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Colombo Bank v. Sharp, 4th Cir. (2009)
Colombo Bank v. Sharp, 4th Cir. (2009)
Colombo Bank v. Sharp, 4th Cir. (2009)
No. 08-1646
In re:
-----------------------------COLOMBO BANK,
Plaintiff Appellant,
v.
PETER A. SHARP; JOYCELYN F. SHARP,
Defendants Appellees,
and
ROGER SCHLOSSBERG,
Trustee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt.
Deborah K. Chasanow, District Judge.
(8:07-cv-02935-DKC)
Argued:
Decided:
opinion.
Senior
Judge
PER CURIAM:
By
way
of
adversary
proceedings
in
bankruptcy
court,
appellant Colombo Bank (the Bank) sought rulings that the debt
obligations of Peter and Joycelyn Sharp on a $500,000 loan were
not subject to discharge.
(2)(A)
and
(2)(B)
of
11
U.S.C.
523(a).
After
The Bank
I.
A.
On August 20, 2002, and October 28, 2002, respectively,
Joycelyn and Peter Sharp filed separate Chapter 7 bankruptcy
petitions in Maryland.
from a $500,000 loan that the Bank made to them in 1995 (the
Loan).
Sharps
had
made
and
fraudulent
representations
to
initiated
Sharps.
false
separate
adversary
proceedings
against
the
obligation
on
the
Loan
was
nondischargeable
under
both
the
Bankruptcy
Code,
debtor
is
entitled
to
the
See
11
U.S.C.
523(a)
contends
that
Peter
Sharp
(identifying
nineteen
and
fraudulently
submitted two documents to the Bank when he applied for the Loan
financial
commitment
with
disclosure
an
statement,
attached
title
and
abstract
title
both
insurance
of
which
Loan.
The
Bank
maintains
that
each
of
those
subsection
obligation
fraud.
Bank
that
(2)(A)
was
disallows
obtained
11 U.S.C. 523(a)(2)(A).
alleged
and
sought
to
prove
v.
Rountree
(In
re
by,
the
inter
discharge
alia,
of
actual
Sharp
had
engaged
in
As we recently explained in
Rountree),
creditors
proof
of
see also Field v. Mans, 516 U.S. 59, 69 (1995) (explaining that
is
condition.
respecting
the
debtors
financial
Blackwell), 702 F.2d 490, 491 (4th Cir. 1983) (discussing scope
of phrase respecting the debtors . . . financial condition).
Subsection (2)(B), on the other hand, was designed to bar the
bankruptcy discharge of a debt obligation that was induced by a
false
written
statement
of
the
debtors
financial
condition.
(1) use of a
factual
situations,
and,
of
importance
here,
they
C.
Although the Bank initiated separate adversary proceedings
against
the
consolidated
Sharps,
trial
on
the
October
bankruptcy
4,
court
2004,
at
conducted
which
it
received
had
failed
to
satisfy
subsections
(2)(A)
and
(2)(B).
Banks
subsection
(2)(B)
contention.
See
Colombo
Bank,
also
rejected
the
Banks
subsection
(2)(A)
contention.
its
Sharp
decision,
the
bankruptcy
court
made
10
After announcing
the
Bank
sought
reconsideration
thereof,
requesting
11
Sharp
II,
the
bankruptcy
court
disposed
of
the
Relying
on
these
findings,
the
court
made
additional
the
elements
Bank
of
Sharp II 7.
had
failed
subsection
proximate cause.
to
prove
(2)(A)
the
other
justifiable
two
essential
reliance
and
See id. at 8.
the
irregularity
of
these
documents
Sharp II 10.
and
the
12
Id.
report
financial
disclosure
was
ruled
in
Sharp
II
nine
Id.
that
the
months
old
and
the
title
had
not
proven
the
13
court.
affirmed
the
bankruptcy
courts
rulings.
See
Colombo
Bank,
district
reliance
on
court
the
explained,
financial
inter
alia,
disclosure
that
statement
the
Banks
was
not
District Court
Opinion 20. 10
In rejecting the Banks subsection (2)(A) contention, the
district court ruled that the bankruptcy court did not err in
finding
that
the
misrepresentations
9
Bank
had
in
the
not
justifiably
title
relied
insurance
on
Sharps
commitment
and
10
14
if
the
parties
had
preexisting
depository
could
support
assertions.
district
respect
Fernebok.
Banks
blind
reliance
court
to
the
accepted
the
credit
the
bankruptcy
memorandum
Sharps
In so ruling, the
courts
prepared
on
by
findings
Bank
with
Chairman
Id. at
13. 11
The
Bank
has
filed
timely
notice
of
appeal,
and
we
II.
11
15
Where,
appellate
as
here,
court,
our
district
review
of
court
acts
as
[its]
decision
bankruptcy
is
plenary.
99
F.3d
circumstance,
151,
we
independently.
154
review
Banks
v.
(4th
the
Cir.
1996).
bankruptcy
Sallie
Mae
In
courts
Servicing
such
decision
Corp.
(In
re
See Deutchman v.
