                             UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT


                             No. 08-1646


In re:    PETER A. SHARP; JOYCELYN F. SHARP,

                 Debtors,

------------------------------

COLOMBO BANK,

                 Plaintiff – Appellant,

     v.

PETER A. SHARP; JOYCELYN F. SHARP,

                 Defendants – Appellees,

     and

ROGER SCHLOSSBERG,

                 Trustee.


Appeal from the United States District Court for the District of
Maryland, at Greenbelt.    Deborah K. Chasanow, District Judge.
(8:07-cv-02935-DKC)


Argued:    May 12, 2009                    Decided:   August 14, 2009


Before WILKINSON and KING, Circuit Judges, and HAMILTON, Senior
Circuit Judge.


Affirmed by unpublished per curiam         opinion.    Senior   Judge
Hamilton wrote a concurring opinion.
ARGUED: Stephen Warren Nichols, DECKELBAUM, OGENS & RAFTERY,
CHARTERED, Bethesda, Maryland, for Appellant.     Matthew Gernet
Summers, BALLARD, SPAHR, ANDREWS & INGERSOLL, LLP, Baltimore,
Maryland,   for  Appellees.     ON   BRIEF:  Nelson   Deckelbaum,
DECKELBAUM, OGENS & RAFTERY, CHARTERED, Bethesda, Maryland, for
Appellant.    Joseph J. Bellinger, BALLARD, SPAHR, ANDREWS &
INGERSOLL, LLP, Baltimore, Maryland, for Appellees.


Unpublished opinions are not binding precedent in this circuit.




                                2
PER CURIAM:

     By   way    of    adversary    proceedings      in     bankruptcy   court,

appellant Colombo Bank (the “Bank”) sought rulings that the debt

obligations of Peter and Joycelyn Sharp on a $500,000 loan were

not subject to discharge.          In support thereof, the Bank relied

on two statutory “[e]xceptions to discharge” provided for in

subsections     (2)(A)   and   (2)(B)    of   11   U.S.C.   § 523(a).     After

conducting a trial in 2004, the bankruptcy court ruled against

the Bank, concluding that neither of the asserted exceptions

were applicable, and that the Sharps’ debt obligations were thus

dischargeable. 1      The Bank first appealed to the district court,

which affirmed the rulings of the bankruptcy court.                  The Bank

has now appealed to this Court and, as explained below, we also

affirm.



                                        I.

                                        A.

     On August 20, 2002, and October 28, 2002, respectively,

Joycelyn and Peter Sharp filed separate Chapter 7 bankruptcy

petitions in Maryland.         As part of the bankruptcy proceedings,

the Sharps sought discharge of their debt obligations arising

     1
       Although Joycelyn Sharp was a party in the bankruptcy
court proceedings and secured a favorable judgment, the Bank did
not appeal with respect to her.



                                        3
from a $500,000 loan that the Bank made to them in 1995 (the

“Loan”).           The Bank challenged any such discharge, maintaining

that the obligations were nondischargeable in bankruptcy because

the       Sharps    had   made       false     and    fraudulent      representations              to

obtain the Loan.             On November 4, 2002, and March 13, 2003, the

Bank       initiated        separate        adversary       proceedings           against         the

Sharps.           As to Peter Sharp, the Bank asserted that his debt

obligation          on    the        Loan     was     nondischargeable               under       both

subsection (2)(A) and subsection (2)(B) of 11 U.S.C. § 523(a).

The Bank made the same assertion of nondischargeability as to

Joycelyn Sharp, but relied on subsection (2)(B) only.

                                                B.

          Under    the    Bankruptcy        Code,     a   debtor     is    entitled         to    the

discharge of his debt obligations at the conclusion of Chapter 7

bankruptcy proceedings, absent the applicability of a statutory

exception.            See       11    U.S.C.        § 523(a)    (identifying            nineteen

statutory exceptions to discharge).                        In these proceedings, the

Bank       contends       that        Peter    Sharp      falsely         and     fraudulently

submitted two documents to the Bank when he applied for the Loan

—     a    financial       disclosure         statement,       and    a       title    insurance

commitment         with    an    attached       title     abstract        —     both   of    which

concealed a home equity line of credit referred to here as the

“Signet       Loan.”            The     Bank    maintains       that          each     of    those



                                                 4
submissions implicates an exception to discharge specified in

subsections (2)(A) and (2)(B) of § 523(a). 2

       Notably,      subsection         (2)(A)      disallows      the     discharge   of   a

debt       obligation      that     was      obtained    by,       inter    alia,    “actual

fraud.”        11 U.S.C. § 523(a)(2)(A).                 In these proceedings, the

Bank       alleged   and    sought      to    prove     that   Sharp       had   engaged    in

actual fraud in securing the Loan.                      As we recently explained in

Nunnery      v.   Rountree        (In   re    Rountree),       a   creditor’s       proof   of

actual fraud under subsection (2)(A) requires satisfaction of

the elements of common law fraud:                       “(1) false representation,

(2) knowledge that the representation was false, (3) intent to

deceive, (4) justifiable reliance on the representation, and (5)

proximate cause of damages.”                  478 F.3d 215, 218 (4th Cir. 2007);

see also Field v. Mans, 516 U.S. 59, 69 (1995) (explaining that


       2
       Subsection (2)(A) of § 523(a) provides that Chapter 7
bankruptcy does not discharge a debtor from any debt obligation
obtained by

       false pretenses, a false representation, or actual
       fraud, other than a statement respecting the debtor’s
       . . . financial condition.

