United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

No. 10-6045

In re: *

*

David P. Lindsey, *

*

Debtor. *

*

Northland National Bank, * Appeal from the United States

* Bankruptcy Court for the

Plaintiff-Appellant, * Western District of Missouri

*

v. *

*

David P. Lindsey, *

*

Defendant-Appellee. *

Submitted: January 11, 2011

 Filed: February 8, 2011

Before KRESSEL, Chief Judge, SALADINO, and NAIL, Bankruptcy Judges.

NAIL, Bankruptcy Judge.
1

 The Honorable Jerry W. Venters, United States Bankruptcy Judge for the

Western District of Missouri.

2

 We are unable to better describe when the loan was made because, with the

exception of the personal financial statement described in the next sentence, Bank did

not introduce any of the 2006 loan documents at trial.

3

 At trial, Bank introduced four personal financial statements, dated January 1,

2006 (Plaintiff's Ex. 10), December 22, 2006 (Plaintiff's Ex. 9), July 1, 2008

(Plaintiff's Ex. 8), and April 23, 2009 (Plaintiff's Ex. 7), respectively. In its opening

brief, Bank references the January 1, 2006 statement in connection with the 2006 loan.

However, in his brief, Debtor references the December 22, 2006 statement in

connection with the 2006 loan. Because the loan was made in early 2006, we have

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Northland National Bank ("Bank") appeals the June 11, 2010 judgment of the

bankruptcy court1

 in favor of Debtor David P. Lindsey. We affirm.

BACKGROUND

In 1985, Debtor and his wife formed Lanadar Corp., a Missouri corporation.

Lanadar operated a home improvement, consulting, and sale business. In August

2005, Debtor and his wife transferred certain gold coins to Lanadar to capitalize the

corporation.

In June 2005, Debtor and Thomas Clark formed American Distributors, Inc.,

also a Missouri corporation. American Distributors was a wholesale supply company,

selling exterior siding, underlayment products, accessories, and windows.

In early 2006, American Distributors sought and obtained a $750,000.00 loan

from Bank.2

 Debtor personally guaranteed the loan, and he and his wife Stacy D.

Lindsey (who did not guarantee the loan) submitted a personal financial statement, on

which they listed, inter alia, gold, silver, and platinum coins valued at $125,000.00

and mutual funds valued at $150,000.00.3

 The financial statement indicated the
used the figures from the January 1, 2006 statement.

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mutual funds were owned by "DPL & SDL" (which we take to mean David P. Lindsey

and Stacy D. Lindsey), but it did not indicate whether the gold, silver, and platinum

coins were owned by Debtor individually, his wife individually, or Debtor and his

wife as tenants by the entirety or otherwise.

In August 2008, American Distributors sought and obtained a renewal of the

2006 loan. Debtor again personally guaranteed the loan, and he and his wife (who

again did not guarantee the loan) submitted a second personal financial statement, on

which they listed, inter alia, gold, silver, and platinum coins valued at $160,000.00

and mutual funds valued at $140,000.00. The financial statement again indicated the

mutual funds were owned by "DPL & SDL," but it again did not indicate whether the

gold, silver, and platinum coins were owned by Debtor individually, his wife

individually, or Debtor and his wife as tenants by the entirety or otherwise.

In November 2008, Debtor sought and obtained a release of Bank's second

mortgage against Debtor's home – which secured in part American Distributors'

indebtedness to Bank – in return for Debtor's pledging a certificate of deposit. Debtor

did not submit another personal financial statement at the time.

In June 2009, Debtor and Thomas Clark decided to close American

Distributors. After it was liquidated, American Distributors still owed Bank

$170,484.20, for which Debtor was liable on his personal guaranty.

On August 7, 2009, Debtor filed a petition for relief under chapter 7 of the

bankruptcy code. On December 14, 2009, Bank filed a complaint objecting to

Debtor's discharge under 11 U.S.C. § 727(a)(2), (3), (4), and (5) and to determine the

dischargeability of Bank's claim under 11 U.S.C. § 523(a)(2)(A) and (B), (4), and (6).

Bank's complaint included additional counts for breach of contract, unjust enrichment,
4

 Bank's adversary proceeding was consolidated for trial with another adversary

proceeding in which the United States Trustee also objected to Debtor's discharge.

