In re Smith

• Decision Date: 05 December 1991
• Docket Number: CA3-90-2489-D,Bankruptcy No. 387-35881-SAF-7,Adv. No. 388-3278,387-36695-SAF-7,Civ. A. No. CA3-90-2488-D,388-3390.
• Citation: 133 BR 800
• Parties: In re James W. SMITH, II, Debtor. FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund as Receiver for Vernon Savings and Loan Association, FSA, Plaintiff-Appellee, v. James W. SMITH, II, Defendant-Appellant. In re Vernon S. SMITH, Jr., Debtor. FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund as Receiver for Vernon Savings and Loan Association, FSA, Plaintiff-Appellee, v. Vernon S. SMITH, Jr., Defendant-Appellant.
• Court: U.S. District Court — Northern District of Texas

133 B.R. 800 (1991)

In re James W. SMITH, II, Debtor.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund as Receiver for Vernon Savings and Loan Association, FSA, Plaintiff-Appellee, v. James W. SMITH, II, Defendant-Appellant.

In re Vernon S. SMITH, Jr., Debtor.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund as Receiver for Vernon Savings and Loan Association, FSA, Plaintiff-Appellee, v. Vernon S. SMITH, Jr., Defendant-Appellant.

Civ. A. Nos. CA3-90-2488-D, CA3-90-2489-D, Bankruptcy Nos. 387-35881-SAF-7, 387-36695-SAF-7, Adv. Nos. 388-3278, 388-3390.

United States District Court, N.D. Texas, Dallas Division.

December 5, 1991.

COPYRIGHT MATERIAL OMITTED

Daniel J. Sheehan, Jr. (argued) of Sheehan, Young & Culp, Dallas, Tex., for appellant James W. Smith, II.

George H. Tarpley (argued), David L. Ellerbe, and Kenric D. Kattner of Sheinfeld, Maley & Kay, Dallas, Tex., for appellant Vernon S. Smith, Jr.

Grady L. Pettigrew, Jr., Brenda H. Collier (argued), Michael J. Pollack, and Christine M. Anderson of Arter & Hadden, Dallas, Tex., for FDIC.

FITZWATER, District Judge:

These appeals from judgments of the bankruptcy court holding two debts nondischargeable on the basis of 11 U.S.C. § 523(a)(2)(A) present the question whether the Federal Deposit Insurance Corporation ("FDIC") may invoke the D'Oench, Duhme¹ estoppel rule to satisfy the reliance element of a nondischargeability claim. Concluding the D'Oench, Duhme rule is not a surrogate for proof of actual reliance, the court reverses the judgments and remands these adversary proceedings to the bankruptcy court.

I

The facts of these cases are set out at length in a published opinion of the bankruptcy court. See In re Smith, 113 B.R. 297, 298-304 (Bankr.N.D.Tex.1990). The court therefore recounts only the facts pertinent to the question decided today, together with the applicable procedural history.

Two debtors, James W. Smith, II ("James") and his cousin, Vernon S. Smith, Jr. ("Vernon"), appeal judgments of the bankruptcy court holding two debts — one owed by both James and Vernon in the amount of $1.085 million and one owed by James in the sum of $1,586,236.36 — are not dischargeable in their respective bankruptcies.

In 1987 James and Vernon voluntarily filed chapter 7 petitions. Thereafter, the Federal Deposit Insurance Corporation ("FDIC-Receiver")² filed complaints in each of the debtor's cases to determine the nondischargeability of three debts. The FDIC alleged that loans made by the failed Vernon Savings and Loan Association ("VSLA") to James and/or Vernon were actually part of a conspiracy among the debtors, VSLA's principal owner, and other VSLA senior officers. The conspirators allegedly intended to dissipate the assets of and to injure VSLA and the insurance fund of the Federal Savings and Loan Insurance Corporation ("FSLIC"), and to benefit VSLA's senior officers. The three transactions in question were known as the Cedar Springs, Montfort/Celestial, and New York Avenue loans. The FDIC-Receiver predicated its complaints on several constituent theories, but the common thread was that the debts in question were not dischargeable pursuant to various provisions of 11 U.S.C. § 523(a).

The two adversary proceedings in the respective bankruptcy cases were tried to the bankruptcy court in a consolidated bench trial. The bankruptcy court found for the FDIC-Receiver as to the Cedar Springs and Celestial/Montfort transactions and against it with respect to the New York Avenue transaction. The court determined that James and Vernon engaged in conduct that made these debts nondischargeable pursuant to § 523(a)(2)(A).³ The court concluded the FDIC-Receiver failed to prove the New York Avenue loan was nondischargeable under either § 523(a)(2)(A) or (a)(6).⁴

Of significance to the present appeal, the bankruptcy court held the FDIC-Receiver need not satisfy the reliance element of a § 523(a)(2)(A) nondischargeability claim. See 113 B.R. at 306 (FDIC-Receiver "need not show actual reliance"). The court determined the FDIC-Receiver had proved the Smiths violated this section by structuring the Cedar Springs transaction in a manner calculated to deceive lending institution examiners. Id. at 305. VSLA and the Smiths concealed from the examiners the fact that VSLA had loaned the Smiths more than 100% of the collateral's value in consideration for a transaction in violation of lending norms. Id. The court held the Smiths knowingly deceived the examiners about side agreements which the Smiths expected would transfer the risk of an imprudent loan to VSLA. Id. They conspired with VSLA to deceive the examiners about the true purposes and amount of the Cedar Springs loan. Id. at 305-06. With respect to the Celestial/Montfort property, the court below found that James concealed and intentionally misled lending institution examiners about the full and actual uses of the loan proceeds, see id. at 307, thus constituting "a fraud upon the government insurance program," id. The court held that James intended to and did injure the insurers of VSLA. Id. at 308.

