UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 93-7045 Summary Calendar
IN THE MATTER OF: JAMES S. YOUNG, DEBTOR.
JAMES S. YOUNG, Appellant,
versus
NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., Appellee.
Appeal from the United States District Court For the Southern District of Texas
( June 29, 1993 )
Before POLITZ, Chief Judge, DAVIS and JONES, Circuit Judges.
POLITZ, Chief Judge:
James S. Young appeals the district court affirmance of the
bankruptcy court's ruling that his debt to National Union Fire
Insurance Co. of Pittsburgh, Pa. was nondischargeable. National
Union cross-appeals the vacating and remand of an award of
attorney's fees. We affirm in part and reverse in part. Background
Young's indebtedness to National Union arises from his
investment in a Texas limited partnership known as Emerald Park
Apartments, Ltd. (the "Partnership"). To purchase his interest,
Young executed a promissory note to the Partnership in the
principal amount of $92,500. To secure payment of their notes
Young and other Partnership investors applied to National Union for
a financial guarantee bond.
National Union required Young to execute the following
documents: an "Investor Application -- Financial Guarantee Bond
for Limited Partnerships," an "Indemnification and Pledge
Agreement," and a supplemental application which stated that there
had been no material adverse change in his financial condition and
that the financial information previously submitted remained true
and correct. Young attached a financial statement to his
application. On the strength of this data, National Union issued
the requested bond.
Young defaulted on the note. National Union paid the
defaulted note and looked to Young for indemnity, securing a state
court judgment against him. Young filed for bankruptcy.
National Union asked the bankruptcy court for an order that
Young's debt was nondischargeable under 11 U.S.C. § 523(a)(2)(B)
because it was based on a materially false written statement of
Young's financial condition. Following a trial, the bankruptcy
court found the debt nondischargeable and awarded National Union
$6,125 in attorney's fees. Young appealed to the district court,
2 challenging the nondischargeability determination and the
bankruptcy court's factual conclusions that he had made intentional
misrepresentations and that National Union reasonably had relied
upon them. He also appealed the award of attorney's fees. The
district court affirmed the nondischargeability and vacated and
remanded for additional findings on the attorney's fees. Young and
National Union appeal the district court's judgment.
Analysis
Standard of Review
A bankruptcy court's findings of fact are subject to the
clearly erroneous standard of review and will be reversed only if,
considering all the evidence, we are left with the definite and
firm conviction that a mistake has been made.1 Strict application
of this standard is particularly appropriate when the district
court has affirmed the bankruptcy court's findings.2 We are
particularly mindful of "the opportunity of the bankruptcy court to
judge the credibility of the witnesses."3 Conclusions of law, of
course, are reviewed de novo.4
1 In re Allison, 960 F.2d 481 (5th Cir. 1992).
2 Wilson v. Huffman (In re Missionary Baptist Found. of Am.), 818 F.2d 1135 (5th Cir. 1987).
3 Bankr. Rule 8013.
4 Allison.
3 Nondischargeability
A debt may be nondischargeable in bankruptcy under 11 U.S.C.
§ 523(a)(2)(B):
(2) . . . to the extent obtained by -- (B) use of a statement in writing -- (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive[.]
The burden is on the creditor to prove, by a preponderance of the
evidence, that the debt is nondischargeable.5
Admitting that much of the financial information submitted to
National Union was false, Young contends that he did not make those
false representations. He testified that he filled out an
application and submitted it to the Partnership, but someone else
substituted false information in the application which was
submitted to National Union.6 He also contends that, although it
is in his handwriting, he did not give the Partnership the
financial statement included with the application; he claims a
complete lack of knowledge about how the financial statement got
into the packet of materials.
The bankruptcy court, after hearing several hours of
5 Grogan v. Garner, 498 U.S. 279 (1991).
6 He contends that, with the exception of the last page containing his signature, the rest of the document received by National Union was prepared by someone else and substituted for the information he submitted.
4 testimony, found: "I find not credible Mr. Young's claim that he
did not do most of the pages which are in [the application], and
did not cause them to be delivered to National Union." The
district court found that this finding was not clearly erroneous.
Our review of the trial testimony persuades that the bankruptcy
court's finding was not clearly erroneous.7 Having determined that
Young submitted false financial information, his "intent to deceive
may be inferred from use of a false financial statement to obtain
credit."8
Young also challenges the bankruptcy court's finding that
National Union reasonably relied on his financial information. We
recently have determined that the reasonableness of a creditor's
reliance, for purposes of section 523(a)(2)(B), is a question of
fact subject to review only for clear error.9 The bankruptcy court
received uncontroverted testimony that the relevant practice in the
industry was to rely solely on the documentation presented by the
7 Young contends that the bankruptcy court improperly relied upon inconsistencies between his trial testimony and testimony about the application documents given at a deposition in 1988. In the 1988 deposition, Young offered explanations for information on the application which he now disavows ever having made. He asserts that because he was uncounseled when he gave the deposition, the court should not have relied on that testimony. There is no rubric requiring a court to ignore sworn prior inconsistent testimony simply because it was uncounseled; we decline to create one. The bankruptcy court, having heard all the testimony, was in the best position to evaluate Young's credibility and we find no clear error in that credibility assessment.
