Northland National Bank v. Lindsey (In re Lindsey)

Summarized by Leslie Harrell-Latham , Tower Legal Solutions
15 years 3 weeks ago

Citation:

(8th Circuit, Dec 31,1969)

Tag(s):

8th Circuit

Ruling:

The BAP deferred to the bankruptcy court's fact-finding and affirmed the decision denying the 727 and 523 claims. In applying the standard of clear error, the BAP proceeded to review the elements of the 523 claim. The Court reiterated the definition of a materially false written statement as one that paints a substantially untruthful picture by misrepresenting information that would normally affect the credit extension decision. The bank asserted that the submitted financial statments were materially false as they failed to specify the ownership of and the existence of a lien against the coins. In deferring to the fact-finding, the BAP affirmed the conclusion that these inaccruacies or omissions in the statements were immaterial since the items were effectively controlled de facto by the debtor and could have been used to pay his debts. The BAP further affirmed the lower court's oral findings that the bank could not have primarily relied upon the joint financial statements for a debt that was guaranteed only by the debtor. It also found it unnecessary to reach the issue of whether the bank's reliance was reasonable as it already affirmed the finding that there was an absence of reliance. The BAP acknowledged that there was some evidence in the record which could have permitted the bankruptcy court to make a different conclusion. However, the BAP deferred to the bankruptcy court's fact-finding authority in weighing the evidence in its totality and found an absence of clear error.

Procedural context:

Appeal of judgment in adversary that granted debtor's discharge and denied 727 and 523 claims that relied upon assertions of false financial statements.

Facts:

Debtor and his non-filing spouse co-owned a home improvement business and they transferred their ownership interest in gold coins for purposes of providing capital. In need of additional funding, Debtor personally guaranteed a loan from the bank and submitted a joint (with his non-filing spouse) financial statement that listed the coins and mutual funds with a value of $150,000. These financial statements did not specify the ownership of the coins but identified the ownership of the mutual funds. A few years later, Debtor obtained a second loan prior to filing and submitted additional financial statements that also included the coins and mutual funds with a value of $140,000. Similarly, the second financials identified the ownership of the mutual funds but not the coins. Debtor fell upon difficult times and it became necessary to liquidate his business. Debtor filed chapter 7 about two months later due to the substantial deficiency remaining from his business liquidation. The bank who provided both of the pre-petition loans filed a complaint objecting to Debtor's discharge under 727(a)(2), (3), (4) and (5) and to determine the dischargeability of its claim under 523(a)(2)(A) and (B), (4) and (6).

Judge(s):

Nail, Kressel, and Saladino

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