By contrast, subsection (2)(B) of § 523(a) provides that Chapter
7 bankruptcy does not discharge a debtor from any debt
obligation obtained by

       use of a statement in writing . . . (i) that is
       materially false; (ii) respecting the debtor’s . . .
       financial condition; (iii) on which the creditor . . .
       reasonably relied; and (iv) that the debtor caused to
       be made or published with intent to deceive.



                                                5
“operative terms” of subsection (2)(A) are “common-law terms”).

Significantly, subsection (2)(A) does not apply if the disputed

statement     is   “respecting      the   debtor’s    .   .    .     financial

condition.”    § 523(a)(2)(A); see also Blackwell v. Dabney (In re

Blackwell), 702 F.2d 490, 491 (4th Cir. 1983) (discussing scope

of phrase “respecting the debtor’s . . . financial condition”).

Subsection (2)(B), on the other hand, was designed to bar the

bankruptcy discharge of a debt obligation that was induced by a

false    written   statement   of   the   debtor’s   financial      condition.

See Field, 516 U.S. at 66.            In order to satisfy subsection

(2)(B), a creditor must prove five elements:                  (1) “use of a

statement in writing,” (2) “that [was] materially false,” (3)

“respecting the debtor’s . . . financial condition,” (4) “on

which the creditor . . . reasonably relied,” and (5) “that the

debtor caused to be made or published with intent to deceive.”

§ 523(a)(2)(B).

        These two subsections of § 523(a) were enacted to address

distinct    factual   situations,     and,   of   importance       here,   they

differ with respect to the element of reliance — that is, the

extent to which the creditor altered its position because of the

debtor’s misrepresentations.        Whereas subsection (2)(A) requires

the creditor to prove “justifiable reliance,” subsection (2)(B)

mandates the more demanding showing of “reasonable reliance.”

See Field, 516 U.S. at 61, 66.

                                      6
                                                    C.

        Although the Bank initiated separate adversary proceedings

against           the      Sharps,          the     bankruptcy      court       conducted    a

consolidated             trial    on      October    4,   2004,    at   which    it    received

evidence and heard the argument of counsel.                              After trial, the

bankruptcy court filed two separate decisions, ruling that the

Bank        had    failed        to       satisfy   subsections       (2)(A)     and   (2)(B).

First, on April 1, 2005, the court filed a decision rejecting

the    Bank’s           subsection         (2)(B)   contention.         See    Colombo    Bank,

F.S.B. v. Sharp (In re Sharp), No. 03-01098 (Bankr. D. Md. Apr.

1, 2005) (“Sharp I”). 3                     Thereafter, on September 28, 2007, the

court       also        rejected      the    Bank’s      subsection     (2)(A)    contention.

See Colombo Bank, F.S.B. v. Sharp (In re Sharp), No. 03-01098

(Bankr. D. Md. Sept. 28, 2007) (“Sharp II”). 4

                                                    1.

        In        its     Sharp       I     decision,     the     bankruptcy     court    made

extensive findings of fact predicated on the trial evidence.

The relevant findings are as follows:

             1. On September 25, 1995, the Bank made [the
        Loan] to the Sharps in the amount of $500,000 . . . .
        As security, the Bank received a mortgage which it

        3
       Sharp I is found at J.A. 65-73.     (Citations herein to
“J.A. ___” refer to the contents of the Joint Appendix filed by
the parties in this appeal.)
        4
            Sharp II is found at J.A. 163-74.



                                                    7
believed was a second priority lien on the Sharps’
residence   in   Bethesda,  Maryland  (the   “Maryland
Property”) and a second priority lien on a vacation
property located on Kiawah Island, South Carolina (the
“South Carolina Property”).

     2. The Bank understood and believed that its lien
on the Maryland Property was second only to a first
priority mortgage in favor of Chase Bank of Maryland
(“Chase”)   in  the principal    amount  of  $750,000.
Moreover, it is undisputed that the Bank understood
its lien on the South Carolina Property was second to
a first priority mortgage in favor of Prudential Home
Mortgage Company, Inc. (“Prudential”) in the principal
amount of $347,000.

      3. Contrary to the Bank’s expectation and belief,
its mortgage on the Maryland Property was in fact in
third    position,  behind   a  prior-recorded   second
mortgage to secure a home equity line of credit in the
maximum principal amount of $75,000 (the “Signet
Loan”). The Signet mortgage was senior in priority to
the Bank’s mortgage because the former was recorded on
March 6, 1995.

