 2006, Attorney Shapiro sent a demand letter to Peckham under Mass.
Gen. Laws ch. 93A, again advising him as follows: “Failure to make a proper written tender
of relief within (3) days of receipt of this demand shall result in suit for treble damages,
costs and attorney’s fees. You should, accordingly, promptly consult with counsel.”
Attorney Shapiro asserted that Peckham breached his agreement with Liddell and
converted the piano. He demanded the return of the $4,450 paid by Liddell to Peckham
with interest at the rate of 6% from July 2002, as well as $3,700 to replace Liddell’s piano
with a piano of the same type and condition as the Brooks baby grand, and $800 for loss
of use of the piano.
In December of 2006, Liddell filed a four-count complaint against Peckham and
Peckham Piano & Music Center, Inc. in the Cambridge District Court setting forth the
following 	causes 	of 	action: 	“Breach 	of 	Contract/Rescission/Equitable 	Replevin;”
“Conversion;” “Conversion/Loss of Use;” and “Massachusetts Consumer Protection Act.”
He did not seek a pre-judgment attachment. The Essex Count Sheriff’s Department served
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the summons and complaint on Peckham on January 4, 2007. Peckham failed to answer
the complaint or otherwise defend. Liddell recovered a judgment on March 9, 2007 in the
sum of $27,988.74, including prejudgment interest in the sum of $691.04.
Following receipt of the judgment, Attorney Shapiro immediately undertook steps
to collect it. On March 23, 2007, he sent Peckham a letter by certified mail, return receipt
requested, and by first class mail, enclosing “Plaintiff’s First Notice to Produce Documents
Propounded to Defendant Walter G. Peckham Pursuant to M.R.C.P. 69;” 3 Plaintiff’s First
Set of Interrogatories Propounded to Defendant Walter G. Peckham Pursuant to M.R.C.P.
Rule 69; and a “Notice of Service Of Discovery Pursuant To Mass. R. Civ. Pro. Rule 69.”
Attorney Shapiro warned Peckham that Liddell intended to collect the judgment and that
his failure to respond would result in Liddell seeking “further orders from the Court.”
Additionally, he advised Peckham that “we will ask the Court for supplemental awards
of attorney’s fees for our efforts to collect the judgment,” adding “[i]t is, accordingly, not
in your interest to force my client to expend unnecessary efforts in order to recover on the
judgment.” He concluded his letter to Peckham with the following advice: “You should
3 Mass. R. Civ. P. 69 provides:
Process to enforce a judgment for the payment of money shall be a writ of
execution, unless the court directs otherwise. The procedure on execution,
in proceedings on and in aid of execution shall be in accordance with
applicable statutes. In aid of the judgment or execution, the judgment
creditor or his successor in interest when that interest appears of record,
may obtain discovery from any person, including the judgment debtor, in
the manner provided in these rules.
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take this matter very seriously and consult counsel promptly.”
Peckham eventually consulted an attorney and, on or around April 27, 2007, filed
a “Motion for Relief from Judgment under Rule 60(b) of the Massachusetts Rules of Civil
Procedure.” The district court denied the motion.
On May 16, 2007, Liddell filed a “Motion to Compel Discovery in Aid of Judgment
or Execution and to Award Attorney’s Fees Against Defendant Walter G. Peckham” in
which Attorney Shapiro requested fees in the sum of $425. The matter was scheduled to
be heard on May 30, 2007. Peckham failed to appear at the hearing, and the court granted
the Motion to Compel. 	In a letter dated June 4, 2007 to Peckham’s attorney, Attorney
Shapiro advised that he would “move for additional sanctions and a capias if the Debtor
failed to produce the requested discovery or pay his fee of $425 by July 2, 2007.
On July 16, 2007, having failed to hear from Peckham’s attorney, Attorney Shapiro
filed a “Motion for Order to Show Cause under Mass. R. Civ. P. 37(b)(2)(D),” in which he
asked the Court to issue an order to show cause why Peckham should not be held in
contempt of the May 30, 2007 order and to issue a capias for Peckham’s arrest in the event
he failed to respond to a Notice to Show Cause.
The Cambridge District Court granted Liddell’s Motion on August 1, 2007 and
issued an order to Peckham to appear on August 29, 2007 at 9:00 A.M. “to show cause, if
any you have, why said Order has not been complied with and why you should not be
punished for such contempt.” The contempt hearing was rescheduled from August 29,
2007 to September 7, 2007 on which date the Cambridge District Court entered a “Further
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Order Upon Motion for Order to Show Cause.” The Cambridge District Court imposed
additional sanctions “[a]s punishment” for Peckham’s contempt, including the payment
to Liddell of additional attorney’s fees and costs in the sum of $1,556.50 (i.e., in addition to
the $425 previously assessed) and an assessment of $75 per diem “for each day, commencing
ten (10) days from the date of this Order, until he has responded fully and completely to the
discovery served in this case . . . and all objections thereto being deemed waived.”
Additionally, the court authorized the issuance of a capias on September 30, 2007, for
Peckham’s arrest, unless he had by that date filed with the court and served Attorney
Shapiro an affidavit attesting to his payment of the $1,981.50 and any per diem required by
the order and full and complete responses to all discovery. The Court made no specific
findings that Peckham’s conduct was willful or malicious or was intended to harm Liddell.
Peckham failed to comply with the Cambridge District Court’s order, and, on
October 19, 2007, a capias issued for his arrest. In February of 2008, Peckham’s attorney
advised Attorney Shapiro that his client intended to file a bankruptcy petition.
Accordingly, the deputy sheriff returned the capias to Attorney Shapiro. As of June 10,
2008, however, Peckham had not commenced a bankruptcy case, and on June 11, 2008, the
Essex County Deputy Sheriff arrested him and brought him to the Cambridge District
Court were he was ordered to jail. Peckham and his spouse filed their Chapter 7 petition
the next day.
Peckham, when questioned about his financial problems, became emotional on the
witness stand. 	When testifying about why he failed to respond to Attorney Shapiro’s
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demand letters, Liddell’s complaint filed in the Cambridge District Court, the discovery
in aid of execution, and the contempt order, he stated that he could not afford an attorney,
and he described his life after his eviction from the Rogers Street location in January 2007
as “[h]orrible.” He added:
Well, after the stress of being evicted, and also losing my seat on the City
Council, I went into deep, deep severe depression. I have been seeking the
help of a psychiatrist . . . in Gloucester, going to psychotherapists . . . . They
have put me on several anti-depressants, anxiety pills. And I have not been
able - - I have applied for over fifty jobs but I have not been able to get one.
***
Our world fell apart. We have nothing.
Although Peckham continued to attend City Council hearings and to advocate for
his constituents in 2007 while Liddell was attempting to collect his default judgment, the
Court credits Peckham’s testimony about his depression. While Peckham was less than
forthright in his dealings with Liddell and Bergmann, and careless at best in executing his
mortgage loan application and facilitating his spouse’s execution of loan applications, the
Court finds that his financial circumstances were dire, that the lease provisions for the
Rogers Street premises were onerous, and that his inability to lacquer pianos at Rogers
Street was fatal to his business. Furthermore, Peckham and his spouse were so desperate
to save their home that they transferred it to Alpha Holding Corporation in a foreclosure
rescue transaction that ultimately cost them significant monies to effectuate the transfer of
the property back into their names. Peckham’s financial world was indeed falling apart,
and, in view of his age and lack of a college degree, his circumstances were such that his
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testimony about anxiety and depression was credible. 	Whether his mental state is
sufficient to excuse his conduct is at the center of the dispute between the parties. The
Court cannot discount his plight and finds that like so many debtors he lacked the ability
and resources to change his circumstances, and by default resorted to chicanery and
avoidance to keep the inevitable at bay.
III. POSITIONS OF THE PARTIES
A. The Plaintiff
Liddell seeks a determination that at least a portion of the Cambridge District
Court’s judgment is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). Additionally,
he seeks a determination that Peckham’s conduct in the post-judgment proceedings was
a willful and malicious injury, and therefore, nondischargeable under 11 U.S.C. § 523(a)(6).4
B. Peckham
The Debtor maintains the underlying dispute is a contract dispute and that he made
no false or fraudulent misrepresentations. 	Additionally, he maintains that his actions
toward Liddell were not willful and malicious, particularly as he engaged in no tortious
conduct.
4 Specifically, Liddell formulated five counts in his complaint as follows: A. Debt
for Money and Property Obtained by False Pretenses, False Representations, or Actual
Fraud (11 U.S.C. § 523(a)(2)(A)) ($2,000 of the Original $4,450.00 Deposit); B. Debt for
Money and Property Obtained by False Pretenses, False Representations, or Actual
Fraud (11 U.S.C. § 523(a)(2)(A)) (Entire Obligation); C. Willful and Malicious Injury (11
U.S.C. § 523(a)(6)) (Entire Obligation); D. Willful and Malicious Injury (11 U.S.C. §
523(a)(6)) (Piano); and E. Willful and Malicious Injury (Post-Judgment Proceedings) (11
U.S.C. § 523(a)(6)).
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IV. DISCUSSION
For purposes of the following discussion, the Court shall consolidate Liddell’s two
counts under § 523(a)(2)(A) and three counts under §523(a)(6). Except with respect to the
post-judgment proceedings, this Court finds that Liddell submitted no evidence to sustain
his claims that Peckham willfully and maliciously intended to injure him or his piano.
A. Section 523(a)(2)(A)
1. Applicable Law
Section 523(a)(2)(A) excepts from discharge a debt of an individual debtor “for
money, property, services, or an extension, renewal, or refinancing of credit, to the extent
obtained, by-(A) false pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor's or an insider’s financial condition.” 11 U.S.C. §
523(a)(2)(A). The plaintiff must establish that the debt is excepted from discharge by a
preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 291 (1991).
In Blacksmith Investments, LLC v. Woodford (In re Woodford), 403 B.R. 177 (Bankr.
D. Mass. 2009), aff’d, 418 B.R. 644 (B.A.P. 1st Cir. 2009), this Court stated:
The United States Court of Appeals for the First Circuit has addressed issues
under section 523(a)(2)(A) on multiple occasions, observing that, as with all
exceptions to discharge under section 523(a), they are “narrowly construed
. . . and the claimant must show that its claim comes squarely within an
exception enumerated in Bankruptcy Code § 523(a).” McCrory v. Spigel (In
re Spigel), 260 F.3d 27, 32 (1st Cir. 2001) (citing Century 21 Balfour Real Estate
v. Menna (In re Menna), 16 F.3d 7, 9 (1st Cir. 1994)). 	In Spigel, the First
Circuit, while noting that the Supreme Court overruled its formulation of the
reliance 	element 	of 	the 	test 	for 	nondischargeability 	under 	section
523(a)(2)(A), articulated the following requirements for establishing an
exception to discharge under section 523(a)(2)(A):
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[W]e have said that the statutory language does not “remotely
suggest that nondischargeability attaches to any claim other
than one which arises as a direct result of the debtor’s
misrepresentations or malice.” Century 21 Balfour Real Estate,
16 F.3d at 10. Thus, in order to establish that a debt is
nondischargeable because obtained by “false pretenses, a false
representation, or actual fraud,” we have held that a creditor
must show that 1) the 	debtor made a knowingly false
representation or one made in reckless disregard of the truth,
2) the debtor intended to deceive, 3) the debtor intended to
induce the creditor to rely upon the false statement, 4) the
creditor actually relied upon the misrepresentation, 5) the
creditor’s reliance was justifiable, and 6) the reliance upon the
false statement caused damage. Palmacci v. Umpierrez, 121
F.3d 781, 786 (1st Cir. 1997). Though the first two elements of
the Palmacci test describe the conduct and scienter required to
show fraudulent conduct generally, the last four embody the
requirement 	that 	the 	claim 	of 	the 	creditor 	arguing
nondischargeability in an adversary proceeding must arise as
a direct result of the debtor’s fraud.
Spigel, 260 F.3d at 32 (footnotes omitted).
In re Woodford, 403 B.R. at 183-84 (footnote omitted).
In Youssef v. Fogarty (In re Fogarty), No. 08-1112, 2010 WL 916818 (Bankr. D. Mass.
Mar. 10, 2010), this Court discussed McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000), and
its progeny, in which courts hold that “actual fraud as used in 11 U.S.C. § 523(a)(2)(A) is
not limited to misrepresentations and misleading omissions. . . . [w]hen a debtor
intentionally engages in a scheme to deprive or cheat another of property or a legal right
. . . .” See Mellon Bank, N.A. v. Vitanovich (In re Vitanovich), 259 B.R. 873, 877 (B.A.P. 6th
Cir.2001)); K-B Building Co. v. Barber (In re Barber), 281 B.R. 617, 624 (Bankr. W.D. Pa.
2002); and Gentry v. Kovler (In re Kovler), 249 B.R. 238, 260-61 (Bankr. S.D.N.Y. 2000). This
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Court stated:
While the First Circuit has focused its test on the “false representation”
component of section 523(a)(2)(A), and the Seventh Circuit formulated a
different approach for the “actual fraud” component, other courts have
fashioned a slightly different test for the “false pretenses” component. For
example, in Ostertag v. Overall (In re Overall), 248 B.R. 146 (Bankr. W.D. Mo.
2000), the court observed:
The concept of false pretenses is especially broad. It includes
any intentional fraud or deceit practiced by whatever method
in whatever manner. False pretenses “may be implied from
conduct or may consist of concealment or non-disclosure
where there is a duty to speak, and may consist of any acts
intended to deceive.” Black’s Law Dictionary 602 (6th ed.1990).
It is a “series of events, activities, or communications which,
when considered collectively, create a false and misleading set
of circumstances, or a false and misleading understanding of
a transaction, by which a creditor is wrongly induced by a
debtor to transfer property or extend credit to the debtor.”
Sterna v. Paneras (In re Paneras), 195 B.R. 395, 406 (Bankr. N.D.
Ill. 1996). Silence or concealment as to a material fact can
constitute false pretenses. Bank of Miami v. Quintana (In re
Quintana), 4 B.R. 508, 510 (Bankr. S.D. Fla. 1980). In short, false
pretenses “can be made in any of the ways in which ideas can
be communicated.” First Nat. Bank of Webster v. Aetna Cas. &
Sur. Co., 256 F.Supp. 266, 272 (D. Mass. 1966).
In re Overall, 248 B.R. at 150 (footnote omitted).
In re Fogarty, 2010 WL 916818 at *7-*8.
2. Analysis
The Court finds that the Plaintiff has satisfied his burden under section 523(a)(2)(A)
by a preponderance of the evidence with respect to the $2,000 payment made by Liddell
to Peckham on August 30, 2005. Liddell testified that Peckham represented to him at the
time of that payment that the restoration of his piano was substantially complete.
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According to Liddell, Peckham represented that the only thing that remained to be done
to fully restore the piano was the refinishing of the exterior, that he had made
arrangements to move the piano from the Rogers Street location so that it could be spray
painted elsewhere, and that he would deliver the piano to him by November 1, 2005. The
Court finds that Peckham falsely represented that he had substantially completed the
restoration of the piano in accordance with the estimate he prepared. 	Liddell testified
based upon his observations that the items set forth in the estimate prepared by Peckham
had not been performed, including replacement of the pin block. Moreover, full restoration
required that the piano be moved, lacquered, reassembled and delivered to Liddell. The
Court finds that Peckham made the representations that the repairs to the piano were
substantially completed and that the piano would be delivered on November 1, 2005 with
knowledge of their falsity or with reckless disregard for their truth. The Court also finds
that Peckham intended for Liddell to rely on his representations, and Liddell, in fact,
justifiably relied on those representations to his detriment.
Peckham’s inability to utilize the Rogers Street premises to spray paint pianos, his
dire and worsening financial condition, and his conduct in repeatedly promising to deliver
Liddell’s piano to him in 2005 and 2006, as well as his conduct with respect to Bergmann,
unequivocally support the conclusion that Peckham falsely represented to Liddell that he
intended to complete the restoration of the piano in August of 2005 and deliver it to Liddell
in Boston on November 1, 2005. At the time, Peckham lacked a facility in which to lacquer
Liddell’s piano and the income to pay movers to transport it from Rogers Street to another
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location and then to Liddell’s home in Boston. The Debtor’s annualized monthly rental
obligation to the Landlord of $1,880 per month in 2005 and the couple’s annualized
monthly mortgage obligations, including the payment of real estate taxes and insurance
of approximately $2,000, exceeded the couple’s reported income of $37,465 in 2005 by over
$8,000. Peckham simply did not have the ability to fulfill his obligations to Liddell and he
knew it. He expressed his distress about his financial circumstances to both Liddell and
Bergmann and pleaded with them for money.
Although Peckham obtained $2,000 from Liddell by means of false representations,
he did not obtain the initial payments from Liddell, totaling $2,250, by means of false
pretenses or false representations. 	The Court finds that at the commencement of the
parties’ contractual relationship, Peckham intended to restore Liddell’s piano, and he, in
fact, performed some of the promised repairs. 	Indeed, the photograph submitted into
evidence by Liddell shows that Peckham had sanded the surface of the piano in
preparation for its final refinishing. Thus, the only money that Peckham obtained from
Liddell by means of false pretenses or false misrepresentations that constitutes a
nondischargeable debt under 11 U.S.C. § 523(a)(2)(A) is the $2,000 payment made in
August of 2005.
Liddell, however, argued that “[w]hile the money actually obtained through
Peckham’s deceit was $2,000.00, the debt arising therefrom is something else.” 	He seeks
$6,000 ($2,000 trebled), plus attorney’s fees and costs because the Cambridge District Court
trebled the damages and awarded attorney’s fees in entering its $27,988 judgment on
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March 9, 2007. The Court rejects this argument for two reasons. In the first place, Liddell
did not set forth a claim for fraud under Massachusetts law in the district court action, and
Cohen v. de la Cruz, 523 U.S. 213 (1998), is distinguishable.
In De la Cruz v. Cohen (In re Cohen), 185 B.R. 180 (Bankr. D. N.J. 1995), aff’d, 191
B.R. 599 (D. N.J. 1996), aff’d, 106 F.3d 52 (3d Cir. 1997), aff’d, 523 U.S. 213 (1998), the award
of treble damages was not based upon a default judgment, and the plaintiffs requested
treble damages and reasonable attorneys’ fees in the complaint they filed in the bankruptcy
court. 185 B.R. at 182 and n.2. The bankruptcy court referenced the “written record of the
Hoboken Rent Leveling Board” and conducted a hearing to determine the amount of
damages, finding that the debtor violated the provisions of New Jersey’s Consumer Fraud
Act.
In the instant case, Liddell did not bring a separate count under Mass. Gen. Laws
ch. 93A, and, for the reasons set forth below, the Cambridge District Court judgment was
a default judgment which is not entitled to collateral estoppel effect. 	Accordingly, the
Court is not bound by the damages set forth in the judgment reflected in Liddell’s claim
for triple damages under Mass. Gen. Laws ch. 93A. Moreover, although Liddell elected to
abandon the piano rather than move it to another location to complete its restoration,
Liddell’s piano was not worthless when he photographed it in January of 2007. Indeed, in
the Cambridge District Court action, he set forth a claim for its value in the amount of
$3,700 before Peckham made some repairs to it. Nevertheless, the Court accepts Peckham’s
unrebutted testimony that Liddell paid very little money for the piano, and that even in its
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unfinished condition it was worth at least $2,250. 5 If, as Liddell represented in his state
court complaint that it was worth $3,700 in July 2002 when he delivered it to Peckham, and
Peckham performed some work on the piano, the Court can infer that it was not worthless,
even though Liddell testified that he was unable to find various parts for the piano at the
Rogers Street location and decided to abandon it.
In Backlund v. Stanley-Snow (In re Stanley-Snow), 405 B.R. 11 (B.A.P. 1st Cir. 2009),
the United States Bankruptcy Appellate Panel for the First Circuit discussed when a state
court default judgment may be entitled to collateral estoppel effect in an action under 11
U.S.C. § 523(a)(2)(A). It stated:
In determining whether a party should be estopped from relitigating an issue
decided in a prior state court action, the bankruptcy court must look to that
state’s law of collateral estoppel. See Spigel, 260 F.3d at 33 (citing New
Hampshire Motor Transp. Ass’n v. Town of Plaistow, 67 F.3d 326, 328 (1st
Cir. 1995)); see also Marrese v. American Academy of Orthopaedic Surgeons,
470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985) (stating that the full faith
and credit statute, 28 U.S.C. § 1738, “directs a federal court to refer to the
preclusion law of the State in which the judgment was rendered.”). Under
Massachusetts law, collateral estoppel precludes relitigation of issues in prior
actions between the parties or those in privity with those parties, provided
the issues were actually litigated in the first action, and determined by a
“final judgment on the merits.” Smith Barney, Inc. v. Strangie (In re Strangie),
192 F.3d 192, 194 (1st Cir. 1999). To apply the doctrine, a court must
determine that: (1) there was a valid and final judgment on the merits in the
prior adjudication; (2) the party against whom estoppel is asserted was a
party (or in privity with a party) to the prior litigation; (3) the issue in the
prior adjudication is identical to the issue in the current litigation; and (4) the
issue in the prior litigation was essential to the earlier judgment. Alba v.
Raytheon Co., 441 Mass. 836, 809 N.E.2d 516, 521 (2004) (citations omitted).
5 Liddell did not testify about what he paid for the piano or what he thought it
was worth when he bought it. His attorney did not call him to the witness stand to
rebut Peckham’s testimony that the piano was purchased at the Salvation Army.
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The Supreme Judicial Court of Massachusetts has noted that “the ‘guiding
principle’ in determining whether to allow a party to use collateral estoppel
is whether the party against whom it is asserted had a ‘full and fair
opportunity to litigate the issue in the first action or [whether] other
circumstances justify affording him an opportunity to relitigate the issue.’ ”
Treglia v. MacDonald, 430 Mass. 237, 717 N.E.2d 249, 253 (1999) (quoting
Martin v. Ring, 401 Mass. 59, 514 N.E.2d 663 (1987)).
In re Stanley-Snow, 405 B.R. at 18. The bankruptcy appellate panel further observed that
“[i]n Massachusetts . . . default judgments are generally not given collateral estoppel effect
on an issue in a subsequent action because the issues have not been actually litigated.” Id.
at 19 (citing Treglia, 717 N.E.2d at 253; Staniunas v. Delisle (In re Delisle), 281 B.R. 457, 463
(Bankr. D. Mass. 2002); Phalon v. Varrasso (In re Varrasso), 194 B.R. 537, 539 (Bankr. D.
