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Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 

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FlLr.ilJ 

UNITED STATES COURT OF APPEALSUnitedStab!s~~Appcals Ten1h C,rcu1t 

FOR THE TENTH CIRCUIT 

FEB 18 1992 

In re: RONALD E. WATSON and TERRI 

LOUISE WATSON, 

Debtors. 

SECURITY NATIONAL BANK AND TRUST OF 

NORMAN, OKLAHOMA, 

Appellee, 

v. 

RONALD E. WATSON, 

Appellant. 

ROBERT L. HOECKER 

) Clerk 

) 

) 

) 

) 

) No. 91-6221 

) (D.C. No. 90-40-W) 

) (W.D. Okla.) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before MOORE, TACHA, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of the appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

* 

The case is therefore ordered 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 1 
Ronald E. Watson (Debtor) appeals the district court's 

decision affirming the bankruptcy court's determination that 

Debtor's loan obligation owed to Security National Bank and Trust 

(Bank) was nondischargeable under 11 U.S.C. § 523(a)(2)(B). 

Section 523 provides that a debt will not be discharged in 

bankruptcy if that debt is 

( 2 ) for money, property, services, 

renewal, or refinancing of credit, 

obtained by 

(B) use of a statement in writing--

(i) that is materially false; 

or an extension, 

to the extent 

(ii) respecting the debtor'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 .... 

11 U.S.C. § 523(a)(2)(B). The sole issue presented on appeal is 

whether the Bank's reliance on Debtor's two false financial 

statements in lending Debtor $28,000 was reasonable. 

The question of whether the Bank's reliance was reasonable is 

a factual determination of the bankruptcy court which this court 

will disturb only if clearly erroneous. See First Bank v. Mullet 

(In re Mullet), 817 F.2d 677, 681 (10th Cir. 1987). Upon careful 

consideration of the parties' arguments and the record on appeal, 

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Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 2 
we affirm the bankruptcy and district courts' determination that 

the Bank's reliance on Debtor's false financial statements was 

reasonable. 1 

The bankruptcy court found, and the record supports, the 

following: Debtor accepted a position as assistant athletic 

director at the University of Oklahoma in April 1988. One of the 

members of the University's athletic department, who was a wellrespected customer of the Bank, referred Debtor to the Bank. 

Debtor opened an account with the Bank in June 1988. On the same 

day he opened the account, Debtor spoke to a Bank official 

concerning the possibility of obtaining a loan for general 

household repairs and improvements. The Bank official approved a 

loan of $3,000 that same day, without requesting a financial 

statement and without obtaining a credit report. 

Later that same month, Debtor obtained a second loan from the 

Bank, which renewed the first loan and included an additional 

$3,000 for home repairs and his daughter's college tuition. Again 

the Bank did not obtain a completed financial statement from 

Debtor nor did the Bank obtain a credit report. 

On August 3, 1988, Debtor sought from the Bank a new loan of 

$10,000, which included the renewal of the previous $6,000 loan as 

1 The bankruptcy court required the Bank to e stablish the 

nondischargeability of Debtor's obligation by clear and convincing 

evidence. Following the bankruptcy court's decision, the United 

States Supreme Court determined that a credito r need only 

establish the nondischargeability of a debt under 11 u.s.c. § 523 

by a preponderance of the evidence. Grogan v. Garne r, 111 S. Ct. 

654, 661 (1991). Because the Bank met its burden under either 

standard, Grogan does not a f fect the resolution of this appeal. 

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Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 3 
well as an additional $4,000. This time the Bank requested and 

obtained from Debtor a completed financial statement. Debtor 

indicated on the financial statement that he had an annual salary 

of $55,000 and current debts of $700. At that time, Debtor 

actually had approximately $45,000 in debts. 

Before approving the $10,000 loan, the Bank also obtained a 

credit report. That report, which was in error, corroborated 

Debtor's false financial statement by reflecting current 

liabilities of only $698. Based on a comparison of the financial 

statement and the credit report, which were almost identical, as 

well as the favorable ratio of debts, $700, to income, $55,000, 

as indicated on the financial report, the Bank loaned Debtor 

$10,000. 

In October 1988, Debtor obtained another loan from the Bank, 

this time in the amount of $15,000, which represented the renewal 

of the previous $10,000 loan, plus an additional $5,000, again for 

his daughter's college tuition. The Bank did not deem an updated 

financial statement necessary, in light of the Bank's policy of 

requiring updated financial statements only every thirteen months. 

During an October meeting with a Bank official, Debtor indicated 

that he would soon inherit a significant sum of money, from which 

he intended to repay the loan . 

Debtor sought a fifth loan in December 1988, this time in the 

amount of $18,000, which again reflected the renewal of the 

previous $15,000 loan plus an additional loan of $3,000. The Bank 

extended the $18,000 loan to Debtor, making the note due in 

January 1989. Debtor was unable to make the January payment, but 

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Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 4 
in February he made a payment on the accruing interest. In light 

of that interest payment, the Bank deferred payment of the note to 

June 1989. Debtor did not make the June payment either, but again 

made an interest payment. 

