Opinion ID: 63408
Heading Depth: 3
Heading Rank: 1

Heading: Fraudulently Inflated Financial Statements

Text: Citing 11 U.S.C. § 523(a)(2)(B), Cadle argues that the Orsinis’ guarantee is not dischargeable in bankruptcy because the Orsinis obtained the loan by intentionally making materially false statements in both the December 1999 and March 2000 statements. Specifically, Cadle asserts that the Orsinis misrepresented the value of (a) their cash on hand, (b) their personal property, which consisted of stamps, coins, and jewelry, and (c) their residence.1 Section 523(a)(2)(B) provides that a debt is excepted from discharge if it is obtained by (i) use of a statement in writing; (ii) that is materially false; (iii) respecting the debtor’s or an insider’s financial condition; (iv) on which the creditor to whom the debtor is liable for such credit reasonably relied; and (v) that the debtor caused 1 In its brief to this court, Cadle also suggests that the Orsinis falsely inflated the value of their retirement accounts and securities. Because Cadle specifically abandoned this contention as it relates to the § 523(a)(2)(B) claim during the hearing before the bankruptcy court, we do not address it. 4 No. 07-40450 to be made or published with the intent to deceive. 11 U.S.C. § 523(a)(2)(B). A plaintiff must establish each of these elements by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286-87 (1991). In this case, the bankruptcy court found that the December 1999 statement was not “in writing,” and that Cadle had failed to establish that the March 2000 statement satisfied several of the other elements of § 523(a)(2)(B). We discuss first the court’s analysis of the 2000 statement, and then turn to the 1999 statement.
The bankruptcy court found, inter alia, that the Orsinis lacked any intent to deceive in stating the value of their cash, other personal property, and residence on the March 2000 statement. On appeal, Cadle concedes that there is no explicit evidence of an intent to deceive, but argues that the bankruptcy court should have inferred such an intent from the Orsinis’ actions. Intent to deceive under § 523(a)(2)(B) can be inferred from the totality of the circumstances surrounding the debtor’s acts, including the debtor’s knowledge of or reckless disregard for the accuracy of his financial statements. See Norris v. First Nat’l Bank (In re Norris), 70 F.3d 27, 30 n.12 (5th Cir. 1995) (citing Equitable Bank v. Miller (In re Miller), 39 F.3d 301, 305 (11th Cir. 1994)). Although the evidence in this case might support an inference of an intent to deceive, it does not compel such a finding. See Acosta, 406 F.3d at 374. The bankruptcy court heard and credited the testimony of both Rebecca and Anthony Orsini regarding the valuations of the cash, other personal property, and residence. Rebecca testified that “if I made that statement [regarding the March 2000 report], then . . . we must have had [that] cash on hand in banks or in our Fidelity [account].” With respect to the other personal property, including the stamps, coins, and jewelry, the bankruptcy court found that neither of the Orsinis had any expertise in valuing these types of assets. The court found that 5 No. 07-40450 Rebecca estimated the value of the stamps in good faith, by taking into account the large number in the collection and her ability to package the stamps as art to sell in the gift shop. As to the house, the Orsinis testified that they estimated the value at $250,000 because Rebecca had seen a comparable home in the neighborhood listed for this price. Although the house appraised for $200,000 at the time they filed for bankruptcy, the court credited the Orsinis’ testimony that their residence declined in value after they prepared the statements because several billboards were erected in view of the home, a dump opened near the home, and they did not perform maintenance or repairs on the home. Having reviewed the record, we find it plausible that the Orsinis’ financial estimates, though perhaps careless or overoptimistic, were made without dishonest intent. See Miller, 39 F.3d at 305-06. The bankruptcy court did not clearly err in finding that the Orsinis lacked the requisite intent to deceive. Because Cadle must prove all elements to sustain its claim of nondischargeability under § 523(a)(2)(B), we need not address the bankruptcy court’s analysis of the other elements.
Cadle also challenges the bankruptcy court’s finding that the December 1999 statement was not “in writing.” For purposes of this appeal, it is unnecessary to reach this question. Because all of the misrepresentations the Orsinis allegedly made in applying for the loan appeared in the March 2000 statement, the bankruptcy court considered them. As explained, the court found that the alleged misrepresentations failed to satisfy the other elements of § 523(a)(2)(B), and we have affirmed the court’s finding that the Orsinis lacked an intent to deceive. Cadle argues that we must nevertheless consider the bankruptcy court’s finding that the December 1999 statement did not constitute a writing because it affected the court’s analysis of the March 2000 statement — including whether 6 No. 07-40450 the Orsinis had the requisite intent to deceive. Cadle asserts that the fact that the Orsinis repeated the misstatements demonstrates that they were not merely the result of a one-time mistake or oversight, but were intentional. However, of the three misstatements Cadle alleges, only one was repeated — the value of the residence. The valuations of the cash on hand at $25,000.00 and the stamps, coins, and jewelry at $20,000.00 were included for the first time on the March 2000 statement. Therefore, Cadle’s argument has no force with respect to these assets. As to the residence, we disagree that the Orsinis’ “pattern” of repeating the same value for the house should have affected the district court’s consideration of whether the couple had any intent to deceive in reporting that value. First, the bankruptcy court did not interpret the allegedly inflated valuation as a mere mistake or oversight. Second, all of the reasons the court stated for finding a lack of intent would apply with equal force if the December 1999 statement had been considered. The Orsinis estimated the value of the residence at $250,000 because Rebecca had seen a comparable listing in the neighborhood before she prepared either statement. The court also accepted the Orsinis’ explanation that the home had declined in value due to the billboards, dump, and deferred maintenance — all of which came about after the December 1999 statement was filed. Thus, the bankruptcy court’s finding that the 1999 statement was not “in writing,” although dubious, is inconsequential for purposes of this appeal.2 We affirm the bankruptcy court’s finding that the debt arising from the Orsinis’ guarantee is dischargeable under 11 U.S.C. 523(a)(2)(B). 2 We note that we question the circuit opinion on which the bankruptcy court relied in reaching this conclusion: Bellco First Federal Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10th Cir. 1997). In Kaspar, the Tenth Circuit held that “[a] written statement of financial condition does not mean an oral statement converted into an electronic format.” Id. at 1362. Thus, a computer-generated form produced from a debtor’s oral statements did not satisfy § 523(a)(2)(B). Id. Contrary to the reasoning in Kaspar, the text of § 523(a)(2)(B) does not explicitly state that a “writing” must be originally made on paper. 7 No. 07-40450