United States Court of Appeals,
Fifth Circuit.
No. 95-50213
Summary Calendar.
In the Matter of Robert William NORRIS and Emily Waller Norris, Debtors.
Robert William NORRIS, Appellant,
v.
FIRST NATIONAL BANK IN LULING, Appellee.
Dec. 4, 1995.
Appeal from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, and DUHÉ and PARKER, Circuit Judges.
POLITZ, Chief Judge:
Robert William Norris, a Chapter 7 bankruptcy debtor, appeals
the district court's ruling that his debt to the First National
Bank in Luling is not dischargeable in bankruptcy. Perceiving no
error in the finding that this debt falls within the exception to
dischargeability provided in 11 U.S.C. § 523(a)(2)(B), we affirm.
Background
In separate transactions in 1985 and 1986 Norris and his wife
Emily Waller Norris bought a home and over 200 acres of land near
Luling, Texas. These purchases were financed with loans from First
National Bank in Luling. On November 1, 1986 the Norrises signed
a note in the principal amount of $397,991.86, consolidating their
existing obligations to First National. This note, which was
secured by the Norris real estate near Luling, was due on December
1 1, 1988. The note contained a provision for annual renewal subject
to bank approval.
Because of the substantial value of the real estate securing
the note, and the respected position Norris held as a local family
practitioner, First National summarily renewed the note in years
1989-1991. During this time Norris never missed a scheduled
payment. In 1991 the Norrises moved their household to Austin,
Texas and leased the Luling property. They continued to make
timely payments to First National.
As part of the annual renewal process First National required
Norris to provide a balance sheet, income statement, and current
income tax return. The documentation submitted to the bank in
conjunction with the 1992 loan renewal claimed that the Norrises
had a "cash flow surplus" of $45,016. The financial statement
represented that the Norrises therefore had $45,016 of
discretionary income which would be available to service existing
debts.
On December 23, 1992 Robert Norris, prompted by the fact that
the declining real estate market had significantly reduced the
value of the Luling property, wrote the bank reaffirming his
commitment to servicing and ultimately retiring the note. First
National renewed the note on December 31, 1992.
The Norrises, who had begun to experience marital problems in
1990, separated in May of 1993. Finding themselves unable to meet
their financial obligations, they filed for Chapter 7 bankruptcy in
September of 1993. The bankruptcy schedules revealed that the 1992
2 financial submissions were inaccurate. Specifically, the
bankruptcy schedules demonstrated that although the Norrises had
represented that they enjoyed a cash flow surplus of over $45,000
in late 1992,1 in fact they were barely making ends meet and their
subsequent marital difficulties had made their financial situation
untenable.2
First National filed a complaint in the bankruptcy proceeding,
contending that the debt was not dischargeable under section
523(a)(2)(B) because the Norrises had intentionally misled the bank
by providing false information in their 1992 financial statement.
After a trial on the merits, the bankruptcy court found that Emily
Norris had not acted with any intent to deceive the bank and
therefore the debt was dischargeable as to her. The bankruptcy
court found the debt nondischargeable as to Robert Norris, who
actually prepared the 1992 financial statement, concluding that he
deliberately had misled the bank by providing misinformation to
obtain the loan renewal. The district court, acting in its
appellate role, affirmed the bankruptcy court's judgment, and
Robert Norris timely appeals.
Analysis
1 Although the financial documents were dated November 2, 1992, Norris argues that the information was not actually delivered to the bank until as late as December 28, 1992. The bank had this financial statement in its possession when it approved the loan on December 31, 1992. 2 An "income and expense report" later prepared by Emily Norris from contemporaneous records and filed into the record of the bankruptcy proceedings showed a "cash flow surplus" of only $5,530.46 for fiscal year 1992.
3 When reviewing a bankruptcy court's factual findings which
have been affirmed by the district court, we will reverse "only if,
considering all the evidence, we are left with the definite and
firm conviction that a mistake has been made."3 We review all
conclusions of law de novo.
Section 523(a)(2)(B) of Title 11 of the United States Code
creates a rule of nondischargeability for any debt
for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by 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 ... credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.
The existence of each of these four elements is a question of fact4
which the creditor must prove by a preponderance of the evidence.5
Norris contends that this exception is not applicable to the
First National debt, despite the fact that Section 523(a)(2)
expressly lists "renewal ... of credit" as one of the class of
obligations excepted from discharge, because no "new" funds were
disbursed in response to the 1992 financial statement. Norris
contends that a showing that the bank suffered damage as a
3 Matter of Young, 995 F.2d 547, 548 (5th Cir.1993). 4 Matter of Coston, 991 F.2d 257 (5th Cir.1993) (en banc ). 5 Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
4 proximate cause of the misleading financial statement is required
before the debt may be declared nondischargeable.6
While one of the primary purposes behind the Bankruptcy Act is
to "relieve the honest debtor from the weight of oppressive
indebtedness and permit him to start afresh,"7 we may not
cavalierly ignore the clearly expressed intent of Congress. The
Supreme Court has observed that in fashioning the
nondischargeability provisions "Congress evidently concluded that
the creditors' interest in recovering full payments of debts in
these categories outweighed the debtors' interest in a complete
fresh start."8 Because Norris has failed to advance any compelling
6 Norris relies primarily upon In re Siriani, 967 F.2d 302
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United States Court of Appeals,
Fifth Circuit.