Mass. 1996); Restatement (Second) of Judgments § 27 cmt. e (1982) (in the case of a
judgment entered by default, none of the issues is actually litigated, therefore, the
judgment should not have preclusive effect)).6 See also Sharfarz v. Goguen (In re Goguen),
No. 09-4158, 2010 WL 2612662 (Bankr. D. Mass. June 25, 2010); Rivers Edge Condominium
Homeowners Assoc. v. Cohen (In re Cohen), 370 B.R. 26, 29 (Bankr. D. N.H. 2007) (“There
is a ‘strong presumption’ against according collateral estoppel preclusive effect to default
judgments, and the presumption will only be rebutted upon a finding 	‘that a party’s
reasons for not litigating are such that the interests of fairness militate against the
non-preclusion of issues already raised but not litigated’”); See also Kane v. Town of
Harpswell (In re Kane), 254 F.3d 325, 329 (1st Cir. 2001) (identifying default judgments as
6 The court noted an exception, however, finding that the “actual litigation”
requirement of collateral estoppel may be satisfied if the party actively or substantially
participated in the proceedings prior to the entry of a default judgment. Id. at 19-20.
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examples of matters not “actually litigated”).
Based upon the foregoing statements of the law, the Court finds that Liddell is not
entitled to a determination that Peckham obtained more than $2,000 from him by means
of false pretenses or false representations. Peckham testified that he was unable to afford
an attorney to defend the litigation in the Cambridge District Court, and he did not
participate in the action until after the entry of the judgment when he filed a Motion for
Relief from Judgment. He did not actively participate in the case, and Liddell failed to
establish an exception to the general rules that “Chapter 93A violations and fraud are not
synonymous, and that Chapter 93A liability may be premised on conduct other than
fraud.” See Stoehr v. Mohamed, 244 F.3d 206, 209 (1st Cir. 2001). Additionally, Liddell
failed to establish an exception to the general rule that default judgments are not entitled
to collateral estoppel effect. Thus, the Court rejects Liddell’s argument that his $2,000 in
damages should be trebled and include attorney’s fees for purposes of determining the
amount of his nondischargeable debt under section 523(a)(2)(A).
B. Section 523(a)(6)
1. Applicable Law
Section 523(a)(6) excepts from discharge debts “for willful and malicious injury by
the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). As
under 11 U.S.C. § 523(a)(2), the Plaintiff bears the burden of proving that his claim under
§ 523(a)(6) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 287 (1991).
In Kawaauhau v. Geiger, 523 U.S. 57 (1998), the Supreme Court analyzed the
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“willful” component of section 523(a)(6). It stated:
The word “willful” in (a)(6) modifies the word “injury,” indicating that
nondischargeability takes a deliberate or intentional injury, not merely a
deliberate or intentional act that leads to injury. Had Congress meant to
exempt debts resulting from unintentionally inflicted injuries, it might have
described instead “willful acts that cause injury.” Or, Congress might have
selected an additional word or words, i.e., “reckless” or “negligent,” to
modify “injury.” Moreover, as the Eighth Circuit observed, the (a)(6)
formulation triggers in the lawyer’s mind the category “intentional torts,” as
distinguished from negligent or reckless torts. Intentional torts generally
require that the actor intend “the consequences of an act,” not simply “the act
itself.” Restatement (Second) of Torts § 8A, Comment a, p. 15 (1964)
(emphasis added).
523 U.S. at 61-62.
As a result of the Supreme Court’s decision, actions of the debtor which simply
cause injury, but which are not deliberately undertaken, are not excepted from discharge.
Because the Supreme Court found that the defendant’s medical malpractice did not rise to
the level of willful injury, the Court did not reach the question of what the term
“malicious” added to the analysis. Id.
The United States Court of Appeals for the First Circuit in Printy v. Dean Witter
Reynolds, Inc., 110 F.3d 853 (1st Cir.1997), held that the element of malice in section
523(a)(6) requires that the creditor show that the willful injury was caused without
justification or excuse, adding that “personal hatred, spite or ill-will” need not be
established to find the element of malice. Id. at 859. The Printy formulation is followed by
bankruptcy courts in this circuit. See, e.g., Bauer v. Colokathis, 417 B.R. 150, 158 (Bankr. D.
Mass. 2009)(citing Caci v. Brink (In re Brink), 333 B.R. 560, 567 (Bankr. D. Mass. 2005);
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Gomes v. Limieux (In re Limieux), 306 B.R. 433, 440 (Bankr. D. Mass. 2004); and McAlister
v. Slosberg (In re Slosberg), 225 B.R. 9, 21 (Bankr. D. Maine 1998)). See also Hermosilla v.
Hermosilla (In re Hermosilla), 430 B.R. 13, 22 (Bankr. D. Mass. 2010).
In Colokathis, this Court stated:
Construing Geiger and Printy, together this Court concludes that, for an
exception to discharge under 11 U.S.C. § 523(a)(6) to apply, the creditor has
the burden of showing . . . that 1) the creditor suffered injury; 2) the debtor
intended to cause the injury or that there was substantial certainty that the
injury would occur; and 3) the debtor had no justification or excuse for the
action resulting in injury. This is consistent with the Slosberg court’s view
that although “the terms [willful and malicious] might share elements, i.e.,
they both require that the act itself be intentional, they must have
independent significance. In re Geiger should not be read to collapse the two
elements into one.” Slosberg, 225 B.R. at 19-20 (citations omitted).
Colokathis, 417 B.R. at 157-58. See also Hermosilla v. Hermosilla (In re Hermosilla), 430 B.R.
13,22 (Bankr. D. Mass. 2010).
Despite the interpretation of malice in the First Circuit and elsewhere, the law
remains unsettled. For example, in GMAC, Inc. v. Coley (In re Coley), No. 09-0307, 2010
WL 2991416 (Bankr. E.D. Pa. July 29, 2010), the court stated:
Courts also have invoked different standards for determining whether an
intentional tort involved “malice” within the meaning of § 523(a)(6). For
example in In re Long, 774 F.2d 875, 881 (8th Cir. 1985), the court reasoned
that, for the debt for any injury arising from an intentional tort to be
nondischargeable under § 523(a)(6), the debtor’s conduct must be “more
culpable than that which is in reckless disregard of creditors’ economic
interests and expectancies.” Further, in assessing the debtor’s culpability,
“knowledge that legal rights are being violated is insufficient to establish
malice, absent some additional ‘aggravated circumstances’. . . .” Id. Other
courts, too, have stated that the existence of “aggravating circumstances” and
a conscious disregard of one’s societal duties to others are essential aspects
of the malice requirement under § 523(a)(6). See, e.g., In re Logue, 294 B.R. 59,
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63 (B.A.P. 8th Cir. 2003); In re Richardson, 2007 WL 2381990, at *6-7 (Bankr.
N.D. Ala. Aug.17, 2007); In re Weiser, 2007 WL 4868319, at *2 (Bankr. N.D.
Ind. Apr. 4, 2007); In re Hambley, 329 B.R. 382, 402 (Bankr. E.D.N.Y. 2005); In
re Blankfort, 217 B.R. 138, 143-45 (Bankr. S.D.N.Y. 1998).
In this unsettled area of the law, one court has summarized the differing
standards for malice as follows:
One standard requires proof from the creditor that the debtor
acted with the specific intent to injure the creditor. A second
view is that the creditor need only prove that the debtor acted
without just cause or excuse. A third approach requires that
the debtor’s conduct target the creditor, at least in the sense
that the conduct was certain or almost certain to cause financial
harm. A fourth approach, which has been characterized as a
“totality of the circumstances” approach, adopts the position
that an injury is malicious if the debtor fails to act in subjective
good faith.
In re Pineau, 149 B.R. 239, 242 (D. Me.1993) (emphasis added) (citing In re
Horldt, 86 B.R. 823 (Bankr. E.D.Pa.1988)).
