Court Opinion

ID: 3166885
Source: CourtListenerOpinion
Date Created: 2015-12-31 22:01:16.504053+00
Date Added: 2024-06-11T15:28:54.314393
License: Public Domain

FILED
                                                             DEC 31 2015
 1                         NOT FOR PUBLICATION           SUSAN M. SPRAUL, CLERK
                                                           U.S. BKCY. APP. PANEL
                                                           OF THE NINTH CIRCUIT
 2
 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.     SC-14-1150-KiKuJu
                                   )
 6   BIRGER GREG BACINO,           )      Bk. No.     09-20080-LT
                                   )
 7                  Debtor.        )      Adv. No.    10-90315-LT
                                   )
 8                                 )
                                   )
 9   BIRGER GREG BACINO,           )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )      M E M O R A N D U M1
                                   )
12   FEDERAL DEPOSIT INSURANCE     )
     CORPORATION, as Receiver for )
13   La Jolla Bank FSB,            )
                                   )
14                  Appellee.      )
     ______________________________)
15
                    Argued and Submitted on January 22, 2015,
16                            at Pasadena, California
17                          Filed - December 31, 2015
18             Appeal from the United States Bankruptcy Court
                   for the Southern District of California
19
        Honorable Laura S. Taylor, Chief Bankruptcy Judge, Presiding
20
21   Appearances:     John L. Smaha, Esq. of Smaha Law Group argued for
                      appellant Birger Greg Bacino; Duncan N. Stevens,
22                    Esq. argued for appellee Federal Deposit Insurance
                      Corporation.
23
24   Before:   KIRSCHER, KURTZ and JURY, Bankruptcy Judges.
25
26
          1
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may have
     (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
28   Cir. BAP Rule 8024-1.
 1        Debtor Birger G. Bacino2 appeals a judgment after trial
 2   determining that his debt to the Federal Deposit Insurance Company
 3   as Receiver for La Jolla Bank FSB (“the Bank”), was excepted from
 4   discharge under § 523(a)(2)(A)3 and (a)(2)(B).   Debtor also
 5   appeals a prior ruling granting in part the FDIC's motion for
 6   summary judgment and denying his cross-motion for summary
 7   judgment.   We AFFIRM.
 8                I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 9   A.   Background of Debtor's entities
10        Debtor successfully practiced law as a personal injury
11   attorney, holding licenses to practice law in Texas (surrendered
12   in 2006), California (surrendered in 2006) and the District of
13   Columbia (suspended in 2010).   Debtor also operated two real
14   estate development entities:    ALB Properties, Inc. of which he was
15   100% owner, and Barioni Lakes Estates, LLC, in which he held a 90%
16   interest.   These entities acquired residential lots in different
17   stages of development including properties known as the Roxbury
18   and the Imperial projects.
19        In 2002, Debtor also acquired an interest in a healthcare
20   management conglomerate of several companies collectively called
21   Premier.    Prior to 2004, Premier was the largest provider of
22   workers' compensation related healthcare services in the state of
23
24        2
            On September 28, 2015, Appellant’s attorney notified the
     BAP that appellant died on August 7, 2015. Although the
25   notification suggests that no state probate or other death
     proceeding will occur, the Panel issues this memorandum on the
26   merits of the appeal, without considering issues of mootness.
27        3
            Unless specified otherwise, all chapter, code and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

                                      -2-
 1   California.    Premier did not provide medical services directly,
 2   but facilitated patient care, billing, collection and
 3   therapeutical, translation and clinic support for doctors.    Debtor
 4   also held a 100% interest in a company called Tammy, Inc.    Tammy
 5   provided medical management services to Premier and provided legal
 6   management services to Debtor's law practice.
 7        From 2003 through 2010, Premier and Debtor defended criminal
 8   and civil litigation by several governmental entities.   In late
 9   2004, sweeping changes were proposed in California’s workers'
10   compensation law.   Premier decided to cease obtaining new lien
11   claims secured by workers’ compensation reimbursements and to
12   focus on collecting its existing lien claims, which totaled
13   approximately $400 million, and to defend against litigation
14   related to those claims.   In 2010, Debtor finally resolved the
15   criminal claims against Premier by negotiating a plea agreement,
16   wherein he waived all rights to the collection of Premier's
17   receivables.
18        During the relevant time period, Debtor's ownership in
19   Premier, Tammy and his law practice comprised his personal income
20   and net worth.   The management fees he anticipated Tammy would
21   generate from collecting on Premier's receivables represented a
22   significant portion of his represented 2004-2008 net worth, which
23   he believed to be in excess of $300 million.
24   B.   The loans with the Bank
25        In 2004, an independent loan broker introduced Debtor to
26   David Yoder, a loan officer and director of loan origination with
27   the Bank.   Yoder recommended to the Bank's loan committee that
28   Debtor, who Yoder considered a highly desirable borrower, be given

                                      -3-
 1   three loans to fund the Roxbury project, which Yoder considered a
 2   favorable long-term investment.    Yoder admitted the Bank actively
 3   recruited Debtor and his projects as a long-term customer for the
 4   Bank.
 5        Between 2004-2008 Debtor, either individually or as the
 6   principal of ALB or Barioni, obtained eight loans from the Bank to
 7   fund the development projects and also entered into ten
 8   modifications and/or maturity date extensions of the existing
 9   loans.   The loans and modifications totaled approximately $39
10   million; Debtor served either as a borrower or guarantor.   The
11   subject eighteen loans and modifications are as follows:
12   •    Loan 21130 ("Loan 1") - 2004
13   •    Loan 21197 ("Loan 2") - 2004
14   •    Loan 20001 ("Loan 3") - 2004
15   •    Modification of Loan 2 (21197) ("Loan 4") - 2005
16   •    Modification of Loan 3 (21001) ("Loan 5") - 2005
17   •    Loan 22090 ("Loan 6") - 2006
18   •    Loan 00033 (also known as 22225) ("Loan 7") - 2006
19   •    Loan 22354 ("Loan 8") - 2006
20   •    First modification of Loan 6 (22090) ("Loan 9") - 2006
21   •    First modification of Loan 1 (21130) ("Loan 10") - 2006
22   •    Loan 00066 ("Loan 11") - 2006
23   •    First modification of Loan 11 (00066) ("Loan 12") - 2007
24   •    Modification of Loan 7 (00033) ("Loan 13") - 2007
25   •    Loan 23203 ("Loan 14") - 2007
26   •    Modification of Loan 8 (22354) ("Loan 15") - 2008
27   •    Second modification of Loan 6 (00033) ("Loan 16") - 2008
28   •    Second modification of Loan 11 (00066) ("Loan 17") - 2008

                                       -4-
 1   •    Second modification of Loan 1 (21130) ("Loan 18") - 2008.
 2        Ultimately, once the real estate market began its rapid
 3   decline in 2008-2009, Debtor defaulted on some of the loans.
 4   After 2009, the FDIC became the receiver of the Bank.
 5   C.   FDIC's nondischargeability action
 6        Debtor filed a chapter 7 bankruptcy case on December 31,
 7   2009.   The FDIC filed its nondischargeability complaint on July 2,
 8   2012, seeking relief under § 523(a)(2)(A) and (a)(2)(B).   The FDIC
 9   contended that Debtor had materially misrepresented his assets,
10   income, net worth and liabilities in loan applications, personal
11   financial statements ("PFS") and other documents submitted by him
12   or on his behalf from his CPA, Warren Thefeld, on which the Bank
13   relied for each of the loans and/or modifications.   Alternatively,
14   the FDIC contended that Debtor intentionally misled the Bank by
15   failing to disclose his true financial numbers and did so with the
16   intent to deceive and induce the Bank to make loans or extend
17   credit to Debtor on existing loans.
18        1.    The cross-motions for summary judgment
19        The parties later filed cross-motions for summary judgment.
20   The FDIC sought summary judgment or partial adjudication on its
21   § 523(a)(2)(B) claim ("MSJ"); Debtor sought summary judgment on
22   both of the FDIC's claims, contending that it could not establish
23   either reasonable or justifiable reliance ("Cross MSJ").
24              a.   The FDIC's motion
25        In the FDIC's initial brief in support of its MSJ, and to a
26   greater extent in its supplemental brief (“FDIC’s Supplemental
27
28

                                     -5-
 1   Brief”),4 the FDIC alleged material misrepresentations and/or
 2   omissions by Debtor in connection with each of the loans and
 3   modifications; it set forth the evidence it believed supported
 4   nondischargeability of each particular loan or modification and
 5   stated whether such evidence was disputed or undisputed by Debtor.
 6                       i.   General allegations
 7        As to all of the loans and modifications, the FDIC alleged:
 8        (1)      Debtor had continually misrepresented the value of Tammy
 9   at $25 million.
10        (2)      In 2004, upon Thefeld's advice, Debtor set up a tax
11   shelter via an Employee Stock Ownership Plan ("ESOP"), which
12   allowed him to defer until retirement taxes on $25 million worth
13   of income from Premier, ALB and his law practice.      For the ESOP,
14   an accrual of $25 million was recorded on Tammy's books and 2004
15   tax return.      In essence, Debtor could collect the accrued
16   $25 million in management fees from Tammy and not pay income tax
17   because it had already been "paid" (deferred until retirement) in
18   2004.       Approximately $12 million of the $25 million accrual was
19   attributed to Debtor's income from Premier and his law practice;
20   the other $13 million was attributed to Debtor's income from ALB.
21        (3)      The $25 million accrual had no reasonable basis in
22   accounting and created the fiction of overstated assets of both
23   Tammy and ALB.      By the end of 2008, only approximately
24   $7.5 million of the $12 million related to Premier was collected.
25   Thus, according to the FDIC, the accrual was overstated by 40%.
26
27           4
            This supplemental brief contains a chart of material facts
     and supporting facts and evidence and admissions as to whether a
28   material fact was disputed or undisputed by Bacino.

                                         -6-
 1   At no time from 2004-2008 did Debtor ever disclose to the Bank
 2   that the Premier collections making up the value of Tammy were
 3   overvalued and that its value trended downward significantly from
 4   2004-2008.
 5        (4)   The FDIC argued that Debtor had also inflated Tammy's
 6   value by not disclosing the Premier investigation and Workers
 7   Compensation Appellate Board (“WCAB”) stay.
 8        (5)   The Bank had relied on Debtor's continued representation
 9   that Premier maintained accounts receivable totaling $300 million
10   of which Tammy would realize an estimated $12 million in fees,
11   when Debtor was aware as early as 2003 or 2004 that Premier's
12   anticipated receivables were in jeopardy as being uncollectible
13   due to its illegal activity and he never disclosed any of this
14   information in writing to the Bank.
15        (6)   Debtor had not disclosed that he knew as early as 2005
16   that a waiver of the Premier receivables could be a condition of a
17   plea agreement.
18        (7)   Debtor failed to inform the Bank in writing about the
19   WCAB stay and the negative effect it had on Tammy's ability to
20   collect the $300 million in Premier receivables.
21        (8)   For each loan or modification, only Debtor knew about
22   the investigation and the WCAB Stay, which were not readily
23   discoverable by the Bank.
24        (9)   Debtor understated his liabilities for each loan or
25   modification by omitting ALB's $13 million loan from Tammy, costs
26   of construction and, in some instances, the debt on his yacht.     No
27   loan application or PFS reflected the $13 million liability of
28   ALB, which was never paid back.    Tammy's valuation of $25 million

