483 B.R. 540
8th Cir. BAP2012Background
- Over 2003–2005, Debtor borrowed from Bank and pledged collateral; default followed and deficiency exceeded $300,000.
- Debtor filed Chapter 7 on September 11, 2005; Bank timely asserted dischargeability under § 523(a)(2)(B).
- Debtor answered and later added a nine-count state-law counterclaim alleging breach of duties and conversion.
- Thomas D. Stalnaker, the chapter 7 trustee, was joined as a defendant/counterclaimant on Debtor’s motion.
- Bank prevailed at trial; the bankruptcy court discharged Bank’s claim from discharge and denied Debtor’s counterclaims.
- Debtor appealed the judgment to the Eighth Circuit Court of Appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Correct reliance standard for § 523(a)(2)(B)? | Debtor contends court used subjective standard. | Bank argues court applied objective totality-of-circumstances standard. | Court applied the correct objective totality standard. |
| Whether Bank reasonably relied on Debtor's financial statements? | Debtor argues reliance was not reasonable under the facts. | Bank contends reliance was reasonable given the totality of circumstances. | Evidence supports reasonable reliance under the totality of circumstances. |
| Jurisdiction/consent to final judgment on state-law counterclaims? | Debtor argues lack of jurisdiction to enter final judgment on non-core state claims. | Bank argues implied consent and Stern do not bar final judgment where consent exists. | Debtor impliedly consented to final judgment; consent doctrine applied. |
| Standing to appeal the final judgment on state-law counterclaims? | Debtor asserts standing due to pecuniary interest post-estate distribution. | Bank maintains Debtor lacks standing since counterclaims remain property of the estate and no surplus shown. | Debtor lacks standing; no pecuniary interest or trustee participation demonstrated. |
Key Cases Cited
- In re Binns, 328 F.3d 126 (8th Cir. BAP 2005) (reliance and discharge under § 523(a)(2)(B) discussed)
- In re Lindsey, 443 B.R. 808 (8th Cir. BAP 2011) (totality of circumstances on reliance standard)
- Pontow, 111 F.3d 604 (8th Cir. 1997) (reasonable reliance principles under § 523(a)(2)(B))
- Abramowitz v. Palmer, 999 F.2d 1274 (8th Cir. 1993) (implied consent to final judgment in non-article III contexts)
- Abramowitz v. Palmer, 999 F.2d 1274 (8th Cir. 1993) (implied consent to final judgment in non-article III contexts)
- In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012) (consent can authorize final judgment in non-core proceedings)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (constitutional authority to enter final judgment in core vs non-core)
- In re Patriot Co., 311 B.R. 71 (8th Cir. BAP 2004) (standing to appeal requires pecuniary interest or surplus)
- First Nat’l Bank of Olathe v. Pontow, 111 F.3d 604 (8th Cir. 1997) (reliance and materiality standards for § 523(a)(2)(B))