In re Coley, 2010 WL 2991416 at *13.7
In the context of a nondischargeability action under § 532(a)(6) involving contempt,
the court in Musilli v. Droomers (In re Musilli), No. 08-2572, 2010 WL 2222806 (6th Cir. Jun
3, 2010), observed: “[f]or the discharge exception under § 523(a)(6) to apply, a debtor must:
(1) ‘will or desire harm[;]’ or (2) ‘believe injury is substantially certain to occur as a result
of his behavior.’” 2010 WL 2222806 at * 4 (citing Markowitz v. Campbell (In re Markowitz),
190 F.3d 455, 465 n. 10 (6th Cir. 1999)). The Musilli court added: “This court has created a
non-exclusive list of the ‘types of misconduct [that] satisfy the willful and malicious injury
7 Litigation under section 523(a)(6) for willful and malicious injuries often arises
in the context of conversion of collateral, resulting in courts’ focusing on harm to
creditors’ economic interests.
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standard: intentional infliction of emotional distress, malicious prosecution, conversion,
assault, false arrest, intentional libel, and deliberately vandalizing the creditor’s premises.’”
2010 WL 2222806 at *4 (citing Steier v. Best (In re Best ), 109 F. App’x. 1, 5 & n. 2 (6th
Cir.2004)). In Musilli, the Sixth Circuit affirmed the bankruptcy court’s determination that
the debtor and his law partner willfully and maliciously harmed the plaintiff when they
violated a court order to escrow funds sufficient to cover a judgment against the law firm.
Specifically, the plaintiff, who claimed entitlement to a referral fee, asserted that because
the firm had violated the Uniform Fraudulent Transfer Act by failing to set aside a referral
fee during litigation and instead transferred the money to shareholders, it would be
difficult or impossible to collect on the fee. The plaintiff asked the court to require the firm
to place the claimed funds in escrow pending resolution of the suit. The court granted the
plaintiff’s motion and enjoined the firm from transferring any firm assets until it placed the
disputed sum in escrow. The firm never escrowed the funds, and transferred money to its
shareholders, including the debtors, without obtaining court permission. After a bench
trial, in which the state court entered a judgment in favor of the plaintiff, the state court
held the firm in contempt. After a lengthy and complex procedural history in which the
debtors violated an agreement with the plaintiff and sued her for extortion, they filed
bankruptcy petitions. The bankruptcy court eventually determined that the state court’s
criminal contempt award was nondischargeable. In affirming, the Sixth Circuit stated:
We find that the court’s escrow order made clear that “injury [wa]s
substantially certain to occur” should Musilli and Baumgardner [the debtors]
violate it. In re Markowitz, 190 F.3d at 465 n. 10. Musilli and Baumgardner
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point to no facts in the record that refute this finding. Despite having clear
instructions from the court that the firm was to escrow funds sufficient to
cover a judgment against it, Musilli and Baumgardner transferred all of the
firm’s assets away from the firm, including transferring a significant amount
of money to themselves. The appellants directly violated the court order and
have offered no legitimate justification that might explain why their actions
were not willful and malicious. Therefore, we affirm the bankruptcy courts
grant of summary judgment for Droomers [the plaintiff] on her claim that the
debt is nondischargeable under § 523(a)(6).
In re Musilli, 2010 WL 2222806 at *5. In support of its decision, the Sixth Circuit observed:
Other courts uniformly have held that a contempt penalty constitutes a
nondischargeable willful-and-malicious injury under § 523(a)(6). See, e.g.,
Siemer v. Nangle (In re Nangle), 274 F.3d 481, 484 (8th Cir. 2001) (finding that
a debtor’s conduct in disobeying a court order was “willful,” and his
“conduct was malicious because it was ‘targeted at the creditor. . . at least in
the sense that the conduct is certain or almost certain to cause . . . harm.’”
(quoting Barclays American/Business Credit, Inc. v. Long (In re Long), 774
F.2d 875, 881 (8th Cir. 1985))); Williams v. Int ‘l Brotherhood of Elec. Workers
Local 520 ( In re Williams), 337 F.3d 504, 511-13 (5th Cir.2003) (holding that
a contempt judgment resulting from the debtor’s violation of an agreed
judgment was nondischargeable under § 523(a)(6) because the judgment had
“made him substantially certain that his acts would inflict injury” should he
not comply with its directives).
2010 WL 222806 at *5.
The Court finds that the Musilli decision and the cases cited in it are distinguishable
from the facts present in the instant case, and they highlight divergent views of what is
required to establish a willful and malicious injury for purposes of § 523(a)(6). As the court
in Suarez v. Barrett (In re Suarez), 400 B.R. 732, 736-37 (B.A.P. 9th Cir. 2009), recognized,
“Section 523(a)(6) does not make “contempt” sanctions nondischargeable per se, and neither
does any other subpart of section 523(a).” 400 B.R. at 737. It added: “Whether contempt
sanctions are nondischargeable accordingly depends not on whether they are labeled as
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“contempt,” but on whether the conduct leading to them was “willful and malicious.” Id.8
In In re Nangle, a decision cited by the court in Musilli, a jury awarded the plaintiff
punitive damages as a result of the debtor’s willful and wanton conduct, which the trial
judge defined as “‘a course of action which shows actual or deliberate intention to harm
or which, if not intentional, shows an utter indifference to or conscious disregard of a
person’s own safety and the safety of others.’” 274 F.3d at 483. In Nangle, the plaintiff
registered her Illinois judgment as a foreign judgment in Missouri and attempted to collect
the judgment by filing a motion to compel the debtor to produce documents disclosing his
assets. The state court held the debtor in contempt when he failed to comply with the order
and imposed a “compensatory fine” against him, which the parties referred to as a
doubling of the underlying judgment. Id. at 484. The court explained:
Some courts have held that failure to comply with a court order constitutes
willful and malicious conduct as a matter of law within the meaning of §
523(a)(6). See, e.g., In re Allison, 176 B.R. 60, 64 (Bankr. S.D. Fla. 1994). We do
not believe, however, that it is necessary in the present circumstances to
express a view one way or the other on that matter. In this case, the Missouri
state court that entered the contempt order found explicitly that Mr. Nangle’s
conduct was “willful.” That court, moreover, stated that Mr. Nangle’s actions
were “designed to interfere with [Ms. Siemer’s] efforts to collect the
judgment entered against him herein.” It follows that Mr. Nangle’s conduct
was malicious because it was “targeted at the creditor . . . at least in the sense
that the conduct is certain or almost certain to cause . . . harm,” Long, 774
8 In Suarez, the bankruptcy appellate panel held that attorneys fees and costs
assessed against the Chapter 7 debtor and in favor of her ex-husband’s new wife based
on her willful and malicious conduct in repeatedly violating a state court order that
enjoined her from contacting, molesting, harassing, attacking, threatening, assaulting, or
telephoning the new wife and that required her to maintain 100 yard distance from the
new wife, were nondischargeable in bankruptcy as being for “injury” that debtor had
inflicted, even in absence of any compensatory judgment debt.
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F.2d at 881.
Although the bankruptcy appellate panel concluded that “the record is
insufficient to determine” whether Mr. Nangle’s contempt was intended to
inflict injury on Ms. Siemer or on the court itself, it is not a matter of
mutually exclusive alternatives: 	We think it perfectly clear that the state
court held that Ms. Siemer was a target, if not the only target, of Mr. Nangle’s
willful refusal to obey the court order.