                                       -7-
 1   on the loan applications was based in part on ALB's loan
 2   receivable in favor of Tammy.    Debtor applying the indebtedness of
 3   ALB to Tammy increased the value of Tammy's assets.      However, by
 4   not balancing the asset with the corresponding liability, Debtor
 5   improperly inflated his net worth by $13 million.
 6        (10)    Debtor repeatedly omitted the costs of construction,
 7   which were listed on Debtor's tax returns for the years 2005 and
 8   2006.
 9        (11)    Debtor consistently listed his yacht as having a value
10   between $2.5 and $3.5 million, often without taking into account
11   the $2.1 million owed against it.       At deposition, Debtor could not
12   explain why the yacht debt was not disclosed in some of the loan
13   applications and PFSs.
14        (12) The Bank conformed with its standard practices in
15   evaluating Debtor's credit worthiness by performing an
16   underwriting analysis, credit check and property appraisal and by
17   requesting tax returns, balance sheets, profit & loss statements,
18   bank statements and information from Thefeld, Debtor's CPA, to
19   explain the complex financial structure of Debtor's entities.
20                    ii.   Evidence supporting each loan or modification
21        In addition to the general paraphrased allegations noted
22   above, the FDIC provided evidence to support nondischargeability
23   of the eighteen transactions individually, which consisted of the
24   following:
25        Loans funded in 2004 - Loan 1, Loan 2, Loan 3.      The Bank
26   funded these three loans on November 3, 2004, in the amounts of
27   $4,184,500, $1,850,000 and $1,850,000 respectively.      Because the
28   Bank funded these loans together, the FDIC's evidence in support

                                       -8-
 1   of its claim was essentially the same.   Debtor admitted
 2   inaccuracies existed in the loan applications submitted to the
 3   Bank, and his expert, Walter Schiller, opined that the financial
 4   information Debtor provided to the Bank contained "glaring errors
 5   from the very first loan."
 6        In the applications submitted for these loans, dated
 7   October 31, 2004, Debtor represented his monthly income as $57,512
 8   or approximately $690,000 per year.    The FDIC contended this
 9   statement was a misrepresentation because Debtor's 2004 income tax
10   return showed an annual income of only $270,000.
11        Debtor also represented that his net worth was $49,908,015,
12   reflecting total assets of $56,440,038 minus total liabilities of
13   $6,532,023.   The $49 million net worth figure included $32 million
14   in "Net worth of business(es) owned."    Before these loans were
15   funded, the Bank requested verification "to support [Debtor's]
16   stated $32.0 million business net worth figure, which is in
17   addition to his 100% real estate interests shown on his real
18   estate schedule."   In response, Thefeld provided the Bank with a
19   Tammy Statement of Income for 2003 in which management fees were
20   identified as $30,027,345.64.   Thefeld also provided the Bank with
21   a 2003 Tammy Balance Sheet identifying total assets of
22   $30,027,299.80, which included an accounts receivable of
23   $29,696,239.02.    To substantiate Tammy's value for 2004, Thefeld
24   provided the Bank with a Tammy Profit & Loss Statement from
25   January through August 2004 identifying income of $7,483,215.62 in
26   management fees.    At deposition, Thefeld testified that Tammy was
27   worth $29 million in 2004, which included the accrued $25 million
28   receivable based on anticipated income from ALB and the management

                                      -9-
 1   fees from collecting the Premier receivables.
 2        In addition, Debtor prepared for the Bank a memorandum,
 3   entitled "Tammy, Inc. receivables through Premier Medical" (the
 4   "Tammy Memorandum"), wherein he represented that "[t]he
 5   $305 million in accounts receivable may be collected at 50%, which
 6   would mean that my share would be 35% of $150 million. . . .    This
 7   year, Tammy can expect to collect $150 million times 20%
 8   (collection rate) times 35%, which is my share or 10 million.
 9   This amount is a bit more then [sic] past years, as my share was
10   around 8 million."
11        Based on the expert opinion of Robert Wallace, the FDIC
12   contended Debtor's identified net worth constituted a
13   misrepresentation as it was based on the overstated value of
14   Tammy, resulting from the accrual of unrealized management fees.
15   Of the $25 million accrued for 2004, which made up the majority of
16   Debtor's stated business net worth of $32 million, only
17   $7.5 million was actually collected between 2004 and 2008.    The
18   FDIC further contended Debtor was engaging in "double accounting"
19   of the same asset wherein the same money was represented as
20   (1) monthly base income from Tammy and his law practice and (2) a
21   Tammy asset of $25 million.
22        The FDIC contended that Debtor had also misrepresented his
23   liabilities by identifying one of the Roxbury lots with a value of
24   $8 million and a debt of $552,000.    Debtor admitted this was an
25   error; the debt was actually $5.5 million.
26        The FDIC also contended that the Bank's reliance on Debtor's
27   representations of income, assets and net worth was evidenced in
28   the Underwriting Analysis for each of the three loans, which

                                    -10-
 1   stated:   "Mr. Bacino is a self-employed attorney and real estate
 2   investor, with an est. $49.9 million net worth and earnings in
 3   excess of $706,000 per year."      The Bank's reliance on Debtor's net
 4   worth was also demonstrated by the Bank's Credit Memorandums
 5   generated for Loan 2 and Loan 3, which stated:       "Net worth —
 6   $38,521,892 . . .    Strengths:    Strong Guarantor Net Worth."
 7        Loans funded in 2005 — Loans 4 & 5.       Loan 4 was a
 8   modification of Loan 2, wherein Debtor received an additional
 9   $1,440,000; Loan 5 was a modification of Loan 3, wherein Debtor
10   received an additional $390,000.      These loans were funded on
11   August 12, 2005.    In addition to Debtor's submitted loan
12   applications, Thefeld had also submitted to the Bank a letter
13   dated August 11, 2005 (the "August 2005 Letter"), which discussed
14   Debtor's and Tammy's income.      It stated:   "My firm is the
15   accountant for Greg Bacino. . . .      His adjusted gross income on
16   his 1040 for 2004 will be approximately $3,300,000.       In addition,
17   approximately $25,000,000 of additional income was earned and will
18   be reported as income by his ESOP pension plan."
19        In the applications for these loans dated June 15, 2005,
20   Debtor represented his monthly income was $600,000, or $7.2
21   million per year.    The FDIC contended this was a misrepresentation
22   because Debtor testified that he did not recall making $600,000
23   per month in 2006 and Thefeld, who did Debtor's taxes,
24   corroborated that Debtor did not personally earn that much money.
25   Thefeld estimated that Debtor's income could have been no greater
26   than $300,000 per month.    Further, contended the FDIC, Debtor had
27   improperly "double counted" the Tammy asset because any income
28   from Tammy and his law practice had already been identified as

                                        -11-
 1   part of the $25 million accrual and could not be considered
 2   "income" in the subsequent years when actually collected.
 3        As for his alleged net worth misrepresentations, in the
 4   application for Loan 4, Debtor represented total assets of
 5   $65,895,349, including $32 million in "Net worth of business(es)
 6   owned" and $32,300,000 in "Real estate owned."    In the application
 7   for Loan 5, dated the same date, Debtor represented total assets
 8   of $71,175,318, including $32 million in "Net worth of
 9   business(es) owned" and $35 million in real estate.    Besides the
10   $5.2 million discrepancy in the asset figure between the two
11   applications, Wallace opined that Debtor had also misrepresented
12   his net worth due to his overstated value of Tammy and his double
13   accounting of that asset.   The FDIC contended that Debtor had also
14   misrepresented his liabilities.    Neither loan application
15   identified any debts, which Debtor could not explain.
16        The FDIC argued the Bank relied on Debtor's representations
17   of income, assets and net worth as demonstrated by the
18   Underwriting Analysis for each loan, which stated:    "He has a net
19   worth in excess of $2.9 million which consists of approximately
20   $35 million in real estate owned, $32 million in net worth of
21   business and $1.25 million in personal property."    The Bank's
22   reliance on Debtor's stated net worth figure of $71 million, which
23   reflects the lack of any debts, was also demonstrated by the
24   Credit Memorandum generated for each loan, which stated:      "Bacino
25   Net Worth $71,175,318 & Liquidity $2,925,318.    Recommend file for
26   approval."   Based on the expert opinion of Thomas Tarter, the FDIC
27   contended it was reasonable and customary for the Bank to rely on
28   Thefeld's August 2005 Letter in extending additional credit to

                                       -12-
 1   Debtor because of Thefeld's status as a CPA.
 2        Loans funded in 2006 —    Loan 6.    The Bank funded Loan 6 for
 3   $8,075,000 on February 15, 2006.    In connection with this loan,
 4   Thefeld authored a letter dated February 6, 2006 (the "February 6,
 5   2006 Letter") to Jim Fardeen of Merrill Lynch, which was
 6   ultimately submitted to the Bank.    It stated:   "The following is a
 7   brief summary of the income tax structure of Greg's Entities
 8   . . . .    [Premier's] [a]ccounts receivable are in excess of
 9   $300,000,000 and are considered collectible by Greg. . . .      The
10   cash net income in 2004 was over $5,000,000.      Greg has estimated
11   that his future Premier collections from January 2006 forward will
12   total $12,000,000-15,000,000. . . .      The estimated income for the
13   law firm for 2005 is $900,000."
14        In the application submitted for Loan 6 dated February 8,
15   2006, Debtor represented his monthly income was $600,000.     The
16   FDIC contended this was a misrepresentation because Debtor's 2006
17   personal income tax return reflected that his salary and wages
18   were $0.
19        Debtor represented his net worth of $64,835,604, reflecting
20   total assets of $86,435,773 minus liabilities of $21,600,169.
21   Debtor represented his assets included $32 million in "Net worth
22   of business(es) owned" and $33,750,000 in real estate.     As with
23   prior loans, Wallace opined that Debtor had misrepresented his net
24   worth due to his overstated value of Tammy and his double
25   accounting of that asset.   Debtor had also failed to list various
26   debts of ALB and Barioni.
27        The FDIC contended that the Bank's reliance on Debtor's
28   representations of income, assets and net worth was evidenced in

                                       -13-
 1   the Underwriting Analysis:   "Mr. Bacino has a stated net worth of
 2   $64,835,604.    This is comprised mainly of equity originating from
 3   his business (approx. $32 million) and his real estate investments
 4   (approx. $22 million). . . .   Strengths:    Guarantor's net worth."
 5   Tarter opined that it was reasonable and customary for the Bank to
 6   rely on Thefeld's February 6, 2006 Letter in extending credit to
 7   Debtor for Loan 6.   The FDIC argued that it was also reasonable
 8   for the Bank to rely on the updated financials for Tammy:     the
 9   2005 Tammy Balance Sheet showed accounts receivable of
10   $25,840,521; and the Tammy 2005 Profit & Loss Statement listed
11   management fees of $2,075,263.
12        Loan 7.    The Bank funded Loan 7 on March 10, 2006, for
13   $3 million.    On February 22, 2006, Debtor authored a letter for
14   the Bank discussing his and Tammy's income (the "February 22, 2006
15   Letter").   Debtor represented that "Tammy, Inc. has accrued and
16   paid tax on $25 million in income.      Even though Tammy is entitled
17   to accrue $25 million, the pension amount will be regulated by
18   existing pension laws.   In excess of $12 million has already been
19   run through Tammy's qualified ESOP and been invested into ALB
20   Properties."
21        In Debtor's PFS dated November 15, 2005, Debtor represented
22   total income of $7.4 million, which consisted of $900,000 from his
23   law practice, $4 million from ALB and $2.5 million from Tammy.
24   The FDIC contended these figures misrepresented Debtor's income.
25   Schiller opined that Debtor's stated total income, which was the
26   same amount he represented in every PFS, was not substantiated by
27   any document.   Thefeld, who did Debtor's tax returns, suspected
28   Debtor was not making $900,000 annually and admitted that Debtor's

