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In Re James M. Lavender v. James M. Lavender

November 3, 2010



In re James M. Lavender


Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court's Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.

1 At a stated term of the United States Court of Appeals for the Second Circuit, held at the 2 Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on 3 the 3rd day of November, two thousand ten.

PRESENT: DEBRA ANN LIVINGSTON, 6 DENNY CHIN, 7 Circuit Judges, 8 DAVID G. LARIMER, 9 District Judge.*fn1

5 UPON DUE CONSIDERATION, it is hereby ORDERED, ADJUDGED, AND DECREED 6 that the judgment of the district court be AFFIRMED.

7 Debtor-Appellant James M. Lavender appeals from a judgment of the Eastern District of 8 New York (Seybert, J.), denying his appeal from an order of the United States Bankruptcy Court 9 (Trust, J.) that found the debt owed to Creditors Manheim's Pennsylvania Auction Services, Inc. and 10 Manheim Automotive Financial Services, Inc. ("Manheim") to be non-dischargeable in bankruptcy 11 under 11 U.S.C. § 523(a)(2)(B). We assume the parties' familiarity with the underlying facts, the 12 procedural history, and the issues presented for review.

13 "As an order of the district court functioning in its capacity as an appellate court in a 14 bankruptcy case is subject to plenary review, we 'independently review the factual determinations 15 and legal conclusions of the bankruptcy court.'" In re Jackson, 593 F.3d 171, 176 (2d Cir. 2010) 16 (citation omitted) (quoting In re Momentum Mfg. Corp., 25 F.3d 1132, 1136 (2d Cir. 1994)). We 17 review the Bankruptcy Court's factual findings for clear error and review de novo its conclusions 18 of law. Id. This Court also engages in de novo review of a grant or denial of summary judgment, 19 "viewing the record in the light most favorable to the party against whom summary judgment is 20 sought." In re Novartis Wage & Hour Litig., 611 F.3d 141, 150 (2d Cir. 2010). Under Federal Rule 21 of Civil Procedure 56(c), "the district court must consider all 'pleadings, depositions, answers to 22 interrogatories, and admissions on file, together with the affidavits,' in determining whether there 23 is a genuine issue of material fact." Davis v. New York, 316 F.3d 93, 100 (2d Cir. 2002) (quoting 24 Fed. R. Civ. P. 56(c)); see also Fed. R. Bankr. P. 7056 (making Fed. R. Civ. P. 56 applicable in 25 adversary proceedings in bankruptcy).

1 We review the Bankruptcy Court's decision regarding sanctions for abuse of discretion. See 2 In re Highgate Equities, Ltd., 279 F.3d 148, 151 (2d Cir. 2002). Recognizing that "the [bankruptcy] 3 court is better situated than the court of appeals to marshal the pertinent facts and apply the 4 fact-dependent legal standard that informs its determination as to whether sanctions are warranted," 5 we are nevertheless "mindful that a [bankruptcy] court would necessarily abuse its discretion if it 6 based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the 7 evidence." Id. at 152 (alterations in original) (internal quotation marks omitted) (quoting Sussman 8 v. Bank of Israel, 56 F.3d 450, 456 (2d Cir. 1995)); see also In re Kalikow, 602 F.3d 82, 91 (2d Cir. 9 2010).

10 Debtor first appeals the Bankruptcy Court's denial of his motion for summary judgment in 11 a hearing held on March 28, 2007. He claims that because the Bankruptcy Court refused to consider 12 Creditors' opposition to his motion for summary judgment, there was no evidence establishing a 13 disputed question of material fact with respect to the issue of whether Manheim reasonably relied 14 on a financial statement Lavender was alleged to have submitted in 1998.*fn2 Because reasonable 15 reliance must be demonstrated by a creditor to establish that a debt owed to it is non-dischargeable 16 in bankruptcy under 11 U.S.C. § 523(a)(2)(B), Debtor argued that, given the alleged absence of 17 disputed fact on this point, he was entitled to summary judgment on Creditors' claim.

18 As an initial matter, the record does not reflect that the Bankruptcy Court in fact expressly 19 refused to consider Creditors' papers in opposition. Even if it had, Debtor's motion for summary 1 judgment does not establish an absence of any genuine question of material fact such that he would 2 have been entitled to summary judgment in the first place. Manheim, in its response to Debtor's 3 interrogatories, had indicated that it intended to call Robert Slade as a witness at trial, who would 4 testify that Manheim Automotive Financial Services relies on the information provided by debtors 5 in such financial statements in general and did so specifically in this case. In disputing this 6 contention, Debtor highlighted the absence of any evidence regarding Manheim's efforts to verify 7 or analyze the financial information Lavender provided, other than in consulting a credit reporting 8 agency, and argued that Manheim was already obligated to increase the credit limit under the terms 9 of a promissory note signed in 1997, that there was no indication that the loan was being reworked, 10 and that Manheim had not been concerned with previous breaches by the Debtor of the existing 11 credit limit, such that it could not claim to be truly concerned with the maximum limitations set out 12 in the promissory notes.

13 None of these contentions establish that there was no question of material fact with regard 14 to whether Creditors relied on the financial statement in granting Debtor not just an increase in his 15 line of credit but also an "extension, renewal or refinancing" of his existing line of credit, as indeed 16 the Bankruptcy Court ultimately found was the case here. The conclusion that credit was renewed 17 or extended could be drawn, as the Bankruptcy Court noted, from the similarity in terms between 18 the promissory notes executed by Debtor in 1994 and 1998, both of which were included in Debtor's 19 motion for summary judgment. Moreover, while Creditors did not demonstrate in opposing this 20 motion for summary judgment that they had conducted perfect due diligence, this fact alone did not 21 remove any question of fact with respect to the reasonableness of their reliance, particularly given 22 the admitted length of their relationship with Lavender at the time he allegedly submitted the 23 financial statement in 1998. Thus, even without considering the evidence produced in Creditors' 4 1 motion opposing summary judgment, there was still a genuine question of material fact as to 2 reasonable reliance, and the Bankruptcy Court properly denied Debtor's motion for summary 3 judgment.

4 Debtor further contends that sanctions should have been granted by the Bankruptcy Court 5 based on the untimely filing of Creditors' opposition to his motion for summary judgment, their 6 untimely disclosure of an additional witness and additional documents, the failure to file an initial 7 disclosure statement as required by Rule 7026 of the Federal Rules of Bankruptcy Procedure, and 8 their failure to answer interrogatories under oath or have them signed by the person making them. 9 He asserts that these purported failures entitled him to sanctions under Rules 7033 and 7037 of the 10 Federal Rules of Bankruptcy Procedure, which make Rules 33 and 37 of the Federal Rules of Civil 11 Procedure applicable in adversary proceedings in bankruptcy.

12 With respect to Rule 37, governing the alleged discovery abuses, in considering a decision 13 to exclude evidence under this rule, we have identified as relevant factors: "(1) the party's 14 explanation for the failure to comply with the [disclosure requirement]; (2) the importance of the 15 testimony of the precluded witness[es]; (3) the prejudice suffered by the opposing party as a result 16 of having to prepare to meet the new testimony; and (4) the possibility of a continuance." Patterson 17 v. Balsamico, 440 F.3d 104, 117 (2d. Cir. 2006) (alterations in original) (quoting Softel, Inc. v. 18 Dragon Med. & Scientific Commc'ns, ...

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