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In re Candland

filed: July 25, 1996.


Appeal from the Ninth Circuit Bankruptcy Appellate Panel. BAP No. CC-92-01211-MePRi. Meyers, Perris, Riegle, Judges, Presiding. Original Opinion Previously Reported at:,.

Before: James R. Browning, J. Clifford Wallace, and Jerome Farris, Circuit Judges. Opinion by Judge Wallace.

Author: Wallace


WALLACE, Circuit Judge:

Candland disagreed with the opinion of the Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court, concluding that Candland's debt to the Insurance Company of North America (INA) was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). The bankruptcy court exercised jurisdiction under 28 U.S.C. § 157(b)(1), and we have jurisdiction under 28 U.S.C. § 158(d). We affirm.


Candland is an experienced businessman who holds numerous degrees and licenses, including a law degree, securities license, insurance license, annuity license, and real estate license. Candland was engaged in the business of soliciting investors for sophisticated real estate limited partnerships. In 1984, Candland invested in the Fort Worth Willows Limited Partnership (Partnership) and executed promissory notes to the Partnership. In order to obtain additional capital, the Partnership attempted to assign the notes to a financial institution, and the financial institution required Candland to find a guarantor for his payment on the notes.

Candland applied to INA for bonds which would guarantee his payment on the notes. According to its practice, INA would issue financial guarantee bonds based upon the applicant's financial statements and the recommendation of Waite Hill Services (Waite Hill), a contractor which underwrote and administered INA's investor bond program. Waite Hill would determine whether an applicant was creditworthy and capable of fulfilling his obligations. Candland therefore submitted an investor bond application as well as a financial statement, which provided current information as of January 31, 1984.

The application was reviewed by underwriting coordinator Frayser. His review primarily consisted of an analysis of the financial statement to determine whether certain preestablished requirements related to liquidity, net worth, and income were met. Frayser customarily compared information such as an applicant's address and social security number as stated on the financial statement with information provided by a credit report. He also looked to the credit report to provide some level of confidence that an applicant faced no outstanding judgments and was in a position to repay debts.

Approximately 1985, Candland defaulted on his payment of the promissory notes. The holder of the notes called on INA to perform its obligations under the financial guarantee bonds. INA paid over $210,000 on Candland's behalf. INA then sought reimbursement from Candland pursuant to the indemnification agreement between them. Candland refused to pay, and INA obtained a stipulated judgment from the Los Angeles Superior Court for $281,289.79, plus 10% interest from October 14, 1988.

On June 8, 1990, Candland filed a bankruptcy petition under Chapter 11, and on July 26, 1990, INA filed a proof of claim for $317,430.93. On September 11, INA filed a complaint to deny Candland a discharge and to declare nondischargeable the debt owed to INA on the ground that Candland knowingly provided false information on his financial statement. After trial, the bankruptcy court refused discharge under 11 U.S.C. § 727(a)(4)(A) and held that the debt owed to INA was nondischargeable under 11 U.S.C. § 523(a)(2)(B). The bankruptcy court also awarded attorneys' fees to INA. Candland appealed to the BAP, which affirmed all of the bankruptcy court's rulings, except attorneys' fees. Before us, Candland appeals only the bankruptcy court's ruling that his INA debts were nondischargeable under 11 U.S.C. § 523(a)(2)(B).


We apply a clearly erroneous standard to the bankruptcy court's findings of fact and review its Conclusions of law de novo. In re Weisman, 5 F.3d 417, 419 (9th Cir. 1993). We independently review the bankruptcy court's rulings on appeal from the BAP. In re Pace, 67 F.3d 187, 191 (9th Cir. 1995).

Whether a creditor relied upon false statements is a question of fact which is reviewed under a clearly erroneous standard. In re Kirsh, 973 F.2d 1454, 1456 (9th Cir. 1992) (Kirsh). The clearly erroneous standard also applies to findings of intent to defraud, to findings that the fraud proximately caused the alleged damages, In re Rubin, 875 F.2d 755, 758 (9th Cir. 1989), and to materiality. In re Lansford, 822 F.2d 902, 904 (9th Cir. 1987) (Lansford) ("whether the misrepresentations were material under the circumstances, whether there was reasonable reliance, and whether there was intent to deceive are issues of fact").

Candland challenges the bankruptcy court's determination that his debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B), which prevents the discharge in bankruptcy of debts obtained through false representation. The statute reads:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title 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 ...

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