                                      -14-
 1   income from Tammy and his law practice was substantially reduced
 2   from 2005-2008, but was never reflected in any PFS.    The FDIC also
 3   disputed Debtor's asserted $2.5 million income for Tammy; Tammy's
 4   2006 tax return showed an income of only $652,000.    The FDIC
 5   contended this reported $2.5 million income was also an improper
 6   "double counting," when the Tammy asset was already part of the
 7   $25 million accrual.   Finally, the FDIC disputed Debtor's asserted
 8   $4 million income for ALB; ALB made no money in 2006.
 9        In the loan application Debtor submitted for Loan 7 dated
10   March 9, 2006, Debtor represented a $600,000 monthly income.     This
11   statement, however, argued the FDIC, contradicted Debtor's 2006
12   income tax return, which showed his income as $0.
13        In the November 15, 2005 PFS, Debtor represented total assets
14   of $124,691,730, including $84,050,000 in owned real estate,
15   $5.5 million in his law practice, $25 million in Tammy and
16   $2.5 million in his yacht.   In the March 9, 2006 loan application,
17   Debtor represented total assets of $96,778,117, including
18   $1,020,509 in "Net worth of business(es) owned," $33,750,000 in
19   real estate and $11 million in vested interest in his retirement
20   fund (the ESOP). The FDIC contended that Debtor had engaged in
21   "triple accounting" of the Tammy asset wherein the same money was
22   represented as (1) $600,000 monthly based income, (2) an
23   $11 million vested retirement plan, and (3) Tammy equity of
24   $32-33 million.   Debtor admitted at deposition that this appeared
25   to be true.
26        The FDIC argued the Bank's reliance on Debtor's
27   representations of income, assets and net worth was demonstrated
28   by the Underwriting Analysis:   "Overall credit summary:   Total

                                     -15-
 1   Assets: $96,778,117; Total Liabilities: $22,760,452; Net Worth:
 2   $74,017,665. . . .   Mr. Bacino's net worth is $74,017,665.   This
 3   is comprised mainly of equity originating from his various
 4   business ventures (approx. $47.5 million). . . .    Mr. Bacino's
 5   financial statements also reflect $11 million in retirement
 6   reserves[.] . . .    The borrower high debt ratios are partially
 7   offset by the borrower's sizable expected income from accounts
 8   receivable held in his qualified ESOP's.   The receivables are
 9   estimated to be around $16.6 million over the next few years."
10   The FDIC contended the Bank's reliance on Debtor's net worth was
11   also demonstrated by the Credit Memorandum generated for Loan 7:
12   "Mr. Bacino has a stated Net Worth of $74,077,162. . . .
13   Strengths:   The borrower has strong Net Worth, Repeat Borrower,
14   Guarantor has consistent Strong Net Income. . . .   Based on the
15   financial strength of the borrower and guarantor, approval is
16   recommended."
17        Additionally, the FDIC argued that in funding Loan 7 it was
18   reasonable for the Bank to rely on (1) the Tammy Memorandum, (2) a
19   recent February 2006 Tammy Balance Sheet, which listed accounts
20   receivable as $25,840,521 and contained the same double accounting
21   error, (3) an updated 2005 Tammy Profit & Loss Statement, which
22   stated management fees of $2,705,263, but failed to disclose this
23   "income" was an asset and technically not income because it was
24   already taxed in 2004, (4) the February 6, 2006 Letter wherein
25   Thefeld represented accounts receivable were in excess of
26   $300 million and considered collectible by Debtor and that future
27   Premier collections would total $12-15 million, and (5) Debtor's
28   February 22, 2006 Letter.

                                      -16-
 1        Loan 8.   The Bank funded Loan 8 on June 29, 2006, in the
 2   amount of $2,015,000.   For reasons unexplained, two loan
 3   applications both dated June 21, 2006, were submitted for this
 4   loan.   In the first loan application, Debtor represented his
 5   personal monthly income was $600,000.   As noted with prior loan
 6   applications, the FDIC contended this was a misrepresentation as
 7   Debtor never made $600,000 per month between the years 2004 and
 8   2008 and his 2006 tax return showed his salary and wages as $0.
 9   Further, any income claimed to be derived from Tammy was an
10   improper double accounting.
11        The FDIC contended that Debtor had also misrepresented his
12   net worth.   In the first loan application Debtor represented total
13   assets of $71,848,587, including $32 million in "Net worth of
14   business(es) owned," $5.5 million in real estate and $31,730,000
15   in "other assets," which included the Imperial property valued at
16   $26,280,000.   In the second loan application, Debtor represented
17   total assets of $116,855,820, which reflects a difference of over
18   $45 million from the first application.   During Debtor’s
19   deposition taken on October 13, 2010, and as confirmed in the
20   FDIC’s Supplemental Brief, Doc. No. 362, Fact 379, Debtor doubted
21   the figures presented in the second loan application were
22   accurate.
23        Debtor represented his total liabilities in the first
24   application as $5,071,917 and in the second as $12,946,674.
25   Regardless of the figure, the FDIC contended he understated his
26   liabilities based on the general allegations as to all of the
27   transactions noted above.   Debtor had also failed to disclose
28   various debts of ALB and Barioni.

                                     -17-
 1        The FDIC contended that the Bank's reliance on Debtor's
 2   representations of income, assets and net worth was evidenced in
 3   the Credit Memorandum, which stated:    "Net Worth:   His stated net
 4   worth is in excess of $66.77 million.    This consists of $32.0
 5   million in net worth of business owned . . . .    "Mitigating
 6   factors supporting approval of the loan, include guarantor's net
 7   worth in excess of $66.77 million and guarantors' real estate
 8   investing experience."   As with Loan 7, the FDIC argued that in
 9   funding Loan 8 it was reasonable for the Bank to rely on
10   misrepresentations made in the Tammy Memorandum, the February 2006
11   Tammy Balance Sheet, the 2005 Tammy Profit & Loss Statement,
12   Thefeld's February 6, 2006 Letter and Debtor's February 22, 2006
13   Letter.
14        Loan 9.   Loan 9 was the first modification of Loan 6, wherein
15   Debtor received an additional $2,513,400.    It was funded on or
16   around August 1, 2006.   It appears from the record provided in
17   support of the FDIC's MSJ that Debtor did not submit a loan
18   application or a PFS for this loan.    Nonetheless, the FDIC claimed
19   that based on statements made by the Bank in the related Credit
20   Memorandum, the Bank relied on Debtor's misrepresentations of
21   income, assets and net worth.   In that Memorandum, the Bank stated
22   Debtor's net worth was "in excess of $36.1 million."     "Strengths:
23   Net Worth is in excess of $36.1 million," and "Weakness:
24   Mr. Bacino's 2003 Federal Income Tax Returns reflect income loss -
25   Offset with Net-Worth in excess of $36 million."      The documents
26   the FDIC claimed supported the Bank's reliance for funding Loan 9
27   included (1) the Tammy Memorandum, (2) an updated July 2006 Tammy
28   Balance Sheet, which showed receivables of $25,840,521, (3) the

                                     -18-
 1   2005 Tammy Profit & Loss Statement, (4) Thefeld's February 6, 2006
 2   Letter, and (5) Debtor's February 22, 2006 Letter.
 3        Loan 10.   Loan 10 was the first modification of Loan 1,
 4   wherein Debtor received an additional $1 million.    It was funded
 5   on August 11, 2006.   It also appears that Debtor did not submit a
 6   loan application for this loan.    Although the FDIC's MSJ
 7   referenced Exhibit 109 as the loan application, Exhibit 109 was
 8   the loan application for Loan 7 funded in March 2006.    The FDIC
 9   did contend, however, that for this loan the Bank relied on
10   Debtor's misrepresentations regarding his income, liabilities and
11   net worth in his PFS from November 15, 2005.   Because Loan 7 was
12   also supported in part by this same PFS, the FDIC presented
13   essentially the same evidence to support its claim for
14   nondischargeability for Loan 10.
15        The FDIC contended the Bank's reliance on Debtor's
16   representations of income, assets and net worth was evidenced by
17   its statement made in the Underwriting Analysis for this loan,
18   which is identical to what was stated in the Underwriting Analysis
19   for the original loan funded in November 2004:    "Mr. Bacino is a
20   self-employed attorney and real estate investor, with an est.
21   $49.9 million net worth and earnings in excess of $706,000 per
22   year."   The other documents the FDIC claimed supported the Bank's
23   reliance for funding Loan 10 included (1) the Tammy Memorandum,
24   (2) the July 2006 Tammy Balance Sheet, (3) the 2005 Tammy Profit &
25   Loss Statement, (4) Thefeld's February 6, 2006 Letter, and
26   (5) Debtor's February 22, 2006 Letter.
27        Loan 11.   Loan 11 was funded on December 20, 2006, for
28   $1 million.   Again, two loan applications were submitted for this

                                       -19-
 1   loan.   In the first loan application dated November 20, 2006,
 2   Debtor represented his monthly income was $57,512, including
 3   $36,787 of "partnership income."   The second application dated
 4   December 13, 2006, indicated that Debtor's monthly income was
 5   $616,666, including $208,333 from Tammy.   Besides the discrepancy
 6   in monthly income between the two applications, the FDIC argued
 7   that Debtor had misrepresented his income because his 2006 tax
 8   return identified his salary and wages as $0.
 9        Debtor's recent PFS dated November 10, 2006, reflected his
10   total income as $7.4 million, which consisted of $900,000 from his
11   law practice, $4 million from ALB and $2.5 million from Tammy.
12   The FDIC contended these figures were also misrepresentations of
13   Debtor's income for the same reasons it stated in Loan 7.
14        As for his assets, the first loan application stated total
15   assets of $56,440,038, including $23,500,000 in real estate and
16   $32 million in "Net worth of business(es) owned."   The second loan
17   application represented total assets of $123,201,232.   Thus, a
18   $66 million discrepancy in assets existed between the two
19   applications dated just weeks apart.
20        The FDIC contended the Bank's reliance on Debtor's
21   representations of income, assets and net worth was evidenced by
22   the Credit Memorandum, which stated that the loan's weaknesses
23   were "mitigated by the guarantor's real estate experience, PIQ
24   locations and guarantor's net worth in excess of $82.28 million."
25   The FDIC further contended it was reasonable for the Bank to also
26   rely on (1) the Tammy Memorandum, (2) the February 2006 Tammy
27   Balance Sheet, which showed receivables of $25,840,521, (3) an
28   updated 2006 Tammy Profit & Loss Statement, which listed

                                     -20-
 1   management fees of $2,345,842.63, but still contained the same
 2   double accounting error, (4) Thefeld's February 6, 2006 Letter,
 3   and (5) Debtor's February 22, 2006 Letter.
 4        Loans funded in 2007 —     Loan 12.    Loan 12 was the first
 5   modification of Loan 11, wherein Debtor received an additional
 6   $1,224,500.   It was funded on March 1, 2007.     In the submitted PFS
 7   dated February 14, 2007, Debtor represented total income of
 8   $7.4 million, which consisted of $900,000 from his law practice,
 9   $4 million from ALB and $2.5 million from Tammy.      Schiller opined
10   that Debtor's represented income of $7.4 million was not
11   substantiated by any document and neither was the purported
12   $2.5 million income from Tammy.    The FDIC contended the Tammy
13   income was a misrepresentation because the 2007 Tammy tax return
14   showed an income of $619,000.    The FDIC contended Debtor also
15   misrepresented the $4 million ALB income; the 2007 ALB tax return
16   showed an income of –$2,966,734.    Schiller opined that nowhere did
17   Debtor ever report $4 million in income from ALB to the IRS.
18        In the loan application dated February 14, 2007, Debtor
19   represented his personal monthly income as $616,666, including
20   $208,000 from Tammy.   The FDIC contended this was a
21   misrepresentation of Debtor's income because his 2007 tax return
22   showed his salary and wages as $0.       As for Tammy income, Debtor
23   had admitted at deposition that he did not know of any income of
24   $208,000 per month, even if the application had been considering
25   collection of the Premier receivable, which was not the amount
26   collected in 2007.   The FDIC contended that Debtor's
27   representation of "rental income" for $333,333 was also incorrect;
28   Debtor testified he had no rental income.      Debtor's employee,