No. 95-50213
Summary Calendar.
In the Matter of Robert William NORRIS and Emily Waller Norris, Debtors.
Robert William NORRIS, Appellant,
v.
FIRST NATIONAL BANK IN LULING, Appellee.
Dec. 4, 1995.
Appeal from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, and DUHÉ and PARKER, Circuit Judges.
POLITZ, Chief Judge:
Robert William Norris, a Chapter 7 bankruptcy debtor, appeals
the district court's ruling that his debt to the First National
Bank in Luling is not dischargeable in bankruptcy. Perceiving no
error in the finding that this debt falls within the exception to
dischargeability provided in 11 U.S.C. § 523(a)(2)(B), we affirm.
Background
In separate transactions in 1985 and 1986 Norris and his wife
Emily Waller Norris bought a home and over 200 acres of land near
Luling, Texas. These purchases were financed with loans from First
National Bank in Luling. On November 1, 1986 the Norrises signed
a note in the principal amount of $397,991.86, consolidating their
existing obligations to First National. This note, which was
secured by the Norris real estate near Luling, was due on December
1 1, 1988. The note contained a provision for annual renewal subject
to bank approval.
Because of the substantial value of the real estate securing
the note, and the respected position Norris held as a local family
practitioner, First National summarily renewed the note in years
1989-1991. During this time Norris never missed a scheduled
payment. In 1991 the Norrises moved their household to Austin,
Texas and leased the Luling property. They continued to make
timely payments to First National.
As part of the annual renewal process First National required
Norris to provide a balance sheet, income statement, and current
income tax return. The documentation submitted to the bank in
conjunction with the 1992 loan renewal claimed that the Norrises
had a "cash flow surplus" of $45,016. The financial statement
represented that the Norrises therefore had $45,016 of
discretionary income which would be available to service existing
debts.
On December 23, 1992 Robert Norris, prompted by the fact that
the declining real estate market had significantly reduced the
value of the Luling property, wrote the bank reaffirming his
commitment to servicing and ultimately retiring the note. First
National renewed the note on December 31, 1992.
The Norrises, who had begun to experience marital problems in
1990, separated in May of 1993. Finding themselves unable to meet
their financial obligations, they filed for Chapter 7 bankruptcy in
September of 1993. The bankruptcy schedules revealed that the 1992
2 financial submissions were inaccurate. Specifically, the
bankruptcy schedules demonstrated that although the Norrises had
represented that they enjoyed a cash flow surplus of over $45,000
in late 1992,1 in fact they were barely making ends meet and their
subsequent marital difficulties had made their financial situation
untenable.2
First National filed a complaint in the bankruptcy proceeding,
contending that the debt was not dischargeable under section
523(a)(2)(B) because the Norrises had intentionally misled the bank
by providing false information in their 1992 financial statement.
After a trial on the merits, the bankruptcy court found that Emily
Norris had not acted with any intent to deceive the bank and
therefore the debt was dischargeable as to her. The bankruptcy
court found the debt nondischargeable as to Robert Norris, who
actually prepared the 1992 financial statement, concluding that he
deliberately had misled the bank by providing misinformation to
obtain the loan renewal. The district court, acting in its
appellate role, affirmed the bankruptcy court's judgment, and
Robert Norris timely appeals.
Analysis
1 Although the financial documents were dated November 2, 1992, Norris argues that the information was not actually delivered to the bank until as late as December 28, 1992. The bank had this financial statement in its possession when it approved the loan on December 31, 1992. 2 An "income and expense report" later prepared by Emily Norris from contemporaneous records and filed into the record of the bankruptcy proceedings showed a "cash flow surplus" of only $5,530.46 for fiscal year 1992.
3 When reviewing a bankruptcy court's factual findings which
have been affirmed by the district court, we will reverse "only if,
considering all the evidence, we are left with the definite and
firm conviction that a mistake has been made."3 We review all
conclusions of law de novo.
Section 523(a)(2)(B) of Title 11 of the United States Code
creates a rule of nondischargeability for any debt
for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by 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 ... credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.