      4. In connection with the loan negotiations,
[Peter    Sharp    submitted    a   financial   disclosure
statement to the Bank] consisting of two pages on a
Bank of Maryland form, purporting to describe Mr.
Sharp’s assets and liabilities as of December 12,
1994.   The principal assets listed were ownership of
First Charter Title Corporation (“First Charter”)
(valued at $3 million), the Maryland Property (valued
at $1.3 million) and the South Carolina Property
(valued at $525,000).         The principal liabilities
disclosed were the first mortgages on each of the
Maryland    and   South   Carolina   properties  (in   the
principal     amounts    of    $748,000    and   $367,000,
respectively).     The Signet Loan, which had not yet
been made in December 1994, was not disclosed.

     . . . .

     6. It is undisputed that the disclosure did not
mention the Signet Loan which, as mentioned, had not
yet been made.   The question is whether presentation
of a December 1994 disclosure in March or April 1995,

                            8
after the Signet Loan had been made, was a fraudulent
misrepresentation.     Mr.   Sharp   testified   (i)   he
believed the Signet mortgage had not been recorded
because the line of credit had not yet been drawn and
(ii) he verbally disclosed the Signet line of credit
and his understanding that it was not yet recorded to
[Bank Chairman] Fernebok. In his deposition, Mr.
Fernebok   denies  that   Mr.   Sharp   made   any   such
disclosure.   Unfortunately, no evidence was submitted
by either side with respect to Signet’s loan practices
at the time, which probably would have resolved the
issue. The Court is required, then, to rely on its
assessment of Mr. Sharp’s testimony.       After careful
consideration, the Court finds that [the] testimony
was not credible.

     7. Also undisputed is that, in connection with
the Loan closing, Mr. Sharp’s company, First Charter,
supplied to the Bank a title insurance commitment
dated September 11, 1995, to which was attached a
title abstract with respect to the Maryland Property.
Further, it is undisputed that this title abstract did
not reflect the Signet mortgage, which had been
recorded in March 1995. Mr. Sharp explained that this
happened because the title abstract had been prepared
in January [1995], at which time the Signet mortgage
had not yet been recorded. The Court cannot and does
not believe that a professional title insurance agent
— and this was, after all, Mr. Sharp’s main business
at the time — would issue a title insurance commitment
in September based on title work performed in January
unless, as the Bank contends, it was a deliberate act
of nondisclosure.    This is clinching proof that Mr.
Sharp misled the Bank and that he deliberately
furnished a stale financial disclosure and a stale
title abstract which he knew did not reflect the
Signet Loan and mortgage.

     8. [Two days] after the closing, [the Sharps
executed] an affidavit certifying to the Bank that the
December 1994 financial disclosure was a full and fair
description of the Sharps’ financial condition as of
the closing.     . . .     Plainly the affidavit was
misleading, but the Court finds that . . . the Bank
obviously did not rely on the affidavit to its
detriment, as the Loan had already been funded.


                           9
         9. Moreover, the Bank failed to establish that
    Mr. Sharp’s pre-funding nondisclosure of the Signet
    Loan was material. Rather, as evidenced by the [Bank
    Chairman’s]    credit  memorandum, 5   it  appears     [the
    Chairman] was “hot” to make th[e] [L]oan because he
    hoped to develop a banking relationship with Mr. Sharp
    whereby First Charter would channel escrow closing
    funds through the Bank.    Moreover, the primary credit
    underwriting criterion for approving the [L]oan, as
    reflected in [the Bank Chairman’s] deposition, was Mr.
    Sharp’s valuation of First Charter at $3 million. It
    does not appear of record that [the Bank Chairman]
    made any effort to verify that valuation, which in
    hindsight proved to be greatly overstated. The second
    credit    underwriting   criterion    was    Mr.    Sharp’s
    expectation of $370,000 in commissions for brokering
    two loan transactions, which were the principal
    anticipated source of repayment of the Loan (hence its
    having only a one year term).     It does not appear of
    record that [the Bank Chairman] made any effort to
    “due diligence” those commissions, which apparently
    failed to materialize.    The security furnished by the
    mortgages was thus only the third credit underwriting
    criterion and the Bank’s analysis was that there was a
    combined $800,000 equity cushion in the Maryland and
    South Carolina Properties. In other words, the Bank’s
    loss was caused by the parties’ shared mistaken
    evaluations of Mr. Sharp’s ability to repay the [L]oan
    from income and/or the value of his business and the
    value of the properties pledged as collateral.           In
    this context, the Bank has not demonstrated that an
    undisclosed    $75,000   second    mortgage,     sandwiched
    between a $750,000 first and a $500,000 third, was
    material.
    5
        Before consummating the Loan, the Bank’s Chairman, Joel
Fernebok, generated an undated internal credit memorandum
recommending that the Loan be made “based on Mr. Sharp’s ability
to generate funds thru [First Charter] and the equity in his
homes.”    J.A. 396.    The Fernebok credit memorandum explained
that First Charter expected to close on two major transactions
in the first quarter of 1996, and thereby garner $370,000 in
commissions. The memorandum also reflected that Sharp had a net
worth of $3,987,700, primarily from his ownership of First
Charter.    It indicated that the Bank is “also benefiting from
the operating and escrow accounts of [First Charter].” Id.


                                10
          10. Finally, the Court cannot find that the Bank
     reasonably relied on Mr. Sharp’s misrepresentation.
     The uncontroverted testimony was that the Bank made no
     independent investigation of the Sharps’ title.    The
     primary purpose of a title report is to verify the
     borrower’s representations as to the state of title.
     In the Court’s view, a lender relies on a title report
     supplied by the borrower at its peril.

Sharp I 4-8 (citations and footnotes omitted).          After announcing

its findings of fact in Sharp I, the bankruptcy court ruled that

the Bank had failed to satisfy the requirements of subsection

(2)(B).     More specifically, the court found that the Bank had

failed to prove two essential elements of subsection (2)(B) —

materiality and reasonable reliance. 6

                                     2.

     On April 11, 2005, ten days after the Sharp I decision was

rendered,    the   Bank   sought   reconsideration   thereof,   requesting

the bankruptcy court to also assess the Bank’s subsection (2)(A)

contention.    On September 12, 2005, the bankruptcy court granted




     6
       In its Sharp I decision, the bankruptcy court determined,
with respect to materiality and reasonable reliance, that

     [(1)] the Bank has not demonstrated that, in the
     context of the overall loan transaction, Mr. Sharp’s
     misrepresentations were material to its decision to
     make the Loan; and [(2)] any such reliance was not
     reasonable, as the Bank failed to obtain a title
     report from a disinterested third party.

Sharp I 9.



                                     11
the Bank’s reconsideration request and, on September 28, 2007,

issued its Sharp II decision. 7

       In        Sharp     II,    the     bankruptcy        court     disposed     of   the

subsection (2)(A) issue and adhered to the Sharp I findings of

fact.        Relying       on    these    findings,       the     court   made   additional

findings that “the Bank has conclusively established three of

the five elements” of subsection (2)(A) — that Sharp (1) made

false representations to the Bank; (2) knew such representations

to be false; and (3) made the misrepresentations intending to

deceive the Bank.                Sharp II 7.         Nevertheless, the court found

that       the    Bank     had   failed    to     prove     the    other   two    essential

elements         of      subsection      (2)(A)      —     justifiable      reliance    and

proximate cause.            See id. at 8.

       On the issue of justifiable reliance, the bankruptcy court

explained that the Bank’s reliance on Sharp’s misrepresentations

was not justified “[g]iven the lack of history between these

parties,          the      irregularity         of       these     documents      and   the

sophistication of the plaintiff.”                    Sharp II 10.          The court then



       7
       Although the Bank had not pursued its subsection (2)(A)
contention at trial, the bankruptcy court decided to address
this issue because it was raised in the Bank’s adversary
complaint.   In its reconsideration request, the Bank did not
seek reconsideration of any of the factual findings made in
Sharp I, and the Bank conceded that its subsection (2)(A)
contention could be resolved on the existing record.



                                                12
identified “several factors” that should have placed the Bank on

notice that Sharp’s representations were suspect:

      •      “[T]he Debtor produced a stale title                           report
             prepared by a company under his control”;

      •      “The Bank . . . was ‘hot’ to do this deal with
             the Debtor in the hopes of garnering future
             business”; and

      •      “The Bank had no history with the Debtor and no
             past relationship of trust and confidence upon
             which it could rely.”

Id.     “Instead of being prudent,” the court explained, “the Bank

appears to have been more focused on possible future returns and

seemingly ignored the fact that, by the time the Loan closed,

the   financial    disclosure       was    nine      months    old    and    the   title

report was eight months old.”             Id.        As a result, the bankruptcy

court     ruled   in   Sharp   II   that       the    Bank    had    not    proven   the

essential element of justifiable reliance. 8

                                          D.

      On October 5, 2007, the Bank appealed both Sharp I and

Sharp II — with respect to Peter Sharp only — to the district


      8
       The bankruptcy court also concluded in Sharp II that
Sharp’s misrepresentations with respect to the Signet Loan were
not a proximate cause of the Bank’s loss.     Rather, the Bank’s
“primary credit underwriting criterion was the value of Mr.
Sharp’s business, followed by the value of the commissions he
was expecting.”   Sharp II 11.   Thus, the court explained, “the
omission of a single $75,000 mortgage when compared to a
business that was valued at $3,000,000 and expected commissions
in the amount of $370,000” was simply “not determinative.” Id.



