Lead Opinion
OPINION
The parties to this appeal have asked this Court to define what constitutes a “statement respecting the debtor’s ... financial condition,” within the meaning of 11 U.S.C. § 523(a)(2)(A).
The bankruptcy court found that Plaintiffs claim is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). Debtor asserts that this ruling was in error because Section 523(a)(2)(A) excepts debts from discharge based on fraud, but only if they do not involve “statements respecting the debtor’s ... financial condition.”
1. Background
The facts relevant to this appeal are undisputed. Debtor did not appear at trial to dispute any of the allegations raised against her. On appeal, the Debtor has not asserted that any of the factual findings of the bankruptcy court are in error. Accordingly, we must adopt the factual findings of the lower court in their totality.
Plaintiff is a retired individual, who became acquainted with the Debtor at a café, where she was a waitress. The Debtor told Plaintiff that she needed to check on “her house” in Arizona and pick up her mother. Plaintiff agreed to drive Debtor from Casper, Wyoming to Scottsdale, Arizona. While in Arizona, the occupant of the house gave the Debtor money, which the Debtor represented to Plaintiff was payment of “rent.” She further represented to Plaintiff that she owned the Arizona property.
On their return, the Debtor informed Plaintiff that the Arizona property was in foreclosure and that she needed a loan of over $50,000 to pay off the foreclosing lender. In connection with her solicitation of a loan from Plaintiff, she represented that her brother was going to loan her these funds, and that when he did, she would use her brother’s funds to repay Plaintiff. In the meantime, she promised Plaintiff that she would sign a promissory note and give him collateral to secure his loan. She represented that she also owned other residences, a motel, and several antique cars. She showed Plaintiff
The parties traveled back to Arizona, where they met with the foreclosing lender’s representatives. In the course of these dealings, Plaintiff became aware that the Arizona property was titled in the name of “Joelene Joelson,” not “Jeanne Joelson.” The Debtor, however, represented to Plaintiff that she and Joelene Joelson were the same person. Plaintiff then loaned her the funds necessary to pay off the foreclosing lender.
Although the Debtor gave Plaintiff a promissory note, she did not give him any collateral to secure the loan. In fact, she did not own the Arizona property, the other residences, the motel, or the antique cars. “Joelene Joelson” is not the Debtor, but is instead her sister-in-law. She never obtained a loan from her brother. The bankruptcy court found all of her representations to be “fraudulent and false.”
II. Appellate Jurisdiction
The Debtor filed a timely notice of appeal under Fed. R. Bankr.P. 8002. The Bankruptcy Court’s Order granting judgment in favor of the Plaintiff is a final, appealable order for purposes of this Court’s jurisdiction.
III. Standard of Review
Where, as here, the salient facts are undisputed, we conduct a de novo review of the lower court’s conclusions of law.
IY. Discussion
Section 523(a)(2)(A) excepts from discharge claims arising from “false pretenses, a false representation, or actual fraud,” but it expressly excludes from its coverage “a statement respecting the debt- or’s or an insider’s financial condition.” A claim based on a false statement of financial condition is instead covered by Section 523(a)(2)(B), which sets forth separate criteria for its application, including a requirement that the statement must have been made in writing.
In defining what constitutes a “statement of financial condition,” Plaintiff argues that the Court should adopt a narrow or strict construction, which requires that the statements provide information “as to [a debtor’s] overall financial health.”
While no direct Tenth Circuit precedent exists to guide our interpretation, in Bellco First Federal Credit Union v. Kaspar (In re Kaspar),
In the course of interpreting the term “writing,” the Tenth Circuit made general statements regarding the nature of statements of financial condition, quoting from a Fourth Circuit decision:
“But Congress did not speak in terms of financial statements. Instead it referred to a much broader class of statements — those ‘respecting the debtor’s ... financial condition.’ A debtor’s assertion that he owns certain property free and clear of other liens is a statement respecting his financial condition.”15
It also made general statements regarding the purpose behind the requirement of a writing:
[G]iving a statement of financial condition is a solemn part of significant credit transactions; therefore, it is only natural that solemnity be sanctified by a document which the debtor either prepares or sees and adopts.... [T]oo much mischief can be done by either party to the transaction were it otherwise. Somewhere in the commercial risk allocation picture, the writing must*694 stand as a bulwark which tends to protect both sides.16
These general statements lend support to a broad interpretation and, while they may not be essential to the Tenth Circuit’s determination, we do not summarily dismiss them.