In August 1989, Debtor obtained a final loan from the Bank 

for $28,000, which renewed the previous $18,000 loan and included 

an additional $10,000 for his daughter's college tuition. Before 

making this new loan, the Bank obtained an updated financial 

statement from Debtor. On the updated financial statement, Debtor 

claimed as a liability only the $18,000 he then owed the Bank, 

plus a debt owed to a third party in the amount of $2,500. At 

that time, however, Debtor actually had current liabilities in 

excess of $65,000. The Bank did not obtain another credit report 

at that time because Debtor's updated financial statement did not 

reveal any material changes in his financial condition. 

This final $28,000 loan was payable December 1, 1989. Debtor 

was unable to make that payment. He and his wife filed for 

bankruptcy December 20, 1989. 

In challenging the bankruptcy court's determination that the 

$28,000 loan obligation is nondischargeable, Debtor asserts that 

the Bank's reliance upon the two false financial statements was 

unreasonable. "[The] standard of reasonableness places a measure 

of responsibility upon a creditor to ensure that there exists some 

basis for relying upon the debtor's representations .... [T]he 

reasonableness of a creditor's reliance will be evaluated 

according to the particular facts and circumstances present in a 

given case." In re Mullett, 817 F.2d at 679. 

5 

Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 5 
In addition to requesting the two financial sta tements, the 

Bank also obtained a credit report, which erroneously corroborated 

the false financial statements. The credit report's corroboration 

of the financial statements provided a reasonable basis for the 

Bank's reliance upon those statements in making the loans to 

Debtor. Cf. id. at 680 (bank's reliance on financial statement, 

without further investigation, was not reasonable when, among 

other things, credit report indicated several outstanding loans 

which debtor had not disclosed on financial statement). Further, 

the Bank's failure to obtain another credit report, after 

receiving the updated financial statement, was not unreasonable 

because the information contained in the second financial 

statement remained materially consistent with the first statement 

and with the prior credit report. 

Debtor argues, however, that additional "red flags" existed 

which required the Bank to conduct further investigation in order 

to verify the information Debtor had included in the financial 

statements. According to Debtor, the Bank should have been 

alerted to the need for further investigation because of the 

sloppiness with which Debtor completed the financial statement 

forms, the apparent incompleteness of the credit report, which 

failed to indicate any existing debt incurred by Debtor in 

Louisiana, where he had lived up until three months before he 

obtained the first loan from the Bank, and the obvious financial 

difficulties Debtor was expe rie ncing. Debtor asserts that, in 

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Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 6 
light of these "red flags," the Bank's reliance upon Debtor's 

financial statements, without any independent investigation of the 

information contained in those statements, was unreasonable. 

The issue of reasonableness presented under§ 523(a)(2)(B) is 

not whether it was reasonable for the Bank to have loaned Debtor 

$28,000, but whether it was reasonable for the Bank to have relied 

upon Debtor's financial statements in making that loan. 

Mullet, 817 F.2d at 681-82. Review of Debtor's 

statements fails to indicate that they were so 

incomplete and sloppy as to alert the Bank that 

See In re 

financial 

obviously 

further 

investigation was required. Rather, on their face, they appeared 

materially complete and accurate. See Hoffman & Kuhn, Inc. v. 

Branham (In re Branham), 126 B.R. 283, 292 (Bankr. S.D. Ohio 

199l)("[I]t is reasonable for a creditor to assume that the 

financial statement is accurate when it is complete and contains 

no apparent inconsistencies."). 

The credit report was also not obviously deficient. The 

report indicated an outstanding debt owed to a national lending 

institution and, thus, was not completely devoid of any debt. 

Further, the precision with which the credit report corroborated 

Debtor's financial statements sufficiently allayed any possible 

concerns raised by these documents. 

Lastly, Debtor's continued need for money was not sufficient, 

in light of the specific circumstances of this case, to place the 

Bank on notice that further investigation was required . Cf. 

Oppenheimer v. Reder (In re Reder), 60 B.R. 529, 531-32, 538 

(Bankr. D. Minn. 1986)(noncommercial lender's reliance on false 

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Appellate Case: 91-6221 Document: 010110222599 Date Filed: 02/18/1992 Page: 7 
financial statement, without further investigation, was 

unreasonable in light of debtor's continued financial need, when 

debtor borrowed approximately $92,000 from creditor through series 

of nine loans over five-month period, after initial loan of 

$35,000). 

The Bank's reliance upon Debtor's false financial statements, 

therefore, was reasonable. The judgment of the United States 

District Court for the Western District of Okla homa affirming the 

nondischargeability 

AFFIRMED. 

of Debtor's obligation to the Bank is 

Entered for the Court 

Wade Brorby 

Circuit Judge 

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