                                          13
court.      Seven months later, on May 5, 2008, the district court

affirmed      the   bankruptcy    court’s       rulings.       See   Colombo    Bank,

F.S.B. v. Sharp, No. 8:07-cv-02935 (D. Md. May 5, 2008) (the

“District Court Opinion”). 9

      In rejecting the Bank’s subsection (2)(B) contention, the

district court concluded that the bankruptcy court had not erred

in ruling in Sharp’s favor on the reasonable reliance issue.

The   district      court    explained,        inter   alia,    that    the    Bank’s

reliance      on    the     financial     disclosure       statement     “was     not

reasonable,” in that Sharp had submitted “irregular[]” documents

to the Bank, and the Bank had “failed to conduct a very basic

investigation into the status of the title.”                         District Court

Opinion 20. 10

      In rejecting the Bank’s subsection (2)(A) contention, the

district court ruled that the bankruptcy court did not err in

finding      that   the   Bank   had    not    justifiably     relied   on    Sharp’s

misrepresentations          in   the     title     insurance      commitment      and

      9
           The District Court Opinion is found at J.A. 292-311.
      10
        The district court also ruled that the bankruptcy court
did not err in deeming Sharp’s misrepresentations to be
immaterial. The district court agreed with the bankruptcy court
that   such    misrepresentations   were   immaterial   because,
“[a]lthough a third mortgage would have diminished the value of
the collateral and depleted the available sources for repayment,
under the circumstances of this case, the relatively small
Signet loan was not likely to have influenced the Bank’s
decision.” District Court Opinion 17.



                                          14
attached title abstract.                    The district court explained that,

“[e]ven         if     the     parties        had     a    preexisting       depository

relationship, the nature of the relationship was not of the sort

that      could      support     the    Bank’s        blind   reliance      on    Sharp’s

assertions.”           District Court Opinion 12.                 In so ruling, the

district       court       accepted    the    bankruptcy      court’s    findings    with

respect        to    the    credit    memorandum       prepared    by    Bank     Chairman

Fernebok.           According to the district court, the Fernebok credit

memorandum “supports the finding that the Bank was interested in

developing a profitable relationship with First Charter,” and

the Bank’s eagerness “very well could have affected its judgment

and thoroughness in reviewing Mr. Sharp’s loan file.”                              Id. at

13. 11

         The   Bank     has   filed     a    timely    notice     of    appeal,    and   we

possess jurisdiction pursuant to 28 U.S.C. § 1291.



                                              II.

         11
        On the proximate cause issue, the district court ruled
that the bankruptcy court had not erred in finding that Sharp’s
misrepresentations were not a proximate cause of the Bank’s
loss. The district court explained that, in light of the Bank’s
failure to verify Sharp’s title on the Maryland Property, plus
the nature of other pertinent lending factors — such as the
value of First Charter, Sharp’s net worth, and his expected
commissions — the bankruptcy court had not erred in finding that
the omission of the Signet Loan from the title insurance
commitment and abstract was not a proximate cause of the Bank’s
loss. See District Court Opinion 14-15.



                                              15
     Where,      as    here,       a    district        court    acts       as   a     bankruptcy

appellate      court,    “our      review          of   [its]    decision        is       plenary.”

Bowers v. Atlanta Motor Speedway, Inc. (In re Se. Hotel Props.

Ltd.),    99    F.3d        151,       154     (4th      Cir.     1996).             In     such   a

circumstance,         “we       review        the       bankruptcy       court’s          decision

independently.”          Banks         v.    Sallie      Mae    Servicing        Corp.      (In    re

Banks), 299 F.3d 296, 300 (4th Cir. 2002).                             Thus, we review for

clear error the findings of fact made by the bankruptcy court,

and we assess de novo its conclusions of law.                               See Deutchman v.

IRS (In re Deutchman), 192 F.3d 457, 459 (4th Cir. 1999).                                          In

analyzing      whether      a    bankruptcy          debtor      is    entitled        to    relief

under a statutory exception from discharge, “we traditionally

interpret      the    exceptions            narrowly      to    protect      the     purpose       of

providing debtors a fresh start.”                       Foley & Lardner v. Biondo (In

re Biondo), 180 F.3d 126, 130 (4th Cir. 1999).



                                               III.

    We are satisfied to dispose of this appeal by addressing

only the Bank’s reliance contentions and the bankruptcy court’s

rulings     thereon.            Although           Sharp’s      behavior         was       entirely

reprehensible,        such      behavior        does      not    —     in   the      absence       of

sufficient proof of the reliance elements — render his debt

obligations on the Loan nondischargeable under either subsection

(2)(A)    or    (2)(B).            The       two     reliance         issues     presented         by

                                                16
subsections     (2)(A)    and    (2)(B)     implicate      separate      levels     (or

degrees) of reliance.           Subsection (2)(A) required the Bank to

show “justifiable reliance,” which implicates a “less demanding”

standard of proof than the “reasonable reliance” mandated by

subsection (2)(B).           Field v. Mans, 516 U.S. 59, 61, 66 (1995).