IRS (In re Deutchman), 192 F.3d 457, 459 (4th Cir. 1999).
analyzing
whether
bankruptcy
debtor
is
entitled
to
In
relief
the
exceptions
narrowly
to
protect
the
purpose
of
III.
We are satisfied to dispose of this appeal by addressing
only the Banks reliance contentions and the bankruptcy courts
rulings
thereon.
reprehensible,
such
Although
behavior
Sharps
does
behavior
not
in
was
the
entirely
absence
of
or
(2)(B).
The
two
16
reliance
issues
presented
by
subsections
(2)(A)
and
degrees) of reliance.
(2)(B)
implicate
separate
levels
(or
are
clearly
Spadoni),
316
erroneous.
F.3d
56,
58
See
Lentz
(1st
Cir.
v.
Spadoni
2003)
(In
re
(justifiable
1996)
Broyles
(In
(justifiable
re
Broyles),
reliance);
55
F.3d
Citizens
980,
983
Bank
of
Md.
(4th
Cir.
v.
1995)
As explained
below, the bankruptcy court did not clearly err in finding that
the Banks reliance on Sharps misrepresentations was neither
justified nor reasonable.
A.
With the clear error standard of review in mind, we turn
first to the bankruptcy courts finding made with respect to
subsection (2)(A) that the Bank was not justified in relying
on Sharps misrepresentations in the title insurance commitment
and attached title abstract that was submitted in support of the
17
Loan application. 12
a
creditor
must
first
prove
debtors misrepresentations.
establishing
demonstrate
actual
that
that
actually
relied
on
reliance,
such
it
reliance
the
was
creditor
is
justified.
the
After
obliged
to
Justifiable
Indeed, the
on
representation
of
fact
although
he
might
have
12
18
(In
re
Biondo),
180
F.3d
126,
135
(4th
Cir.
1999)
such
[j]ustifiability
blindly
rel[y]
is
not
without
some
upon
misrepresentation
the
Id.
the
Bank
misrepresentations
did
in
not
the
justifiably
title
rely
insurance
on
Sharps
commitment
and
As the court
II
10.
First
and
foremost,
Sharps
company,
First
And, although
stale
dated
September 1995.
eight
months
prior
to
the
Loan
closing
in
on
Colombo
Bank
form.
Id.;
see
also
Sharp
5.
Finally, as
In these
As a
13
B.
We
turn
finally
to
the
reasonable
reliance
issue,
an
to
be
denied.
In
re
Broyles,
55
F.3d
at
983
68
(Section
See
523(a)(2)(B)
expressly
requires
See id.
not
only
In
21
assess
the
circumstances
to
determine
whether
the
creditor
cautious
person
in
the
same
business
transaction
Cohn), 54 F.3d 1108, 1117 (3d Cir. 1995) (assessing factors such
as
creditors
standard
practices
in
evaluating
credit-
1117.
Put
succinctly,
on
the
trial
evidence,
the
bankruptcy
the
should
have
possibility
inaccurate.
circumstances
alerted
that
the
surrounding
an
ordinarily
information
Sharps
prudent
[reflected
loan
application
lender
to
thereon
the
was]
irregular
documents,
the
parties
lack
of
prior
of
title
report
is
to
search
would
have
required
the
verify
minimal
borrowers
Sharp I 8.
effort
Such a
and
most
Viewing these
IV.
Pursuant to the foregoing, we are constrained to affirm the
judgment under challenge in this appeal.
AFFIRMED
15
23
would
affirm
the
judgment
below
with
respect
to
the
702
Steinburg,
F.2d
744
490
F.2d
(4th
1060
Cir.
(4th
1983)
Cir.
and
Engler
1984).
v.
Under
Van
these
Maryland
property
constituted
statements
respecting
his
U.S.C.
523(a)(2)(A).
In
relevant
part,
such
statutory
Blackwell,
corporation,
the
Studio-1,
debtor
which
had
guaranteed
guarantee
loans
obligations
the
to
his
debtor
the
Id. at 492.
creditor
could
invoke
523(a)(2)(A)
to
avoid
Studio-1,
523(a)(2)(A).
and
therefore,
fell
outside
the
scope
of
Engler, 744
respecting
his
financial
condition,
and
therefore,
Id.
respecting
A debtors
free and
respecting
his assets
information
Id. at 1060-61.
Under Blackwell and Engler, Sharps misrepresentations in
his loan application documents and the title abstract as to the
encumbered
status
of
the
Maryland
property
constituted
Bank
contends
that
the
Supreme
Courts
decision
in
by
or
holding
an
the
phrase
insiders
statement
financial
respecting
condition,
as
found
the
in
Field,
26
Field, 516
U.S. at 74-75.
such
situation
falls
far
short
of
constituting
Until the
329, 334 (4th Cir. 2004) (en banc) (concluding that when there
is an irreconcilable conflict between opinions issued by threejudge panels of this court, the first case to decide the issue
is
the
one
overruled
by
that
this
must
be
court
followed,
sitting
Court).
27
en
unless
banc
and
or
by
until
the
it
is
Supreme