Source: https://m.openjurist.org/979/f2d/71/woolum-v-woolum
Timestamp: 2019-11-13 15:03:10
Document Index: 124186086

Matched Legal Cases: ['§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523']

979 F2d 71 Woolum v. Woolum | OpenJurist
979 F. 2d 71 - Woolum v. Woolum
979 F2d 71 Woolum v. Woolum
979 F.2d 71
61 USLW 2331, Bankr. L. Rep. P 74,976
In re Jerry WOOLUM; Kayetta Woolum, Debtors.
BANK ONE, LEXINGTON, N.A., Plaintiff-Appellant,
Dr. Jerry WOOLUM, Defendant-Appellee.
One result of bankruptcy is the discharge of the bankrupt debtor from preexisting financial obligations. Section 523 of the Bankruptcy Code lists circumstances that result in exceptions to the general rule of discharge. Bank One objected to the discharge of Woolum's obligations and filed an adversary proceeding against Woolum, asserting that the debtor's intentional use of false financial statements should bar discharge of his indebtedness to the bank under 11 U.S.C. § 523(a)(2)(B). That section of the Code provides:
The bankruptcy judge conducted an evidentiary hearing at which Dr. Woolum and Linda Rumpke testified. The parties stipulated that two of the four statutory elements of non-dischargeability were satisfied: the statements were materially false and were given with respect to Dr. Woolum's financial condition. The questions to be decided by the bankruptcy court were whether the bank reasonably relied upon the statements in making the loans and whether the statements were given with intent to deceive. Although Dr. Woolum testified that he relied on assurances of his brother-in-law that the claim by Owens-Corning was "a mistake" and that he had forgotten the guaranty to All Weather Insulation, the bankruptcy judge found that Woolum acted at least with gross recklessness in failing to list these obligations on the financial statements. Because gross recklessness is sufficient to establish an intent to deceive, this finding satisfied the fourth requirement of § 523(a)(2)(B). See In re Martin, 761 F.2d 1163, 1167 (6th Cir.1985) ("The standard ... is that if the debtor either intended to deceive the Bank or acted with gross recklessness, full discharge will be denied.").
The district court committed reversible error in determining that reasonable reliance by a lender is a mixed question of law and fact, and then reviewing the bankruptcy court's decision under a de novo standard. We stated in In re Ledford, 970 F.2d 1556, 1560 (6th Cir.1992) that "[w]hether a creditor's reliance was reasonable is a factual determination to be made in light of the totality of the circumstances." As a factual determination, this finding must be reviewed under the deferential clearly erroneous standard. Bankruptcy Rule 8013.
Although the district court did not have the benefit of our Ledford decision, this court had made clear previously that a finding of reasonable reliance is subject to review under the clearly erroneous standard. We stated in In re Phillips, 804 F.2d 930, 932 (6th Cir.1986), that the reviewing court "must accept the bankruptcy court's findings of fact unless they are clearly erroneous." Phillips arose under § 523(a)(2)(A)1 rather than under § 523(a)(2)(B). Nevertheless, the Phillips court adopted a statement from In re Martin, 761 F.2d 1163, 1166 (6th Cir.1985), that "[t]he determination of reasonableness must be made by evaluating all the facts and circumstances of the case." Phillips, 804 F.2d at 933. Martin involved a claim of non-dischargeability under § 523(a)(2)(B), as does the present case. Thus, the same standard applies to determinations of the reasonableness of a lender's reliance whether the inquiry is under § 523(a)(2)(A) or (B). The Phillips court applied this standard both to the inquiry whether there was intent to deceive and whether the lender's reliance was reasonable. Also, citing Martin, this court conducted a clearly erroneous review of reasonableness in Knoxville Teachers Credit Union v. Parkey, 790 F.2d 490 (6th Cir.1986), another § 523(a)(2)(B) case. There can be no doubt that this is a factual question under established Sixth Circuit law.
Our view of the matter is in accord with holdings of the Courts of Appeals for the Seventh, Ninth and Tenth Circuits. See Matter of Bonnett, 895 F.2d 1155, 1157 (7th Cir.1989); In re Lansford, 822 F.2d 902, 904 (9th Cir.1987); In re Watson, 958 F.2d 977, 978 (10th Cir.1992). We decline to follow the holding of the Court of Appeals for the Fifth Circuit in Matter of Jordan, 927 F.2d 221, 225 (1991), where that court found that the reasonableness of reliance was a conclusion of law subject to de novo review.
Once it has been established that a debtor has furnished a lender a materially false financial statement, the reasonableness requirement of § 523(a)(2)(B) "cannot be said to be a rigorous requirement, but rather is directed at creditors acting in bad faith." Martin, 761 F.2d at 1166. A district court reviewing a bankruptcy court's determination of reasonable reliance is not "to undertake a subjective evaluation and judgment of a creditor's lending policy and practices." Matter of Garman, 643 F.2d 1252, 1256 (7th Cir.1980), cert. denied, 450 U.S. 910, 101 S.Ct. 1347, 67 L.Ed.2d 333 (1981).
Section 523(a)(2)(A) withholds discharge from debts for money, etc. obtained by "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition."