Malcolm Davenport v. Frontier Bank

Filing

Opinion issued by court as to Appellant Malcolm Clifton Davenport. Decision: Affirmed. Opinion type: Non-Published. Opinion method: Per Curiam.

Case: 12-14069

Date Filed: 02/13/2013

Page: 1 of 4

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-14069
Non-Argument Calendar
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D.C. Docket Nos. 3:11-cv-00642-MEF,
8:10-08009-DHW

In Re: MALCOM CLIFTON DAVENPORT,
Debtor.
_____________________________________
MALCOLM CLIFTON DAVENPORT, V,
Plaintiff - Appellant,
versus
FRONTIER BANK,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Alabama
________________________
(February 13, 2013)

Case: 12-14069

Date Filed: 02/13/2013

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Before BARKETT, MARTIN and FAY, Circuit Judges.
PER CURIAM:
Malcolm Davenport appeals from the district court’s memorandum opinion
and order affirming the bankruptcy court’s decision that Davenport’s debt owed to
Frontier Bank (“Frontier”) was not dischargeable in Davenport’s Chapter 7
bankruptcy under 11 U.S.C. § 523(a)(2)(B). Davenport filed for bankruptcy in
2010 and included among the debts he sought to have discharged the nearly $3
million owed on his loan from Frontier. Frontier objected to the attempted
discharge seeking to prove that the debt was not dischargeable because Davenport
made false statements about his financial situation in order to obtain the loan.
“A debtor under Chapter 7 of the Bankruptcy Code is generally granted a
discharge from all debts that arose prior to the filing of the bankruptcy petition.”
In re Fretz, 244 F.3d 1323, 1326 (11th Cir. 2001). There are, however, exceptions
to discharge and the one at issue in this case provides as follows:
A discharge . . . does not discharge an individual debtor from any
debt— . . . for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by . . . 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.
11 U.S.C. § 523(a)(2)(B). An objecting creditor has the burden to prove each of
these elements by a preponderance of the evidence. In re Griffith, 206 F.3d 1389,
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Date Filed: 02/13/2013

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1396 (11th Cir. 2000) (en banc). Here, Davenport does not dispute the bankruptcy
court’s finding that his financial reports, submitted in order to obtain the $3 million
loan and have it renewed from 1997 until 2009, were materially false because they
did not disclose Davenport’s IRS tax liability and an outstanding debt he owed to
an Austrian bank. Instead, Davenport argues that the bankruptcy court erred in
concluding that Frontier reasonably relied on these financial statements. See 11
U.S.C. § 523(a)(2)(B)(iii). Specially, Davenport argues that had Frontier done
minimal investigation or paid attention to “red flags,” Davenport’s
misrepresentations would have been readily apparent.
We have previously explained that for purposes of discharge under §
523(a)(2)(B), “[r]easonable reliance connotes the use of the standard of ordinary
and average person.” In re Vann, 67 F.3d 277, 280 (11th Cir. 1995). The
reasonableness of a creditor’s reliance is to be evaluated based on circumstances of
particular case and pertinent questions to consider include:
• whether there had been previous business dealings with the debtor that gave
rise to a relationship of trust;
• whether there were any “red flags” that would have alerted an ordinarily
prudent lender to the possibility that the representations relied upon were not
accurate; and
• whether even minimal investigation would have revealed the inaccuracy of
the debtor’s representations.
Id. at 280–81.

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Here the bankruptcy court found that Frontier reasonably relied on
Davenport’s financial statements, both because bank officials testified that they
actually relied on the statements as was customary banking procedure and because
Frontier took into account other factors along with the financial statements when
deciding to renew the loan.1 The bankruptcy court noted that Frontier asked
Davenport questions about the statements before preparing its credit memoranda.
For example, when Frontier asked about the Austrian bank liability when it no
longer appeared on the financial statement, Davenport indicated that it had been
settled. Frontier took into account Davenport’s education, training and experience
as a Certified Public Accountant and attorney as well as his family’s reputation
within the community, which it found enhanced Davenport’s credibility.
Davenport argues that Frontier should have requested copies of his tax returns
from the beginning, however, Frontier reported that it was not its usual practice to
request tax returns at the early stage of the life of a loan.
Accordingly, we cannot say that the bankruptcy court clearly erred in its
factual findings and, therefore, AFFIRM its conclusion that Davenport’s debt to
Frontier is non-dischargeable under 11 U.S.C. § 523(a)(2(B).
AFFIRMED.

1

Sitting as a second court of review, the court of appeals reviews the bankruptcy court’s
conclusions of law de novo and its findings of fact for clear error. See In re Optical
Technologies, Inc., 425 F.3d 1294, 1299–1300 (11th Cir. 2005).
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