Finally, we believe that the contempt order is a final judgment for collateral
estoppel purposes. The bankruptcy appellate panel held otherwise because
it concluded that under the relevant state law a civil contempt order is not
final until it has been enforced. Although that is true for the purposes of an
appeal, “‘[r]ecent decisions have relaxed traditional views of the finality
requirement’” in the collateral estoppel context by applying the doctrine “‘to
matters resolved by preliminary rulings or to determinations of liability that
have not yet been completed by an award of damages or other relief,’” let
alone enforced, see John Morrell v. Local Union 304A, 913 F.2d 544, 564 (8th
Cir.1990) (quoting 18 Charles Alan Wright, Arthur R. Miller, & Edward H.
Cooper, Federal Practice and Procedure § 4434 at 321 (1981)), cert. denied, 500
U.S. 905, 111 S.Ct. 1683, 114 L.Ed.2d 78 (1991). According to the Restatement
(Second) of Judgments 	§ 13 cmt. b (1982), moreover, “execution or
enforcement” are not pre-requisites for meeting the finality standard of claim
preclusion, and, by implication, the finality standard of collateral estoppel as
well.
Nangle, 274 F.3d at 484-85. 	In Nangle, there was an underlying judgment sufficient to
establish the willful and malicious conduct based on actual litigation. The Eighth Circuit
concluded that the contempt judgment could be afforded collateral estoppel effect, thus
reversing the bankruptcy appellate panel, finding that the contempt judgment essentially
enhanced “a judgment that it had already held nondischargeable because it consisted of
punitive damages and thus bespoke malice on the part of the debtor.” Id. at 484 (“Mr.
Nangle’s acts involved an actual or deliberate intention to harm Ms. Siemer.”). See Steier
v. Best (In re Best), 109 F.App’x 1, 7 (6th Cir. 2004).
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Similarly, the decision in In re Williams, 337 F.3d 504 (5th Cir. 	2003), is
distinguishable because in that case the debtor failed to abide by an agreed judgment. The
Fifth Circuit based its conclusion on the finding of the district court that the debtor
“purposefully and willfully” violated the agreed judgment. 	The court observed:
At the contempt hearing, Williams [the debtor] admitted that he had notice
of the Agreed Judgment and that it was clear and unambiguous, that he had
continued to use non-union electricians on commercial projects, and that he
had not yet paid the restitution for his earlier breach of the CBA [collective
bargaining agreement]. The district court found Williams in contempt and
imposed sanctions, which included attorney’s fees and additional restitution.
A second audit was performed for the period between the entry of the
Agreed Judgment in December of 1999 and the contempt hearing in April of
2000. This audit revealed Union electricians had been deprived of $106,911.43
in wages and benefits when Williams hired non-union workers. From the
record, it appears that the attorney’s fees incurred in the contempt hearing
are included in this figure.
337 F.3d at 511. See also The Spring Works, Inc. v. Sarff (In re Sarff), 242 B.R. 620, 627-28
(B.A.P. 6th Cir. 2000); Dentrust Dental Internat’l v. Rosenberg (In re Rosenberg), No. 05-
1587, 2007 WL 2156282 at *4 (Bankr. N.D. Ohio July 23, 2007) (collateral estoppel prevented
debtor from relitigating contempt order with respect to willful and malicious injury caused
by violation of non-compete agreement); Heyne v. Heyne, (In re Heyne) 277 B.R. 364, 369
(Bankr. N.D. Ohio 2002)(“a finding of contempt-which at the very least requires that the
alleged contemptor must have knowingly disobeyed the underlying order-clearly lends
itself to a finding of a deliberate and intentional act”); Bundy American Corp. v. Blankfort
(In re Blankfort), 217 B.R. 138, 145 (Bankr. S.D.N.Y. 1998)(the “existence of the Injunction
Order and the defendants’ defiance of it removes the Contempt Judgment from the
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category of ordinary judgments for violation of common law or statutory duties . . . the
Debtors’ persistent violations of the Injunction Order . . . constitute the type of aggravating
circumstances which the courts in the Second Circuit and elsewhere have found to be
sufficient 	to 	satisfy 	the 	‘malicious’ 	requirement 	of 	subsection 	(6)”); 	Buffalo 	Gyn
Womenservices, Inc. v. Behn (In re Behn), 242 B.R. 229, 238 (Bankr. W.D.N.Y. 1999)(“when
a court . . . issues an injunction . . . telling a specific individual what actions will cross the
line into injury to others, then damages resulting from an intentional violation of the order
are ipso fact the result of a ‘willful and malicious injury’”); Haeske v. Arlington (In re
Arlington), 192 B.R. 494 (Bankr. N.D. Ill. 1996)(intentional failure to comply with court
orders contained in an injunction satisfies the definition of “willful and malicious”);
Shteysel v. Shteysel (In re Shteysel), 221 B.R. 486 (Bankr. E.D. Wis. 1998)(same).
In City of Colton v. Corbly (In re Corbly), 61 B.R. 851 (Bankr. D. S.D. 1986), the court
attempted to formulate a methodology for determining whether contempt orders are
nondischargeable. It stated:
Courts determining contempt nondischargeability under this section find it
dependent on whether the judgment is compensatory or imposed to uphold
the dignity of the court. In re Marini, 28 B.R. 262, 265 (Bkrtcy. E.D.N.Y. 1983);
In re Gedeon, 31 B.R. 942, 945-46 (Bkrtcy. D. Colo.1983) (civil or criminal
contempt nature is determinative); Parker v. United States, 153 F.2d 66, 70-73
(1st Cir. 1946); see also, Guariglia v. Community Nat’l Bank & Trust Co., 382
F.Supp. 758 (E.D.N.Y.1974); In re Bell, 53 F.Supp. 993 (E.D.N.Y. 1943). A
judgment which is compensatory and not imposed to uphold the dignity of
the court is not precluded discharge under this section. In re Marini, 28 B.R.
at 265; In re Gedeon, 31 B.R. at 945.
Courts are not bound by the judgment’s criminal or civil contempt
characterization but must look to surrounding circumstances for determining
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its true nature. Id. A requirement that the contempt judgment is directly
payable to a creditor is not necessarily determinative of whether it is
compensatory 	or 	imposed 	to 	uphold 	the 	dignity 	of 	the 	court. 	Id.
Unfortunately, courts addressing this issue have not been uniform as to what
factors may be considered for determining the true nature of the contempt
judgment.
In re Corbly, 61 B.R. at 856-57. In Corbly, the court determined that a portion of a contempt
judgment was nondischargeable under 11 U.S.C. § 523(a)(7), not § 523(a)(6), because the
judgment was to uphold the dignity of the court. On reconsideration, however, the court
declared the debt dischargeable. See In re Corbly, 149 B.R. 125, 127 (Bankr. D. S.D. 1992).
Nevertheless, Corbly is an older decision and has not been widely cited.
In Mortgage Capital Advisers, Inc. v. Hawkins (In re Hawkins), No. 99-3537 (MAW),
2001 WL 1820324 (Bankr. D. Del. Mar. 1, 2001), the court considered an award of sanctions
against debtors arising from facts similar to those here. The debtors ignored discovery in
aid of execution, and the state court, after granting motions to compel, ordered the debtors
to pay costs, attorney’s fees, and civil sanctions. In the event the debtors failed to pay, the
court ordered that they would be liable to the plaintiff for civil and/or criminal sanctions
in the amount of $5,000 per day. In ruling on a motion for summary judgment, the court
framed the issue as follows: 	“whether the Delaware Court, after actual litigation,
necessarily concluded in a final, valid order that the injury to MCA was caused by a
deliberate or intentional action of the Debtors which was substantially certain to cause
harm.” Id. at *3. In finding that collateral estoppel did not apply, the bankruptcy court
noted that the state court made no express findings that the debtors had acted willfully or
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maliciously in failing to produce the requested documents. 	Moreover, it distinguished
numerous cases, including Bundy American Corp. v. Blankfort ( In re Blankfort), 217 B.R.
