In Re: Fiorillo et al

Filing 17

Judge Rya W. Zobel: ORDER entered. MEMORANDUM of Decision: The bankruptcy court's orders are AFFIRMED.(Urso, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 15-11820-RWZ

OASIS, INC, JOHN C. FISHER, and JOHN L. SOUSA
v.
NICHOLAS J. FIORILLO

MEMORANDUM OF DECISION
March 30, 2017

ZOBEL, S.D.J.
Appellants Oasis, Inc., John C. Fisher, and John L. Sousa (collectively,
“appellants”) appeal two orders of the United States Bankruptcy Court for the District of
Massachusetts. The first order, dated October 31, 2014, denied their motion for
summary judgment against appellee Nicholas J. Fiorillo. The second, dated April 20,
2015, entered judgment in favor of Fiorillo. Appellants maintain that because a
monetary claim they have against Fiorillo falls under one or more exceptions to
bankruptcy discharge it should not be discharged in Fiorillo’s bankruptcy proceedings.
Both orders are affirmed.
I.

Background
This appeal stems from a lawsuit that Fiorillo filed in the Worcester County

Superior Court in 1999. In this suit, Fiorillo asserted an ownership interest in Oasis,

Inc., and claimed against Sousa, Fisher, and others. The parties agreed to bifurcate
the trial and first try the issue of whether Fiorillo signed a release that precluded him
from making his claims. At the trial in November 2007, appellants offered a letter
(Exhibit 2) under which the release was unconditional,1 while Fiorillo’s counsel
presented a letter (Exhibit 5) saying the release should be held in escrow “until the
completion of the sale to Mr. Fiorillo and at the close my client will formally surrender
his ownership interests.” R. at 62, 64, 102–03, 107–08.2 The jury concluded that an
unfulfilled condition precedent existed that had to be met before the release could be
enforced.
After the trial, the trial judge granted a motion for a new trial for reasons
unrelated to the current appeal. Then, in May 2009, appellants moved to reopen
discovery on the authenticity of Exhibit 5. The motion was allowed, and the trial judge
held an evidentiary hearing. In an August 1, 2009, Memorandum of Decision and
Order, the trial judge concluded “that Exhibit 5 is a fabricated counterfeit document” and
that “Fiorillo did have access to the legal files regarding this matter and, specifically,
that he had access to the documents eventually marked as exhibits at the trial, or
copies thereof.” Fiorillo v. Oasis, Inc., No. 992455, 2009 WL 3086016, at *6 (Mass.
Super. Aug. 1, 2009). The judge stated that while he “cannot make a finding that

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Exhibit 2 did contain contingencies, but the attorney for Fiorillo at the tim e the release was
drafted and signed testified that these conditions were m et, and so he released to Fiorillo the m oney which
he had been holding in escrow. See Fiorillo v. Oasis, Inc., No. 992455, 2009 W L 3086016, at *1 (Mass.
Super. Aug. 1, 2009). Accordingly, Exhibit 2 has been referred to as the “Unconditional Letter.” See
Appellants’ Record Appendix at 134.
2

“R.” refers to the appellants’ Record Appendix, Docket # 6-1. Because the pagination on
the docket entry on top of the pages is unreadable, I refer to the appellants’ pagination at the bottom .