                                       -21-
 1   Anne Berens, testified that many of these numbers were simply
 2   carried over from prior years.
 3        In the February 14, 2007 PFS, Debtor represented assets
 4   totaling $124,867,868, including real estate at $90,050,000, law
 5   practice at $5.5 million, Tammy at $25 million and the yacht at
 6   $2.5 million.   In the loan application, Debtor represented assets
 7   totaling $123,337,295, including $4,050,000 in real estate,
 8   $86 million in "Bus. Re Owned" and $25 million in Tammy.    As with
 9   prior loans, Wallace opined that Debtor had misrepresented his net
10   worth due to his overstated value of Tammy and his double
11   accounting of that asset.
12        The FDIC contended the Bank's reliance on Debtor's
13   representations of income, assets and net worth was demonstrated
14   by the Credit Memorandum:    "Stated Net Worth:   $67.517MM which is
15   largely made up of partnership and real estate equity interest.
16   . . .   Strength:   High Net Worth of Guarantor."   The FDIC further
17   contended it was reasonable for the Bank to also rely on (1) the
18   Tammy Memorandum, (2) the February 2006 Tammy Balance Sheet,
19   (3) the 2006 Tammy Profit & Loss Statement, (4) Thefeld's
20   February 6, 2006 Letter, and (5) Debtor's February 22, 2006
21   Letter.
22        Loan 13.   Loan 13 was a modification of Loan 7, wherein
23   Debtor received an additional $3 million.    It was funded on
24   May 10, 2007.   As additional collateral, Debtor pledged 350 shares
25   of Premier stock, valued at $6 million.    On May 4, 2007, Thefeld
26   had authored another letter to the Bank on Debtor's behalf, which
27   provided updated information regarding the receivables (the
28   "May 4, 2007 Letter").    Thefeld represented that the $25 million

                                      -22-
 1   accrual had been decreased by collections, of which Tammy was
 2   estimated to still receive $19.1 million.
 3        As with Loan 12, Debtor had submitted for Loan 13 the PFS
 4   dated February 14, 2007, which the FDIC contended contained the
 5   same misrepresentation of his monthly income, assets and
 6   liabilities.    In the loan application dated May 9, 2007, Debtor
 7   represented his personal monthly income was $616,666.   The FDIC
 8   contended this was also a misrepresentation of Debtor's income
 9   because his 2007 tax return showed his salary and wages as $0.
10        The FDIC contended the Bank's reliance on Debtor's
11   representations of income, assets and net worth was evidenced by
12   the Underwriting Analysis, which discussed the receivables details
13   in Thefeld's May 4, 2007 Letter, noted Debtor's net worth of
14   "$85,619,103," and stated that one of the strengths for Loan 13
15   was the "Strong Net Worth of Borrower."   The FDIC further
16   contended it was reasonable for the Bank to also rely on (1) the
17   Tammy Memorandum, (2) the February 2006 Tammy Balance Sheet,
18   (3) the 2006 Tammy Profit & Loss Statement, (4) Thefeld's
19   February 6, 2006 Letter, (5) Debtor's February 22, 2006 Letter,
20   and (6) Thefeld's May 4, 2007 Letter.
21        Loan 14.   The Bank funded Loan 14 for $2.54 million on
22   December 31, 2007.   Loan 14 was paid in full by a title insurance
23   company, but the FDIC sought nondischargeability of any litigation
24   fees that might be incurred in a future adverse ruling.
25        In a recent PFS dated December 18, 2007, Debtor represented
26   his total income was $7.4 million, which consisted of $900,000
27   from his law practice, $4 million from ALB and $2.5 million from
28   Tammy.   The FDIC presented the same evidence for why these income

                                      -23-
 1   figures were misrepresentations as it did for Loan 12.
 2        In the loan application dated December 28, 2007, Debtor
 3   represented his total monthly income as $121,083, which equates to
 4   $1,452,996 million annually.     The FDIC contended this was another
 5   misrepresentation of Debtor's income because his 2007 tax return
 6   identified his salary and wages of $0.
 7        The FDIC also pointed to inconsistencies regarding Debtor's
 8   net worth in the PFS dated December 18, 2007, and the loan
 9   application dated December 28, 2007.      The PFS stated that assets
10   totaled $141,497,000, including real estate at $117,497,000, law
11   practice at $5.5 million, Tammy at $15 million and the yacht at
12   $3.5 million.   The loan application stated assets totaling
13   $96,648,115, including "$0" in real estate, $5.5 million in "Net
14   worth of business(es) owned," $72,631,295 in "Net LLC Equity,"
15   $15 million in Tammy and $3.5 million in the yacht.      As with prior
16   loans, the FDIC contended Debtor had misrepresented his net worth
17   based on Wallace's opinion that Debtor had overstated the value of
18   Tammy and double accounted for that asset.      The FDIC contended
19   that Debtor had also misrepresented his liabilities by stating in
20   the PFS they totaled $57,065,705, but stating in the loan
21   application they totaled only $6,140,409.
22        The FDIC contended that the Bank's reliance on Debtor's
23   representations of income, assets and net worth was demonstrated
24   by the Underwriting Analysis, which stated that Debtor had "a
25   stated net worth of $90.5 million.       This is comprised largely of
26   $72.6 million in net partnership and LLC real estate equity[.]"
27   . . .   "Sources of Repayment:   Guarantor/Borrower's other real
28   estate, LLC income and/or liquidation of a portion of

                                       -24-
 1   $90.5 million net worth."   The FDIC further contended it was
 2   reasonable for the Bank to also rely on (1) the Tammy Memorandum,
 3   (2) the February 2006 Tammy Balance Sheet, (3) the 2006 Tammy
 4   Profit & Loss Statement, (4) Thefeld's February 6, 2006 Letter,
 5   (5) Debtor's February 22, 2006 Letter and (6) Thefeld's May 4,
 6   2007 Letter.
 7        Loans funded in 2008 - Loan 15.   Loan 15 was an assumption of
 8   Loan 8 from one of Debtor's entities to another.   No new funds
 9   were advanced in this transaction occurring on January 7, 2008.
10        Loan 16.   Loan 16 was a second modification of Loan 6.    It
11   was funded on April 11, 2008, wherein Debtor received an
12   additional $1.6 million.
13        In the submitted PFS dated April 10, 2008, Debtor represented
14   total income of $7.4 million, which consisted of $900,000 from his
15   law practice, $4 million from ALB and $2.5 million from Tammy.
16   The FDIC contended the Tammy income was a misrepresentation
17   because the 2008 Tammy tax return showed an income of $102,713.
18   Thefeld had also confirmed that Debtor's law firm income in 2008
19   was $170,542, not the $900,000 represented in the PFS.   The FDIC
20   contended Debtor also misrepresented the $4 million ALB income;
21   the 2008 ALB tax return showed an income of –$13 million.
22        In the loan application dated April 10, 2008, Debtor
23   represented his personal monthly income was $121,083, including
24   $40,078 listed as "other" without explanation.   The FDIC contended
25   this statement was an additional misrepresentation in Debtor's
26   income because Debtor's 2008 tax return identified his total
27   income as –$2,361,183.
28        The FDIC also noted the inconsistencies regarding Debtor's

                                     -25-
 1   net worth in the PFS and loan application, both dated April 10,
 2   2008.   In the PFS, Debtor represented total assets of
 3   $141,347,000, including $5.5 million for his law practice,
 4   $15 million for Tammy and $3.5 million for the yacht.    The loan
 5   application stated Debtor's assets totaled $94,437,323, including
 6   "$0" in real estate, $5.5 million in "Net worth of business(es)
 7   owned," $70,631,295 in "Net LLC Equity," $15 million in Tammy and
 8   $3.5 million in the yacht.   Debtor claimed his net worth was
 9   $82,821,399, based on his liabilities of $11,615,924.    A
10   Borrower/Guarantor Analysis created by the Bank for Loan 16
11   reflects Debtor's net worth was $82,821,399.   The FDIC contended
12   that Debtor also misrepresented his liabilities, which he stated
13   in the PFS totaled $59,265,705, but stated in the loan application
14   they totaled $11,615,924.
15        The FDIC contended the Bank's reliance on Debtor's
16   representations of income, assets and net worth was evidenced in
17   the Underwriting Analysis, which indicated the "Strong Net Worth
18   of Borrower.”   The FDIC further contended it was reasonable for
19   the Bank to also rely on (1) the Tammy Memorandum, (2) the
20   February 2006 Tammy Balance Sheet, (3) an updated 2007 Tammy
21   Profit & Loss Statement, which listed management fees of
22   $1,578,679.18, but still contained the same double accounting
23   error, and (4) Thefeld's May 4, 2007 Letter.
24        Loan 17.   Loan 17 was a second modification of Loan 11,
25   wherein Debtor received an additional $1.2 million.   It was funded
26   on September 19, 2008.
27        In the PFS dated May 12, 2008, Debtor represented his total
28   income was $7.4 million, which consisted of $900,000 from his law

                                     -26-
 1   practice, $4 million from ALB and $2.5 million from Tammy.    The
 2   FDIC presented the same evidence for why these income figures were
 3   misrepresentations as it did for Loans 12 and 14.
 4        In the loan application dated September 18, 2008, Debtor
 5   represented his personal monthly income was $616,666, which
 6   included $333,333 in rental income Debtor admitted did not exist.
 7   See FDIC’s Supplemental Brief, Doc. No. 362, Facts 684-687.      The
 8   FDIC contended this was a misrepresentation of Debtor's income
 9   because his 2008 tax return showed his total income was
10   –$2,361,183.
11        The FDIC also noted significant inconsistencies regarding
12   Debtor's net worth in the PFS dated May 12, 2008, and the loan
13   application dated September 18, 2008.    The PFS stated assets
14   totaling $141,347,000, including real estate owned at
15   $117,497,000, his law practice at $5.5 million, Tammy at
16   $15 million and the yacht at $3.5 million.   The loan application
17   stated assets totaling $77,286,040, including "$0" in real estate,
18   $5.5 million in "Net worth of business(es) owned," $53,248,205 in
19   "Net LLC Equity," $15 million in Tammy and $3.5 million in the
20   yacht.
21        The FDIC contended that the Bank’s reliance on Debtor's
22   representations of income, assets and net worth was evidenced in
23   the Underwriting Analysis for Loan 17:   "The guarantor's Net Worth
24   is $67.517 MM made up largely from partnership interest and real
25   estate equity."   The Bank's reliance was also evidenced in the
26   generated Credit Memorandum, which referenced Debtor's stated
27   $67.517 million net worth and stated that the "High Net Worth of
28   Guarantor" was a strength for the loan and something that overcame

                                     -27-
 1   its weaknesses.    The FDIC further contended it was reasonable for
 2   the Bank to also rely on (1) the Tammy Memorandum, (2) the
 3   February 2006 Tammy Balance Sheet, (3) the 2007 Tammy Profit &
 4   Loss Statement and (4) Thefeld's May 4, 2007 Letter.
 5        Loan 18.     Loan 18 was the second modification of Loan 1.
 6   However, this transaction on July 1, 2008, was only a maturity
 7   date extension of Loan 1 and no additional funds were advanced.
 8   At any rate, it appears that Debtor did not submit a loan
 9   application or a PFS in connection with this transaction.    The
10   Tarter report also shows the absence of these documents.
11   Nonetheless, the FDIC claimed that based on statements made in the
12   Bank's related Underwriting Analysis, Credit Memorandum and
13   Borrower/Guarantor Analysis, the Bank relied on Debtor's
14   representations of income, assets and net worth to issue the
15   extension.    The Underwriting Analysis stated:   "The guarantor's
16   Net Worth is $67.5MM made up largely from partnership interest and
17   real estate equity."    The Borrower/Guarantor Analysis referenced
18   the $67.5 million net worth figure and stated that "Greg Bacino
19   reports stated income of $75,000/month in legal fees, $208,333
20   monthly average in net income from Tammy, Inc., and a monthly
21   average of $333,333 in ALB Properties, LLC net real estate
22   income."   Finally, in the Credit Memorandum, the Bank referenced
23   Debtor's net worth of $67.5 million and stated that a strength for
24   the extension was the "High Net Worth of Guarantor."
25                b.   Debtor's Cross MSJ
26        In short, Debtor argued the FDIC had failed to show:    (1) he
27   made any misrepresentations to the Bank with the intent to
28   deceive; (2) that the Bank justifiably relied on any material

