
USCA1 Opinion

	




                                For the First Circuit                                ____________________       No. 96-2202                                STEPHEN A. PALMACCI,                                     Appellant,                                         v.                               P. FERNANDO UMPIERREZ,                                      Appellee.                                ____________________                                RICHARD B. ERRICOLA,                                      Trustee.                                ____________________                    APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                   [Hon. Steven J. McAuliffe, U.S. District Judge]                                ____________________                                       Before                           Torruella, Chief Circuit Judge,                            Bownes, Senior Circuit Judge,                              and Lynch, Circuit Judge.                                ____________________            Dorothy F. Silver for appellant.            Edward Foye, with whom Ian Crawford and Todd & Weld were on       brief, for appellee.                                ____________________                                   August 11, 1997                                ____________________                      BOWNES, Senior Circuit Judge. This case arises out            of a speculative investment that went bad. Plaintiff Stephen            A. Palmacci invested $75,000 in a project, known as "the Chase            project," to purchase and develop distressed real estate. He            had heard that the defendant's brother, Gus Umpierrez, who was            a real estate agent and knowledgeable in real estate matters,            had "turned a pretty fast profit" on similar ventures, and he            wanted to reap some of the same type of profits.                      Palmacci acknowledges that he understood the risks            inherent in any investment and, in particular, the increased            risk involved in the speculative type of investment in which he            was getting involved. He claims that he took this risk because            his friend P. Fernando Umpierrez ("Umpierrez"), the defendant,            and Umpierrez's brother, Gus, promised to invest $75,000 of            their own personal funds in the project. According to            Palmacci's testimony, he "decided that if they thought it was            worth the risk with the knowledge that Gus had, that [Palmacci]            would do the same." Palmacci also claims that he relied on the            representation that project funds would be placed in a trust,            which he believed would reduce the chance of "things going            bad." The project failed (for reasons that are not set forth            in the record), and Palmacci received only 80% of his principal            back.                       Umpierrez filed a petition for bankruptcy protection            under Chapter 7 of the United States Bankruptcy Code, and                                         -2-                                          2            Palmacci filed an adversary proceeding pursuant to 11 U.S.C.            S 523 (a)(2)(A), claiming that the debt owed him should not be            discharged because it was the product of false representations.            The United States Bankruptcy Court for the District of New            Hampshire held a trial in the matter, and at the close of the            plaintiff's evidence, entered a judgment as a matter of law in            favor of the debtor, holding that the debt was dischargeable            in bankruptcy. This ruling was affirmed by the United States            District Court for the District of New Hampshire. We affirm.                      A court reviewing a decision of the bankruptcy court            may not set aside findings of fact unless they are clearly            erroneous, giving "due regard . . . to the opportunity of the            bankruptcy court to judge the credibility of the witnesses."            Fed. R. Bankr. P. 8013;   see Commerce                                                     Bank                                                          &                                                              Trust                                                                   Co.                                                                         v.            Burgess                     (In                         re                            Burgess), 955 F.2d 134, 137 (1st Cir. 1992);            Fed. R. Civ. P. 52(c), advisory committee's note to 1991            Amendment (applying clearly erroneous standard in the case of            a judgment on partial findings). The bankruptcy court's legal            conclusions, drawn from the facts so found, are reviewed de            novo. Martin v. Bajgar (In re Bajgar)                                                 , 104 F.3d 495, 497 (1st            Cir. 1997). Although the district court has already reviewed            the bankruptcy court's decision, on appeal we independently                                            1.  The trial court styled its ruling as the grant of            defendant's motion for a directed verdict. In essence,            however, the ruling was a judgment as a matter of law on            partial findings. See Fed. R. Bankr. P. 7052; Fed. R. Civ. P.            52(c). We will treat it as such.                                         -3-                                          3            review that decision, applying the same standard of review that            the district court applied. See                                             In re Bajgar                                                       , 104 F.3d at 497;            In                re                   G.S.F.                          Corp., 938 F.2d 1467, 1474 (1st Cir. 1991). No            special deference is owed to the district court's            determinations.  Grella v. Salem Five Cent Sav. Bank, 42 F.3d            26, 30 (1st Cir. 1994).                      A finding of fact is clearly erroneous, although            there is evidence to support it, when the reviewing court,            after carefully examining all the evidence, is "left with the            definite and firm conviction that a mistake has been            committed."  Anderson v. City of Bessemer City, 470 U.S. 564,            573 (1985) (internal quotation marks omitted). Deference to            the bankruptcy court's factual findings is particularly            appropriate on the intent issue "[b]ecause a determination            concerning fraudulent intent depends largely upon an assessment            of the credibility and demeanor of the debtor."                                                            In re Burgess                                                                        ,            955 F.2d at 137 (internal quotation marks omitted) (applying            S 727(a), relating to fraud by the debtor in representations in            the course of the court proceeding). Particular deference is            also due to the trial court's findings that depend on the            credibility of other witnesses and on the weight to be accorded            to such testimony.   