With respect to the FDIC's proof of non-dischargeability, the bankruptcy court concluded in relation to the Cedar Springs loan that

VSLA, as co-conspirator with the Smiths, could not sustain against the Smiths an action under § 523(a)(2)(A) because VSLA could not show it reasonably relied on the deceptive closing statement and loan applications. However, the FDIC need not show actual reliance. The FDIC as receiver may, as a matter of law, reasonably rely on the documents in the loan file contemporaneous with the making of a loan, such as the closing statement, loan application, loan committee approvals and the minutes of the meeting of the Board of Directors.

Id. at 306. The bankruptcy court did not make a similar explicit finding as to the Celestial/Montfort loan, but its determination that "lending institution examiners were entitled to rely on the truth of the documents stating the purpose of the loan," see id. at 308, is a fair shorthand rendition of the court's earlier determination that the FDIC-Receiver could satisfy the reliance element as a matter of law.

The bankruptcy court entered judgment against James, holding the FDIC-Receiver was entitled to recover from him the sum of $1.085 million plus interest for the Cedar Springs transaction and $1,586,236.36 plus interest for the Celestial/Montfort transaction. The court entered a corrected judgment against Vernon, holding the FDIC-Receiver was entitled to recover from him the sum of $1.085 million plus interest for the Cedar Springs transaction.

From these judgments the debtors take these appeals.

II

A preliminary procedural question is presented by James' notice of appeal.

In the present case, James' notice — in contrast with Vernon's — does not purport expressly to appeal the bankruptcy court's final judgment. Instead, the notice states that James "appeals . . . from the Order on Motions for New Trial, for Reconsideration and Additional Findings of Fact and Conclusions of Law of the Bankruptcy Court entered in this adversary proceeding on the 12th day of September, 1990."⁵ This court has a duty to determine, sua sponte if necessary, its appellate jurisdiction. Huddleston v. Nelson Bunker Hunt Trust Estate, 102 B.R. 71, 73 n. 1 (N.D.Tex.1989), aff'd, 935 F.2d 1290 (5th Cir.1991) (table). Fed.R.Bankr.P. 8001(a) requires, in pertinent part, that a notice of appeal "shall conform substantially to Official Form No. 35."⁶ This form provides for specification and description of the final judgment, order, and decree of the bankruptcy court from which the appeal is taken. See West Pamp.Supp.1989.⁷ The parallel rule of the Federal Rules of Appellate Procedure is Rule 3(c). In relevant part, it provides expressly that a notice of appeal "shall designate the judgment, order or part thereof appealed from."

In the context of Fed.R.App.P. 3(c), the Fifth Circuit has held a notice that designates an appeal from an order denying a motion for new trial does not specify the judgment appealed from as required by Rule 3(c). See Osterberger v. Relocation Realty Serv. Corp., 921 F.2d 72, 73 (5th Cir.1991). This is because an order denying a motion for new trial is reviewable but not appealable. Id. (citing Youmans v. Simon, 791 F.2d 341, 349 (5th Cir.1986)). In the present case, James expressly purports to appeal the denial of motions for new trial and reconsideration and a request for additional findings and conclusions.

In Osterberger the circuit court examined the applicable jurisprudence to explain why it had jurisdiction over the appeal. Id. at 72.⁸ The panel concluded that an appeal from an order denying a motion for new trial is to be treated as an appeal from the adverse judgment itself. Id. at 73. In contrast to the failure properly to designate an appellant, which is a jurisdictional defect, id. (citing Torres v. Oakland Scavenger Co., 487 U.S. 312, 315, 108 S.Ct. 2405, 2408, 101 L.Ed.2d 285 (1988)), the failure to specify the correct judgment is irrelevant where it is clear which judgment the appellant is appealing. Id. (citing Foman v. Davis, 371 U.S. 178, 181, 83 S.Ct. 227, 229, 9 L.Ed.2d 222 (1962)).

The court finds James' intent to appeal the underlying judgment to be adequately manifested in his notice of appeal. As in Osterberger, the court concludes it has jurisdiction to consider the appeal. But the court stresses that the proper practice when appealing a judgment or order is to specify that the appeal is taken from the bankruptcy court's judgment. This is the clear contemplation of Rule 8001(a) and Official Form No. 35.

III

James and Vernon challenge the judgments of nondischargeability on several grounds, but the court need only reach the question whether the bankruptcy court erred when it excused the FDIC-Receiver from complying with 11 U.S.C. § 523(a)(2)(A) by proving reliance in fact.

...