Regardless of the requisite degree of reliance, however, both of

the reliance elements are factual issues, and the bankruptcy

court’s findings of fact may not be set aside on appeal unless

they   are   clearly     erroneous.         See    Lentz    v.   Spadoni      (In   re

Spadoni),      316    F.3d     56,    58    (1st    Cir.     2003)      (justifiable

reliance); Apte v. Japra (In re Apte), 96 F.3d 1319, 1324 (9th

Cir.   1996)    (justifiable         reliance);    Citizens      Bank    of   Md.   v.

Broyles   (In    re   Broyles),       55   F.3d    980,    983   (4th    Cir.   1995)

(reasonable reliance); Guske v. Guske (In re Guske), 243 B.R.

359, 362 (8th Cir. 2000) (justifiable reliance).                        As explained

below, the bankruptcy court did not clearly err in finding that

the Bank’s reliance on Sharp’s misrepresentations was neither

justified nor reasonable.

                                           A.

       With the clear error standard of review in mind, we turn

first to the bankruptcy court’s finding — made with respect to

subsection (2)(A) — that the Bank was not justified in relying

on Sharp’s misrepresentations in the title insurance commitment

and attached title abstract that was submitted in support of the

                                           17
Loan application. 12         To satisfy the justifiable reliance element,

a   creditor    must   first     prove   that       it   actually     relied   on     the

debtor’s misrepresentations.             See Field, 516 U.S. at 68.                After

establishing        actual    reliance,       the    creditor        is    obliged     to

demonstrate     that    such     reliance      was       justified.        Justifiable

reliance implicates a subjective standard and “is a matter of

the qualities and characteristics of the particular plaintiff,

and the circumstances of the particular case, rather than of the

application of a community standard of conduct to all cases.”

Id. at 71 (citing Restatement (Second) of Torts § 545A cmt. b

(1976)).

      The justifiable reliance element of subsection (2)(A) does

not normally give rise to a duty to investigate.                           Indeed, the

Supreme Court has explained that a creditor “is justified in

relying    on   a   representation       of   fact       ‘although    he   might     have

ascertained the falsity of the representation had he made an

investigation.’”        Field, 516 U.S. at 70 (quoting Restatement


      12
        As explained supra, the bankruptcy court found in Sharp
II that the Bank’s reliance on the title insurance commitment
and attached title abstract was not justified “[g]iven the lack
of history between these parties, the irregularity of these
documents and the sophistication of the plaintiff.”     Sharp II
10. “Instead of being prudent,” the court explained, “the Bank
appears to have been more focused on possible future returns and
seemingly ignored the fact that, by the time the Loan closed,
the financial disclosure was nine months old and the title
report was eight months old.” Id.



                                         18
(Second) of Torts § 540 (1976)); see also Foley & Lardner v.

Biondo    (In       re    Biondo),     180     F.3d    126,      135   (4th    Cir.     1999)

(characterizing justifiable reliance as a “minimal standard”).

Nevertheless,            such     “[j]ustifiability             is   not     without    some

limits.”       Field, 516 U.S. at 71.                  Notably, a creditor is not

entitled       to    “‘blindly        rel[y]        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. (quoting Restatement (Second) of Torts § 541 cmt. a (1976)).

       As the Supreme Court has explained, a duty to investigate

can arise when the surrounding circumstances give rise to red

flags that merit further investigation.                         See Field, 516 U.S. at

72.      This analysis turns on “‘an individual standard of the

[creditor’s] own capacity and the knowledge which he has.’”                              Id.

(quoting W. Page Keeton et al., Prosser & Keeton on Torts § 108

(5th ed. 1984)).                Thus, when the circumstances are such that

they should warn a creditor that he is being deceived, he cannot

justifiably rely on the fraudulent statements without further

investigation.

       Under the trial evidence, the bankruptcy court’s finding

that     the        Bank        did    not     justifiably           rely     on   Sharp’s

misrepresentations              in    the    title         insurance       commitment    and

attached title abstract was not clearly erroneous.                            As the court

recognized, several red flags placed the Bank on notice “that

                                               19
something was amiss” and that it should investigate further.

Sharp       II       10.   First   and   foremost,      Sharp’s    company,      First

Charter, provided the Bank with the title insurance commitment,

to which it attached the stale title report.                           And, although

Sharp also provided his financial disclosure statement to the

Bank, the bankruptcy court specifically found that it was also

stale       —    dated     eight   months   prior    to   the     Loan   closing     in

September 1995.            Indeed, the financial disclosure statement was

characterized by the bankruptcy court as “irregular[],” in that

it consisted of two pages on a Bank of Maryland form, rather

than    on       a    Colombo   Bank   form.     Id.;     see   also     Sharp   I   5.

