Montgomery Bank, N.A. v. Steger (In re Steger), 472 B.R. 533

Background

Debtor and James Clay Waller were the two members of Triple C Development, LLC, with Debtor handling the books and Waller handling other aspects.
In February 2008 Triple C borrowed $140,000 from Montgomery Bank to construct a duplex, executing a construction loan agreement, promissory note, and deed of trust; Debtor personally guaranteed the loan, and she and her husband guaranteed again in February 2009.
Triple C submitted lien waivers and Bank advanced the loan proceeds; in July 2009 Bank learned funds were used to construct a duplex on a different Waller-owned lot, not the Cape Rock Drive project.
In September 2009 Bank demanded repayment of approximately $130,102.87; Triple C paid $85,000 and signed a change in terms to pay the remaining amount by December 30, 2009, including interest and costs; Triple C later defaulted.
Bank foreclosed on the Cape Rock Drive lot, and after the sale Bank was still owed about $39,559.98.
Debtor and her husband filed for Chapter 7 in August 2011; Bank filed an adversary proceeding seeking dischargeability of its claim under § 523(a)(2)(A), (4), and (6), alleging Debtor made false representations about the use of loan proceeds.
The matter was tried February 14, 2012; Bank abandoned §523(a)(4); the bankruptcy court dismissed the complaint, and Bank timely appealed.
The standard of review below covered whether the §523(a)(2)(A) elements were proven by a preponderance of the evidence and whether Debtor acted willfully and maliciously under §523(a)(6).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Debtor’s alleged false representations support nondischargeability under §523(a)(2)(A).	Bank contends Debtor made false representations about fund use to obtain the loan.	Steger argues no evidence shows she knowingly stated a false use of funds; no personal statements were made.	No clear error; no evidence Debtor made false statements.
Whether Debtor’s conduct constitutes willful and malicious injury under §523(a)(6).	Bank asserts intentional or malicious conduct caused the injury to Bank.	No tort found; debt non-dischargeable only for intentional torts with specific willful/malicious conduct.	No clear error; no evidence of a tort or malicious willful injury.
Whether Bank’s preserved arguments on appeal were improperly raised for the first time.	Bank raises ratification, vicarious liability, and recklessness theories on appeal.	These issues were not raised in the bankruptcy court.	Not considered on appeal.

Key Cases Cited

Freier v. R & R Ready Mix (In re Freier), 604 F.3d 583 (8th Cir. 2010) (clear-error standard for nondischargeability)
Waugh v. Eldridge (In re Waugh), 95 F.3d 706 (8th Cir. 1996) (willful/malicious standard under §523(a)(6))
Anderson v. Bessemer City, 470 U.S. 564 (1985) (definitive standard for review of findings)
Jiles v. Ingram, 944 F.2d 409 (8th Cir. 1991) (liberal interpretation of findings under Rule 52(a))
Geiger v. Kawaauhau (In re Geiger), 113 F.3d 848 (8th Cir. 1997) (willful injury defined)
Barclays American/Business Credit, Inc. v. Long (In re Long), 774 F.2d 875 (8th Cir. 1985) (malicious injury requires conduct targeted at creditor)
Edwards v. Edmondson (In re Edwards), 446 B.R. 276 (8th Cir. BAP 2011) (preservation of arguments on appeal)