Opinion
Bankruptcy No. 10–84089–JAC–11. Adversary No. 11–80005–JAC–11.
2011-09-19
In the Matter of Jerry Glen BROOKS, SSN: XXX–XX–XXXX, Debtor(s).North Alabama Bank, Plaintiff(s),v.Jerry Glen Brooks, Defendant(s).
Gary P. Wolfe, Huntsville, AL, for Plaintiff.Michael E. Lee, Huntsville, AL, for Defendant.
Gary P. Wolfe, Huntsville, AL, for Plaintiff.Michael E. Lee, Huntsville, AL, for Defendant.
JACK CADDELL, Bankruptcy Judge.
This matter having come before the Court for trial on the complaint in the above referenced matter, and the Court having considered the evidence submitted at trial and the post-trial briefs filed by the parties, the Court hereby finds that the debt at issue is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). Section 523(a)(2)(B) makes nondischargeable
(a) .... any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(B) use of a statement in writing
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive [.]
Exceptions to discharge are to be read narrowly to provide an honest, but unfortunate debtor a fresh start. To this
end, the objecting creditor carries the burden of proving each element of a § 523(a) dischargeability claim by a preponderance of the evidence. A lack of proof as to any one element of a § 523(a) claim will be fatal.
FINDINGS OF FACT AND PROCEDURAL BACKGROUND
On July 15, 2011, the Court entered an order on plaintiff's motion for summary judgment finding that the debtor published to North Alabama Bank a financial statement dated April 21, 2009 produced for the purpose of renewing a loan; that the debtor misrepresented to North Alabama Bank through the financial statement his assets, the value of those assets, and his liabilities including the liens and encumbrances on property known as the Nick Davis Road property; and that the debtor published the financial statement with the intent to deceive. The order left open the question whether or not North Alabama Bank relied, to its detriment, on the financial statement dated April 21, 2009 and held same over for trial which this Court conducted on August 9, 2011.
At trial, the evidence shown that on April 14, 2006, North Alabama Bank extended a line of credit to J & L Properties, LLC in the amount of $1,494,000 and subsequently renewed the loan multiple times. The original loan and subsequent renewals were guaranteed by the debtor. As part of the loan approval process, North Alabama Bank required the debtor to produce a personal financial statement and tax return with each loan renewal. David Sanders (“Sanders”), vice president of North Alabama Bank, testified that the tax return is used to verify income and to substantiate the assets listed on the financial statement. He explained that if someone listed substantial assets on a financial statement but the tax return reflected very low income, this would cause the bank to question the assets listed on the financial statement and further investigate.
With the final renewal in 2009, the defendant signed a new guaranty dated May 6, 2009 and submitted an updated financial statement to North Alabama Bank dated April 21, 2009 and his most recent tax return. The April 2009 statement was a joint personal financial statement of the debtor and his wife. The debtor listed the value of the property located at Nick Davis Road as $396,800 owned free and clear of liens when in fact the property was only worth $300,000 and was encumbered by a line of credit in the amount of approximately $250,000 upon which some draws had been made.
Sanders testified that it is the bank's policy when making a small business loan, renewals or extensions of the loan, to obtain a personal financial statement by the guarantor and the guarantor's most recent tax return. Sanders testified that he reviewed the April 2009 financial statement submitted by the defendant and the defendant's most recent tax return. After reviewing same and based upon the bank's past relationship with the debtor, Sanders recommended that the subject loan be renewed. Sanders testified that he relied upon the debtor's equity position in the Nick Davis Road property when making the recommendation. Had he known that the debtor had encumbered the property in January of 2009, just three months prior to the renewal, Sanders testified that he would not have recommended the renewal to North Alabama Bank's board of directors. Further, had Sanders known that the listed property value of $396,800 was inflated by nearly $100,000 he would have brought the discrepancy to the boards'
attention. Sanders did not obtain an appraisal for the Nick Davis Road property because the bank did not take a mortgage on same.
The debtor testified that North Alabama Bank did not ask him to substantiate any of the information listed on the financial statement, but he admitted that the bank had no reason to distrust his word in April of 2009 when he submitted the financial statement.