138 (Bankr. S.D.N.Y. 1998)(debtor continued to use the franchiser’s trademarks and trade
names after receiving notice of termination; when franchiser sought to enjoin the debtor’s
continuing violations., an injunction entered, which the debtor ignored; magistrate made
express findings that the debtor had blatantly and willfully violated the contempt orders);
and P.P. Wine Int’l, Inc. v. Allison ( In re Allison ), 176 B.R. 60 (Bankr. S.D. Fla. 1994)
(violation of the Florida Trade Secrets, being akin to theft, is willful and malicious and
sanctions order premised on the debtor’s continuing violation of the statute which was a
willful and malicious injury).
2. Analysis
Resolution of the issue of whether Peckham willfully and maliciously injured
Liddell by failing to respond to discovery in aid of execution of Liddell’s judgment and
subjecting himself to contempt and civil arrest is not straightforward. The case law is fact
driven, and the holdings in the decisions examined in this Memorandum often are the
result of both egregious and affirmative misconduct by debtors in contravention of court
orders or injunctions, rather than the virtual paralysis exhibited by Peckham in the instant
case in response to the demands made upon him by Liddell and the orders of the
Cambridge District Court resulting from Liddell’s collection efforts with respect to a debt
he had no ability to pay and the stress caused by his inability to pay his mortgage.
Moreover, the cases reflect the unsettled area of the law with respect to the interpretation
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of malice, and many decisions involving contempt follow trials on the merits, rather than
default judgments. Compounding these difficulties, there are few decisions on the issue
in the First Circuit. 9
This Court agrees with the observations made by the court in Corbly. Twenty years
after the court issued its decision, courts addressing the issue of whether contempt
judgments are nondischargeable are not uniform in their analysis. This Court concludes
9 But see Parker v. U.S., 153 F.2d 66 (1st Cir. 1946), distinguishing between civil
and criminal contempt. In Parker, the court stated:
Proceedings in civil contempt are between the original parties and are
instituted and tried as a part of the main cause. Though such proceedings
are ‘nominally those of contempt’, the real purpose of the court order is
purely remedial- to coerce obedience to a decree passed in complainant's
favor, or to compensate complainant for loss caused by respondent's
disobedience of such a decree. If imprisonment is imposed in civil
contempt proceedings, it cannot be for a definite term. The respondent can
only be imprisoned to compel his obedience to a decree. If he complies, or
shows that compliance is impossible, he must be released, for his
confinement is not as punishment for an offense of a public nature. If a
compensatory fine is imposed, the purpose again is remedial, to make
reparation to a complainant injured by respondent’s disobedience of a
court decree. While respondent may be confined to coerce payment of the
compensatory fine, he must be released if he pays the fine or shows his
utter inability to do so-confinement beyond that point would be punitive,
not remedial. If complainant makes a showing that respondent has
disobeyed a decree in complainant's favor and that damages have resulted
to complainant thereby, complainant is entitled as of right to an order in
civil contempt imposing a compensatory fine. The court has no discretion
to withhold the appropriate remedial order. In this respect the situation is
unlike that of criminal contempt where the court in its discretion may
withhold punishment for the past act of disobedience. An order imposing a
compensatory fine in a civil contempt proceeding is thus somewhat analogous to a
tort judgment for damages caused by wrongful conduct.
Id. at 70 (citations omitted) (emphasis supplied).
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that in the absence of collateral estoppel, the contempt judgment must be based on conduct
of the debtor that is both willful and malicious for that judgment to be nondischargeable
under § 523(a)(6), and that the surrounding circumstances will determine the true nature
of the debtor’s conduct, without regard to whether the contempt order was compensatory
or imposed to uphold the dignity of the court. See In re Corbly, 61 B.R. at 856-57.
The judgment of the Cambridge District Court contains no findings that would
permit this Court to conclude that it determined that Peckham acted willfully and
maliciously for purposes of applying collateral estoppel in this adversary proceeding. As
the court in FL Receivables Trust 2002-A v. Fernandez (In re Fernandez), No. 06–2059, 2008
WL 268975 (Bankr. D. Conn. Jan. 29, 2008), recognized in the context of the federal rules
governing discovery:
Sanctions for failure to comply with a discovery order are governed by Fed.
R. Civ. P. 37, made applicable in bankruptcy proceedings by Fed. R. Bankr.
P. 7037. See, e.g. Societe Internationale Pour Participations Industrielles Et
Commerciales, S.A. v. Rogers, 357 U.S. 197, 206-207, 78 S.Ct. 1087, 1092-1093
(1958) (sanctions for “noncompliance with a production order depends
exclusively upon Rule 37, which addresses itself with particularity to the
consequences of a failure to make discovery”); Evans v. State of Connecticut,
967 F.Supp. 673, 689 (D. Conn.1997), aff’d, 24 Fed.Appx. 35 (2d Cir. 2001)
(“Since there was a court imposed-discovery order in this case, Rule 37
sanctions are applicable.”). Rule 37 provides a broad range of sanctions that
may be imposed by the court for failure to comply with discovery orders,
ranging from reimbursement of a movant’s attorney’s fees and costs to entry
of a default judgment against a noncompliant party. Willfulness is not a
precondition for the imposition of Rule 37 sanctions, but may be a
consideration in a court’s exercise of its discretion to enter judgment against
the offending party, widely considered the harshest of sanctions. Societe
Internationale, 357 U.S. at 208 (“[T]he willfulness or good faith of petitioner,
can hardly affect the fact of noncompliance and are relevant only to the path
which the District Court might follow in dealing with petitioner’s failure to
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comply.”). Imposition of attorney’s fees, the “mildest sanction,” for violation
of a discovery order does not require a finding of willfulness. Evans, 967
F.Supp. at 689.
2008 WL 268975 at *5.10 See also Atlas Tack Corp. v. Donabed, 47 Mass. App. Ct. 221, 224
(1999) (“Willful noncompliance was eliminated in 1984 as a prerequisite to the imposition
of sanctions [under Mass. R. Civ. P. 37] ‘to increase compliance with discovery orders, by
making it easier for parties to achieve, and judges to award, sanctions for the failure to
comply with a discovery order.’”). Moreover, and more importantly,
. . . [S]ection 523(a)(6) does not make “contempt” sanctions nondischargeable,
and neither does any other subpart of section 523(a). Section 523(a)(6) says
that 	a 	debt 	resulting 	from 	a 	“willful 	and 	malicious 	injury” 	is
nondischargeable. 11 U.S.C. § 523(a)(6). Whether the sanctions against the
Debtor] are nondischargeable accordingly depends, not on whether they are
labeled as “contempt” or as something else, but on whether the conduct
leading to them was “willful and malicious.”
Pearle Vision, Inc. v. Romm (In re Romm), 2006 WL 3692416 at *3 (Bankr. N.D. Ill. Dec. 13,
2006). See also Suarez v. Barrett (In re Suarez), 400 B.R. 732, 736-37 (B.A.P. 9th Cir. 2009).
Peckham ignored the court’s order to produce discovery, but this Court is unable
to infer that he did so with the requisite intent to harm Liddell. The sanctions imposed by
the Cambridge District Court were imposed to either compel Peckham’s obedience or to
compensate Liddell. 	While the court indicated its intent to punish Peckham, Peckham
could have avoided the daily sanction through compliance. Peckham’s conduct violated
the dignity of the Court, but there was no evidence that he intended to harm Liddell in not
appearing in the Cambridge District Court or obeying its orders. In other words, the Court
10 Cf. Mass. R. Civ. P. 37(b).
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cannot find that there was a “deliberate or intentional injury” as opposed to a deliberate
or intentional act by Peckham. In the instant case, Peckham failed to act, leading to injury,
namely Liddell’s liability for legal fees. 	See Geiger, 523 U.S. at 61. 	Indeed, Peckham’s
whole course of action in the state court matter was to ignore his dire predicament which
ultimately led to his arrest. Peckham took no affirmative steps to address his financial
crisis until he was faced with incarceration. As the Eighth Circuit observed in Blocker v.