8 In re Pryor, 93 B.R. 517, 518 (Bankr. S.D.Tex. 1988).
9 In re Coston, 991 F.2d 257 (5th Cir. 1993) (en banc).
5 applicant. Whether a creditor's reliance is reasonable is to be
determined from the totality of the circumstances.10 The only
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 93-7045 Summary Calendar
IN THE MATTER OF: JAMES S. YOUNG, DEBTOR.
JAMES S. YOUNG, Appellant,
versus
NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., Appellee.
Appeal from the United States District Court For the Southern District of Texas
( June 29, 1993 )
Before POLITZ, Chief Judge, DAVIS and JONES, Circuit Judges.
POLITZ, Chief Judge:
James S. Young appeals the district court affirmance of the
bankruptcy court's ruling that his debt to National Union Fire
Insurance Co. of Pittsburgh, Pa. was nondischargeable. National
Union cross-appeals the vacating and remand of an award of
attorney's fees. We affirm in part and reverse in part. Background
Young's indebtedness to National Union arises from his
investment in a Texas limited partnership known as Emerald Park
Apartments, Ltd. (the "Partnership"). To purchase his interest,
Young executed a promissory note to the Partnership in the
principal amount of $92,500. To secure payment of their notes
Young and other Partnership investors applied to National Union for
a financial guarantee bond.
National Union required Young to execute the following
documents: an "Investor Application -- Financial Guarantee Bond
for Limited Partnerships," an "Indemnification and Pledge
Agreement," and a supplemental application which stated that there
had been no material adverse change in his financial condition and
that the financial information previously submitted remained true
and correct. Young attached a financial statement to his
application. On the strength of this data, National Union issued
the requested bond.
Young defaulted on the note. National Union paid the
defaulted note and looked to Young for indemnity, securing a state
court judgment against him. Young filed for bankruptcy.
National Union asked the bankruptcy court for an order that
Young's debt was nondischargeable under 11 U.S.C. § 523(a)(2)(B)
because it was based on a materially false written statement of
Young's financial condition. Following a trial, the bankruptcy
court found the debt nondischargeable and awarded National Union
$6,125 in attorney's fees. Young appealed to the district court,
2 challenging the nondischargeability determination and the
bankruptcy court's factual conclusions that he had made intentional
misrepresentations and that National Union reasonably had relied
upon them. He also appealed the award of attorney's fees. The
district court affirmed the nondischargeability and vacated and
remanded for additional findings on the attorney's fees. Young and
National Union appeal the district court's judgment.
Analysis
Standard of Review
A bankruptcy court's findings of fact are subject to the
clearly erroneous standard of review and will be reversed only if,
considering all the evidence, we are left with the definite and
firm conviction that a mistake has been made.1 Strict application
of this standard is particularly appropriate when the district
court has affirmed the bankruptcy court's findings.2 We are
particularly mindful of "the opportunity of the bankruptcy court to
judge the credibility of the witnesses."3 Conclusions of law, of
course, are reviewed de novo.4
1 In re Allison, 960 F.2d 481 (5th Cir. 1992).
2 Wilson v. Huffman (In re Missionary Baptist Found. of Am.), 818 F.2d 1135 (5th Cir. 1987).
3 Bankr. Rule 8013.
4 Allison.
3 Nondischargeability
A debt may be nondischargeable in bankruptcy under 11 U.S.C.
§ 523(a)(2)(B):
(2) . . . to the extent obtained by -- (B) use of a statement in writing -- (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive[.]
The burden is on the creditor to prove, by a preponderance of the
evidence, that the debt is nondischargeable.5
Admitting that much of the financial information submitted to
National Union was false, Young contends that he did not make those
false representations. He testified that he filled out an
application and submitted it to the Partnership, but someone else
substituted false information in the application which was
submitted to National Union.6 He also contends that, although it
is in his handwriting, he did not give the Partnership the
financial statement included with the application; he claims a
complete lack of knowledge about how the financial statement got
into the packet of materials.
The bankruptcy court, after hearing several hours of
5 Grogan v. Garner, 498 U.S. 279 (1991).
6 He contends that, with the exception of the last page containing his signature, the rest of the document received by National Union was prepared by someone else and substituted for the information he submitted.
