NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                                File Name: 12a0331n.06

                                           No. 11-1388                                FILED
                                                                                 Mar 26, 2012
                                 UNITED STATES COURT OF APPEALS
                                                                           LEONARD GREEN, Clerk
                                      FOR THE SIXTH CIRCUIT


In re: CLAUDE OSTER                                      )
                                                         )
         Debtor.                                         )
                                                         )
------------------------------                           )      ON APPEAL FROM THE
                                                         )      UNITED STATES DISTRICT
CLAUDE OSTER,                                            )      COURT FOR THE EASTERN
                                                         )      DISTRICT OF MICHIGAN
         Defendant-Appellant,                            )
                                                         )                         OPINION
v.                                                       )
                                                         )
CLARKSTON STATE BANK,

         Plaintiff-Appellee.




BEFORE:           GUY, COLE, and ROGERS, Circuit Judges.

         COLE, Circuit Judge. While seeking to obtain personal and business loans, Claude Oster

provided false statements concerning his financial position and signed documents containing

deceptive information. When he sought bankruptcy protection, Clarkston State Bank, the lender,

asked the bankruptcy court to declare the debt arising from the loans nondischargeable under 11

U.S.C. § 523(a)(2)(B), which excepts from discharge those debts obtained through the use of false

statements. The bankruptcy court determined that Oster’s debts met the statutory requirements for

nondischargeability, which the district court affirmed. We AFFIRM.
No. 11-1388
Oster v. Clarkston State Bank

                                        I. BACKGROUND

       Between 2004 and 2005, Claude Oster sought a total of $1,350,000 in personal and business

loans from Clarkston State Bank (“Clarkston”). To help procure these loans, Oster’s personal

accountant Howard Small prepared a series of financial statements. The first balance sheet, prepared

in January 2005, showed marketable securities worth $8,255,000, owned by “Dr. and Mrs. Claude

Oster.” Three other statements were prepared over the next two years, showing similar numbers,

though these subsequent statements all contained a footnote stating that the marketable securities

were “jointly owned.” The personal loan was renewed three times, eventually maturing in

September 2007, while the business loan was set to mature in December 2008.

       To obtain these loans, Oster signed several business loan agreements. These agreements

contained language such as “Working Capital Requirements. Maintain Working Capital according

to the following: Marketable security balance to be maintained at 4,000,000.00 to be tested

quarterly” and “Tangible Net Worth Requirements. Maintain a minimum Tangible Net Worth of

not less than $4,000.000.00.” Oster signed these loan agreements, including signing one directly

adjacent to the $4,000,000 figure. A series of computer printouts that displayed Merrill Lynch

account balances was provided to Clarkston. The printouts used a shorthand name for the accounts,

including “Terry-Fayez,” and “Terry-Marsico.” Terry is the first name of Oster’s wife.

       When he signed the loan agreements and submitted the financial statements, Oster did not,

in fact, own any interest in the marketable securities. Oster testified that in or around 1994, he

transferred ownership of the marketable securities to his wife after she expressed concern that Oster

was an “impetuous health care entrepreneur” who may put their funds in jeopardy. At the time the

                                                -2-
No. 11-1388
Oster v. Clarkston State Bank

financial statements were provided to Clarkston, only Terry Oster, who was not a guarantor on any

of the loans, had an interest in the listed marketable securities.

       Clarkston demanded payment on the loans and received a judgment of $1,390,329 in Oakland

County (Michigan) Circuit Court on September 24, 2008. Less than three weeks later, Oster sought

relief under Chapter 7 of the Bankruptcy Code. Clarkston filed an adversary proceeding in Oster’s

bankruptcy case, contending that its claim should be declared nondischargeable under 11 U.S.C. §

523(a)(2)(A) & (B). The bankruptcy court found in Oster’s favor on the § 523(a)(2)(A) claim, but

in Clarkston’s favor on the § 523(a)(2)(B) claim. Oster appealed the decision of the bankruptcy

court to the district court, which affirmed the bankruptcy court’s judgment. This appeal followed.

                                           II. ANALYSIS

       We review a bankruptcy court’s factual findings for clear error, and its legal conclusions de

novo. XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.), 

, 1447 (6th Cir. 1994).

We extend this deference only to the original bankruptcy court findings, and not to those included

in the decision rendered by the district court, since we are “in as good a position to review the

bankruptcy court’s decision as is the district court.” 

marks and citation

omitted).

