            United States Bankruptcy Appellate Panel
                        FOR THE EIGHTH CIRCUIT


                                 No. 10-6026


In re:                                   *
                                         *
David L. Schnuelle; Pamela S. Schnuelle, *
                                         *
      Debtors.                           *
                                         *
Southeast Nebraska                       *
Cooperative Corporation,                 *   Appeal from the United
                                         *   States Bankruptcy Court
      Plaintiff-Appellee,                *   for the District of Nebraska
                                         *
             v.                          *
                                         *
David L. Schnuelle,                      *
                                         *
      Defendant-Appellant,               *
                                         *
Pamela S. Schnuelle,                     *
                                         *
      Defendant.                         *


                          Submitted: December 3, 2010
                             Filed: January 27, 2011


Before KRESSEL, Chief Judge, SCHERMER, and NAIL, Bankruptcy Judges.


NAIL, Bankruptcy Judge.
      David L. Schnuelle appeals the judgment of the bankruptcy court1 in favor of
Southeast Nebraska Cooperative Corporation. We affirm.

                                 BACKGROUND

        Southeast Nebraska Cooperative Corporation (“Cooperative”) filed a complaint
under 11 U.S.C. § 523(a)(2)(A) and (B) to determine the dischargeability of its claim
against Debtors David L. Schnuelle and Pamela S. Schnuelle. The adversary
proceeding was held in abeyance while the parties litigated the amount of
Cooperative’s claim in state court, which ultimately entered a judgment in
Cooperative’s favor and against Debtors for $112,054.50 plus post-judgment interest
at the rate of five percent per annum from February 13, 2009. At the beginning of the
trial in the adversary proceeding, Cooperative voluntarily dismissed its complaint
against Debtor Pamela S. Schnuelle.

       Debtor David L. Schnuelle (“Debtor”) is a cattle and grain farmer. In 2004 and
2005 he borrowed money from Cooperative to put in his crops. Before making each
of these loans, Cooperative required two documents: a current financial statement
(“balance sheet”) and a collateral statement that included information regarding
multiple peril crop insurance coverage (“collateral worksheet”). Cooperative’s
lending policies were designed to ensure it had the first lien position on that year's
crop and the borrower had sufficient crop insurance to protect Cooperative's
investment.

       At trial, Debtor admitted the documents were inaccurate and he had overstated
by 25% the amount of crop insurance he had in both 2004 and 2005. The bankruptcy
court found Cooperative did not learn of the errors in the 2005 collateral worksheet
until June 2005 (after most of the 2005 crop year funds had been advanced by
Cooperative) and did not learn of the errors in the 2004 collateral worksheet until
Debtor filed his bankruptcy petition. Debtor attempted to explain these errors by
saying he had relied on Cooperative’s employees to put the correct numbers on the



      1
        The Honorable Timothy J. Mahoney, United States Bankruptcy Judge for the
District of Nebraska.
                                         -2-
collateral worksheets and he was in a hurry each time he submitted the balance sheets
and collateral worksheets and had signed them without reading them.

       Debtor understood Cooperative had a first lien position in his 2004 and 2005
corn crops. However, without first discussing the matter with Cooperative or
obtaining its consent, Debtor fed an undetermined number of bushels of his 2004 corn
crop and at least 14,019 bushels of his 2005 corn crop to his cattle. Debtor did not
give Cooperative a replacement lien in other assets for the value of the corn he fed to
his cattle.

       At Cooperative’s request, in early 2005 Debtor signed an affidavit regarding
collection actions that had been filed against him. The affidavit contained, inter alia,
a clause that required Debtor to advise Cooperative of any collection actions that were
filed against him in the future. Debtor failed to advise Cooperative of several lawsuits
that were commenced against him and several money judgments that were obtained
against him after he signed the affidavit.

        In June 2005, Debtor sought additional funding from Cooperative. In support
of his request, Debtor's other primary lender sent Cooperative a letter regarding certain
income Debtor claimed he would receive in the near future and could use to repay
Cooperative. Cooperative lent Debtor the money, but Debtor did not receive all of the
promised income and was able to repay only a small fraction of the new loan.