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Fiorillo was the person who fabricated Exhibit 5, [he] note[s] that the counterfeit
document was presented by his counsel at trial and was used to bolster Fiorillo's
contention that there was an unfulfilled condition precedent to the release becoming
effective.” Id. at *7 (footnote omitted).3 The judge dismissed Fiorillo’s complaint with
prejudice and ordered Fiorillo to reimburse appellants for costs and fees “for all matters
relating to the discovery of and proof of the fabrication of Exhibit 5.” Id. at *8.
Appellants allege that the Superior Court issued a $36,728.27 execution against Fiorillo
in connection with these costs and fees on August 31, 2010.
Fiorillo filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code on August 23, 2010, and his case was converted to a Chapter 7 bankruptcy case
on October 7, 2010. On January 3, 2011, appellants filed an adversary proceeding in
the bankruptcy court in which they asserted that the execution is nondischargeable
under 11 U.S.C. § 523(a)(2). In 2014, they moved for summary judgment in the
bankruptcy court on the same ground, namely that “[t]he execution issued against
[Fiorillo] is non-dischargeable under 11 U.S.C. § 523(a)(2)(A) because it arises entirely
from [Fiorillo]’s false pretenses, false representations, and fraud,” and “collateral
estoppel precludes [Fiorillo] from contesting the Worcester Superior Court’s findings
with respect to the fraudulent document that is the cause of [Fiorillo]’s debt to
[appellants].” R. at 20.
In an October 31, 2014, decision, the bankruptcy court denied appellants’ motion
for summary judgment. The court explained that the exceptions to discharge in 11

3

In a footnote, the judge stated that he “do[es] not have any evidence whatsoever that
Fiorillo's trial counsel was involved in the fabrication of Exhibit 5.” Fiorillo, 2009 W L 3086016, at *7 n.2.

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U.S.C. § 523(a)(2) apply to “money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by,” inter alia, fraud and false
representations. In re Fiorillo, 520 B.R. 355, 358 (Bankr. D. Mass. 2014) (quoting 11
U.S.C. § 523(a)(2)). Here, the court said, “while [appellants] may have advanced
money, property or services in the form [of] legal services, fees or costs in the
Worcester Superior Court Suit, those advances were not in any way obtained by
Mr. Fiorillo, fraudulently or otherwise.” Id. at 359. Accordingly, the court held that “[t]he
mere fact that plaintiffs were the beneficiaries of the state court's monetary sanction
and that the sanction arose as a result of Mr. Fiorillo's fraud on the court, does not
make the monetary sanction non-dischargeable under § 523(a)(2).” Id.
After denying appellants’ motion for summary judgment, the bankruptcy court
issued an order requiring appellants show cause why summary judgment should not
enter for Fiorillo. Appellants responded that “even if the debt is dischargeable under
§ 523(a)(2)(A), it arises out of [Fiorillo]’s willful and malicious injury to the [appellants]
and is a penalty payable for the benefit of a government unit, and therefore is
nondischargeable pursuant to § 523(a)(6) and (7).” R. at 146. The bankruptcy court
rejected appellants’ arguments that § 523(a)(2) applied and that genuine issues of
material fact existed with regard to this section. It then stated that “[e]ven were I to
consider [appellants’] belated invocation of § 523(a)(6) and (7) as a deemed motion to
amend their complaint (which would be a stretch), I would decline to grant such a
motion at this point in the proceeding.” R. at 168. The bankruptcy court then issued a
further order entering summary judgment for Fiorillo. This appeal followed.

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II.

Standard of Review
A district court reviews a bankruptcy court's factual findings for clear error and its

legal conclusions de novo. See In re Watman, 301 F.3d 3, 7 (1st Cir. 2002). “A motion
for summary judgment in an adversary proceeding under § 523(a)(2)(A) to have a debt
declared nondischargeable is governed by the same standards applicable to motions
under Fed. R. Civ. P. 56.” In re Spigel, 260 F.3d 27, 31 (1st Cir. 2001) (citing Fed. R.
Bankr. P. 7056). Summary judgment is appropriate when the moving party “shows that
there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). Accordingly, a district court
reviews “the grant of summary judgment de novo.” Spigel, 260 F.3d at 31.
III.

Discussion
On appeal, appellants make two main arguments: (1) Fiorillo's debt satisfied the

discharge exception under 11 U.S.C. § 523(a)(2)(A); and (2) even if the debt did not
satisfy the discharge exception under § 523(a)(2)(A), it did satisfy the exceptions under
§§ 523(a)(6) and 523(a)(7).
A.