See Fed. R. Bankr. P. 8013;   Keller                                                                        v.            United                    States, 38 F.3d 16, 25 (1st Cir. 1994). Of course, a            trial court may not                      insulate [its] findings from review by                      denominating them credibility                                         -4-                                          4                      determinations, for factors other than                      demeanor and inflection go into the                      decision whether or not to believe a                      witness. Documents or objective evidence                      may contradict the witness' story; or the                      story itself may be so internally                      inconsistent or implausible on its face                      that a reasonable factfinder would not                      credit it. Where such factors are                      present, the court of appeals may well                      find clear error even in a finding                      purportedly based on a credibility                      determination.            Anderson, 470 U.S. at 575.                       Section 523(a)(2)(A) of the Bankruptcy Code            provides:                      S 523. Exceptions to discharge                      (a) A discharge under section 727, 1141,                      1228(a), 1228(b), or 1328(b) of this title                      does not discharge an individual debtor                      from any debt --                       (2) 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.            See 11 U.S.C. S 523(a)(2)(A).                      "Exceptions to discharge are narrowly construed in            furtherance of the Bankruptcy Code's 'fresh start' policy,"            and, for that reason, the claimant must show that his "claim            comes squarely within an exception enumerated in Bankruptcy            Code S 523(a)." Century 21 Balfour Real Estate v. Menna (In re            Menna), 16 F.3d 7, 9 (1st Cir. 1994);  see In                                                           re                                                              Bajgar, 104                                         -5-                                          5            F.3d at 498 n.1. The statutory requirements for a discharge            are "construed liberally in favor of the debtor" and "[t]he            reasons for denying a discharge to a bankrupt must be real and            substantial, not merely technical and conjectural." Boroff v.            Tully                    (In                         re                             Tully), 818 F.2d 106, 110 (1st Cir. 1987)            (internal quotation marks omitted). On the other hand, we have            noted that "the very purpose of certain sections of the law,            like [S 727(a)(2)], is to make certain that those who seek the            shelter of the bankruptcy code do not play fast and loose with            their assets or with the reality of their affairs."       Id.            Likewise, other sections of the law, like S 523(a)(2)(A), are            intended to make certain that bankruptcy protection is not            afforded to debtors who have obtained property by means of a            fraudulent misrepresentation.                      Palmacci alleges that Umpierrez made three            misrepresentations which induced him to invest $75,000 in the            project: (1) that Umpierrez and his brother would invest            $75,000 of their own money in the project; (2) that the project            would have a total investment of $250,000; and (3) that a trust            would be established to hold the funds and to supervise the            project.                       With respect to each of these three claims, Palmacci            was required to establish both that he had a valid claim            against Umpierrez and that the claim should not be discharged            in bankruptcy. See                                Grogan v. Garner                                              , 498 U.S. 279, 283 (1991).                                         -6-                                          6            Here, the claim and the reason for exemption from discharge are            essentially the same: the common law        tort of false            representation, also known as deceit.                       Under the traditional common law rule, a defendant            will be liable if (1) he makes a false representation, (2) he            does so with fraudulent intent, i.e., with "scienter," (3) he            intends to induce the plaintiff to rely on the            misrepresentation, and (4) the misrepresentation does induce            reliance, (5) which is justifiable, and (6) which causes damage            (pecuniary loss). 2 F. Harper, et al., Law of Torts                                                                S 7.1, at            381 (2d ed. 1986); Restatement (Second) of Torts S 525 (1977).                      Regarding the first element, the concept of            misrepresentation includes a false representation as to one's            intention, such as a promise to act. "A representation of the            maker's own intention to do . . . a particular thing is            fraudulent if he does not have that intention" at the time he                                            2.  In Field                          v.                             Mans, 116 S. Ct. 437, 443 & n.9 (1995), the            Court construed S 523(a)(2)(A) to incorporate the "general            common law of torts," i.e., the "dominant consensus of common-            law jurisdictions, rather than the law of any particular            State." Of course, if we were to hold that Umpierrez was not            entitled to discharge them in bankruptcy, Palmacci's claims            themselves would be determined in accordance with the common            law of New Hampshire.            3.  We set forth a similar, but not identical, list of elements            in In                   re                      Burgess, 955 F.2d at 140. We interpret   Burgess to            apply the same test we have articulated in the text here,            except for the fifth element. In Burgess our reliance element            required "reasonable" reliance, but the Supreme Court has since            held that "justifiable" reliance is the proper test.      See            Field, 116 S. Ct. at 445-46.                                          -7-                                          7            makes the representation. Restatement (Second) of Torts            S 530(1);                      see                          Anastas v. American Sav. Bank (In re Anastas)                                                                     , 94            F.3d 1280, 1285 (9th Cir. 1996). "The state of a man's mind is            as much a fact as the state of his digestion." Restatement            (Second) of Torts S 530 cmt. a. Likewise, "a promise made            without the intent to perform it is held to be a sufficient            basis for an action of deceit." W. Page Keeton, et al.,            Prosser and Keeton on the Law of Torts S 109, at 763 (5th ed.            1984) (footnotes omitted); see Restatement (Second) of Torts            S 530(1) cmt. c. On the other hand, if, at the time he makes            a promise, the maker honestly intends to keep it but later            changes his mind or fails or refuses to carry his expressed            intention into effect, there has been no misrepresentation.            