      The bankruptcy court entered judgment in favor of Cooperative, determining
Cooperative’s claim against Debtor was excepted from discharge pursuant to §
523(a)(2)(A) and (B). The bankruptcy court denied Debtor’s motion to reconsider,
and Debtor timely filed a notice of appeal.2




      2
          In his statement of issues on appeal, Debtor identified four issues, two of
which we discuss below. However, Debtor did not address the other two issues (i.e.,
“Whether the Court erred and abused its discretion in its application of the law to the
facts ” and “Whether the Court erred and abused its discretion by failing to limit the
Plaintiff’s damages to those damages arising from non-insured crop loss ”) in his brief
or at oral argument, and we do not do so herein.
                                          -3-
                             STANDARD OF REVIEW

      Each of the elements of a claim of nondischargeability under § 523(a) must be
shown by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-91
(1991). This means the trier of fact must believe the existence of a fact is more
probable than its nonexistence. Buchholz v. Dewey (In re Dewey), 263 B.R. 258, 263
(Bankr. N.D. Iowa 2001) (citing Metropolitan Stevedore Co. v. Rambo, 521 U.S. 121,
137 [n.9] (1997)).

         Whether a requisite element of a claim of nondischargeability under
§ 523(a)(2)(A) or (B) has been satisfied is a factual determination that is reviewed for
clear error. R & R Ready Mix v. Freier (In re Freier), 604 F.3d 583, 587 (8th Cir.
2010). A finding is clearly erroneous if, after reviewing the entire evidence, the Court
is left with the definite and firm conviction that a mistake has been made. Id. (quoting
therein Anderson v. Bessemer City, 470 U.S. 564, 573 (1985)).

                                    DISCUSSION

      For a debt to be declared nondischargeable under § 523(a)(2)(A), the creditor
must prove:
             1. the debtor made a representation [other than regarding
                his financial condition];

             2. the debtor knew the representation was false at the time
                it was made;
             3. the representation was deliberately made for the purpose
                of deceiving the creditor;

             4. the creditor justifiably relied on the representation; and

             5. the creditor sustained a loss as the proximate result of
                the representation having been made.

Freier, 604 F.3d at 587.




                                          -4-
      Debtor argues Cooperative did not prove Debtor intended, by remaining silent
regarding his use of part of his 2004 and 2005 corn crops to feed his cattle, to deceive
Cooperative.3 Debtor focuses primarily on his testimony that he believed before it
provided him financing in 2004 and 2005, Cooperative knew he would feed some of
the corn to his cattle. However, the bankruptcy court was not required to accept
Debtor’s testimony as true. See Blodgett v. Comm’r, 394 F.3d 1030, 1036 (8th Cir.
2005) (citations therein).

             Because direct proof of intent (i.e., the debtor’s state of
             mind) is nearly impossible to obtain, the creditor may
             present evidence of the surrounding circumstances from
             which intent may be inferred. See [Webster City
             Production Credit Association v. Simpson (In re Simpson)],
             29 B.R. 202, 211 (Bankr. N.D. Ia. 1983). Accord [Jordan
             v. Frye (In re Frye)], 48 B.R. 422, 427 (Bankr. M.D. Ala.
             1985); [Municipal Credit Union v. Brown (In re Brown)],
             55 B.R. 999, 1004 (Bankr. E.D.N.Y. 1986). When the
             creditor introduces circumstantial evidence proving the
             debtor’s intent to deceive, the debtor “cannot overcome
             [that] inference with an unsupported assertion of honest
             intent.” [Simpson], 29 B.R. at 211-12. The focus is, then,
             on whether the debtor’s actions “appear so inconsistent
             with [his] self-serving statement of intent that the proof
             leads the court to disbelieve the debtor.” [Heinold
             Commodities & Securities, Inc. v. Hunt (In re Hunt)], 30
             B.R. 425, 441 (M.D. Tenn.1983).

Van Horne, 823 F.2d at 1287-88. Debtor’s self-serving statement must be weighed
against Cooperative’s actual lending policies and Debtor’s knowledge of these
policies, in particular Cooperative’s required first lien position on his crops.
Substantial evidence supports the bankruptcy court’s findings in this regard.
Richardson v. Sugg, 448 F.3d 1046, 1052 (8th Cir. 2006). Giving due regard to the
bankruptcy court’s opportunity to assess Debtor’s credibility as a witness,
Fed.R.Bankr.P. 8013, we cannot say the bankruptcy court’s finding that Debtor
intended to deceive Cooperative was clearly erroneous.