                                       -28-
 1   representation within the context of § 523(a)(2)(A); (3) that the
 2   Bank reasonably relied on any written statements provided by
 3   Debtor; or (4) that any discernable damages were caused by his
 4   alleged representations.   Debtor's Cross MSJ was supported by
 5   92 exhibits and the declarations of Debtor, Yoder and his expert
 6   Schiller.
 7        As part of Debtor's defense that the Bank could not have
 8   reasonably relied on his written representations, Schiller opined
 9   that the loan applications and PFSs Debtor submitted to the Bank
10   contained "glaring" errors, at least 250 of them, which should
11   have sent up red flags in the Bank's underwriting department that
12   further investigations and inquiry were needed.   Debtor also
13   alleged that the Bank, not he, created some of the loan
14   applications.   Yoder declared that the Bank's underwriting and
15   loan processing departments were "relatively weak," that the
16   "individuals did not seem to understand large loans, project
17   depth, the need of bonds, or complexity in the development process
18   in general."    Yoder also believed the Bank's underwriting staff
19   "were not properly trained in sophisticated scenarios to review
20   batch financials and comparisons."
21        In reviewing each of the transactions, Schiller opined that
22   the Bank failed to meet the standard of care in issuing the
23   various loans and modifications or extensions.    Specifically,
24   Schiller opined that the Bank's files were cumulative, so the
25   errors and omissions in the first loans "tainted" subsequent loan
26   files.   Therefore, for the Bank to solely rely on subsequent loan
27   files and ignore prior loan files was commercially unreasonable
28   and a breach of the standard of care.   Schiller also opined that

                                      -29-
 1   the Bank erred by relying solely on what he called "company
 2   prepared" material, the least reliable type of underwriting
 3   information, particularly when loaning approximately $50 million.
 4   Instead, the Bank should have required audited and certified
 5   material.   In sum, Schiller opined that due to the Bank's zeal to
 6   compete in the hot real estate market, it "basically overlooked
 7   submitted financial information with glaring discrepancies and
 8   inconsistencies that they never should have accepted without
 9   further extensive evaluation."
10        As for the Bank's claim under § 523(a)(2)(A), Debtor
11   contended that to support the first element of representation, the
12   representation had to be one of "an existing or past fact."
13   Debtor contended that at the time the loans and modifications were
14   executed, he made no representation of an existing or past fact,
15   only "opinions" as to values.    And, in any event, these opinions
16   all related to his "financial condition," which was not actionable
17   under § 523(a)(2)(A).    Further, the Bank could not show
18   justifiable reliance on any omissions by Debtor in his written
19   statements.
20        The crux of Debtor's opposition to the FDIC's MSJ was that it
21   lacked any affidavits or declarations of material facts from Bank
22   personnel affirming:    (1) what the Bank relied upon; (2) what the
23   Bank's purported "standard practices" were; and (3) whether any
24   efforts were made to verify the financial information Debtor
25   provided, especially when clearly inconsistent information was
26   within the loan files.
27        2.     The ruling on the cross-motions for summary judgment
28        The bankruptcy court held a hearing on the MSJ and Cross MSJ

                                      -30-
 1   on January 31, 2013.   The court agreed with Debtor's counsel that
 2   for purposes of summary judgment, it would have to review each
 3   loan or modification on a loan-by-loan basis and the evidence that
 4   purported to support nondischargeability of each loan or
 5   modification.
 6        In its order entered on March 11, 2014, and in substantial
 7   conformance with its tentative ruling issued just prior to the
 8   hearing, the bankruptcy court granted the FDIC partial summary
 9   judgment as to its § 523(a)(2)(B) claim and denied Debtor's Cross
10   MSJ in its entirety ("MSJ Order").     The court found that, absent
11   evidence to the contrary from Debtor, the Bank had provided Debtor
12   with money or an extension of credit based on a written
13   representation of fact as to Debtor's financial condition or that
14   of his insider for all transactions, except Loan 15 which was an
15   assumption and Loan 18 which was an extension of time.    Thus, the
16   first element for a claim under § 523(a)(2)(B) was met as to the
17   sixteen other transactions and summary judgment was appropriate.
18        The court also granted summary judgment to the FDIC as to the
19   material falsity of Debtor's representations.    In his defense to
20   reasonable reliance, Debtor had conceded the numerous inaccuracies
21   in his written financial information relating to the loans and
22   modifications.   Further, the court found that the transactions
23   involved loans supported by Debtor's guaranty, and that Debtor's
24   (and his insiders') financial information was necessarily required
25   and material to the transactions as a result.    Thus, the second
26   element for a claim under § 523(a)(2)(B) was met as to all
27   transactions.
28        The court also granted summary judgment to the FDIC as to

                                     -31-
 1   actual reliance for all transactions.   The court found that the
 2   documents Debtor provided were typical for any loan, and Debtor
 3   did not dispute that the Bank relied on them.    Yoder's declaration
 4   failed to suggest that any of the particular documents submitted
 5   were not necessarily relied upon by the Bank to some extent in its
 6   decision to lend.   Further, Debtor in his responses to the FDIC’s
 7   statements of uncontroverted facts prepared in support of the
 8   FDIC’s MSJ failed to dispute statements establishing actual
 9   reliance by the Bank.   See FDIC’s Supplemental Brief, Doc.
10   No. 362.   Thus, the fourth element for a claim under
11   § 523(a)(2)(B) was met as to all transactions.
12        Finally, the court found that the Bank's reliance was
13   reasonable as to the initial loans — Loan 1, Loan 2 and Loan 3.
14   Neither Debtor nor Schiller addressed why Loan 1 would have raised
15   red flags such that the Bank could not reasonably assume the
16   information presented by, or on behalf of, Debtor was accurate.
17   Schiller did not even discuss Loan 1; Debtor did not directly
18   discuss it.   As for Loan 2 and Loan 3, the court found that
19   Schiller's declaration contained only minimal assertions; it
20   concluded that the "scintilla" of evidence he raised was not
21   sufficient to create a triable issue as to whether reasonable
22   reliance existed for these three loans.   Thus, Debtor had not
23   sufficiently rebutted the FDIC's evidence.   Therefore, the fifth
24   element for a claim under § 523(a)(2)(B) was met as to Loan 1,
25   Loan 2 and Loan 3, but triable issues of material fact existed as
26   to the Bank's reasonable reliance on Loans 4 through 18.
27        The court denied summary judgment as to Debtor's actual
28   intent on all transactions, but noted that state of mind could be

                                     -32-
 1   established by recklessness.    Here, Debtor's own evidence showed
 2   he delegated responsibility for preparation and presentation of
 3   his financial information and made little, if any, effort to
 4   ensure the Bank received accurate financial information.   The
 5   court opined that Debtor's conduct could support a recklessness
 6   finding, but it was not going to grant summary judgment on that
 7   issue.
 8        The court also denied summary judgment as to damages.     In
 9   short, it believed that a trial was necessary to determine whether
10   reasonable reliance existed in connection with the transactions
11   where it had not already found otherwise.   Further, the FDIC still
12   had to prove proximate cause.   Thus, damages, if any, were not yet
13   determinable.
14        3.   The trial on the FDIC's nondischargeability action
15        With summary judgment having been granted in part to the
16   FDIC, the remaining issues of intent, reasonable reliance,
17   causation and damages for its claim under § 523(a)(2)(B) were
18   tried, as well as all issues for its claim under § 523(a)(2)(A).
19   Trial briefs were filed both before and after the trial.   The
20   trial took fourteen days, twelve witnesses testified and
21   approximately 1000 exhibits were entered into evidence.
22        The bankruptcy court entered a written decision on
23   February 28, 2014.   It found in favor of the FDIC as to the
24   remaining elements for its claim under § 523(a)(2)(B) and as to
25   all elements for its claim under § 523(a)(2)(A).   A judgment was
26   entered on March 17, 2014, determining that the Bank's debt of
27   $14,724,003.80 was nondischargeable under both § 523(a)(2)(A) and
28   (a)(2)(B). Debtor timely appealed the judgment on March 31, 2014.

                                      -33-
 1                              II. JURISDICTION
 2        The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
 3   and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C. § 158.
 4                                III. ISSUES
 5   1.   Did the bankruptcy court err in denying Debtor summary
 6   judgment?
 7   2.   Did the bankruptcy court err in determining that the debts to
 8   the Bank were excepted from discharge under § 523(a)(2)(B)?
 9   3.   Did the bankruptcy court err in determining that the debts to
10   the Bank were excepted from discharge under § 523(a)(2)(A)?
11                          IV. STANDARDS OF REVIEW
12        We review summary judgment determinations de novo.     See
13   Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125
14   (9th Cir. 2014).    "Summary judgment is proper if the pleadings,
15   depositions, answers to interrogatories, and admissions on file,
16   together with the affidavits, if any, show that there is no
17   genuine issue as to any material fact and that the moving party is
18   entitled to a judgment as a matter of law."      Celotex Corp. v.
19   Catrett, 477 U.S. 317, 322 (1986)(internal quotation marks
20   omitted).   Under this standard, the moving party is entitled to
21   summary judgment if the nonmoving party "after adequate time for
22   discovery . . . fails to make a showing sufficient to establish
23   the existence of an element essential to that party's case, and on
24   which that party will bear the burden of proof at trial."       Id.;
25   see also Ilko v. Cal. State Bd. of Equalization (In re Ilko),
26   651 F.3d 1049, 1052 (9th Cir. 2011)(applying Celotex summary
27   judgment standard to bankruptcy adversary proceeding).     As
28   explained in Celotex, all other facts are immaterial when the

                                      -34-
 1   nonmoving party fails to submit sufficient proof of an essential
 2   element of its case.   Id. at 323.
 3        In reviewing a bankruptcy court's determination of an
 4   exception to discharge, we review its findings of fact for clear
 5   error and its conclusions of law de novo.    Oney v. Weinberg
 6   (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009).      For
 7   purposes of   § 523(a)(2), a debtor's intent, materiality, whether
 8   the creditor relied upon the debtor's false statements and
 9   proximate cause are all questions of fact we review under the
10   clearly erroneous standard.   Candland v. Ins. Co. of N. Am.
11   (In re Candland), 90 F.3d 1466, 1469 (9th Cir. 1996).      A factual
12   finding is clearly erroneous if it is illogical, implausible or
13   without support in the record.    Retz v. Samson (In re Retz),
14   606 F.3d 1189, 1196 (9th Cir. 2010).    We give great deference to
15   the bankruptcy court's findings when they are based on its
16   determinations as to the credibility of witnesses.    Id.
17        "We may affirm 'on any ground supported by the record,
18   regardless of whether the [bankruptcy] court relied upon,
19   rejected, or even considered that ground.'"    Fresno Motors, LLC v.
20   Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014)
21   (citation omitted).
22                              V. DISCUSSION
23        When determining whether a debt is excepted from discharge, a
24   bankruptcy court must construe the evidence against the creditor
25   and in favor of the debtor.   Mele v. Mele (In re Mele), 501 B.R.
26   357, 363 (9th Cir. BAP 2013).    A creditor objecting to
27   dischargeability of its claim bears the burden of proving, by a
28   preponderance of the evidence, that the particular debt falls