Restatement (Second) of Torts at S 530 cmts. b, d. This is            true "even if there is no excuse for the subsequent breach. A            debtor's statement of future intention is not necessarily a            misrepresentation if intervening events cause the debtor's            future actions to deviate from previously expressed            intentions." 4  Collier on Bankruptcy q 523.08[1][d], at 523-            43.                       The test may be stated as follows. If, at the time            he made his promise, the debtor did not                                                   intend to perform                                                                   , then            he has made a false representation (false as to his intent) and            the debt that arose as a result thereof is not dischargeable            (if the other elements of S 523(a)(2)(A) are met). If he did                                         -8-                                          8            so intend at the time he made his promise, but subsequently            decided that he could not or would not so perform, then his            initial representation was not false when made. See, e.g.                                                                     ,                                                                        In            re Anastas, 94 F.3d at 1285; Milwaukee Auction Galleries Ltd.            v.                Chalk, 13 F.3d 1107, 1109 (7th Cir. 1994) (more than mere            nonperformance of a contract was necessary to establish            misrepresentation); Mellon                                          Bank                                               Corp.                                                      v.                                                         First                                                                Union                                                                       Real            Estate, 951 F.2d 1399, 1410-11 (3d Cir. 1991) (same);                                                                  Craft v.            Metromedia, 766 F.2d 1205, 1219, 1221 (8th Cir. 1985).                      The scienter element refers to a different type of            intent, namely, intent to deceive, manipulate, or defraud.            Ernst                   &                     Ernst                           v.                              Hochfelder, 425 U.S. 185, 193 (1976). This            requirement may be met in one of several ways: if the maker of            the misrepresentation "(a) knows or believes that the matter is            not as he represents it to be; (b) does not have the confidence            in the accuracy of his representation that he states or            implies; or (c) knows that he does not have the basis for his            representation that he states or implies." Restatement            (Second) of Torts S 526; see Keeton, et al., supra, S 107, at            740-42.                      Clause (b) of Restatement S 526 includes the            situation where the maker of a misrepresentation asserts            something "so positively as to imply that he has knowledge" of            its factual basis, even though he is conscious that he does not            know the fact to be true. Keeton, et al.,   supra, S 107, at                                         -9-                                          9            742. Scienter exists even if he believes the "fact" is true,            if he is aware that he does not in fact possess the certitude            that he implies by the manner in which he makes his            representation.   See Restatement (Second) of Torts S 526            cmt. e. One who makes a statement as if it were one of            positive fact ("as though he knew it") engages in a "conscious            deception" if he realizes he does not know the truth of his            statement, even though he honestly believes its truth. 2            Harper, et al., supra, S 7.3, at 393-94. In such a case, the            person is deemed to have the intent to deceive (scienter), not            so much as to the fact itself, but rather as to the extent of            his information.  Id. ("He has in effect represented that he            knew a thing to be true when he knew that he only believed or            surmised it to be true."); see Metropolitan                                                         Life                                                              Ins.                                                                   Co.                                                                        v.            Ditmore, 729 F.2d 1, 5 (1st Cir. 1984) (Mass. law); Myron                                                                        N.            Navison Shoe Co. v. Lane Shoe Co., 36 F.2d 454, 459 (1st Cir.            1929); Keeton, et al., supra S 107, at 742. "This is often            expressed by saying that fraud is proved if it is shown that a            false representation has been made . . . recklessly, careless            of whether it is true or false." Restatement (Second) of Torts            S 526 cmt. e;  see  In                                    re                                       Burgess, 955 F.2d at 140 ("false            representation" under section 523(a)(2)(A)); Harper,   supra,            S 7.3, at 391-95.                      The standard of proof of each element of a S 523            claim is by a preponderance of the evidence. Grogan, 498 U.S.                                        -10-                                         10            at 291. The burden of proof and the burden of production as to            each element rests with the party contesting the            dischargeability of a particular debt under Bankruptcy Code            S 523. See                        In re Burgess                                    , 955 F.2d at 136;                                                        see also                                                                                                                                Insurance            Co. of N. Am. v. Cohn (In re Cohn)                                            , 54 F.3d 1108, 1120 (3d Cir.            1995) (regarding S 523(a)(2)(B)). Thus, if Palmacci failed to            establish any one of the elements by a preponderance of the            evidence, then the court should reject his claim.  See In                                                                        re            Burgess, 955 F.2d at 139; 9A Wright & Miller,                                                         supra, S 2579, at            542-43 (a factual finding that negates one element of the            plaintiff's prima facie case renders findings concerning other            elements unnecessary).                      