Source: http://openjurist.org/156/f3d/71
Timestamp: 2013-06-19 22:18:23
Document Index: 185012221

Matched Legal Cases: ['§ 523', '§ 545', '§ 540', '§ 108', '§ 540', '§ 108', '§ 540', '§ 541', '§ 108', '§ 108']

156 F. 3d 71 - Sanford Institution for Savings v. A Gallo	Home156 f3d 71 sanford institution for savings v. a gallo
This case presents a sole legal issue: namely, whether the bankruptcy court properly applied to the facts the "justifiable reliance" element of the fraud interpretation announced by the Court in Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). Thus, this Court exercises plenary review. See Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973, 978 (1st Cir.1995).
Title 11 U.S.C. § 523(a)(2)(A) bars from discharge in bankruptcy a debt for money, property, services, or an extension, renewal, or refinancing of credit, obtained by false pretenses, a false representation, or actual fraud.3 In Field v. Mans, the Supreme Court construed this provision to require the creditor to prove that its reliance on the misrepresentation was justified in order to avoid discharge. 516 U.S. at 61, 116 S.Ct. 437; accord Palmacci v. Umpierrez, 121 F.3d 781, 786 n. 3 (1st Cir.1997); Matter of Bero, 110 F.3d 462, 465 (7th Cir.1997); In re Bilzerian, 100 F.3d 886, 892 (11th Cir.1996), cert. denied, --- U.S. ----, 118 S.Ct. 1559, 140 L.Ed.2d 791 (1998); In re Apte, 96 F.3d 1319, 1322 (9th Cir.1996). The Court rejected the argument that the more demanding "reasonable reliance" standard applied. See id. at 70, 116 S.Ct. 437 (citing and adopting Restatement (Second) of Torts § 545A, cmt. b, which states that plaintiff's conduct does not have to conform to "reasonable man standard").
A party may justifiably rely on a misrepresentation even when he could have ascertained its falsity by conducting an investigation. See Restatement (Second) of Torts §§ 540, 541 cmt. a (1976); Prosser § 108, at 753; see also Field, 516 U.S. at 70, 116 S.Ct. 437. This rule applies whether the investigation would have been costly and required extensive effort or could have been made without "any considerable trouble or expense." Restatement § 540 cmt. a; Prosser § 108, at 753. This pragmatic rule of conduct is at the heart of millions of commercial transactions conducted daily in this nation which rely on the honesty and truthfulness of representation made by the parties. For example, it is common knowledge that the stock exchanges of this nation depend upon and are fueled by representations of the parties which are conducted without preliminary investigations. However, the reliance on misrepresentations known by the victim to be false or obviously false is not justified; falsity which could have been discovered by senses during a cursory glance may not be relied upon. Restatement § 540 cmt. a; see also id. § 541 & cmt.; accord Prosser § 108, at 750, 751.
As an initial matter, I disagree with the majority's statement that "[t]his case presents a sole legal issue ... [over which] this Court exercises plenary review." Ante at 74. So long as there is no indication that the lower courts misapprehended the relevant legal principles (and my review of their opinions reveals that they were fully aware of the applicable justifiable reliance standard, as explicated by the Supreme Court in Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995)), a finding that Normand's reliance, if any, was unjustified is a paradigmatic fact-dominated mixed fact/law determination that we should accept unless shown to be clearly erroneous. See In re Extradition of Howard, 996 F.2d 1320, 1328 (1st Cir.1993) (explaining this circuit's sliding scale approach to mixed fact/law determinations); see also In re Apte, 96 F.3d 1319, 1324 (9th Cir.1996) (reviewing for clear error a no-justifiable-reliance determination made in a bankruptcy court proceeding); cf., e.g., Henry v. Connolly, 910 F.2d 1000, 1003 (1st Cir.1990) (reviewing for clear error determination of no-reasonable-reliance made on a misrepresentation claim brought under Massachusetts law); Piekarski v. Home Owners Sav. Bank, F.S.B., 956 F.2d 1484, 1493 (8th Cir.1992) (reviewing for clear error determination of justifiable reliance made on a misrepresentation claim brought under Minnesota law); Offshore Prod. Contractors, Inc. v. Republic Underwriters Ins. Co., 910 F.2d 224, 232 (5th Cir.1990) (reviewing for clear error determination of justifiable reliance made on a misrepresentation claim brought under Louisiana law). Thus, we are empowered to reverse only if, on our review of the record as a whole, we have a "definite and firm conviction that a mistake has been made." Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (citation and internal quotation marks omitted).
Perhaps because I see the standard-of-review question differently than the majority, I also am at a loss to understand its appellant-friendly recitation of the facts relevant to the question we must answer. Because the trial court, following a bench trial, pretermitted the question of reliance in fact but agreed with Gallo that any reliance by SIS was unjustifiable, we are obliged to view the facts in the light most flattering to its conclusion. See La Esperanza De P.R. v. Perez Y Cia. De Puerto Rico, Inc., 124 F.3d 10, 12 (1st Cir.1997). So viewed, the facts on which we should base our judgment are as follows.
In view of this evidence, I cannot say with a definite and firm conviction that the trial court erred in concluding that Normand proceeded in the face of what amounted to a warning that a deception was underway. And as the Supreme Court acknowledged while explaining the justifiable reliance standard, such a warning puts to its recipient a duty to investigate (at least cursorily) before there may be justifiable reliance upon the misrepresentation. See Field, 516 U.S. at 71, 116 S.Ct. 437 (citing W. Prosser, Law of Torts § 108, at 718 (4th ed.1971)).
Even if I agreed with the majority that Normand's putative reliance on Gallo's wife's signature was justifiable as a matter of law, I would remand for further fact-finding as to whether Normand relied in fact upon the signature. Cf. Field, 516 U.S. at 76, 116 S.Ct. 437 (noting that "the greater the distance between the reliance claimed and the limits of the reasonable, the greater the doubt about reliance in fact"). Because the bankruptcy court deemed any reliance in fact unjustifiable, it did not decide whether there was such reliance. Yet the facts just outlined suggest, to say the least, that Normand did not view the second mortgage as necessary. Moreover, I believe it worthwhile to emphasize one additional point not mentioned by the majority: although the other second mortgage required for the letter of credit--the second mortgage on the development--was recorded in due course, the mortgage on the Sanford home was not recorded until 1991, nearly two years after the letter of credit issued and a mere one week after another creditor recorded a $1.2 million lien against Gallo. I regard this lapse, which Normand was unable to explain at trial, as especially curious because it was the mortgage on the Sanford home on which the Board had insisted (apparently over Normand's disagreement).7 One can only assume that the Board insisted on the second mortgage on the home because it viewed the second mortgage on the development as insufficient to protect its interests in the event of a default and a calling of the letter of credit.
Section 523(a)(2)(A) provides: "A 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 of actual fraud...."
Home156 f3d 71 sanford institution for savings v. a gallo