On the other hand, the United States Supreme Court has made general observations to the contrary. In Field v. Mans,
The Supreme Court gave as an example of “justifiable reliance” in connection with a common law fraud claim, the illustration of:
a seller of land who says it is free of encumbrances; according to the Restatement, a buyer’s reliance on this factual representation is justifiable, even if he could have “walk[ed] across the street to the office of the register of deeds in the courthouse” and easily have learned of an unsatisfied mortgage.22
Under the broad interpretation, the misrepresentation set forth in this illustration fits within the definition of a statement of financial condition because it pertains to an aspect of the debtor’s financial condition. The Supreme Court, however, used it as an example of a Section 523(a)(2)(A) claim, not a Section 523(a)(2)(B) claim.
Based on these general observations alone, we could conclude that these courts adhere to contrary interpretations. This only illustrates the danger of placing too much weight on statements of general observation. Were we to do so here, we would miss a consistent thread that runs through both decisions. The Supreme Court queried: “why should the rule be different when fraud is carried to the point of a written financial statement?”
tied to the peculiar potential of financial statements to be misused not just by debtors, but by creditors who know their bankruptcy law. The House Report on the Act suggests that Congress wanted to moderate the burden on individuals who submitted false financial statements, not because lies about financial condition are less blameworthy than others, but because the relative equities*695 might be affected by practices of consumer finance companies, which sometimes have encouraged such falsity by their borrowers for the very purpose of insulating their own claims from discharge.24
Similarly, in Bellco, the Tenth Circuit demonstrated its reluctance to adopt any interpretation of Section 523(a)(2)(B) that would lessen the creditor’s burden to satisfy all of the required elements of this statute.
The legislative history of the predecessor to Section 523(a)(2) sheds additional light on the statute’s intended use. The Bankruptcy Act of 1898, as amended, employed the phrase “materially false statement in writing respecting his financial condition” in both its § 17(a)(2), as grounds for a claim for nondischargeability, and in its § 14(c), as a basis for a complete denial of discharge.
The committee believes that complete denial of a discharge is too severe a penalty in the case of the individual noncommercial bankrupt. It is also a penalty which experience has shown to be subject to abuse.... Testimony before the Subcommittee ... indicates that unscrupulous lenders have frequently condoned, or even encouraged, the issuance of statements omitting debts with the deliberate intention of obtaining a false agreement for use in the event that the borrower subsequently goes into bankruptcy.
... [The] right to bar the discharge completely results in a windfall for other creditors who were not even aware of such a statement.... This result is not required to protect a creditor who has relied on a false financial statement since under section 17a(2) that particular debt is not dischargeable.
The situation is somewhat different in the case of a business bankrupt. The businessman is more likely to be aware of the severe consequences to him of issuing a false financial statement.... Furthermore, the financial statement issued by a businessman is frequently for the purpose of establishing credit standing in the community.28
The repeated references to “false financial statements” and the reference to establishing “credit standing” lend support to a narrow interpretation of a false statement of “financial condition” as used in both
The Supreme Court expressed its concern that Section 523(a)(2)(B) be strictly construed “to keep this exception to dis-chargeability from swallowing most of the rule.”
Neither interpretation is without its perils. In the absence of a controlling precedent, we agree with the court in Skull Valley Band of Goshute Indians v. Chivers (In re Olivers)
In applying this narrow definition to the facts of the present case, we note that the nature of the representations made by the Debtor are threefold. First, she made representations as to her intention and ability to obtain financing from her brother to be used to repay Plaintiffs loan (the “Repayment Representations”). Secondly, she made representations as to her ownership of certain assets (the “Ownership Representations”). Finally, she represented that she and Joelene Joelson were one and the same person (the “Identity Representation”). The Identity Representation is significant here because it relates to whether she held title to certain property. Thus, each category of misrepresentation has some bearing on an aspect of her financial condition.
The Repayment Representations of the Debtor pertain to her ability to generate income to repay the loan. Even the narrow interpretation includes statements of “ability to generate income.”
On the other hand, while both the Ownership and Identity Representations pertain to an aspect of the Debtor’s finan
V. Conclusion
For the foregoing reasons, the judgment in favor of Plaintiff, determining the debt owed by Debtor to Plaintiff to be non-dischargeable under Section 523(a)(2)(A), is AFFIRMED.