The bankruptcy court entered judgment in favor of Debtor in that adversary

proceeding as well. The United States Trustee did not appeal.

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fraud and intentional misrepresentation, conversion, corporate piercing/alter ego, and

transfers in fraud. The matter was tried, and on June 11, 2010, the bankruptcy court

entered judgment in favor of Debtor. Bank timely filed a notice of appeal.4

On appeal, Bank challenges only the bankruptcy court's determination that

Bank's claim against Debtor is dischargeable under 11 U.S.C. § 523(a)(2)(B).

STANDARD OF REVIEW

Each of the elements of a claim of nondischargeability under § 523(a) must be

shown by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-91

(1991). This means the trier of fact must believe the existence of a fact is more

probable than its nonexistence. Buchholz v. Dewey (In re Dewey), 263 B.R. 258, 263

(Bankr. N.D. Iowa 2001) (citing Metropolitan Stevedore Co. v. Rambo, 521 U.S. 121,

137 [n.9] (1997)).

 Whether a requisite element of a claim of nondischargeability under

§ 523(a)(2)(B) has been satisfied is a factual determination that is reviewed for clear

error. R & R Ready Mix v. Freier (In re Freier), 604 F.3d 583, 587 (8th Cir. 2010);

First National Bank of Olathe, Kansas v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997).

A finding is clearly erroneous if, after reviewing the entire evidence, the Court is left

with the definite and firm conviction that a mistake has been made. Freier, 604 F.3d

at 587 (quoting therein Anderson v. Bessemer City, 470 U.S. 564, 573 (1985)). "Oral

findings and conclusions under Rule 52(a) must be liberally construed and found to

be in consonance with the judgment if the judgment has support in the record
5

 Fed.R.Civ.P. 52 applies in adversary proceedings. Fed.R.Bankr.P. 7052.

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evidence." Fonder v. U.S., 974 F.2d 996, 999-1000 (8th Cir. 1992) (quoting Jiles v.

Ingram, 944 F.2d 409, 414 (8th Cir. 1991)) (internal quotation marks omitted).5

DISCUSSION

For a debt to be declared nondischargeable under § 523(a)(2)(B), the creditor

must prove:

1. the debtor made a written statement;

2. the statement was materially false;

3. the statement was in regard to the debtor's or an

insider's financial condition; 

4. the creditor reasonably relied on the statement; and

5. the debtor made the statement with an intent to deceive.

11 U.S.C. § 523(a)(2)(B). It is undisputed Debtor and his wife's personal financial

statements were written statements and were in regard to Debtor and his wife's

financial condition.

A written statement is materially false if it paints a substantially untruthful

picture of the debtor's financial condition by misrepresenting information that would

normally affect the lender's decision to extend credit. Premier Bank v. Koester (In re

Koester), 437 B.R. 363, 368 (Bankr. E.D. Mo. 2010) (citations therein). Bank argues

Debtor and his wife's personal financial statements were materially false in several

regards. First, the financial statements did not accurately reflect the ownership of the

gold coins. Second, the financial statements did not reflect a lien against the gold
6

 In its opening brief, Bank contends the bankruptcy court in effect created a

"small business exception" to Missouri corporate and property law. We disagree. The

bankruptcy court did not suggest Debtor, his wife, or Lanadar could be compelled to

use the gold coins to pay Debtor and his wife's personal debts. 

7

 The financial statements do not indicate the gold coins were owned free and

clear of liens. Consequently, we question whether the failure to reflect Premier Bank's

lien against the gold coins amounts to a misrepresentation, and even if it does, whether

that misrepresentation is fairly attributable to Debtor. Nothing in the record suggests

Bank told Debtor how to prepare the financial statements, what information should

be included on them, or how that information should be presented.

8

 We also question whether Debtor and his wife's treatment of the mutual funds

amounts to a misrepresentation. On the first page of each of the financial statements,

there is a line item for "Cash Value Life Insurance, Pension Fund, IRA, Gold & CDs,"

with a reference to "schedule I." While there are slight differences in the respective

schedules I, each includes, inter alia, a line item for "IRAs" or "IRA'S & Annuities"

and a line item for "Mutual Funds." In his brief, Debtor argues because they were

clearly not life insurance, gold, or CDs, the mutual funds could only have comprised

either the pension funds or the IRAs listed on the first page of the financial statements.