A. Oster’s § 523(a)(2)(B) Claim

       The principal purpose of the Bankruptcy Code is to afford a “fresh start” to the “honest but

unfortunate debtor.” Grogan v. Garner, 

, 286-87 (1991)(internal quotation marks

omitted). The discharge of prepetition debts provided under § 727(b) and the discharge injunction

of § 524(a) effectuate the debtor’s fresh start. See Green v. Welsh, 

, 33 (2d Cir. 1992)

                                                 -3-
No. 11-1388
Oster v. Clarkston State Bank

(“The protection afforded by the discharge injunction...furthers one of the primary purposes of the

Bankruptcy Code–that the debtor have the opportunity to make a financial fresh start.” (internal

quotation marks omitted)). Some debts, however, are “nondischargeable,” such that the debtor’s

liability continues even after emerging from bankruptcy protection. Section 523 of the Bankruptcy

Code specifies these exceptions, which include, among others, debt obtained through fraud. Section

523(a)(2)(B) addresses debt obtained by certain false statements in writing.

       For a debt to be nondischargeable under § 523(a)(2)(B), four conditions must be met: the

debtor must have sought “money, property, services, or an extension, renewal, or refinancing of

credit” by use of a writing (1) “that is materially false;”(2) concerning “the debtor’s or an insider’s

financial condition;” (3) “on which the creditor . . . reasonably relied; and” (4) “that the debtor

caused to be made or published with intent to deceive . . . .” 11 U.S.C. § 523(a)(2). The bankruptcy

court’s factual determinations regarding these four conditions are not to be set aside unless clearly

erroneous. Martin v. Bank of Germantown (In re Martin), 

, 1165 (6th Cir. 1985).

       Oster raises a number of arguments, though from his briefing it is apparent that he does not

contest that the writings submitted were materially false and concerned his financial condition.

Rather, he argues that the bankruptcy court’s determinations on the third and fourth prongs, reliance

and intent to deceive, respectively, were clearly erroneous. We address each in turn.

       1. Clarkston’s Reliance

       The majority of the bankruptcy court’s opinion focused on whether Clarkston’s reliance on

Oster’s false statements was reasonable. After considering the totality of the circumstances,

including the nature of the loan approval documents and the value of the marketable securities line

                                                 -4-
No. 11-1388
Oster v. Clarkston State Bank

item on the financial statements, the bankruptcy court concluded that Clarkston “did rely on the false

statements of the debtor and reasonably so.” The district court agreed.

        Section 523(a)(2)(B)(iii)’s requirement has been interpreted to require the creditor to prove

that it actually relied on the false statement (reliance in fact), and that such reliance was reasonable.

Field v. Mans, 

, 68 (1995). This is a higher standard than that of “justifiable reliance,”

the standard for § 523(a)(2)(A) claims. This Court, in a § 523(a)(2)(A) case that was decided prior

to Field, articulated five factors that may affect the reasonableness of a creditor’s reliance:

        (1) whether the creditor had a close personal relationship or friendship with the
        debtor; (2) whether there had been previous business dealings with the debtor that
        gave rise to a relationship of trust; (3) whether the debt was incurred for personal or
        commercial reasons; (4) 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 (5) whether even minimal investigation would have revealed
        the inaccuracy of the debtor's representations.

BancBoston Mortg. Corp. v. Ledford (In re Ledford), 

, 1560 (6th Cir. 1992). Oster

limits his argument on appeal to claims that the bankruptcy court clearly erred when it determined

that Clarkston actually relied on the false statements and representations, and when it determined that

there were not sufficient “red flags” to put Clarkston on notice that something was amiss.

        Oster argues that Clarkston did not rely on the false financial statements because, under

Michigan law, certificates of stock and certain other evidences of indebtedness are held by a married

couple in a joint tenancy in the entireties. So, he claims, Clarkston should have been on notice that

when Oster listed joint assets of eight million dollars in marketable securities, such assets could

never have been seized pursuant to a judgment entered against only one spouse. Even if Clarkston

employees did not actually know the mechanics of Michigan’s entireties law, Oster argues that they

                                                  -5-
No. 11-1388
Oster v. Clarkston State Bank

were constructively on notice and thus could not have reasonably relied on the statements. Oster

asserts this argument for three different reasons: to prove that Clarkston did not in fact rely on the

statements, to show that the statements were not material, and to argue that it was a “red flag” that

should have put Clarkston on notice.

        This argument fails. While true that Mich. Comp. Laws § 557.151 states that “bonds [and]

certificates of stock . . . shall be held by such husband and wife in joint tenancy,” that same law also

states that this presumption may be overcome if “therein expressly provided . . . .” When Oster

presented a financial statement showing that he had over $8,000,000 in marketable securities, and

then also signed a loan agreement stating that he would maintain at least $4,000,000 in marketable

securities, it was entirely reasonable for Clarkston to believe that those assets were not held as

entireties property.1 While Michigan affords such property a presumption of being included as part

of a tenancy in the entireties, the presumption is not absolute, and Oster’s own acts suggested

otherwise.