Notes
. 11 U.S.C. § 523(a)(2)(A) provides that:
[a] discharge under [11 U.S.C. § 727] does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
. Unless otherwise specified, all references to “Sections” are to Title 11, United States Code.
. Appellant’s App. at 11.
. 28 U.S.C. § 158; Gregory v. Zubrod (In re Gregory),
. 28 U.S.C. § 158(a)(1), (b)(1), (c)(1).
. 28 U.S.C. § 158(c); Fed. R. Bankr.P. 8001(e); 10th Cir. BAP L.R. 8001-1.
. Andersen v. UNIPAC-NEBHELP (In re Andersen),
. See Wolfgang v. Mid-America Motorsports, Inc.,
. 11 U.S.C. § 523(a)(2)(B) provides that:
[a] discharge under [11 U.S.C. § 727] does not discharge an individual debtor from 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
. Norcross v. Ransford (In re Ransford),
. Skull Valley Band of Goshute Indians v. Chivers (In re Chivers),
. Weiss v. Alicea (In re Alicea),
. Id. (quoting Beneficial Nat’l Bank v. Priestley (In re Priestley),
.
. Id. at 1361 (quoting Engler v. Van Steinburg,
. Id.
.
. Id. at 69,
. Id. at 70,
. Id. at 69,
. Id. at 64-65, 65 n. 6, 76, 77 n. 13,
. Id. at 70,
. Id. at 76,
. Id. at 76-77,
. Bellco,
. The Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 (1898).
.Act of July 12, 1960, Pub.L. No. 86-621, 74 Stat. 409 (codified as amended at 11 U.S.C. § 32 (1960)). The Bankruptcy Reform Act of 1978 eliminated any use of false statements of financial condition as a ground for a complete denial of discharge. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598 (1978) (enacted November 6, 1978).
. S.Rep. No. 1688, at 2-3 (1960), H.R.Rep. No. 1111, at 2-3 (1959), reprinted in 1960 U.S.C.C.A.N. 2954, 2955.
. Field v. Mans,
. Jokay Co. v. Mercado (In re Mercado),
. Id.
.
. Id.
. Id. For cases specifically holding that statements regarding ability to repay a loan constitute statements of financial condition subject to Section 523(a)(2)(B), see Commercial Money Center, Inc. v. Sacco (In re Sacco),
Concurrence Opinion
Concurring.
Judges sitting on a three-judge panel should, as a matter of course, strive for open-minded unanimity. In this case, however, I must to a degree respectfully disagree with my colleagues. My objection is not with the result, with which I concur, but with the analysis the majority uses to reach it.
For almost 25 years courts have been called upon by litigants to address the issue raised in this appeal; namely, what constitutes a “statement regarding financial condition” for purposes of § 523(a).
the better approach is the strict interpretation of § 523(a)(2)(B) that requires a false written statement to describe the debtor’s net worth, overall financial health, or ability to genérate income. It is the most consistent with the Supreme Court’s interpretation of the statute, it is consistent with the history of the reason for the creation of the statute, it strictly construes § 523(a)(2)(B) against the creditor and liberally in favor of the debtor, and it resolves the conflict raised in the present case in a way that reconciles §§ 523(a)(2)(A) and (B) without impairing their effectiveness.3
I find this analysis persuasive and would affirm the ruling of the lower court for the reasons outlined in Chivers.
Instead of addressing this reasoning, the majority has chosen to focus on Bellco First Federal Credit Union v. Kaspar (In re Kaspar).
I also cannot join the majority in its use of legislative history to support its decision. As the United States Supreme Court has made clear, courts interpreting provisions of the Bankruptcy Code must first look to the plain language of the statute.
I am equally troubled by the majority’s reliance upon legislative history regarding the predecessor to § 523(a)(2)(A) under the Bankruptcy Act of 1898. If the legislative history of § 523(a)(2)(A) has little bearing on it meaning, it is hard for me to grasp the relevance of previous legislative history. Furthermore, as the Supreme Court has observed, it is the intent of the Congress that passed the statute, and not that of previous Congresses, that controls.
For the foregoing reasons, I concur in the judgment.
. See generally Schneiderman v. Bogdanovich (In re Bogdanovich),
.
. Id. at 615-16.
.
. United States v. Ron Pair Enters., Inc.,
. Holy Trinity Church v. United States,
. Ron Pair,
. See, e.g., Armbrustmacher v. Redburn (In re Redburn),
. Int’l Broth. of Teamsters v. United States,