Importantly, the bankruptcy court also found that the Bank — a

sophisticated entity — had no previous relationship of trust or

confidence with Sharp upon which it could rely.                          Finally, as

Chairman Fernebok’s credit memorandum strikingly revealed, the

Bank was “hot” to make the Loan and focused on the possibility

of future business from Sharp and First Charter, which Fernebok

believed the Loan would create.                  See Sharp II 10.           In these

circumstances, the bankruptcy court was entitled to find — as it

did — that the Bank should have investigated further.                            As a

result, the bankruptcy court’s finding of justifiable reliance

with respect to subsection (2)(A) was not clearly erroneous. 13


       13
        Sharp also contends on appeal that subsection (2)(A) is
(Continued)
                                            20
                                       B.

     We   turn   finally   to    the    reasonable      reliance   issue,     an

essential element of subsection (2)(B) that “must be met for a

discharge   to   be   denied.”     In       re   Broyles,   55   F.3d   at   983

(internal quotation marks omitted).              In Sharp I, the bankruptcy

court found against the Bank on the reasonable reliance issue,

ruling that the Bank’s reliance on Sharp’s misrepresentations in

the financial disclosure statement was not reasonable. 14

     As heretofore explained, the reasonable reliance assessment

required by subsection (2)(B) imposes a more demanding standard

than that applicable to the issue of justifiable reliance.                   See

Field, 516 U.S. at 61, 66.       First of all, reasonable reliance —

like justifiable reliance — requires actual reliance.                   See id.

at   68   (“Section    523(a)(2)(B)         expressly   requires    not      only

reasonable reliance but also reliance itself . . . .”).                       In

addition to evaluating actual reliance, a court must objectively



inapplicable, because the title insurance commitment and title
abstract   together  constitute  a   statement respecting  his
financial condition.      Because Sharp’s debt obligation is
dischargeable in any event, however, we need not reach or
address this contention.
     14
        As explained supra, the bankruptcy court found that the
Bank’s reliance on the financial disclosure statement was not
reasonable, because “[t]he uncontroverted testimony was that the
Bank made no independent investigation of the Sharps’ title” and
“a lender relies on a title report supplied by the borrower at
its peril.” Sharp I 8.



                                       21
assess     the    circumstances         to    determine      whether   the   creditor

exercised “that degree of care which would be exercised by a

reasonably       cautious     person     in    the    same    business   transaction

under similar circumstances.”                Ins. Co. of N. Am. v. Cohn (In re

Cohn), 54 F.3d 1108, 1117 (3d Cir. 1995) (assessing factors such

as   creditor’s           standard      practices       in     evaluating    credit-

worthiness, industry standards for evaluating credit-worthiness,

and circumstances surrounding debtor’s credit application); see

also In re Morris, 223 F.3d 548, 554 (7th Cir. 2000); Coston v.

Bank of Malvern (In re Coston), 991 F.2d 257, 261 (5th Cir.

1993).     In reviewing the circumstances surrounding a debtor’s

loan application, a court should assess whether “red flags” were

raised that should have alerted the lender to the possibility of

inaccurate representations; whether there were previous business

dealings with the debtor that gave rise to a relationship of

trust; and whether a minimal investigation by the lender would

have revealed the inaccuracies.                   See In re Cohn, 54 F.3d at

1117.

     Put     succinctly,       on      the    trial   evidence,    the    bankruptcy

court’s reasonable reliance finding was not clearly erroneous.

First,   the      circumstances        surrounding     Sharp’s    loan   application

should     have    “alerted       an    ordinarily      prudent    lender    to    the

possibility        that     the     information       [reflected       thereon    was]

inaccurate.”        In re Cohn, 54 F.3d at 1117.                   Indeed, the red

                                             22
flags that rendered the Bank’s reliance unjustified — the stale

and     irregular        documents,     the        parties’   lack     of    a    prior

relationship of trust or confidence, the Bank’s sophistication,

and its eagerness to establish a depository relationship with

Sharp — are also relevant to the reasonable reliance inquiry.

Second, the Bank failed to perform a title search with respect

to the Maryland Property, despite the fact that the “primary

purpose      of     a    title    report      is     to   verify     the    borrower’s

representations as to the state of title.”                      Sharp I 8.       Such a

title      search       would    have   required      minimal      effort   and    most

assuredly would have revealed the Signet Loan.                        Viewing these

circumstances objectively, we are simply unable to conclude that

the bankruptcy court’s reasonable reliance ruling was clearly

erroneous. 15



                                           IV.

        Pursuant to the foregoing, we are constrained to affirm the

judgment under challenge in this appeal.

                                                                              AFFIRMED




      15
       Because the Bank failed to prove the reliance elements of
subsections (2)(A) and (2)(B), it is unnecessary for us to
address the proximate cause element of subsection (2)(A) and the
materiality element of subsection (2)(B).



                                           23
HAMILTON, Senior Circuit Judge, concurring specially:

       I concur in the judgment and in Parts I, II, and III(b) of

the court’s opinion.            I write separately to state that I would

affirm the district court’s entry of summary judgment in favor

of Peter Sharp (Sharp) with respect to the Bank’s § 523(a)(2)(A)

claim on a different ground.