                                      -35-
 1   within one of the exceptions to discharge enumerated under
 2   § 523(a).    Grogan v. Garner, 498 U.S. 279, 286-291 (1991).
 3        Debtor contends the bankruptcy court erred by "lumping" the
 4   loans and modifications together and not trying the case on a
 5   loan-by-loan basis.    Debtor contends he was denied due process
 6   because each of the eighteen separate transactions were not tried
 7   as separate debts.    Debtor fails to point out in the record where
 8   he made this due process objection.       Further, in reviewing the
 9   trial transcripts, it is clear the court tried the case on a loan-
10   by-loan basis.    In fact, Debtor's counsel complained at the end of
11   trial day 7 that the FDIC was taking far too much time with
12   testimony on each of the transactions individually.      In response
13   to his complaint, both the FDIC and the court reminded Debtor's
14   counsel that he was the one arguing in favor of that very approach
15   at summary judgment.    Nonetheless, we agree that the bankruptcy
16   court took a "global" approach in its decision.      As we discuss in
17   more detail below, this caused it to err as to at least two of the
18   loans.
19   A.   The bankruptcy court erred in determining that Loan 9 and
          Loan 10 were excepted from discharge under § 523(a)(2)(B),
20        but correctly determined that the other transactions were
          excepted from discharge under § 523(a)(2)(B).
21
22        To prevail on an exception to discharge claim under
23   § 523(a)(2)(B),5 the creditor must show:      (1) it provided debtor
24
          5
25            Section 523(a)(2)(B) provides:
26        (a) A discharge under . . . this title does not discharge an
          individual debtor from any debt . . . (2) for money,
27        property, services, or an extension, renewal, or refinancing
          of credit, to the extent obtained by . . . (B) use of a
28                                                       (continued...)

                                      -36-
 1   with money, property, services or credit based on a written
 2   representation of fact by the debtor as to the debtor's financial
 3   condition; (2) the representation was materially false; (3) the
 4   debtor knew the representation was false when made; (4) the debtor
 5   made the representation with the intention of deceiving the
 6   creditor; (5) the creditor relied on the representation; (6) the
 7   creditor's reliance was reasonable; and (7) damage proximately
 8   resulted from the representation.   See In re Candland, 90 F.3d at
 9   1469; Siriani v. Nw. Nat’l Ins. Co. (In re Siriani), 967 F.2d 302,
10   304 (9th Cir. 1992); Gertsch v. Johnson & Johnson (In re Gertsch),
11   237 B.R. 160, 167 (9th Cir. BAP 1999) (adopting the elements
12   required under the companion section 523(a)(2)(A), with the
13   additional and obvious requirement that the alleged fraud stem
14   from a false statement in writing).
15        1.   There must be a statement in writing respecting the
               debtor's or insider's financial condition that contains
16             a false representation of fact.
17        The bankruptcy court determined on summary judgment that,
18   absent contrary evidence from Debtor, the Bank had provided Debtor
19   with money or an extension of credit based on a written
20   representation of fact as to his or his insider's financial
21   condition for all transactions, except for Loans 15 and 18.    The
22   court reiterated this finding again in its written decision after
23   trial, but it is not clear whether it intended to still exclude
24
25        5
           (...continued)
          statement in writing – (i) that is materially false;
26        (ii) respecting the debtor’s or an insider’s financial
          condition; (iii) on which the creditor to whom the debtor is
27        liable for such money, property, services, or credit
          reasonably relied; and (iv) that the debtor caused to be made
28        or published with intent to deceive[.]

                                    -37-
 1   these loans.   Debtor does not raise this issue on appeal.
 2   However, we conclude that Loan 9 and Loan 10, both of which were
 3   modifications of loans to ALB, were not supported by a "written
 4   representation of fact" as to Debtor's "financial condition," and
 5   Debtor should have been granted summary judgment with respect to
 6   these two loans under § 523(a)(2)(B).
 7        A loan application containing information about an
 8   applicant’s income constitutes a statement in writing respecting
 9   the applicant's financial condition for purposes of
10   § 523(a)(2)(B).   See Cashco Fin. Servs. v. McGee (In re McGee),
11   359 B.R. 764, 768 (9th Cir. BAP 2006).   The same would be true for
12   a personal financial statement.    The Panel examined the meaning of
13   the term "financial condition" as it is used in § 523(a)(2)(B) in
14   Barnes v. Belice (In re Belice), 461 B.R. 564, 578 (9th Cir. BAP
15   2011), and held that it must be interpreted narrowly:
16        Statements that present a picture of a debtor's overall
          financial health include those analogous to balance
17        sheets, income statements, statements of changes in
          overall financial position, or income and debt statements
18        that present the debtor or insider's net worth, overall
          financial health, or equation of assets and liabilities
19        . . . . What is important is not the formality of the
          statement, but the information contained within it —
20        information as to the debtor's or insider's overall net
          worth or overall income flow.
21
22   Id. at 578.    In other words, the writing must be a complete or
23   comprehensive statement regarding a debtor's income and expenses.
24   Id. at 579.
25        No loan application or PFS was submitted for Loan 9.    This is
26   clear from the FDIC's MSJ and the Tarter and Wallace reports.
27   Wallace did not discuss this loan at all; Tarter's report shows
28   that no application or PFS were submitted for it.   The record also

                                       -38-
 1   indicates that Debtor did not submit a loan application for
 2   Loan 10, which is also reflected in the MSJ.   Tarter and Wallace
 3   failed to address this loan at all in their reports.   Although the
 4   FDIC's MSJ referenced a PFS it claims was submitted with Loan 10,
 5   it cited to the wrong document.
 6        The other documents the FDIC claimed supported the Bank's
 7   reliance for funding both loans included (1) the Tammy Memorandum,
 8   (2) a July 2006 Tammy Balance Sheet, (3) the 2005 Tammy Profit &
 9   Loss Statement, (4) Thefeld's February 6, 2006 Letter, and
10   (5) Debtor's February 22, 2006 Letter.    The Tammy Memorandum
11   discusses only Debtor's potential income he would derive from
12   Tammy.   The July 2006 Tammy Balance Sheet again shows only the
13   financial health of Tammy, not Debtor's overall financial health.
14   Plus, these loans were to ALB, not Tammy.   The same is true with
15   the 2005 Tammy Profit & Loss Statement.   The February 6, 2006
16   Letter seems more akin to a statement of Debtor's net worth or
17   overall financial health, but the focus is still primarily on his
18   income only; it did not discuss any of his liabilities.   Finally,
19   the February 22, 2006 Letter discusses briefly the Tammy accrual,
20   the ESOP and what properties ALB owns and is developing and
21   estimated sales figures.
22        While each of these alleged misrepresentations reflect some
23   aspect of Debtor's income and the profitability of his entities,
24   "they do not either separately or when taken together reflect his
25   overall cash flow situation, his overall income and expenses, or
26   the relative values and amounts of his assets and liabilities."
27   In re Belice, 461 B.R. at 579.    Accordingly, without a "written
28   representation of fact" as to Debtor's financial condition with

                                       -39-
 1   respect to Loan 9 and Loan 10, the bankruptcy court erred in
 2   denying summary judgment to Debtor for these loans under
 3   § 523(a)(2)(B).     However, they may still be nondischargeable under
 4   § 523(a)(2)(A).
 5        As for the remaining loans (with the exception of Loan 15 and
 6   Loan 18), the bankruptcy court did not err in finding that the
 7   Bank provided Debtor with money or an extension of credit based on
 8   a written representation of fact as to Debtor's or an insider's
 9   financial condition.    Debtor submitted loan applications and/or
10   PFSs with each of the remaining loans, and Debtor does not dispute
11   that each contained significant falsity.
12        2.   The misrepresentation must be material.
13        A materially false statement is one which "paints a
14   substantially untruthful picture of a financial condition by
15   misrepresenting information of the type which would normally
16   effect [sic] the decision to grant credit."    First Interstate Bank
17   of Nev. v. Greene (In re Greene), 96 B.R. 279, 283 (9th Cir. BAP
18   1989)(citations omitted).    "'Material falsity' in a financial
19   statement can be premised upon the inclusion of false information
20   or upon the omission of information about a debtor's financial
21   condition."   Id.   See also N. Park Credit v. Harmer
22   (In re Harmer), 61 B.R. 1, 5 (Bankr. D. Utah 1984)(a "long line of
23   cases" has held that in a financial statement, the "omission,
24   concealment, or understatement of any of the debtor's liabilities
25   constitutes a 'materially false' statement.")(citing cases).      "A
26   statement can be materially false if it includes information which
27   is 'substantially inaccurate' and is of the type that would affect
28   the creditor's decision making process."    In re Greene, 96 B.R. at

                                       -40-
 1   283 (citations omitted).    See In re Candland, 90 F.3d at 1470
 2   (adopting Greene standard for "material falsity" and holding that
 3   "significant misrepresentations of financial condition — of the
 4   order of several hundred thousand dollars — are of the type which
 5   would generally affect a lender's or guarantor's decision").
 6        In its summary judgment ruling, the bankruptcy court found in
 7   favor of the FDIC on this element as to all of the transactions.
 8   After trial, relying on Candland, it again found in favor of the
 9   FDIC, determining the inaccuracies in the loan applications and
10   PFSs were material and of the type the Bank actually relied upon
11   in making the decision to advance the loans.   In addition, the
12   court found that Debtor's omitted information — his resignation
13   from two state bars in 2006, the Premier investigation and the
14   WCAB Stay — was of the type that would be material to the Bank,
15   because it reflected on Debtor's character, which Tarter opined
16   was one of the "5 C's" for obtaining credit.   This finding is
17   consistent with Greene, as material falsity can also be
18   established by omissions of information about a debtor's financial
19   condition.
20        Debtor contends the bankruptcy court applied an improper
21   standard for material falsity under § 523(a)(2)(B) at summary
22   judgment and after trial.   He argues, essentially, that we ignore
23   controlling case law and adopt the standard set forth in Matter of
24   Bogstad, 779 F.2d 370, 375-376 (7th Cir. 1985).   In Bogstad, the
25   Seventh Circuit held that for a statement to be materially false
26   for purposes of § 523(a)(2)(B), the test is whether the lender
27   would have made the loan had he known of the debtor's true
28   financial condition.   That is not the standard in the Ninth

                                      -41-
 1   Circuit.   In fact, the Candland court expressly rejected Bogstad
 2   and adopted this Panel's standard for material falsity set forth
 3   in Greene.    Candland, 90 F.3d at 1470.
 4        More concerning is that Debtor's counsel agreed with the
 5   bankruptcy court during the summary judgment hearing that the
 6   standard it applied for material falsity was the correct one:
 7        MR. SMAHA: So to the extent that we're saying yes, there
          are numbers on here that would be of the type that a bank
 8        would be interested in, and that they relied on those
          numbers, I don't have any problem with that concept.
 9
          . . . .
10
          THE COURT: I'm saying pretty much for all loans, I think
11        there are misstatements of a type that a bank would rely
          on.
12
          MR. SMAHA:    I would agree with that --
13
          THE COURT:    All transactions.
14
          MR. SMAHA: I believe that would be a true statement, and
15        we would probably -- we would admit to that.
16        . . . .
17        MR. SMAHA: But yes, we agree that they relied on all the
          documents that were provided by Mr. Bacino.
18
19   Hr’g Tr. (Jan. 31, 2013) 31:14-17, 32:10-16, 34:22-23.    Thus, it
20   would appear Debtor has waived any argument on this issue.    In any
21   event, we conclude the bankruptcy court applied the correct
22   standard for material falsity.
23        3.      Debtor knew the misrepresentation at the time to be
                  false and the debtor made it with the intention of
24                deceiving the creditor.
25        The bankruptcy court did not find actual intent to deceive,
26   but did find that Debtor had acted with the requisite recklessness
27   to establish his intent under § 523(a)(2)(B), whether applying
28   either a "gross" recklessness standard or some lesser form.      Mem.

