Jordan, Matter of

• Citation: 927 F.2d 221
• Decision Date: 28 March 1991
• Docket Number: No. 90-1593,90-1593
• Parties: , 24 Collier Bankr.Cas.2d 1469, Bankr. L. Rep. P 73,874 In the Matter of Robert P. JORDAN, et al., Debtor. Robert P. JORDAN and Wesley Ann Jordan, Appellants, v. SOUTHEAST NATIONAL BANK, Appellees. Summary Calendar.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 221

927 F.2d 221

59 USLW 2647, 24 Collier Bankr.Cas.2d 1469,

Bankr. L. Rep. P 73,874

In the Matter of Robert P. JORDAN, et al., Debtor Robert P. JORDAN and Wesley Ann Jordan, Appellants, v. SOUTHEAST NATIONAL BANK, Appellees.

No. 90-1593

Summary Calendar.

United States Court of Appeals Fifth Circuit.

March 28, 1991.

Barney E. Eaton, III, Jackson, Miss., for appellants.

Edward E. Tonore, Jr., Michael Knapp, Jackson, Miss., Ronald A. Curet, Hammond, La., for appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before JOLLY, HIGGINBOTHAM and JONES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Robert P. and Wesley Ann Jordan appeal from a district court order affirming a bankruptcy court's determination that their debt to the Southeast National Bank is nondischargeable under 11 U.S.C. Sec. 523(a)(2)(B). In concluding that the Jordans' debt to Southeast is nondischargeable, the bankruptcy court found that the Jordans had intentionally submitted materially false financial statements to Southeast, and that these statements had induced Southeast to lend the Jordans $212,000. The district court accepted these factual findings; the Jordans, however, argue that they are clearly erroneous. The Jordans further contend that the bankruptcy court, as well as the district court, erred by liberally construing the evidence in Southeast's favor, by granting Southeast attorney's fees, and by excepting from discharge sums in excess of the principal owed to Southeast. We affirm.

I

On February 25, 1985, the Jordans and one O'Neil Deceteau, Jr. met with Robert Terry Blackwell, Executive Vice President of Southeast, at the Southeast bank in Hammond, Louisiana. The Jordans sought a short-term loan from Southeast in order to purchase 108 acres of real estate from Deceteau, a well-known Southeast customer who had held substantial deposits with the bank ever since it had opened its doors only six months earlier. At this February meeting, the Jordans submitted two balance sheets to Blackwell, one listing their assets and liabilities as individuals, the other detailing the assets and liabilities of Bob Jordan Realty Company, Inc., their wholly-owned corporation. Blackwell reviewed these balance sheets and discussed with the Jordans the assets listed therein. He also asked the Jordans to provide him with additional financial information, particularly data concerning their income and the income of their corporation. The meeting then adjourned.

Almost one month later, the Jordans sent Blackwell two supplementary financial statements prepared by the Jordans' accountant of twenty years, Alvin Kimble. As requested, these statements included earnings information for the Jordans and their realty company, respectively. The statements, like the balance sheets, were dated as of January 15, 1985. Southeast did not order a credit report on the Jordans or their enterprise, but its president did phone the president of Clinton Bank (a Baton Rouge bank and one of the Jordans' largest creditors) to inquire into the Jordans' character and financial stability. According to Blackwell, the Clinton Bank's positive recommendation, coupled with the balance sheets and the supplementary statements, led him to approve the Jordans' application. Consequently, the loan was closed on March 28, 1985, at which time the Jordans executed a $212,000 promissory note secured by a collateral mortgage on the property the Jordans subsequently bought from Deceteau. A balloon repayment of the 13.75% A.P.R. loan was set for September 26, 1985.

The Jordans defaulted shortly thereafter, whereupon Southeast obtained a writ of seizure and sale on the mortgaged property from an appropriate Louisiana court. Subsequently, the sheriff of Livingston Parish, Louisiana executed the writ by selling the land to Southeast for $72,659.40 at a public auction. Southeast continued to pursue the balance due on the promissory note, eventually reducing its claim against the Jordans to judgment on May 27, 1987.

Only two days later, the Jordans filed a voluntary joint petition with the United States Bankruptcy Court for the Southern District of Mississippi, seeking protection under Chapter 7 of the Bankruptcy Code. Southeast reacted to the Jordans' filing by bringing an adversary proceeding, wherein it asked the Bankruptcy Court to determine whether the outstanding portion of the Jordans' debt was nondischargeable under Code Sec. 523(a)(2)(B). ¹ Southeast contended that it was; it argued that both balance sheets and both supplementary statements contained materially false financial data, that the Jordans knew these data to be materially false, and that it relied on these data when deciding to approve the Jordans' application.

