Liming, In re

• Decision Date: 29 July 1986
• Docket Number: Nos. 83-1382,83-1383,s. 83-1382
• Citation: 797 F.2d 895
• Parties: Bankr. L. Rep. P 71,261 In re Harold Gregg LIMING, a/k/a Gregg Liming, Bankrupt. CENTRAL NATIONAL BANK AND TRUST COMPANY OF ENID, OKLAHOMA, Plaintiff-Appellee/Cross-Appellant, v. Harold Gregg LIMING, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 895

797 F.2d 895

Bankr. L. Rep. P 71,261

In re Harold Gregg LIMING, a/k/a Gregg Liming, Bankrupt.

CENTRAL NATIONAL BANK AND TRUST COMPANY OF ENID, OKLAHOMA, Plaintiff-Appellee/Cross-Appellant, v. Harold Gregg LIMING, Defendant-Appellant/Cross-Appellee.

Nos. 83-1382, 83-1383.

United States Court of Appeals, Tenth Circuit.

July 29, 1986.

Jon R. Ford of Ford, Grey, Harvey & Lisle, Enid, Okl., for defendant-appellant/cross-appellee.

Clark McKeever of McKeever, Glasser, Conrad, Herlihy & McKeever, Enid, Okl., for plaintiff-appellee/cross-appellant.

Before LOGAN and BREITENSTEIN ^*, Circuit Judges, and O'CONNOR ^**, District Judge.

LOGAN, Circuit Judge.

Harold Gregg Liming, an Oklahoma farmer, obtained a $15,000 loan from the Central National Bank of Enid, Oklahoma, in April 1980. Liming's loan application stated that he had a net worth of $183,000 and total debts of $88,000. He pledged a John Deere tractor worth $30,000 as collateral.

Seventy-six days later, in June 1980, Liming gave Central National a revised financial statement. The impetus for the new statement is unclear, but it listed a net worth of only $33,000 and total debts of $264,000. Instead of calling its loan, Central National accepted a $3,000 payment on the existing debt and a renewal note on the balance at a lower rate of interest. Less than eight months later, in February 1981, Liming declared bankruptcy.

Central National's complaint asked that Liming's debt be held nondischargeable under 11 U.S.C. Sec. 523(a)(2)(B), because it arose from a materially false statement of his financial condition. Liming argued that the debt was dischargeable and that Central National's security interest in his tractor was avoidable under 11 U.S.C. Sec. 522(f)(2)(B), because it was a lien on an "implement" of his trade exempt under Oklahoma law. The bankruptcy court held that Liming's debt to the bank was nondischargeable but that the lien on Liming's tractor was avoidable, 22 B.R. 740. Both parties appealed directly to this court under 28 U.S.C. Sec. 1293(b). By agreement of the parties, the cause was submitted without oral argument.

I

The federal Bankruptcy Code provides that:

"(a) A discharge under section 727 ... does not discharge an individual debtor from any debt--

....

(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by--

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's ... financial condition; or

(B) use of a statement in writing--

(i) that is materially false;

(ii) respecting the debtor's ... financial condition;

(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive; ..."

11 U.S.C. Sec. 523(a) (emphasis added). Central National contends that Liming's debt fell within subsection (2)(B).

Liming argues that the figures he provided only estimated his financial condition; therefore they were neither "materially false" nor made with an "intent to deceive." But a statement need only be made with reckless disregard for the truth to make the underlying debt nondischargeable under Sec. 523(a)(2)(B). Carini v. Matera, 592 F.2d 378, 380-81 (7th Cir.1979); In re Houtman, 568 F.2d 651, 655-56 (9th Cir.1978); 3 L. King, Collier on Bankruptcy p 523.09[b], at 523-61 (15th ed. 1981) [hereinafter cited as Collier ]. Further, "[t]he debtor's unsupported assertions of an honest intent will not overcome the natural inferences from admitted facts." 3 Collier p 523.09[b], at 523-62; see also In re Moran, 456 F.2d 1030, 1030-31 (3d Cir.), cert. denied, 409 U.S. 872, 93 S.Ct. 201, 34 L.Ed.2d 504 (1972); In re Monsch, 18 F.Supp. 913, 915 (E.D.Ky.1937). Liming, within three months of obtaining a loan based on a financial statement showing a net worth of $183,000 and debts of $88,000, admitted to a net worth of only $33,000 and debts of $264,000. He cited no intervening events and offered no other adequate explanation for this remarkable shift in his financial status.

