Davenport v. Frontier Bank (In re Davenport)
- Summarized by Lynn Hinson , Dean Mead Egerton Bloodworth Capouano & Bozarth PA
- 13 years 2 weeks ago
- Citation:
- 11th Circuit Court of Appeals Case Number 12-14069 (will not be published)
- Tag(s):
-
- Ruling:
- The 11th Circuit affirmed the District Court's ruling, which affirmed the Bankruptcy Court's determination that a debt owed by the debtor to a bank was not dischargeable. Specifically, the debt was not dischargeable because the bank reasonably relied on the debtor's false financial statement in making a loan.
The issue in the appeal was whether the bank reasonably relied on the debtor's false financial statement. The 11th Circuit held that for purposes of discharge under section 523(a)(2)(B), reasonable reliance connotes the use of the standard of an ordinary and and average person.
The unpublished opinion states that the reasonable reliance is to be evaluated based on circumstances of the particular case, and that pertinent questions to consider include:
1. Whether there had been previous business dealings with the debtor that gave rise to a relationship of trust;
2. Whether there were any "red flags" that would have alerted an ordinarily prudent lender to the possibility that the representations relied upon were not accurate; and
3. Whether even minimal investigation would have revealed the inaccuracy of the debtor's representations.
- Procedural context:
- The Bankruptcy Court found that the debt owed to the bank was not dischargeable because the bank had reasonably relied on the debtor's materially false financial statement when it made a loan.
The debtor appealed the Bankruptcy Court's determination to the District Court, which affirmed the Bankruptcy Court's order. The debtor then appealed the District Court's decision to the 11th Circuit.
- Facts:
- The debtor obtained a three million loan from a bank based on a financial statement which failed to disclose a IRS tax liability and an outstanding debt owed to an Austrian bank.
Prior to making the loan, the bank asked the debtor about the Austrian bank liability which no longer appeared on the financial statement. The debtor indicated that the liability had been settled.
The bank did not request copies of the debtor's tax return when the loan was applied for. The bank reported that it was not the usual practice of the bank to request tax returns at the early stage of the life of a loan.
In making the loan, the bank took into account the debtor's education, training and experience as a CPA and attorney, as well as his family's reputation in the community, which the bank found enhanced the debtor's credibility.
Based on these facts, the Bankruptcy Court concluded that the bank had reasonably relied on the false financial statement when it made the loan. The Circuit Court stated that the Bankruptcy Court did not clearly commit error in its factual findings.
- Judge(s):
- Circuit Judges Barkett, Martin and Fay
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