Patch (In re Patch), 526 F.3d 1176 (8th Cir. 2008):
As an abstract legal matter, the BAP concluded that the failure to act in the
face of a duty can constitute an intentional tort. But we question whether a
debtor’s breach of a legal duty to act can ever constitute a “willful . . . injury,”
as the Supreme Court and this circuit have interpreted § 523(a)(6) consistent
with the Restatement (Second) of Torts.
526 F.3d at 1181-82. 11
11 The Eight Circuit added:
The Restatement appears to take the categorical position that the failure to
act in the face of a legal duty can never constitute an intentional tort. “The
Restatement speaks only of an act (not of an omission) in defining intent,
in § 8A, and requires an act, as distinguished from inaction, for battery. . .
.” W. Page Keeton et al., Prosser and Keeton on Torts § 8, at 36 n. 6 (5th
ed.1984). Correspondingly, the Restatement characterizes an actor’s
deliberate breach of a legal duty to protect as negligence. Id. On the other
hand, while the Supreme Court’s decision in Geiger, and our en banc
decision, relied on the Restatement in interpreting the meaning of “willful
. . . injury” under § 523(a)(6), neither decision requires strict adherence to
every particular of the Restatement, and neither decision can be read for
the broad rule that a debtor’s breach of a legal duty to act can never be
“willful” under § 523(a)(6). The propriety of any such categorical rule is
questionable. See Keeton, supra, § 8, at 36 n. 6 (“This curious usage is
confounding, since there is as clear a distinction (1) between purposely
failing to act, in order to produce a desired consequence, and failing to act
without adverting to that consequence, as (2) between purposely acting to
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This Court finds that Liddell not only failed to establish that Peckham acted with the
requisite intent to injure, he failed to establish that he acted without just cause or excuse
for purposes of both components of § 523(a)(6). See Bauer v. Colokathis, 417 B.R. 150, 158
(Bankr. D. Mass. 2009). Peckham testified that he suffered from severe depression, which
together with his financial problems and lack of income, manifested itself in his failure to
defend the Cambridge District Court action or produce discovery. Additionally, in the
context of this case, malice as defined as “without just cause or excuse” is lacking. 	In
Bundy Am. Corp. v. Blankfort (In re Blankfort), 217 B.R. 138 (Bankr. S.D.N.Y. 1998), the
Court stated:
[T]he statutory element of maliciousness will be found by imputation where
the debtor has breached a duty to the plaintiff founded in contract, statute or
tort 	law, 	willfully 	in 	the 	sense 	of 	acting 	with 	deliberate 	intent, 	in
circumstances where it is evident that the conduct will cause injury to the
plaintiff and, most important, and under some aggravating circumstance such
as to warrant denial of discharge. In the absence of a finding of “Biblical
malice,” an ordinary tort or breach of contractual or statutory duty generally
is not sufficient to deny discharge under subsection (6) without some
aggravating circumstance evidencing conduct so reprehensible as to warrant
denial of the “fresh start” to which the “honest but unfortunate” debtor
would normally be entitled under the Bankruptcy Code.
217 B.R. at 144 (emphasis supplied). The Court can find no aggravating circumstances
here.
Peckham had advised Liddell repeatedly of his financial woes. 	Indeed, Liddell
produce a desired consequence and acting without adverting to that
consequence.”). . . .
526 F.3d at 1182.
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intimated that he was tired of hearing about Peckham’s financial problems. Moreover,
Liddell knew that Peckham had been evicted from the Rogers Street premises because he
had permission from the new tenant to inspect his piano at that location. In short, Liddell
and his attorney had information from Peckham and could have obtained more from
public records to conclude that there was little likelihood that Peckham would be able to
satisfy a $27,000 judgment. While Liddell had every right to pursue discovery in aid of his
execution, and Peckham’s failure to respond exhibited poor judgment, Peckham knew he
would be unable to satisfy any judgment Liddell might obtain. 	Depressed and
unemployed, he failed in his duty to respond to Liddell’s legitimate requests and to the
orders of the Cambridge District Court. He buried his head in the sand and presumably
hoped that the whole matter would go away. The Court cannot find, however, that he
acted willfully or maliciously. 12
C. Forbearance Claim
1. Applicable Law
In Ojeda v. Goldberg, 599 F.3d 712 (7th Cir. 2010), the United States Court of
Appeals for the Seventh Circuit set forth the standard for evaluating a claim for a
fraudulently induced forbearance. It stated:
12 The Court recognizes that Liddell produced substantial evidence of the
Debtor’s lack of truthfulness in the form of his false loan application, his
misrepresentations to Liddell and Bergmann as to the status of repairs and delivery of
their pianos, and his failure to list pianos held for others in his Schedules. Making false
representations in other contexts, however, is not a component of a cause of action
under section 523(a)(6), and the Court addressed the issue with respect to Liddell’s
claim under 523(a)(2)(A).
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In determining whether a forbearance is fraudulently induced, the creditor
must prove that “‘[1] it had valuable collection remedies at the time of the
misrepresentation, [2] it did not exercise those remedies based upon the
misrepresentation, and [3] that the remedies lost value during the extension
period.’” In re Kucera, 373 B.R. 878, 885 (Bankr. C.D. Ill. 2007) (quoting In re
Beetler, 368 B.R. 720, 730-31 (Bankr. C.D. Ill. 2007)).
599 F.3d at 719.
2. Analysis
Liddell 	argues 	that 	“through 	a 	forbearance 	induced 	by 	Peckham’s
misrepresentations commencing at least with those he made on August 30, 2005, and
extending to his promised delivery of the piano on July 11, 2006, Liddell effectively
extended credit to the Debtor.” Liddell contends that had he acted a few months sooner
he would have been able to levy his judgment on the interest the Peckhams held in The 66
Sumner Street Trust to which they transferred their home in July of 2006. Citing Mass. Gen.
Laws ch. 223, § 67 with respect to pre-judgment attachments, Liddell reasons as follows:
The Peckhams . . . would not have been able to refinance out of the Trust - -
as they did in January 2007 - - without addressing Liddell’s lien. It is thus
highly likely that Liddell would have had the leverage at that time to collect
at least some portion of the judgment held, even if not the full sum.
The Court finds that Liddell failed to sustain his burden with respect to his
forbearance argument under 11 U.S.C. § 523(a)(2)(A). In the first place, he did not establish
that he had any valuable collection remedies in 2006 and he certainly did not establish that
the remedies lost value during the time of forbearance. The Court was presented with no
credible evidence of the property’s value. 	The values ascribed to the property in the
mortgage loan application are not compelling, particularly in view of the absence of any
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appraisal reports and the price obtained for the property by the Trustee. Moreover, when
Liddell commenced his action in the Cambridge District Court he either did not seek or
obtain an attachment. The Court takes judicial notice that in his proof of claim, Liddell
asserted as grounds for his secured claim the levy of execution, which is dated April 30,
2007, after the March 9, 2007 judgment. In sum, the Court rejects Liddell’s forbearance
claim as speculative.
V. CONCLUSION
In view of the foregoing, the Court shall enter judgment in favor of Liddell and
against Peckham in the sum of $2,000.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: September 13, 2010
cc: Harvey S. Shapiro, Esq., Mark L. Nestor, Esq.
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