                                       -42-
 1   Decision (Feb. 28, 2014) 20-21.    Specifically, the court found
 2   that Debtor borrowed or guaranteed millions of dollars through the
 3   use of documents that were highly inaccurate.     They presented a
 4   false sense of his personal net worth.     Id. at 21.    They failed to
 5   disclose facts known to Debtor that created a significant risk to
 6   him and to anyone relying on him for repayment.     He delegated
 7   responsibility for truthful disclosure to others who lacked the
 8   information, opportunity or sophistication to provide an accurate
 9   picture of his financial condition, and he did so repeatedly.
10   Although Debtor testified that he read the documents prior to the
11   closings of the various loans, the court found that no evidence
12   existed "that he corrected a single syllable."     Id.
13        Debtor contends the bankruptcy court applied an incorrect
14   standard for intent.   He contends that in light of Bullock, none
15   of the exceptions to discharge under § 523(a) can be satisfied
16   with a showing of "mere negligence."     See Bullock v.
17   BankChampaign, N.A., 133 S. Ct. 1754 (2013).     The bankruptcy court
18   did not make a finding of "mere negligence" or apply any such
19   standard, which is not the standard in this circuit at any rate.
20   In this circuit, reckless disregard for the truth of a
21   representation or reckless indifference to the debtor's actual
22   circumstances can support a finding of intent for purposes of
23   § 523(a)(2).   See Anastas v. Am. Sav. Bank (In re Anastas),
24   94 F.3d 1280, 1286 (9th Cir. 1996); In re Gertsch, 237 B.R. at
25   167-68 (applying the reckless standard to § 523(a)(2)(B)); Arm v.
26   A. Lindsay Morrison, M.D., Inc. (In re Arm), 175 B.R. 349, 354
27   (9th Cir. BAP 1994).   The bankruptcy court may consider
28   circumstantial evidence that tends to establish what the debtor

                                       -43-
 1   must have actually known when taking the injury-producing action.
 2   Jett v. Sicroff (In re Sicroff), 401 F.3d 1101, 1106 (9th Cir.
 3   2005).
 4        In Bullock, the Supreme Court held that the intent
 5   requirement for a fiduciary's defalcation should be the same as
 6   the other specifically enumerated acts found in § 523(a)(4) —
 7   i.e., larceny and embezzlement. 133 S. Ct. at 1759.   An innocent
 8   defalcation does not suffice.   The fiduciary's conduct requires
 9   intentional, improper conduct and "reckless conduct of the kind
10   that the criminal law often treats as the equivalent."    Id.
11   Accordingly, where actual knowledge is lacking, intent can still
12   be shown for purposes of § 523(a)(4) if the "fiduciary
13   'consciously disregards' (or is willfully blind to) 'a substantial
14   and unjustifiable risk' that his conduct will turn out to violate
15   a fiduciary duty."   Id. at 1759-60 (quoting Model Penal Code
16   § 2.02(c)).
17        We disagree that Bullock applies to § 523(a)(2)(B), or if it
18   does, that the standard set forth in Bullock has heightened the
19   standard of recklessness already applied in this circuit.    In any
20   event, we perceive no clear error in the bankruptcy court's
21   finding that Debtor's actions here satisfy the standard of gross
22   recklessness.   Debtor admitted delegating the responsibility for
23   preparing PFSs and loan applications to his employees, Berens and
24   Judy Brenning, who often signed for him, and relying heavily on
25   them for providing the correct information.    Berens, who began
26   filling out the PFSs and loan applications in early 2007,
27   testified that generally she carried numbers over from prior
28   documents, with Debtor's knowledge, that she did not verify

                                       -44-
 1   Debtor's income figures and that she believed it was Debtor's
 2   responsibility to verify whether the numbers were true and
 3   correct.   Brenning admitted that in filling out the first PFS she
 4   had "no idea what to do" and had to consult with Thefeld.
 5   Brenning testified that she relied on Debtor or Thefeld for much
 6   of the financial information contained in later PFSs and loan
 7   applications; she had no knowledge of what the numbers were on her
 8   own.
 9          Debtor testified he also relied heavily on Thefeld for
10   correct information in the PFSs and loan applications.      However,
11   Thefeld testified that other than assisting Brenning with some
12   information for the first loans, he never discussed with Debtor or
13   any of his staff financial information for PFSs or loan
14   applications.   Although Debtor testified that he "glanced" at
15   every loan application at the Bank's Escondido office before
16   submitting them, he also testified that he did not think he needed
17   to review them because he had a "super team."      Berens also
18   testified that it would not be unusual for Debtor to ask her to
19   sign his name to a PFS without him reviewing it.
20          Clearly, many of the facts contained in the PFSs and loan
21   applications were not accurate.    And it appears Debtor did little
22   if anything to ensure that they contained accurate information
23   before signing or submitting them.       Failure to review documents
24   containing false statements about a debtor's financial condition,
25   with the knowledge that those documents will be submitted to
26   obtain money or credit, supports a finding of reckless disregard.
27   Merchs. Bank of Cal. v. Oh (In re Oh), 278 B.R. 844, 858 (Bankr.
28   C.D. Cal. 2002).   The bankruptcy court did not find Debtor’s

                                       -45-
 1   testimony credible that he believed his staff could submit
 2   accurate and complete information without his input.    Mem.
 3   Decision (Feb.28, 2014) 9:16-28.   We must give this credibility
 4   finding great deference.   In re Retz, 606 F.3d at 1196.
 5   Accordingly, the bankruptcy court applied the correct standard for
 6   intent; we conclude its finding against Debtor on that element was
 7   not clearly erroneous.
 8        4.    Creditor must reasonably rely on the misrepresentation.
 9        To meet the reliance standard under § 523(a)(2)(B), there
10   must be reasonable reliance.   Reasonable reliance means reliance
11   that would have been reasonable to a hypothetical average person.
12   Heritage Pac. Fin., LLC v. Machuca (In re Machuca), 483 B.R. 726,
13   736 (9th Cir. BAP 2012).   Reasonable reliance is analyzed under a
14   "prudent person" test.   In re McGee, 359 B.R. at 774; First Mut.
15   Sales Fin. v. Cacciatori (In re Cacciatori), 465 B.R. 545, 555
16   (Bankr. C.D. Cal. 2012)(court must objectively assess the
17   circumstances to determine if creditor exercised degree of care
18   expected from a reasonably cautious person in the same business
19   transaction under similar circumstances).   Reasonable reliance is
20   judged in light of the totality of the circumstances on a
21   case-by-case basis.   In re Machuca, 483 B.R. at 736.
22        A creditor's reliance may be reasonable if the creditor
23   adhered to its normal business practices.   In re Gertsch, 237 B.R.
24   at 172.   The court may consider whether the lender's normal
25   practices align with industry standards, or if any "red flags"
26   exist that would alert a reasonably prudent lender to consider
27   whether the representations relied on were inaccurate.     Nat'l City
28   Bank v. Hill (In re Hill), 2008 WL 2227359, at *3 (Bankr. N.D.

                                     -46-
 1   Cal. May 23, 2008)(citing Ins. Co. of N.A. v. Cohn (In re Cohn),
 2   54 F.3d 1108, 1117 (3d Cir. 1995)).      A creditor cannot simply
 3   ignore red flags that directly call into question the truth of the
 4   statements on which the creditor claims to have relied.
 5   In re Machuca, 483 B.R. 736-37 (citing In re McGee, 359 B.R. at
 6   775).   Under such circumstances, the creditor must support
 7   reasonable reliance with evidence explaining why it was reasonable
 8   for it to rely on the statements notwithstanding the red flags.
 9   Id.   However, when the evidence shows materially false statements
10   were made by the debtor, little investigation is required by the
11   creditor to have reasonably relied on the debtor's representation.
12   In re Gertsch, 237 B.R. at 170.
13         The bankruptcy court found that the Bank actually and
14   reasonably relied on the erroneous and incomplete information
15   provided by Debtor.   Mem. Decision (Feb. 28, 2014) 21-24.    Debtor
16   disputes this finding of fact, which we review for clear error.
17   In short, Debtor contends that because the Bank did its own income
18   analysis, it did not actually rely on the stated income numbers.
19   He further contends the Bank took no action on the discrepancies
20   that were actually noted by personnel.     In other words, the
21   numerous "red flags" at issue precluded the Bank's reasonable
22   reliance on Debtor's misrepresentations.
23         The bankruptcy court agreed with Debtor that the Bank
24   apparently did discover some of his errors, such as those
25   identifiable from credit reports, and utilized its own information
26   in connection with the lending decisions.     Mem. Decision (Feb. 28,
27   2014) 22.   The court also agreed that had the discoverable errors
28   been the only ones out there, Debtor would have had a defense.

                                       -47-
 1   However, they were not.   Debtor failed to disclose a host of
 2   transactions requiring disclosure that were not readily
 3   discoverable by the Bank.   These transactions included loans
 4   between his various entities ($13 million ALB loan from Tammy) and
 5   several private loans from Berens ($300,000), her brother
 6   ($75,000), Fish ($6-8 million), and Jerry Hall, the father of the
 7   Bank's president (amount unknown).      Id.   Debtor had also failed to
 8   disclose that he was no longer licensed to practice law in Texas
 9   and California.   And, what the court found most troubling, Debtor
10   failed to disclose the serious challenges, ultimately leading to
11   criminal liability, that faced Premier.
12        The bankruptcy court rejected Debtor's defense that the Bank
13   did not rely on his net worth but rather on the development
14   projects.   First, the Bank required a guaranty, which provided a
15   source of repayment if the projects did not generate sufficient
16   proceeds and which was consistent with its general practice and
17   industry standards.   Further, the Underwriting Analyses and Credit
18   Memoranda consistently pointed to Debtor's net worth as support
19   for the loans.    Due to Debtor's erroneous information, his net
20   worth and liquidity were not as represented in the documents he
21   signed.   While the Bank discovered some of these errors and
22   reduced its estimate of net worth accordingly, the court found
23   that the Bank could not find all of them through any reasonable
24   means.    The intercompany and private loans would not show up on a
25   credit report; the Premier issues were also undiscoverable with
26   any reasonable due diligence.
27        Finally, the bankruptcy court disagreed with Debtor's "red
28   flag" argument, supported by Schiller.        The court found that the

                                      -48-
 1   FDIC established through Tarter, and through factual testimony,
 2   that the Bank could reasonably rely on Debtor's submissions, even
 3   if it identified serious errors.   The errors identified still
 4   resulted in a conclusion that Debtor had significant net worth.
 5   No alerts existed that led to the discovery of the many loans and
 6   transactions that would never be disclosed by a balance sheet, or
 7   the serious problems with Premier.     The court also found
 8   compelling that Debtor and his entities were repeat customers, and
 9   that Debtor's legal training could reasonably lead the Bank to
10   conclude he was sophisticated and aware of his obligations for
11   full disclosure.
12        We see nothing illogical, implausible or without support in
13   the record as to the bankruptcy court's finding that the Bank
14   actually and reasonably relied on Debtor's misrepresentations.
15   The loan approval documents generated by the Bank clearly show its
16   actual reliance on Debtor's misrepresentations by its repeated
17   references to his significant, yet overstated, net worth.     And,
18   contrary to Debtor's argument, his misrepresentations went far
19   beyond his income.   With the exception of Loan 9 and Loan 10 (and
20   Loan 18), Debtor continually overstated his assets and understated
21   his liabilities on each loan application and PFS submitted to the
22   Bank.   Further, as established by the FDIC's experts, the Bank
23   adhered to industry standards and took reasonable measures to
24   verify Debtor's representations.   This adherence, along with the
25   Bank's inability to discover the omitted and significant
26   intercompany and private loans and Debtor's failure to disclose
27   the Premier problems, supports a finding of reasonable reliance.
28   Due to Debtor's many materially false statements, the Bank was