We will discuss each of Palmacci's three            misrepresentation claims in turn. First, Palmacci claims that            Umpierrez falsely represented that he and his brother would            invest $75,000 of their own personal funds into the Chase            project. Umpierrez responds that he made good on his            representation because he did contribute $75,000 of his own            personal funds, albeit by giving the bank a lien on the Chase            project property as well as a second mortgage on his home.            According to Umpierrez, encumbering the project property does            not mean that he failed to satisfy his promise to contribute            funds personally, because he never told Palmacci that he would            not mortgage the Chase project property. The district court            agreed with Umpierrez: it found that there was no                                        -11-                                         11            misrepresentation because "there was no representation that a            mortgage would not be placed on the project." We find this            argument untenable. An ordinary lay person like Palmacci would            not think, nor would it be reasonable to expect him to think,            that Umpierrez's representation that he would invest "his own            personal funds" in the Chase project could be read to include            funds he borrowed from a bank secured by a mortgage on the            project property itself. Thus, Umpierrez cannot claim that            there was no misrepresentation.                      Umpierrez is more persuasive in contending that            Palmacci's first claim fails on the element of scienter or            fraudulent intent which is required in order to establish an            exception to discharge under S 523(a)(2)(A). See 2 Harper, et            al.,                 supra, S 7.1, at 381; Restatement (Second) of Torts S 525.            Palmacci does not dispute that Umpierrez intended to obtain            most of the funds for his contribution to the project from a            second mortgage on his residence. Palmacci's argument, in            essence, is that, at the time Umpierrez induced Palmacci's            investment with the promise to invest his own personal funds,            Umpierrez's intention was fraudulent, based on a reckless            indifference to the truth (which rose to the level of            fraudulent intent) because Umpierrez knew or should have known            that he did not have enough equity in the house to raise the            money through a second mortgage, at least without encumbering            the project property with a mortgage as well.                                         -12-                                         12                      We must parse this issue with some care. The factual            question to be determined by the trier of fact is not whether            Umpierrez knew or should have known that he did not have the            money available to invest, but whether in good faith he            intended to keep his promise. This is because "[a] finding            that a debt is non-dischargeable under 523(a)(2)(A) requires a            showing of actual or positive fraud, not merely fraud implied            by law                 ."  In re Anastas                                  , 94 F.3d at 1286 & n.3 (emphasis added)            (quoting 124 Cong. Rec. H11089 (Sept. 28, 1978) (statement of            Rep. Edwards), reprinted in 1978 U.S.C.C.A.N. 5787, 6436, 6453            ("Subparagraph (A) is intended to codify current case law . . .            which interprets 'fraud' to mean actual or positive fraud            rather than fraud implied in law.")). This is not a negligence            case where the standard is whether a reasonable person would            have acted as Umpierrez did. See generally                                                      , 2 Harper, et al.,            supra, S 7.3, at 392-95. Fraudulent intent requires an actual            intent to mislead, which is more than mere negligence. Diduck            v.                Kaszycki                         &                           Sons                                Contractors,                                              Inc., 974 F.2d 270, 277 (2d            Cir. 1992). An honest belief, however unreasonable, that the            representation is true and that the speaker has information to            justify it is an insufficient basis for deceit. Keeton, et            al., supra, at 742. A "dumb but honest" defendant does not            satisfy the test of scienter. 2 Harper, et al., supra, S 7.3,            at 393.                                         -13-                                         13                      Of course, the very unreasonableness of such a belief            may be strong evidence that it does not in fact exist.    See            Pullman-Standard v. Swint                                    , 456 U.S. 273, 289 (1982);                                                                 Norris v.            First Nat'l Bank in Luling (In re Norris)                                                    , 70 F.3d 27, 30 n.12            (5th Cir. 1995); In                                 re                                     Cohn, 54 F.3d at 1118-19 (permitting            reckless disregard to be relied on as an evidentiary factor            that is probative of intent to defraud, if the totality of            circumstances supports that inference) (involving 11 U.S.C.            S 523(a)(2)(B)). Where this conclusion is reached as an            inference of fact, there is nothing inconsistent with that            unreasonableness forming an evidentiary basis for a finding of            intent.   See Keeton, et al.,    supra, at 742. But then            unreasonableness would be providing evidentiary ballast, not            serving by itself as an element of the tort.                                                         Id. For example,            "[i]f [the] defendant had no adequate grounds for believing his            statement to be true this may afford a rational inference that            he did not in fact believe it to be true (so that there was            scienter)." 2 Harper, et al.,    supra, S 7.3, at 393. The            focus, however, should be on whether the surrounding            circumstances or the debtor's actions "appear so inconsistent            with [his] self-serving statement of intent that the proof            leads the court to disbelieve the debtor."                                                       In re Hunt                                                                , 30 B.R.            425, 441 (Bankr. M.D.Tenn. 1983).                       Thus, while fraud may not be implied in law, it may            be inferred as a matter of fact. The finder of fact may                                        -14-                                         14            "infer[] or imply[] bad faith and intent to defraud based on            the totality of the circumstances when convinced by a            preponderance of the evidence." In re Anastas                                                        , 94 F.3d at 1286            n.3; In re Sheridan, 57 F.3d 627, 633 (7th Cir. 1995); cf. In            re                 Cohn, 54 F.3d at 1118-19 (S 523(a)(2)(B)). Among the            circumstances from which scienter may be inferred are: the            defendant's insolvency or some other reason to know that he            cannot pay, his repudiation of the promise soon after made, or            his failure even to attempt any performance. Keeton, et al.,            supra, at 764-65.                       