      3
          Silence regarding a material fact may constitute an actionable false
representation under § 523(a)(2)(A). See Caspers v. Van Horne (In re Van Horne),
823 F.2d 1285, 1288 (8th Cir. 1987) (abrogated on other grounds by Grogan v.
Garner, 498 U.S. 279 (1991)).
                                          -5-
       Debtor also argues Cooperative failed to prove it actually relied on Debtor’s
silence regarding his use of the feed. The record, however, adequately supports the
bankruptcy court’s finding that the amount Cooperative lent Debtor for crop inputs
was directly related to the projected dollar value of the crops. Had Debtor not
remained silent, and had Cooperative known some of the crop would not be available
for sale because Debtor intended to use it for feed, Cooperative would have reduced
the amount it was willing to lend accordingly. Under the circumstances, the
bankruptcy court’s finding that Cooperative relied on Debtor’s silence was not clearly
erroneous.

       Finally, Debtor argues even if Cooperative relied on Debtor’s silence, its
reliance was not justifiable, because Cooperative knew Debtor owned cattle and
would need to feed them.

             Justifiable reliance is an intermediate standard between
             actual reliance and reasonable reliance. See [Field v. Mans,
             516 U.S. 59, 70-73 (1995)]. Reliance can be justifiable
             even though an investigation would have revealed the
             falsity of a representation. Id. at 74-75[.] However, a
             creditor ‘‘cannot recover if he blindly relies upon a
             misrepresentation the falsity of which would be patent to
             him if he had utilized his opportunity to make a cursory
             examination or investigation.’’ Id. at 71 . . . (quoting
             Restatement (Second) of Torts § 541 cmt. a (1976)).

Freier, 604 F.3d at 588. The record demonstrates Cooperative’s focus was not on
Debtor’s cattle, but on determining the value of Debtor’s crops, securing a first lien
position on those crops, and requiring crop insurance to protect its investment. We
decline to hold simply because Cooperative knew Debtor owned cattle, Cooperative
was obligated to investigate how Debtor would feed those cattle. Consequently, we
cannot say the bankruptcy court’s finding that Cooperative’s reliance on Debtor’s
silence was justifiable was clearly erroneous, either.

      For a debt to be declared nondischargeable under § 523(a)(2)(B), the creditor
must prove:

             1. the debtor made a written statement;

             2. the statement was materially false;

                                         -6-
              3. the statement was in regard to the debtor’s or an
                 insider’s financial condition;
              4. the creditor reasonably relied on the statement; and

              5. the debtor made the statement with an intent to deceive.
11 U.S.C. § 523(a)(2)(B).

        Debtor argues Cooperative did not prove Debtor’s misstatements in the balance
sheets submitted to Cooperative for crop years 2004 and 2005 were material.4 A
written statement is materially false for the purposes of § 523(a)(2)(B) if it paints a
substantially untruthful picture of the debtor’s financial condition by misrepresenting
information that would normally affect the lender’s decision to extend credit. Premier
Bank v. Koester (In re Koester), 437 B.R. 363, 368 (Bankr. E.D. Mo. 2010) (citations
therein). The bankruptcy court found the misstatements in the balance sheets
regarding pending liabilities were material because of the size of the omitted
liabilities, the nature of those liabilities (i.e., necessary expenditures for fuel and seed),
and their impact on the balance sheets' portrayal of Debtor’s financial health. The
bankruptcy court noted Cooperative’s decision on whether and how much to lend for
crop inputs was largely dependent on having sufficient insured collateral to protect its
investment and further noted the value of Cooperative’s collateral would be reduced
by the expenses Debtor incurred in growing the crops. Cooperative’s subsequent
decision to advance additional funds in an effort to protect its earlier investments does
not render immaterial Debtor’s misstatements in the balance sheets and the collateral
worksheets. Under the circumstances, the bankruptcy court’s finding of materiality
was not clearly erroneous.