Section 523(a)(2)(A)

Under Section 523(a)(2)(A) of the Bankruptcy Code, a bankruptcy discharge
“does not discharge an individual debtor from any debt . . . for money, property,
services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . .
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.
§ 523(a)(2)(A). These “[e]xceptions to discharge are narrowly construed . . . and the

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claimant must show that its claim comes squarely within an exception enumerated in
Bankruptcy Code § 523(a).” Spigel, 260 F.3d 32 (alterations in original) (quoting In re
Menna, 16 F.3d 7, 9 (1st Cir. 1994)). The “party seeking to prevent [the debtor] from
discharging his debt to them . . . bear[s] this burden to show that [the debtor]'s debt
comes squarely within an exemption from discharge. ” Id.
The Supreme Court has explained that “the phrase ‘to the extent obtained by’ in
§ 523(a)(2)(A)” “modifies ‘money, property, services, or . . . credit’ — not ‘any debt’ —
so that the exception encompasses ‘any debt . . . for money, property, services, or . . .
credit, to the extent [that the money, property, services, or . . . credit is] obtained by’
fraud.” Cohen v. de la Cruz, 523 U.S. 213, 218 (1998) (alterations in original). “Once it
is established that specific money or property has been obtained by fraud, however,
‘any debt’ arising therefrom is excepted from discharge.” Id. at 218–19.
Here, Fiorillo did not “obtain” “money, property, services, or an extension,
renewal, or refinancing of credit” by fraud or a false representation. To the extent
anything was obtained by the fabricated document, it was a verdict4 in a suit that was
then dismissed with prejudice. While the $36,728.27 execution for which Fiorillo is
liable may have stemmed from fraud, Fiorillo did not “obtain” this money by fraud or
false representations. Indeed, he did not obtain this money at all. The bankruptcy
court appropriately granted summary judgment in favor of Fiorillo on this basis.
4
In their brief, appellants argue that “[a] verdict represents a legal right to an award of
dam ages, costs, and/or fees, and legal rights are property interests.” Docket # 6, at 12. They also claim
that “Mr. Fiorillo . . . obtained control over the litigation, which is a property interest.” Id. at 12–13. They
then suggest in their reply brief that the “costs and fees incurred by [appellants] were incurred specifically
because Mr. Fiorillo had obtained property by fraud within the m eaning of Section 523(a)(2)(A).” Docket
# 16, at 6. However, this attem pt at linguistic gym nastics com plicates and m isses the point. First, the civil
suit was dism issed with prejudice, so the verdict does not stand. Second, whether appellants incurred
costs related to a fraud, Fiorillo did not “obtain” these costs.

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B.

Sections 523(a)(6) and 523(a)(7)

Next appellants claim that Fiorillo’s debt is nondischargeable under §§ 523(a)(6)
and 523(a)(7). However, they failed to include these as a cause of action in their
complaint, and they cannot now rely on them. The bankruptcy court specifically said
that even were it to construe appellants’ “belated invocation of § 523(a)(6) and (7) as a
deemed motion to amend their complaint . . ., [it] would decline to grant such a motion
at this point in the proceeding.” R. at 168. Specifically, the court explained that “[a]fter
four years of pending litigation, three of them active, in which [appellants’] conduct can
be characterized, at best, as reactive and, at worst, catatonic, it would be unjust indeed
to allow [appellants] to amend their complaint as they now suggest.” Id. at 169.
Appellants do not challenge the bankruptcy court’s ruling on this ground,5 nor would any
attempt be availing.
IV.

Conclusion
The bankruptcy court’s orders are AFFIRMED.

March 30, 2017

/s/Rya W. Zobel

DATE

RYA W . ZOBEL
UNITED STATES SENIOR DISTRICT JUDGE

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To the extent appellants claim in their reply brief that their “argum ents were tim ely as they
were specifically in response to [the] Order to Show Cause” and were also alluded to in their m otion for
sum m ary judgm ent, Docket # 16, at 4–5, this argum ent again m isses the m ark. The issue for appellants
is that because they failed to include §§ 523(a)(6) & 523(a)(7) as causes of action in their com plaint, they
cannot, absent a successful m otion to am end, now rely on them .

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