Where, as here, reckless disregard is being urged            upon us as the basis for an inference of scienter, it is            important to distinguish what the debtor is being accused of            recklessly disregarding. Scienter may be found to exist where            a debtor recklessly disregards the truth of the representation,            e.g., in Umpierrez's case, whether he was recklessly            indifferent to whether he would actually keep his promise to            invest personal funds in the Chase project.  See Restatement            (Second) of Torts S 526 cmt. e. There must, nonetheless, be an            actual finding of intent to deceive: mere inability to pay            does not constitute such a finding.                                                See                                                    In re Anastas                                                                , 94 F.3d            at 1286 ("[T]he hopeless state of a debtor's financial            condition should never become a substitute for an actual            finding of bad faith."). This distinction is apparent from the            structure of the statute itself: 11 U.S.C. S 523(a)(2)(A)                                        -15-                                         15            specifically excludes misrepresentations regarding a debtor's            financial condition, whereas 11 U.S.C. S 523(a)(2)(B) provides            separately for such misrepresentations. Thus, to the extent            Palmacci is claiming that Umpierrez implicitly misrepresented            his financial condition, that is not grounds for an exception            to discharge under S 523(a)(2)(A).                      In the instant case, if Umpierrez knew or clearly            should have known that there was no realistic way for him to            use his own money to invest, then that is probative of his lack            of intent to keep his promise at the time he made the promise.            But the focus must be on whether the representation was made in            bad faith, i.e., whether he induced Palmacci's investment with            the intention of reneging on his promise to invest personal            funds (or while recklessly disregarding whether or not he would            keep his promise).  See In                                        re                                           Anastas, 94 F.3d at 1286 (debt            incurred with the intention of avoiding the debt by petitioning            for bankruptcy).                       Palmacci contends that the court erred by relying            exclusively on Umpierrez's self-serving testimony about his            subjective intent, and failing to consider the surrounding            circumstances in order to infer that Umpierrez's intent was not            as he claimed it to be. We do not think Palmacci is correct in            characterizing the trial court's reasoning as relying solely on            Umpierrez's self-serving testimony while ignoring the            circumstantial evidence Palmacci contends shows that testimony                                        -16-                                         16            to be incredible. It is true that Umpierrez had just purchased            the residence a few months earlier, for $105,000 and that he            had an $80,000 mortgage on the residence at the time of            purchase. Based on this undisputed fact, Palmacci claims that            Umpierrez should have known that he only had $25,000 worth of            equity in the home, against which he could borrow on a second            mortgage without a likely encumbrance of the project property,            and therefore that the bankruptcy court clearly erred in            believing Umpierrez's testimony that, at the time he made his            promise, he fully intended to keep it. Umpierrez's claim that            an innocent lack of knowledge of these facts (and not a            fraudulent intent) caused him to err when he promised to            contribute the $75,000 arguably falls into the category of            "reckless disregard for the truth" such as to rise to the level            of establishing scienter.                      These were not, however, the only facts before the            trial court. There was also testimony that Umpierrez had            discussed getting a personal loan with a banker, and that the            banker had told him he thought the loan would be possible.            Moreover, Umpierrez testified that he had had the house            appraised in October (shortly before the representation that            induced Palmacci to invest his money) and the house was valued            at $185,000, more than enough to secure a loan for the full                                            4.  In addition, the Umpierrezes' share would include the            $5,000 down payment they invested at the time of the purchase            at auction.                                         -17-                                         17            amount of Umpierrez's promised contribution. Thus, even though            Umpierrez did not have a commitment letter from the bank -- a            fact that Palmacci emphasizes -- he could well have honestly            believed that he could work something out with the bank whereby            the bank could protect its security needs without encumbering            the project property and therefore without rendering his            representation to Palmacci fraudulent. The court's decision            mentioned this possible interpretation, noting that the market            value of the house in early November (when Palmacci was induced            to make his investment in the Chase project) was not            necessarily limited to the price that Umpierrez paid when he            bought it in July.                      Absent a showing to the contrary, and bearing in mind            that the burden of proof was on Palmacci, we must assume that            the trial court considered all the testimony (and other            evidence before it) in its entirety, as well as all reasonable            inferences therefrom, before making its determination that            Umpierrez did not intend to defraud Palmacci at the time he            promised to contribute $75,000 of his personal funds to the            project. We perforce reject Palmacci's claim that the court            relied exclusively on Umpierrez's testimony and failed to            consider the surrounding circumstances.                      Moreover, while Palmacci is correct that intent to            deceive may be inferred from the totality of the circumstances,            including inferences from circumstantial facts,                                                            see                                                                Desmond v.                                        -18-                                         18            Varrasso                      (In                          re                             Varrasso), 37 F.3d 760, 764 (1st Cir. 1994),            scienter cannot be presumed,                                         id. at 764-65;                                                       In re Cohn                                                                , 54 F.3d            at 1120. "The mere breach of a promise is not enough in itself            to establish the fraudulent intent." Keeton, et al.,   supra,            S 108, at 764.                      Thus, although the evidence here might "support the            bankruptcy court's decision had it inferred an intent to            deceive from the circumstantial evidence admitted in this case,            [it does] not compel such a finding and [does] not require us            to reverse the court's holding." National Union Fire Ins. Co.            of Pittsburgh v. Bonnanzio (In re Bonnanzio)                                                       , 91 F.3d 296, 301            (2d Cir. 1996) (emphasis added) (quoting  In                                                          re                                                             Sheridan, 57            F.3d at 634); see also In re Varrasso, 37 F.3d at 764-65. It            is the province of the trial court to determine this issue:            the court may choose to infer intent or not to draw that            inference, based on all the evidence.  Bonnanzio, 91 F.3d at            301; In re Varrasso, 37 F.3d at 764-65. The determination of            whether scienter exists based on certain circumstantial facts            must be treated merely as "a   permissible inference of fact            . . . and not a presumption of law, or else the distinction            between fraud and negligence will be largely obliterated." 2            Harper, supra, S 7.3, at 393 (emphasis added). Even where "a            factfinder lawfully might draw an inference of fraud from the            totality of the circumstances," we accept the trial court's            findings unless the evidence "compels" such a conclusion. See                                        -19-                                         19            In re Varrasso, 37 F.3d at 764-65; In re Burgess, 955 F.2d at            137.                      If the [bankruptcy] court's account of the                      evidence is plausible in light of the                      record reviewed in its entirety, the court                      of appeals may not reverse it even though                      convinced that had it been sitting as the                      trier of fact, it would have weighed the                      evidence differently. Where there are two                      permissible views of the evidence, the                      factfinder's choice between them cannot be                      clearly erroneous.            Anderson v. City of Bessemer City, 470 U.S. at 573-74.                      In the instant case, Umpierrez testified that he            thought he would be able to come up with his $75,000 investment            from his personal funds, and the judge believed him, apparently            taking into account all circumstances including the weight of            the alleged unreasonableness of his belief. The bankruptcy            court found, as a matter of fact, that Umpierrez did not intend            to defraud Palmacci when he promised to contribute $75,000 of            his own personal funds to the project. In the context of the            record in this case, we read this as a determination that there            was no scienter, i.e., that there was no knowing            misrepresentation and no reckless disregard for the truth such            as would rise to the level of fraudulent intent. After            carefully reviewing the record in its entirety, we conclude            that there is sufficient evidence for the trial court to have            concluded that Umpierrez's intent was not fraudulent. We            cannot say the trial court clearly erred in its choice of which            inferences to draw from the evidence presented to it.                                        -20-                                         20            Therefore we affirm the court's rejection of the first alleged            misrepresentation claim.                      Palmacci's second claim is that Umpierrez            misrepresented to him that the project would have a total            capital contribution of $250,000. This claim is derivative            from the first: to whatever extent Umpierrez fell short on his            contribution of $75,000, there would result a like shortfall in            the total project capitalization. Palmacci does not make any            argument as to his second claim that differs from his arguments            on the first claim. Therefore, our rejection of the second            flows ineluctably from our conclusion as to the first.                       Palmacci's third claim is that Umpierrez            misrepresented the role of the trust that was created in            connection with the Chase project. According to Palmacci's            brief, Umpierrez represented that "the project was to be held            in trust supervised by a New Hampshire attorney." Palmacci            concedes that a trust was indeed set up after he made his            investment, but he argues that "[t]he reality of the situation            was that the trust had no role to play in the supervision of            the project." Palmacci does not make it clear exactly what was            allegedly represented to him regarding the trust's supervision                                            5.  Palmacci also argues that the bankruptcy court erred in            holding that he was not justified in relying on Umpierrez's            representations. We need not decide this issue because, having            failed to meet his burden on the intent element, it does not            avail him that he may have met the remaining elements; he must            satisfy all requirements in order to establish his claim.                                        -21-                                         21            of the Chase project. In his brief he seems to imply that            Umpierrez actually told him the trust would supervise the            investment project itself (as opposed to being simply a vehicle            for controlling the flow of funds). Scrutiny of Palmacci's            factual assertions, however, in his testimony and in the            factual portion of his brief, reveal a claim merely that            Palmacci's "idea of the role of the trust" was that the trustee            would be responsible for and control how funds were used by the            builders. Because of this "idea," Palmacci "felt assured" that            the project "would be supervised correctly, and there was less            chance of things going bad." Palmacci did not testify as to            the basis for his subjective understanding. For all we know,            the basis could have been merely that Palmacci himself thought            a trust always does so supervise, without any representation by            Umpierrez beyond the mere creation of a trust.                      