       I    would    affirm     the    judgment       below       with    respect      to    the

Bank’s § 523(a)(2)(A) claim on the authority of Blackwell v.

Dabney,      702    F.2d   490        (4th    Cir.        1983)    and    Engler       v.    Van

Steinburg,         744   F.2d    1060        (4th     Cir.    1984).         Under          these

precedents, Sharp’s misrepresentations in his loan application

documents and the title abstract as to the encumbered status of

the    Maryland      property       constituted           statements      respecting         his

financial condition, and thus, plainly fall outside the scope of

11    U.S.C.   § 523(a)(2)(A).               In    relevant       part,   such     statutory

section provides that a Chapter 7 debtor cannot discharge a debt

obligation obtained by “false pretenses, a false representation,

or actual fraud, other than a statement respecting the debtor’s

. . . financial condition.”              Id. (emphasis added).

       In    Blackwell,       the     debtor        had    guaranteed      loans       to    his

corporation,        Studio-1,       which     guarantee       obligations        the    debtor

sought to discharge in bankruptcy.                        Blackwell, 702 F.2d at 491.

The creditor testified that she relied on misrepresentations by

the debtor that the business “‘was growing’” and was a “‘top-

                                              24
notch company’” that was “‘just blooming’” and other similar

statements.      Id. at 492.       Of relevance in the present appeal, we

held    the   creditor     could   not   invoke      § 523(a)(2)(A)    to   avoid

discharge, because all of the debtor’s oral misrepresentations

“were essentially statements concerning the financial condition

of     Studio-1,”    and    therefore,        fell   outside   the    scope    of

§ 523(a)(2)(A).      Blackwell, 702 F.2d at 492.

        In Engler, the debtor, during loan negotiations with the

creditor, had falsely stated that the property he offered as

security for the loan was completely unencumbered.                   Engler, 744

F.2d at 1060.       We held that the creditor could not prevail upon

his § 523(a)(2)(A) claim, because the debtor’s false statement

that he owned the property free and clear of other liens “is a

statement     respecting    his    financial     condition,”   and    therefore,

fell outside the scope of § 523(a)(2)(A).                Engler, 744 F.2d at

1061.     Notably, in Engler, we specifically rejected the concept

that “a statement respecting the debtor’s financial condition

means a formal financial statement, such as a typical balance

sheet or a profit and loss statement, and not a statement that

specific collateral is owned free of other encumbrances.”                     Id.

at 1060.      In so rejecting, we reasoned as follows:

             Concededly, a statement that one’s assets are not
        encumbered is not a formal financial statement in the
        ordinary usage of that phrase.    But Congress did not
        speak in terms of financial statements.    Instead, it
        referred to a much broader class of statements--those

                                         25
     “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.    Indeed, whether
     his assets         are encumbered may be the most significant
     information        about his financial condition.

Id. at 1060-61.

     Under Blackwell and Engler, Sharp’s misrepresentations in

his loan application documents and the title abstract as to the

encumbered       status      of    the    Maryland        property    constituted

statements respecting his financial condition, and thus, plainly

fall outside the scope of § 523(a)(2)(A).                  On this basis alone,

I would affirm the district court’s affirmance of the bankruptcy

court’s entry of judgment in favor of Sharp with respect to the

Bank’s § 523(a)(2)(A) claim.

     The    Bank    contends      that   the    Supreme    Court’s    decision      in

Field v. Mans, 516 U.S. 59, 71 (1995) overruled Blackwell and

Engler     by    holding    the    phrase      “a   statement   respecting         the

debtor’s    or     an    insider’s   financial      condition,”      as    found   in

§ 523(a)(2)(A), pertained only to classic financial statements.

The Bank’s contention is without merit.

     The Supreme Court granted certiorari in Field solely “to

resolve a conflict among the Circuits over the level of reliance

that § 523(a)(2)(A) requires a creditor to demonstrate.”                      Field,

516 U.S. at 63.         Ultimately, the Court held “that § 523(a)(2)(A)

requires justifiable, but not reasonable, reliance.”                      Field, 516


                                         26
U.S. at 74-75.       While some reasoning by the Court in Field to

explain this holding can arguably be extrapolated to support the

narrow interpretation of the financial condition phrase the Bank

espouses,    such    a    situation       falls    far   short     of   constituting

Supreme Court precedent upon which we can solely rely to hold

that Blackwell and Engler are no longer good law.                          Until the

Supreme Court or an en banc panel of this court overrules the

holdings of Blackwell and Engler, they remain good law, and I

would rely upon them to resolve the Bank’s § 523(a)(2)(A) claim

presently before us.             See McMellon v. United States, 387 F.3d

329, 334 (4th Cir. 2004) (en banc) (concluding “that when there

is an irreconcilable conflict between opinions issued by three-

judge panels of this court, the first case to decide the issue

is   the   one    that    must    be    followed,      unless    and    until    it   is

overruled    by    this    court       sitting    en   banc   or   by   the     Supreme

Court”).




                                           27