Taking Debtor's argument one step further, because the IRAs are separately

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coins held by Premier Bank, another of Debtor's lenders. Third, the financial

statements did not accurately reflect the ownership of the mutual funds.

The bankruptcy court did not consider these inaccuracies and omissions to be

material. It found while Lanadar actually owned the gold coins, Debtor and his wife

controlled Lanadar and thus had de facto control of the gold coins and could have

used them to pay their personal debts.6

 The bankruptcy court also found while the lien

against the gold coins was not disclosed, the debt owed to Premier Bank was disclosed

and it would have been "foolish" or "silly" to assume Premier Bank's claim was

unsecured.7

 Finally, the bankruptcy court found while the mutual funds were actually

a part of Debtor and his wife's self-employed pension plan, those mutual funds were

nevertheless available to Debtor and his wife and could also have been used to pay

their personal debt.8
denominated on both the first page of the financial statements and on the respective

schedules I, the mutual funds must necessarily have comprised the pension funds.

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Each of these findings is supported by the record. In essence, the bankruptcy

court found Debtor and his wife's financial statements did not paint a substantially

untruthful picture of their financial condition and thus those financial statements were

not materially false. We cannot say that finding is clearly erroneous.

Whether a creditor reasonably relied on a written statement must be determined

in light of the totality of the circumstances. Pontow, 111 F.3d at 610 (citations

therein).

"Among other things, a court may consider 'whether there

were any 'red flags' that would have alerted an ordinarily

prudent lender to the possibility that the representations

relied upon were not accurate; and whether even minimal

investigation would have revealed the inaccuracy of the

debtor’s representations.' [Coston v. Bank of Malvern (In

re Coston), 991 F.2d 257, 261 (5th Cir. 1993.]" [Sinclair

Oil Corp. v. Jones (In re Jones), 31 F.3d 659, 662 (8th Cir.

1994)].

Id. Bank argued in its opening brief and at oral argument the bankruptcy court applied

a higher standard of reliance than required by § 523(a)(2)(B). We disagree. The

bankruptcy court's statement upon which Bank relies, i.e., "I don't believe that the

bank seriously and primarily relied on [Debtor and his wife's financial statements]"

(emphasis added), is only a small part of a lengthy soliloquy and cannot be taken out

of context. The bankruptcy court earlier and unambiguously stated, "I don't believe

the bank relied on these financial statements in making extensions of credit." Liberally

construing the bankruptcy court's oral findings, Fonder, 974 F.2d at 999-1000, we do

not believe the bankruptcy court applied an incorrect standard of reliance.
9

 We note, however, the record would support a finding that Bank did not

reasonably rely on Debtor and his wife's financial statements. As noted above, Debtor

and his wife's financial statements do not indicate who owned the gold coins. At

most, because they are joint financial statements, they can be read to say Debtor or his

wife or Debtor and his wife, possibly as tenants by the entirety, owned the gold coins.

Cutcliff v. Reuter (In re Reuter), 427 B.R. 727, 775 (Bankr. W.D. Mo. 2010) (citations

therein) ("[A]ny conveyance of property to a husband and wife is presumed to create

a tenancy by the entirety."). The financial statements also indicate Debtor and his

wife, again possibly as tenants by the entirety, owned the mutual funds. Under the

circumstances, to the extent Bank presumed – without confirming who actually owned

the gold coins or the mutual funds – those assets would be available to satisfy its claim

against Debtor, its reliance on the financial statements was both misplaced and

unreasonable. Under Missouri law, property held in a tenancy by the entirety cannot

be seized to satisfy the individual debts of one of the spouses. Cutcliff, 427 B.R. at

775 (citation therein). At oral argument, Bank's counsel attempted to draw a

distinction between "credit analysis" and "collectability." Counsel did not, however,

satisfactorily explain why the fact the gold coins and the mutual funds could have

been owned by Debtor and his wife as tenants by the entirety allegedly did not affect

Bank's credit analysis but the fact the gold coins were owned by Debtor and his wife's

closely-held corporation would have affected its credit analysis.