The bankruptcy court dismissed the trust issue on the            ground that Palmacci could not have "justifiably relied" on the            role of the trust as supervising the real estate project. The            court reasoned that the trust was not established until            November 11, 1991, several days after November 7, when Palmacci            made his investment, so Palmacci could not have known the terms            of the trust instrument and therefore could not have been            justified in relying on any such terms. (The district court            decision did not specifically address the alleged            misrepresentation regarding the role of the trust.)                                         -22-                                         22                      Palmacci is correct that the bankruptcy court's            analysis is flawed. Even if the trust was not actually created            until after he invested his money, Palmacci could conceivably            have relied on verbal (or written) representations from            Umpierrez -- made on or before November 7 -- as to how the            trust would be structured or what its role would be once the            trust was created. And it might well have been justifiable for            Palmacci to rely on such representations regardless of whether            the trust instrument had yet been drafted. If such            representations were false and made with scienter, then this            third claim could not be dismissed based on the trial court's            reasoning.                      Nevertheless, we will affirm a correct result reached            by the court below "on any independently sufficient ground made            manifest by the record."  AIDS Action Comm. of Mass. v. MBTA,            42 F.3d 1, 7 (1st Cir. 1994) (internal quotation marks            omitted). Although the bankruptcy court's stated reason for            rejecting Palmacci's argument concerning the establishment of            a trust was based on flawed reasoning, its conclusion was            correct. Our review of the record, including Palmacci's own            testimony, reveals absolutely no evidence clearly indicating            that Umpierrez's statements or actions were the basis for            Palmacci's subjective "idea" or feeling that the trust would            supervise the project. Indeed, as the bankruptcy court pointed            out, the attorney who drew up the trust testified that the                                        -23-                                         23            concept of a trust was not even discussed by the investors            before Palmacci invested his money in the project. Thus, the            only representation that is supportable on this record is that            a trust would be created and that the trustee would be an            attorney. This much was indisputably carried out. It is not            enough for Palmacci to testify that his "idea of the role of            the trust" was to supervise the operation of the project,            without specifying the source of this idea. Because the record            is devoid of evidence that would support a finding that a            misrepresentation was made on the trust issue, we need not            consider the dispute as to whether Palmacci was justified in            relying on any alleged representation about the role of the            trust.                      Finally, Palmacci alleges that the bankruptcy court            erred as a matter of law when it restricted the testimony of            Palmacci's expert witness to events that took place only prior            to or soon after the transaction at issue. A trial court has            wide discretion in determining the admissibility of expert            testimony, especially where the issue is being tried directly            to the bench.   Allied                                     Int'l,                                             Inc.                                                  v.                                                     Int'l                                                             Longshoremen's            Ass'n, 814 F.2d 32, 40 (1st Cir. 1987). Of course, this            latitude does not mean that, on appeal, we will abdicate our            responsibility to review such a determination. But, like other            evidentiary rulings, the exclusion of all or part of an            expert's proffered testimony is subject to review for abuse of                                        -24-                                         24            discretion.  Williamson v. Busconi, 87 F.3d 602, 603 n.1 (1st            Cir. 1996). The trial court's decision will be "sustained            unless [its] discretion has been abused."  Allied                                                               Int'l, 814            F.2d at 40.                      In the instant case, the trial judge had heard            testimony from the creditor, the debtor, and the attorney for            the real estate project (who drew up the trust), as well as            some of the testimony of the expert in dispute (i.e., that part            of the expert's testimony relating to events that took place            prior to or soon after Palmacci's investment in the project).            The portion of the expert's proffered testimony that the court            excluded related to whether, when the trust was dissolved in            1993, Umpierrez "received a disproportionate return on his            investment, compared to other investors, which would be to the            detriment of Mr. Palmacci."                       Palmacci acknowledges, as we discussed                                                             supra at 7-9,            that the alleged fraud must exist at the inception of the debt,            and statements or actions which were neither false nor            fraudulent when made will not be made so by the happening of            subsequent events. Nor does failure to carry out one's            intentions constitute a basis for finding a debt            nondischargeable under S 523(a)(2)(A) absent a showing that the            claimed fraud existed at the inception of the debt.                       Palmacci argues, however, that a promissor's            subsequent conduct may reflect his state of mind at the time he                                        -25-                                         25            made the promise, and thus may be considered in determining            whether he possessed the requisite fraudulent intent                                                                ab initio                                                                        .            It is true that subsequent conduct may be relevant to an            earlier state of mind. In  Williamson                                                   v.                                                      Busconi, 87 F.3d at            603, we concluded that the bankruptcy court abused its            discretion by excluding evidence as to conduct                                                           subsequent to a            real estate closing, from which a factfinder reasonably could            have inferred that Busconi had not intended to pay the note                                                                        at            the time                    it was executed. The lower court in                                                         Busconi said this            evidence was irrelevant, and then expressly credited Busconi's            testimony (although Williamson testified too). Finding that            Williamson had failed to establish the requisite fraudulent            intent, the bankruptcy court ruled the debt dischargeable.                                                                       Id.                      We rejected that reasoning, noting that:                       As direct evidence is seldom available,                      fraudulent intent normally is determined                      from the totality of the circumstances.                      And since "subsequent conduct may reflect                      back to the promissor's state of mind and                      thus may be considered in ascertaining                      whether there was fraudulent intent" at                      the time the promise was made, proper                      application of the "totality" test in this                      context often warrants consideration of                      post-transaction conduct and                      contemporaneous events.            Id. at 603 (citation omitted) (quoting                                                  Krenowsky v. Haining (In            re                Haining), 119 B.R. 460, 464 (Bankr. D. Del. 1990));    cf.            United States v. Rodriguez, 858 F.2d 809, 816 (1st Cir. 1988)            ("later events often may shed light on earlier motivations").                                        -26-                                         26                      In the instant case, however, that relevance is very            attenuated. The facts of this case are nothing like the facts            in the cases relied upon by Palmacci,   where an overarching            scheme to defraud the creditor was shown. In  In                                                              re                                                                  Haining,            119 B.R. at 464, the debtor engaged in a pattern of            transferring all her assets to a third party to the detriment            of her creditors. The court reasonably concluded that the            debtor's fraudulent scheme began prior to the debt in dispute,            and continued throughout the period. Similarly, in   Comerica            Bank v. Weinhardt (In re Weinhardt)                                              , 156 B.R. 677, 680 (Bankr.            M.D. Fla. 1993), the business into which the debtor was to have            invested the creditor's funds never existed, and the debtor            spent all the money on a gambling spree. The court concluded            that evidence of the subsequent pattern of conduct helped to            show that the debtor did not, even at the outset, intend to use            the funds obtained for the purposes stated.                       In the instant case, the disputed testimony simply            does not rise to the same level of probative value on the issue            of Umpierrez's intent to defraud in the inducement. The            proffered testimony related to events almost two years after            Palmacci's investment was induced. Moreover, the allegations                                            6.  The timing and other aspects of relevance were not            delineated in our opinion in Busconi. There we simply stated            that the proffered evidence of subsequent conduct was evidence            "from which a factfinder reasonably could have inferred that            Busconi had not intended to pay the note at the time it was            executed." 87 F.3d at 603. A similar conclusion cannot be            drawn in the instant case.                                        -27-                                         27            Palmacci sought to prove through his proffered expert -- that            the losses on the investment were not proportionately shared            and that the project's 1992 and 1993 financial statements            indicated that Umpierrez did not spend all project money            exactly as originally stated in the business proposal (although            they did not indicate that he failed to apply the funds to the            Chase project in some way) -- would not have been directly            probative of Umpierrez's intent to deceive in 1991. Certainly            the bankruptcy court, which heard all the evidence, did not            abuse its discretion in refusing to hear the proffered expert            testimony.                      Even if we were to conclude on the present facts that            the bankruptcy court erred in excluding the expert testimony,            we need not reverse on this issue because excluding this            evidence did not affect Palmacci's substantial rights.    See            Busconi, 87 F.2d at 603. In order to win a reversal, an            appellant who claims error in the admissibility of evidence            must also show that the evidentiary ruling adversely affected            his "substantial rights."  See Fed. R. Bankr. P. 9005, 9017            (incorporating Fed. R. Civ. P. 61; Fed. R. Evid. 103(a)).            Here, as in Busconi, "[i]n light of all the evidence in the            record, we are not persuaded that the challenged judgment was            substantially influenced by the [presumptively] erroneous            evidentiary ruling." Busconi, 87 F.2d at 603 (citing                                                                  Lubanski            v. Coleco Indus., Inc., 929 F.2d 42, 46 (1st Cir. 1991)).                                        -28-                                         28                      In conclusion, we see no basis in the record for            second-guessing the trial court's determination that the Chase            project did not implicate fraudulent misrepresentation, and            that it was simply a failed real estate investment in which all            investors (including both the debtor and the creditor) lost a            portion of their investments. Palmacci had hoped to "turn[] a            pretty fast profit on it," as he had seen Gus Umpierrez do on            prior real estate deals. At the same time, Palmacci understood            that he was taking a risk; he might not only not make a "fast            profit" but he might lose money on the deal. Now that the            project has gone sour, Palmacci cannot prevent Umpierrez from            discharging his debts in bankruptcy unless he demonstrates all            the elements of fraud or false representation. He has failed            to meet this burden with respect to at least one element of            each of the three misrepresentations that he has alleged.            Accordingly, the judgment is                                         affirmed. Costs on appeal awarded            to appellee.                                        -29-                                         29