                                     -49-
 1   only required to perform a minimal investigation, which it did.
 2   In re Gertsch, 237 B.R. at 170.
 3        5.   Creditor suffered damages proximately resulting from the
               debtor's misrepresentation.
 4
 5        The bankruptcy court held that based on the totality of the
 6   evidence, the FDIC had met its burden of proof that losses
 7   sustained were the proximate result of Debtor's actions.     The
 8   court rejected Debtor's argument that the FDIC failed to introduce
 9   testimony from a loan officer stating what the Bank would have
10   done had it known.   No such testimony was required; Debtor failed
11   to offer this same type of testimony favorable to his cause when
12   the burden of proof shifted to him given the standard articulated
13   in Siriani and Candland.
14        In Siriani, the Ninth Circuit held that in the case of credit
15   renewals, "a creditor seeking nondischargeability under section
16   523(a)(2)(B) must show that it had valuable collection remedies at
17   the time it agreed to renew its commitment to the debtor, and that
18   those remedies later became worthless." 967 F.2d at 305.    Stated
19   another way, where credit renewals are involved, the creditor must
20   show some proximately-caused damage beyond the unpaid debt.     The
21   bankruptcy court did not address this part of Siriani's holding.
22   Instead, it relied on Siriani's directive that bankruptcy courts
23   are not required "to divine what might have happened" with respect
24   to the creditor's diligence, or lack thereof, in exercising its
25   collection remedies.   Id. at 306.
26        Debtor contends the FDIC failed to make any showing of
27   proximately-caused damages beyond the unpaid debt and the
28   bankruptcy court improperly shifted the burden to him on this

                                       -50-
 1   element.    Siriani would appear to apply only to those transactions
 2   that were renewals of credit — i.e., the ten loan modifications
 3   and/or maturity date extensions — which Debtor seems to concede,
 4   and not to the "new" money transactions.    The FDIC contended that
 5   the Bank had collection remedies based on the promissory notes,
 6   collateral and abundance of caution liens filed for the various
 7   loans.   These collection remedies were extended each time a loan
 8   was modified or extended.    After the modifications and maturity
 9   date extensions when Debtor defaulted and failed to make the
10   required payments, the Bank began foreclosure proceedings.
11   However, due to Debtor's bankruptcy filing, the FDIC as receiver
12   for the Bank was unable to collect all of the remaining
13   outstanding loans, unless the court determined the debts were
14   excepted from discharge, for which Debtor was also a guarantor.
15        We conclude that the FDIC made a sufficient evidentiary
16   showing of proximate cause for the loan modifications and/or
17   maturity date extensions.    Therefore, any potential error by the
18   bankruptcy court was harmless, as the record supports a proximate
19   cause finding for the renewals that occurred in this case.
20        Debtor does not appear to challenge the bankruptcy court's
21   proximate cause finding as to the eight "new" money loans.    To the
22   extent he does, we conclude the court's finding was not clearly
23   erroneous.    For new money loans, proximate cause is established
24   when the falsehoods are material and involve significant amounts
25   of money.    Candland, 90 F.3d at 1471.   Here, the falsehoods were
26   material and involved significant amounts of money, far greater
27   than the amount at issue in Candland.
28        Accordingly, except for Loan 9 and Loan 10, we conclude the

                                      -51-
 1   bankruptcy court did not err in determining that amounts owed on
 2   account of the loans are nondischargeable under § 523(a)(2)(B).
 3   B.   The bankruptcy court did not err in excepting Loan 9 and
          Loan 10 from discharge under § 523(a)(2)(A).
 4
 5        For this claim, we address only Loan 9 and Loan 10, as we
 6   have already concluded the bankruptcy court did not err in
 7   determining the other loans were excepted from Debtor's discharge
 8   under § 523(a)(2)(B).
 9        Section 523(a)(2)(A) excepts from a debtor's discharge debts
10   resulting from "false pretenses, a false representation, or actual
11   fraud, other than a statement respecting the debtor's or
12   an insider’s financial condition."      A creditor seeking to except a
13   debt from discharge based on fraud must establish each of five
14   elements:   (1) misrepresentation, fraudulent omission or deceptive
15   conduct; (2) knowledge of the falsity or deceptiveness of such
16   representation(s) or omission(s); (3) an intent to deceive;
17   (4) justifiable reliance by the creditor on the subject
18   representation(s) or conduct; and (5) damage to the creditor
19   proximately caused by its reliance on such representation(s) or
20   conduct.    Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222
21   (9th Cir. 2010); In re Weinberg, 410 B.R. at 35.     By its terms, a
22   creditor will not be entitled to a claim under § 523(a)(2)(A) if
23   the debtor's fraudulent representations consist of "statement[s]
24   respecting the debtor's or an insider's financial condition."
25   Heritage Pac. Fin., LLC v. Edgar (In re Montano), 501 B.R. 96, 102
26   n.5 (9th Cir. BAP 2012).
27        1.     False representation made with intent to deceive
28        In addition to affirmative false representations not

                                      -52-
 1   respecting a debtor's or insider's financial condition, a debtor's
 2   silence or omission of a material fact can constitute a false
 3   representation for purposes of § 523(a)(2)(A).   Citibank (S.D.),
 4   N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1089 (9th Cir. 1996).
 5   However, in order to find liability for fraud based upon silence
 6   or omission, there must be a duty to disclose.   Id.
 7        Loans 9 and 10 were funded in early August 2006.   By this
 8   time, Debtor was well aware of the WCAB Stay and the criminal
 9   investigation pending against Premier and the negative impact
10   these two things had, or could have, on his income and ability to
11   repay the loans.   The WCAB Stay was imposed in June 2004 and
12   precluded Tammy from collecting on approximately $70 million in
13   lien claims.   Debtor never informed the Bank in writing about the
14   WCAB Stay.   Although he claimed he told the Bank's president about
15   it, the bankruptcy court found that no evidence in the record
16   suggested this information went from the president to the Bank.
17   Even if this finding was erroneous, which we do not conclude,
18   Debtor admitted he knew as early as 2005 that a waiver of the
19   Premier receivables could be a condition of a plea agreement.
20   That meant he would not receive several millions of dollars in
21   income he repeatedly told the Bank he would.   Debtor admitted he
22   never informed the Bank in writing or otherwise about the Premier
23   investigation or potential waiver.
24        Due to their business relationship, Debtor had a duty to
25   disclose the material information about Premier to the Bank when
26   applying for Loans 9 and 10.   See In re Eashai, 87 F.3d at 1089
27   (citing to the Restatement (Second) of Torts § 551(1)(1976)).     The
28   bankruptcy court's finding that he had a duty to do so was not

                                     -53-
 1   clearly erroneous.    Further, Yoder testified that the negative
 2   impact on Premier receivables is something he and the Bank would
 3   have wanted to know before making any loans, as it could have
 4   affected Debtor's ability to handle his projects.   Thus, Debtor's
 5   failure to disclose the problems facing Premier was an omission of
 6   a material fact.
 7        As with § 523(a)(2)(B), intent to deceive under
 8   § 523(a)(2)(A) can be shown by a debtor's reckless disregard for
 9   the truth of a representation, or reckless indifference to the
10   debtor's actual circumstances.   In re Anastas, 94 F.3d at 1286.
11   The bankruptcy court found that Debtor had acted with the
12   requisite recklessness to establish his intent under
13   § 523(a)(2)(A), particularly with his failure to disclose
14   Premier's problems.   This finding is not clearly erroneous.   By
15   the time Loans 9 and 10 were funded, Debtor had actual knowledge
16   of the problems facing Premier and how it could negatively impact
17   his income.   Withholding this material information about Premier
18   from the Bank establishes, at minimum, a reckless indifference to
19   the truth, if not actual intent to deceive.   Thus, the FDIC
20   established Debtor's intent for purposes of § 523(a)(2)(A).
21        2.    Damages as a result of reliance on the false
                representation
22
23        For a claim under § 523(a)(2)(A), a creditor must also show
24   it was justified in relying on the debtor's false representations.
25   Field v. Mans, 516 U.S. 58, 73-76 (1995); In re Eashai, 87 F.3d at
26   1090.   Justifiable reliance is a subjective standard, which turns
27   on a person's knowledge under the particular circumstances.
28   In re Eashai, 87 F.3d at 1090.

                                      -54-
 1        As the bankruptcy court correctly noted, nondisclosure of a
 2   material fact in the face of a duty to disclose can establish the
 3   requisite reliance and causation for actual fraud under the Code.
 4   Apte v. Romesh Japra, M.D., F.A.C.C., Inc. (In re Apte), 96 F.3d
5   1319, 1323 (9th Cir. 1996).   The Supreme Court recognized in the
 6   context of securities fraud the difficulty of proving the reliance
 7   or causation elements in a case of fraudulent nondisclosure in
 8   Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54
 9   (1972).   In Apte, the Ninth Circuit extended the holding of
10   Affiliated Ute Citizens to the context of fraud cases under the
11   Code:
12        Under the circumstances of this case, involving primarily
          a failure to disclose, positive proof of reliance is not
13        a prerequisite to recovery.    All that is necessary is
          that the facts withheld be material in the sense that a
14        reasonable investor might have considered them important
          in the making of this decision.       This obligation to
15        disclose and this withholding of a material fact
          establish the requisite element of causation in fact.
16
17   In re Apte, 96 F.3d 1319, 1323 (quoting Affiliated Ute Citizens,
18 406 U.S. at 153-54).
19        Debtor contends the Bank's reliance was not justified based
20   on the "entire forest of red flags when underwriting the 18 loans
21   and making its credit decision."   This argument fails to address
22   the omissions in this case, particularly Debtor's failure to
23   disclose the detrimental information about Premier of which he was
24   aware.    The bankruptcy court found the Bank had established
25   justifiable reliance due to the nature of the undisclosed
26   information.   We perceive no clear error with this finding.
27        As to Loans 9 and 10, FDIC expert Tarter opined that the Bank
28   was justified in relying on Debtor's failure to disclose the

                                      -55-
 1   Premier investigation, as it was not a fact the Bank could have
 2   reasonably discovered.   "[A] party to a business transaction has a
 3   duty to disclose when the other party is ignorant of material
 4   facts which he does not have an opportunity to discover."
 5   In re Apte, 96 F.3d at 1324.   In addition, Yoder indicated that
 6   the trouble with Premier was important information the Bank would
 7   have considered when making the loans or modifications.   Thus, the
 8   Bank established justifiable reliance.
 9        Finally, the creditor must establish that the claim sought to
10   be excepted from discharge arose from an injury proximately
11   resulting from its reliance on the debtor's misrepresentations.
12   Britton v. Price (In re Britton), 950 F.2d 602, 604 (9th Cir.
13   1991).   Because Debtor failed to disclose the material information
14   regarding Premier, the Bank's proximate cause for Loans 9 and 10
15   was established.   These loans were not repaid, and the Bank
16   suffered an actual loss as a result.   Thus, Loans 9 and 10, which
17   totaled approximately $3.5 million, were properly excepted from
18   Debtor's discharge under § 523(a)(2)(A).
19                              VI. CONCLUSION
20        For the foregoing reasons, we AFFIRM the judgment.
21
22
23
24
25
26
27
28

                                     -56-