The existence of each of these four elements is a question of fact4
which the creditor must prove by a preponderance of the evidence.5
Norris contends that this exception is not applicable to the
First National debt, despite the fact that Section 523(a)(2)
expressly lists "renewal ... of credit" as one of the class of
obligations excepted from discharge, because no "new" funds were
disbursed in response to the 1992 financial statement. Norris
contends that a showing that the bank suffered damage as a
3 Matter of Young, 995 F.2d 547, 548 (5th Cir.1993). 4 Matter of Coston, 991 F.2d 257 (5th Cir.1993) (en banc ). 5 Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
4 proximate cause of the misleading financial statement is required
before the debt may be declared nondischargeable.6
While one of the primary purposes behind the Bankruptcy Act is
to "relieve the honest debtor from the weight of oppressive
indebtedness and permit him to start afresh,"7 we may not
cavalierly ignore the clearly expressed intent of Congress. The
Supreme Court has observed that in fashioning the
nondischargeability provisions "Congress evidently concluded that
the creditors' interest in recovering full payments of debts in
these categories outweighed the debtors' interest in a complete
fresh start."8 Because Norris has failed to advance any compelling
6 Norris relies primarily upon In re Siriani, 967 F.2d 302, 304 (9th Cir.1992), in which a debtor's surety who relied upon false documentation in renewing the surety bond was required to prove "that damage proximately resulted from the misrepresentation" in order to have the debt declared nondischargeable. See also In re Collins, 946 F.2d 815 (11th Cir.1991). Unlike Norris, we do not read these cases as grafting onto section 523(a)(2) a proximate causation requirement; rather, we read them as applying the statutory mandate that qualifying debts are nondischargeable "to the extent obtained by" the fraudulent documentation. In this case, because the renewal of the entire note was "obtained by" Norris's false documentation, it is the entire note which is excepted from discharge. Insofar as these cases may stand for the proposition that the renewal of a preexisting debt, without more, does not fall within the purview of the statute, we join the First and Tenth Circuits in rejecting such an approach. See In re Goodrich, 999 F.2d 22 (1st Cir.1993) (expressly rejecting reasoning of Siriani ); In re Gerlach, 897 F.2d 1048 (10th Cir.1990). In addition, we note that such a "proximate causation" element would in many respects duplicate the "materiality" and "reasonable reliance" determinations required by section 523(a)(2)(B)(i) and (iv). 7 Williams v. U.S. Fidelity & Guar. Co., 236 U.S. 549, 554- 555, 35 S.Ct. 289, 290, 59 L.Ed. 713 (1915). 8 Grogan, supra, at 287, 111 S.Ct. at 659.
5 reason why we should construe the statute as meaning something
other than what it says, we conclude that the 1992 "renewal of
credit" falls within the class of debts eligible for
nondischargeability.9
Norris next challenges the finding that the false information
in the 1992 financial statement was materially false.10 The
bankruptcy judge found that the discrepancy between the 1992
financial statement and the subsequent revelations about the actual
financial situation of the Norrises at that time was approximately
$37,000. The bankruptcy court concluded that in light of the sums
involved, this amount "would be a material discrepancy in
everybody's book." We discern no error in this finding.
Norris also contends that the bank did not reasonably rely
upon the statement. This contention challenges whether the bank in
fact relied upon the statement. In support of his claim Norris
points to the bank's pre-1992 practice of automatically renewing
the note. The bankruptcy judge, however, credited the bank
officers' testimony that in 1992 the substantial decline in the
value of the collateral securing the loan caused them to rely to a
greater extent than they previously had upon the Norris financial
9 Accord Goodrich, supra, 999 F.2d at 26 ("Congress enacted a detailed statute without an explicit damage requirement.... In the face of conflicting policies for and against, there is no warrant for the court to add such a requirement."). 10 A statement is materially false if it "paints a substantially untruthful picture of a financial condition by misrepresenting information of the type which would normally affect the decision to grant credit." Jordan v. Southeast National Bank (In re Jordan), 927 F.2d 221, 224 (5th Cir.1991) (quotation omitted).
6 statement. In addition, the bankruptcy judge also noted Norris's
letter of December 23, 1992, in which he recognized the declining
value of the collateral and gave the bank a personal assurance of
payment. We find no error in the bankruptcy court's finding that
the bank actually relied upon the statement.
We also agree that the bank's reliance was objectively
reasonable. Norris maintains that the 1992 financial statement
contained blatant errors which would have led a reasonably prudent
bank to question the information. The bankruptcy judge disagreed,
finding that the only obvious substantial error, an overestimation
of the value of the Luling real estate, was one of which the bank
already was aware. The bankruptcy judge concluded that the flawed
financial statement was "not such a "red flag' as to invoke a duty
to investigate."11 This finding is adequately supported by the
record.
Finally, Norris urges that he did not possess the requisite
intent to deceive the bank when he completed and transmitted the
loan renewal documents. Norris testified, however, that there had
"been no extra money for the last couple of years" when he filled
out the 1992 financial statement. The bankruptcy judge, after
reviewing the financial statement in light of the bankruptcy
record, concluded that "there was a reckless disregard for the
truth."12 We previously have stated, in the context of fraudulent
11 Young, supra, 995 F.2d at 549. 12 "Reckless disregard for the truth or falsity of a statement combined with the sheer magnitude of the resultant misrepresentation may combine to produce the inference of intent
7 intent under section 523(a)(2)(A), that "[i]f the bankruptcy judge
finds one version of events more credible than other versions, this
Court is in no position to dispute the finding."13 Accordingly, we
must find no error.
The judgment of the district court is AFFIRMED.
[to deceive]." In re Miller, 39 F.3d 301, 305 (11th Cir.1994) (citations omitted). 13 Matter of Martin, 963 F.2d 809, 814 (5th Cir.1992).