Montgomery Bank, N.A. v. Steger (In re Steger)

Summarized by Michael Tamburini , Levy Craig
13 years 8 months ago

Citation:

Montgomery Bank, N.A. v. Steger, No 12-6018 (BAP 8th Cir., June 14, 2012)

Tag(s):

Ruling:

The bankruptcy court's findings that there was no evidence that the Debtor had made a false statement to establish a claim under Section 523(a)(2)(A) and that the Bank had failed to identify a tort on which its claim under Section 523(a)(6) could be predicated were not clearly erroneous.

Procedural context:

BAP affirmed the decision of the bankruptcy court dismissing Bank's non-dischargeability complaint which asserted claims under Section 523(a)(2)(A) and (6).

Facts:

Marsha Steger (the "Debtor") and James Clay Waller ("Waller") were the only two members of Triple C Development, LLC ("Triple C"). Triple C borrowed $140,000 from Montgomery Bank, N.A. (the "Bank") to construct a duplex on a certain lot on Cape Rock Drive in Cape Girardeau, Missouri. After the loan was fully advanced, the Bank discovered that the proceeds had been used to construct a different duplex on a different lot owned by Waller and another individual. Triple C paid the loan down, but ultimately failed to make the promised payment. The Bank exercised its rights under the deed of trust and caused the lot securing the loan to be sold, leaving a balance still owed to the Bank. The Debtor filed for relief under chapter 7. The Bank filed a complaint against the Debtor to determine the dischargeability of its claim under Sections 523(a)(2)(A) and (6) of the Bankruptcy Code. The Bank alleged, among other things, that the Debtor had made false and fraudulent representations to the Bank that the proceeds being advanced were for construction of a duplex on Cape Rock Drive when the proceeds were in fact not used to construct a duplex on Cape Rock Drive. The BAP observed that one of the elements the Bank must prove by the preponderance of the evidence under Section 523(a)(2)(A) is that the Debtor made a false statement to the Bank prior to the Bank's advancing of the funds to Triple C. The BAP agreed that the record supported the bankruptcy court's finding that the Debtor had made no such false statement. The Debtor was not personally present - and thus could not have made any representation to the Bank - on any of the occasions when the Bank's manager inspected what he erroneously believed to be the duplex for which the loan proceeds were intended. Further, the Debtor testified that she did not learn the loan proceeds were being used to build a different duplex until sometime after the loan had been fully disbursed, and the Bank's manager testified he had no firsthand knowledge that the Debtor knew the loan proceeds were not being used for their intended purpose. With respect to the Bank's claim under Section 523(a)(6), the BAP found that the bankruptcy court's finding that the Bank did not identify a tort on which this claim might be predicated was not clearly erroneous. The BAP noted that the Debtor had simply failed to repay a debt in full and if that were sufficient for a debt to be excepted from discharge under Section 523(a)(6), it is unlikely any debt could ever be discharged in bankruptcy.

Judge(s):

Kressel, Federman, and Nail.

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