4 testimony, found: "I find not credible Mr. Young's claim that he
did not do most of the pages which are in [the application], and
did not cause them to be delivered to National Union." The
district court found that this finding was not clearly erroneous.
Our review of the trial testimony persuades that the bankruptcy
court's finding was not clearly erroneous.7 Having determined that
Young submitted false financial information, his "intent to deceive
may be inferred from use of a false financial statement to obtain
credit."8
Young also challenges the bankruptcy court's finding that
National Union reasonably relied on his financial information. We
recently have determined that the reasonableness of a creditor's
reliance, for purposes of section 523(a)(2)(B), is a question of
fact subject to review only for clear error.9 The bankruptcy court
received uncontroverted testimony that the relevant practice in the
industry was to rely solely on the documentation presented by the
7 Young contends that the bankruptcy court improperly relied upon inconsistencies between his trial testimony and testimony about the application documents given at a deposition in 1988. In the 1988 deposition, Young offered explanations for information on the application which he now disavows ever having made. He asserts that because he was uncounseled when he gave the deposition, the court should not have relied on that testimony. There is no rubric requiring a court to ignore sworn prior inconsistent testimony simply because it was uncounseled; we decline to create one. The bankruptcy court, having heard all the testimony, was in the best position to evaluate Young's credibility and we find no clear error in that credibility assessment.
8 In re Pryor, 93 B.R. 517, 518 (Bankr. S.D.Tex. 1988).
9 In re Coston, 991 F.2d 257 (5th Cir. 1993) (en banc).
5 applicant. Whether a creditor's reliance is reasonable is to be
determined from the totality of the circumstances.10 The only
purportedly questionable circumstance Young points to is the
existence of whiteouts and handwritten additions to the financial
statement, most of which was typed. This is not such a "red flag"
as to invoke a duty to investigate. All things considered, we are
not left with the definite and firm conviction that the bankruptcy
court made a mistake in finding that National Union reasonably
relied on the financial information in Young's application, or in
its ultimate conclusion that Young's debt was nondischargeable.
Attorney's Fees
The bankruptcy court awarded National Union $6,125 in
attorney's fees based upon the indemnity agreement provision that
the debtor would be liable therefor. The district court vacated
that award and remanded for additional fact findings required by
New York law.11
Under New York law, when a contract provides for attorney's
fees, "the court will order the losing party to pay whatever
amounts have been expended by the prevailing party, so long as
those amounts are not unreasonable."12 The court's determination
10 Coston.
11 The indemnity agreement provided that the rights and liabilities of the parties thereunder were to be determined under New York law.
12 F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1263 (2d Cir. 1987).
6 whether the fees requested are reasonable is informed by various
factors, including: "the difficulty of the questions involved; the
skill required to handle the problem; the time and labor required;
the lawyer's experience, ability and reputation; the customary fee
charged by the Bar for similar services; and the amount involved."13
National Union's attorneys estimated their expenses to be
$30,000. They presented evidence of the time and various types of
work performed in this litigation, as well as evidence about their
general level of experience. Thereafter, the bankruptcy court made
the following findings:
I'm taking an extremely conservative view of the attorneys' fees which might be appropriate in this case.
Noting that the amount of time spent with regard to participation in this trial will clock in at a minimum of about ten hours, including the activity yesterday and today. And granting twenty-five hours for preparation, which I believe to be low, considering the extremely high degree of preparation exhibited by the plaintiffs in this case, but again taking a conservative view.
And conservatively allowing $175 per hour. I am familiar with attorneys' rates in this region and in the bankruptcy field, and believe that to be a reasonable if somewhat low hourly fee to be awarded for the degree of competence, which was high, exhibited by plaintiff's counsel in this case.
This yields a total amount of $6125.
We find that this reflects sufficient consideration of the factors
required under New York law. In fact, the bankruptcy court's
approach mirrors the "lodestar" method approved in Krear -- "the
hours reasonably spent by counsel, as determined by the Court,
13 Id. (quoting In re Schaich, 391 N.Y.S.2d 135, 136 (2d Dept.), appeal denied, 397 N.Y.S.2d 1026 (1977)).
7 [are] multiplied by the reasonable hourly rate."14 The
determination that $6,125 is a reasonable attorney's fee was not
clearly erroneous.
For the foregoing reasons, we AFFIRM the determination of
nondischargeability, REVERSE the order regarding attorney's fees,
and REINSTATE the bankruptcy court's award of attorney's fees in
the amount of $6,125.
14 Id. (quoting Zauderer v. Barcellona, 495 N.Y.S.2d 881, 882-83 (Civ.Ct. 1985)).