       4
         The affidavit regarding collection actions against Debtor and the letter
regarding Debtor’s anticipated additional income discussed above were also
considered at trial and discussed in the parties' briefs on appeal. However, because
the bankruptcy court found Debtor’s misstatements in the balance sheets and the
collateral worksheets led to Cooperative’s overextending credit by $183,000.00,
which exceeds the state court judgment amount, and because Debtor has not appealed
the determination of the state court judgment amount, we need not consider the import
of the affidavit and the letter.
                                             -7-
       Debtor also argues Cooperative did not prove it actually relied on the
misstatements in the balance sheets and the collateral worksheets for 2004 and 2005.
The record, however, supports the bankruptcy court’s finding that Cooperative did in
fact rely on those misstatements. Cooperative required Debtor to submit a balance
sheet and a collateral worksheet each year before it made a crop loan, and the
information set forth in the documents was targeted toward ensuring Cooperative’s
investment in Debtor’s crops would be protected. Moreover, Debtor himself
acknowledged the importance of the information in the documents to Cooperative in
making its lending decisions. Consequently, the bankruptcy court’s finding that
Cooperative relied on Debtor’s misstatements is not clearly erroneous, either.

        Debtor also argues even if Cooperative did rely on the misstatements in the
balance sheets and the collateral worksheets, its reliance was not reasonable. Under
§ 523(a)(2)(B), the reasonableness of a creditor’s reliance must be determined in light
of the totality of the circumstances. First National Bank of Olathe, Kansas v. Pontow,
111 F.3d 604, 610 (8th Cir. 1997) (citations therein).

             ‘‘Among other things, a court may consider ‘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.’ [Coston v. Bank of Malvern (In
             re Coston), 991 F.2d 257, 261 (5th Cir. 1993.]” [Sinclair
             Oil Corp. v. Jones (In re Jones), 31 F.3d 659, 662 (8th Cir.
             1994)].

Id. The bankruptcy court could have agreed with Debtor Cooperative was put on
notice of Debtor’s misstatements by the content of the documents themselves.
However, we decline to hold the bankruptcy court was required to do so. See
Anderson, 470 U.S. at 574 (citations therein) (“Where there are two permissible views
of the evidence, the factfinder’s choice between them cannot be clearly erroneous.”).
While the crop yield figures on the collateral worksheet were 25% greater than in
prior years, under all the circumstances presented, that fact alone does not necessarily
undermine the Court’s finding that Cooperative reasonably relied on the documents.

                                          -8-
Similarly, while Cooperative may have known Debtor had earlier understated
liabilities before it lent him money in 2005, we are not convinced the bankruptcy court
erred in failing to conclude the expense understatements alone constituted a red flag
that Debtor’s projected crop yields and attendant insurance coverage figures were
inflated and should not be relied on by Cooperative. Thus, we cannot say the
bankruptcy court’s finding that Cooperative’s reliance on Debtor’s misstatements was
reasonable is clearly erroneous.

        Finally, Debtor argues Cooperative did not prove Debtor intended to deceive
Cooperative. As noted by the bankruptcy court, the requisite intent under §
523(a)(2)(B) can be proven from the surrounding circumstances, if it is shown the
debtor acted with a reckless indifference to or reckless disregard of the accuracy of
financial information submitted to the creditor. Fairfax State Savings Bank v.
McCleary (In re McCleary), 284 B.R. 876, 888 (Bankr. N.D. Iowa 2002); Koester,
437 B.R. at 369. Factors to consider include the debtor’s intelligence and experience
in financial matters and whether there was a clear pattern of purposeful conduct.
McCleary, 284 B.R. at 888 (citations therein). The bankruptcy court specifically
found Debtor acted with reckless indifference or reckless disregard when he provided
only estimated, not actual, figures and did not contact his creditors to verify his
liabilities. The court also noted the nature and amount of the missing liabilities on the
balance sheet were such that Debtor had to know of them. Under the circumstances,
we cannot say the bankruptcy court’s finding that Debtor acted with the necessary
intent is clearly erroneous, either.

                                   CONCLUSION

       Having found no clear error in the bankruptcy court’s findings that each
element of § 523(a)(2)(A) and (B) had been shown by a preponderance of the
evidence, we affirm the bankruptcy court’s judgment determining Cooperative’s pre-
petition claim against Debtor is excepted from discharge under those provisions.




                                          -9-