In holding Liming's debt nondischargeable under Sec. 523(a)(2)(B), the bankruptcy court necessarily found that Liming had made an intentionally false statement. This finding of fact must stand unless clearly erroneous. Bankruptcy Rule 8013; Carini, 592 F.2d at 380; see also In re Reid, 757 F.2d 230, 233 (10th Cir.1985). The determination is not clearly erroneous; the dramatic disparity in Liming's figures alone showed at least a reckless disregard for the truth. See In re Archangeli, 6 B.R. 50, 52 (Bankr.D.Maine 1980). ¹

Liming contends that because Central National took a security interest in a tractor worth twice the amount of its loan, it cannot fairly be said to have relied on the figures he provided. See 11 U.S.C. Sec. 523(a)(2)(B)(iii). But Sec. 523(a)(2)(B) does not require that a creditor rely exclusively on the false financial statement. In re Garman, 625 F.2d 755, 756 n. 1 (7th Cir.1980) (citing Carini, 592 F.2d 378), cert. denied, 450 U.S. 910, 101 S.Ct. 1347, 67 L.Ed.2d 333 (1981). Partial reliance is enough. Id. A lender easily can rely on a financial statement and a security interest in making a loan. See In re Slohm, 10 F.Supp. 351, 354 (W.D.N.Y.1935). Such reliance is justified; as the facts demonstrate here, "excess" security can vanish rapidly. The bankruptcy court found that Central National relied on Liming's financial statement. We do not find this determination clearly erroneous.

Liming asserts that, even if Central National relied on the financial statement when it issued the loan, it did not rely on the statement when it issued the renewal note--when it knew Liming's correct finances. He also argues that, because Central National passed up its opportunity to call the loan, it is now either estopped or has waived its right to object to the false statement.

We reject these arguments as well. The renewal only maintained Liming's initial debt, which was incurred in reliance on Liming's initial false statement. It did not represent a new debt incurred without regard to the initial false statement. Cf. In re Ojeda, 51 B.R. 91, 92 (Bankr.D.N.M.1985) (debtor receives "fresh cash" based on second, false financial statement, after obtaining loan under initial correct statement; nondischarge granted for added debt because the creditor relied on second statement); In re Gadberry, 37 B.R. 752, 753 (Bankr.C.D.Ill.1984) (same). But see In re Archangeli, 6 B.R. at 52-53 (debtor obtains renewal after false statement but creditor found not to have relied on statement; creditor not allowed nondischarge). Neither estoppel nor waiver applies because there was no reason to think that the renewal note represented either a statement that Central National would not have nondischargeability rights if bankruptcy arose or that Central National had promised not to assert such rights. Cf. Fielder v. McKea Corp., 605 F.2d 542, 545-46 (10th Cir.1979) (decision of contractor to continue performance after discovering fraud is not waiver of right to sue for fraud absent express intention to do so). If anything, the issuance of the renewal note showed Central National's great concern over Liming's false financial statement. It represents its attempt to make the best of a bad situation. We will not hold that the bank should have called the loan when it discovered the falsity of the financial statement in order to maintain its right to rely on the falsehood. Central National should not be penalized for accepting part payment and extending the date by which the loan must be repaid in an apparent effort to keep Liming afloat. A different ruling would frustrate the purposes of the bankruptcy law.

We therefore affirm the ruling that Liming's debt to Central National was nondischargeable under 11 U.S.C. Sec. 523(a)(2)(B).

II

As the bankruptcy court correctly noted, a debtor may bring an action to avoid a lien under 11 U.S.C. Sec. 522(f) even if the debt secured by that lien is declared nondischargeable. ² See In re Gantt, 7 B.R. 13, 14 (Bankr.N.D.Ga.1980). Liming argues that Central National's security interest in his tractor can be avoided under Sec. 522(f), which provides that:

"(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--

(1) a judicial lien; or

(2) a nonpossessory, nonpurchase-money security interest in any--

* * * (B) implements, professional books, or tools, of the trade of the debtor...."

11 U.S.C. Sec. 522(f)(2)(B) (emphasis added).

The first issue is whether the lien on Liming's tractor impaired "an exemption to which the debtor would have been entitled." The Bankruptcy Code provides a list of federal exemptions from the claims of unsecured creditors. 11 U.S.C. Sec. 522(d). It also recognizes any exemptions that applicable state law provides. 11 U.S.C. Sec. 522(b)(2). The debtor must choose between the state and federal provisions when claiming an exemption, see 3 Collier p 522.02, at 522-11, but may alter an improvident choice, id.

The pertinent federal exemption provides that a debtor may exempt an "aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor...." 11 U.S.C. Sec. 522(d)(6). The pertinent Oklahoma exemption provides that:

"A. Except as otherwise provided in this title and notwithstanding subsection B of this section, the following property shall be reserved to every person residing in the state, exempt from attachment or execution of every other species of forced sales for the payment of debts, except as herein provided:

* * *

5. Implements of husbandry necessary to farm the homestead;"

Okla.Stat.Ann. tit. 31, Sec....