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In any event, we do not reach the question of whether Bank reasonably relied

on Debtor and his wife's financial statements, because the bankruptcy court found

Bank did not rely on them at all.9

 Ken Roberson, a former officer of Bank, testified

Bank did in fact rely on Debtor and his wife's financial statements. However, the

bankruptcy court was not required to accept Roberson’s testimony as true. See

Blodgett v. Comm'r, 394 F.3d 1030, 1036 (8th Cir. 2005) (citations therein).

Moreover, Roberson undercut his own testimony when he admitted on direct

examination, "[I]t's basically character capacity and the credit history of a borrower

when you're doing an analysis of a loan. In this case, we had credit history, so –

which was good." The bankruptcy court noted a number of other factors upon which

it found Bank did rely, e.g., Debtor's years of dealing with Bank, his good credit

history, his track record of paying his debts, his good credit report, and his good

relationship with Bank. The bankruptcy court could have found Bank also relied on
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Debtor and his wife's financial statements, but it did not. Giving due regard to the

bankruptcy court’s opportunity to assess Roberson's credibility as a witness,

Fed.R.Bankr.P. 8013, we cannot say the bankruptcy court’s finding that Bank did not

rely on Debtor and his wife's financial statements is clearly erroneous. 

Finally, with respect to the necessary intent to deceive,

Because direct proof of intent (i.e., the debtor's state of

mind) is nearly impossible to obtain, the creditor may

present evidence of the surrounding circumstances from

which intent may be inferred. See [Webster City

Production Credit Association v. Simpson (In re Simpson)],

29 B.R. 202, 211 (Bankr. N.D. Ia. 1983). Accord [Jordan

v. Frye (In re Frye)], 48 B.R. 422, 427 (Bankr. M.D. Ala.

1985); [Municipal Credit Union v. Brown (In re Brown)],

55 B.R. 999, 1004 (Bankr. E.D.N.Y. 1986). When the

creditor introduces circumstantial evidence proving the

debtor's intent to deceive, the debtor "cannot overcome

[that] inference with an unsupported assertion of honest

intent." [Simpson], 29 B.R. at 211-12. The focus is, then,

on whether the debtor’s actions "appear so inconsistent

with [his] self-serving statement of intent that the proof

leads the court to disbelieve the debtor." [Heinold

Commodities & Securities, Inc. v. Hunt (In re Hunt)], 30

B.R. 425, 441 (M.D. Tenn.1983).

Caspers v. Van Horne (In re Van Horne), 823 F.2d 1285, at 1287-88 (8th Cir. 1987)

(emphasis added). Bank essentially argues because Debtor knew he did not own the

gold coins, because he knew Lanadar had pledged the gold coins to Premier Bank, and

because he knew the difference between owning the mutual funds directly and having

an interest in a self-employed pension plan in which the mutual funds were held, the

bankruptcy court was required to find Debtor intended to deceive Bank. We disagree.

The bankruptcy court considered the entire record and – despite its initial assessment

of Debtor's chances of prevailing, i.e., "no prayer" – was not led to disbelieve Debtor.
10 In its opening brief, Bank contends the bankruptcy court was referring to

Debtor's efforts to cooperate with Bank after the loan went bad. Reading the

bankruptcy court's comments in context, we think the bankruptcy court was instead

referring to all of Debtor's dealings with Bank. 

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Foremost, the bankruptcy court specifically found Debtor was "credible" and testified

"truthfully." It also found Debtor disclosed all assets, including the gold coins, and

all liabilities, including the debt owed to Premier Bank, on the financial statements.

The bankruptcy court also found Debtor was cooperative and attempted to work with

Bank.10 While there was evidence in the record that may have permitted the

bankruptcy court to find otherwise, that does not mean the bankruptcy court's finding

that Debtor lacked the requisite intent to deceive Bank is clearly erroneous, Pontow,

111 F.3d at 610, and we not believe it to be so.

CONCLUSION

Having found no clear error in the bankruptcy court's findings that not every

element of § 523(a)(2)(B) had been shown by a preponderance of the evidence, we

affirm the bankruptcy court's judgment determining Bank's pre-petition claim against

Debtor is not excepted from discharge under that provision.