The bankruptcy court ruled for Southeast in an August 31, 1988 opinion and order. In doing so, it added interest and attorney's fees to the balance due on the Jordans' debt and made the entire $267,653 sum nondischargeable. The Jordans then appealed to the district court, which on July 13, 1990, affirmed the bankruptcy court's order with a one paragraph order of its own. This appeal followed.

II

The Jordans raise five challenges to the district court's order; we address these in turn. At the outset, however, we note that the bankruptcy court's findings of fact are not to be set aside unless clearly erroneous. Bankruptcy Rule 8013; Richmond Leasing Co. v. Capital Bank N.A., 762 F.2d 1303 (5th Cir.1985); Matter of Bonnett, 895 F.2d 1155 (7th Cir.1989). Any conclusion of law, of course, is subject to de novo review. Bankruptcy Rule 8013; Matter of Bufkin Bros., Inc., 757 F.2d 1573 (5th Cir.1985).

A

The Jordans begin by denying that they provided Southeast with data that were materially false. They admit that their balance sheets and supplementary statements omitted several of their own and their corporation's liabilities, but assert that certain assets used to secure these liabilities were also excluded from these documents. As they see it, the unmentioned assets were approximately equivalent in value to the unmentioned liabilities. Thus, they conclude, the omissions did not render their data materially untrue, because the data gave an essentially accurate portrayal of their aggregate net worth.

We begin our analysis of this argument by observing that the bankruptcy court's finding regarding the Jordans' omissions and falsehoods is--in this context--subject to clearly erroneous review. See, e.g., In re Kimzey, 761 F.2d 421, 423-24 (7th Cir.1985). A materially false statement is one that "paints a substantially untruthful picture of a financial condition by misrepresenting information of the type which would normally affect the decision to grant credit." In re Nance, 70 B.R. 318, 321 (Bankr.N.D.Tex.1987), citing In re Denenberg, 37 B.R. 267 (Bankr.D.Mass.1983). Further, in determining whether a false statement is material, a relevant although not dispositive inquiry is "whether the lender would have made the loan had he known the debtor's true situation." In re Bogstad, 779 F.2d 370, 375 (7th Cir.1985). Finally, it is well-established that writings with pertinent omissions may qualify as "materially false" for purposes of Sec. 523(a)(2)(B). In re Biedenharn, 30 B.R. 342 (Bankr.W.D.La.1983).

With these principles as a backdrop, we reject the Jordans' argument for two independent reasons. First, the couple has failed to substantiate their assertion that the omitted liabilities were accompanied by omitted assets. Their appellate brief refers only to an answer given by Kimble during his deposition. In this cited answer, however, Kimble does nothing to suggest that the Jordans indeed withheld both asset and liability information. Second, even if the Jordans' assertion were borne out by the record, the data they submitted to Southeast were materially false for reasons wholly apart from omitted liabilities. Stated another way, the missing liabilities on the Jordans' balance sheets and supplementary statements were but the tip of the proverbial iceberg. For instance, their data failed to disclose the fact that almost $400,000 of their liquid assets (including all of their cash) had been pledged to creditors; the couple also neglected to mention that Robert Jordan had executed two guarantees, one of which was for $66,000. Moreover, although the bankruptcy court made no factual finding as to whether the bank--then only six months old--would have issued the loan had the Jordans provided it with additional information, Blackwell testified that the loan would never have been approved if the Jordans' financial statements had revealed the encumbrances on their liquid assets. See In re: Bogstad, 779 F.2d at 375. We thus agree with the bankruptcy court that the Jordans provided Southeast with written financial documents that were "materially false."

B

The Jordans' second argument is akin to their first. The couple contends that the bankruptcy court committed reversible error by failing to construe liberally the evidence in their favor. This argument is meritless. First, we should note that the Jordans have not demonstrated that the bankruptcy court interpreted the evidence to the advantage of either party. Second, in asserting this argument, the couple misstates the message of the cited cases. The opinions on which they rely support the almost axiomatic proposition that "[a] guiding principle in analyzing [Sec. 523's] exceptions [to discharge] is that they be narrowly and strictly construed...." In re Levitan, 46 B.R. 380 (Bankr.E.D.N.Y.1985). The rationale of reading the nondischargeability provisions narrowly, of course, is to help preserve "the Code's basic policy of giving an honest debtor a 'fresh start.' " In re Medlin, 74 B.R. 726, 729 (Bankr.N.D.N.Y.1986). Contrary to the Jordans' argument, however, neither the cases nor the code stand for a rule that bankruptcy judges, when reviewing a creditor's contention under Sec....