        Further, Michigan did not make it explicitly clear that brokerage accounts, which were at

issue here, were within § 557.151’s ambit until 2007—three years after the initial loan agreement’s

execution. See Zavradinos v. JTRB, Inc., No. 268570, 

(Mich. Ct. App. Aug. 23,

2007). In response, Oster argues that the brokerage accounts at issue contained stock and bond


       1
         Oster argues that the loan agreement was a “covenant,” rather than a “representation,” to
hold more than four million dollars in marketable securities. For our purposes, this is irrelevant.
Rather, the loan agreement’s language is probative as to whether Clarkston’s reliance on the financial
statements, coupled together with the covenant/representation, was reasonable. A loan officer
reviewing the financial statements, and then the loan agreement, would reasonably conclude that
Oster had access to marketable securities in the requisite amount.

                                                 -6-
No. 11-1388
Oster v. Clarkston State Bank

holdings, and that § 557.151 was therefore clearly applicable even before the Michigan Court of

Appeals decided Zavradinos. Be that as it may, adopting Oster’s contention would run afoul of our

earlier pronouncement that the reasonable reliance provision of § 523(a)(2)(B) is not a “rigorous

requirement” but one that is “directed at creditors acting in bad faith.” 

.

There is no semblance of bad faith here on Clarkston’s part, nor does Oster allege as much.

        The only other argument that Oster puts forth as to why Clarkston’s reliance was

unreasonable is that there were inconsistencies between the marketable securities information on the

financial statements and the Merrill Lynch statement printouts. This, Oster argues, was a “red flag”

that triggered Clarkston’s duty to investigate. The bankruptcy court determined that the account

names could have been construed as “some kind of a shorthand designation for the account[s] rather

than a statement of precise legal ownership . . . . [t]hey are quite casual or even colloquial in their

presentation.” The district court noted that Oster’s counsel “conceded at oral argument on

February 1, 2011, that the full account statements were not introduced into evidence at the

bankruptcy proceeding. Therefore, the bankruptcy court’s failure to take the full account statements

into consideration cannot be clearly erroneous.”

        In response, Oster argues, without more, that the printouts “clearly did not support” the

conclusion that the securities were jointly owned. While this is true, the printouts also fail to clearly

support the idea that the accounts were not jointly owned, which is the relevant question when

conducting clear-error review. Oster further argues that because the printouts did not provide

support for Clarkston’s interpretation of the financial statements, Clarkston was under an obligation

to further investigate Oster’s financial position.

                                                  -7-
No. 11-1388
Oster v. Clarkston State Bank

        Such an argument relies entirely upon hindsight analysis, and ignores the clear language of

§ 523(a)(2)(B), which asks whether the creditor reasonably relied on the statements. If Clarkston

was already suspicious of whether Oster had access to the marketable securities and then received

the account printouts, its failure to investigate would be more troubling. But, at the time that it made

the decision to lend funds, Clarkston had no reason to believe that Oster lacked access to the

marketable securities. The bankruptcy court did not err, clearly or otherwise, in determining that

Clarkston actually and reasonably relied upon the false statements and loan agreements.

        2. Oster’s Intent

        The bankruptcy court, after determining that Oster knew the misrepresentations in the loan

agreements and the figures in the financial statements to be false, inferred “from that knowledge

[Oster’s] intent to deceive the bank.” The district court agreed, noting that “the evidence indicates

that [Oster] knew he was submitting documents to Clarkston that misrepresented his individual net

worth.” Oster contends that Clarkston’s failure to provide evidence of his deceptive intent precluded

the bankruptcy court from finding that Oster’s actions met the intent requirement articulated in

§ 523(a)(2)(B)(iv). He further argues, without support from any case law, that because he neither

saw nor provided the financial statements to Clarkston, and because he did not read the contents of

the loan agreements, he did not know the statements to be untrue.

        We do not require proof of the debtor’s subjective intent to satisfy our inquiry under this

prong. In this Court, § 523(a)(2)(B)(iv) is met if “the debtor either intended to deceive the Bank or

acted with gross recklessness . . . .” 

(emphasis added); see also First Nat.

Bank of Centerville, TN v. Sansom, 

, at *2 (6th Cir. 1998) (unpublished) (“In applying

                                                 -8-
No. 11-1388
Oster v. Clarkston State Bank

the holding of Martin, this court has also held that gross recklessness is sufficient to establish an

intent to deceive and to satisfy § 523(a)(2)(B)(iv).”) (internal quotation marks and citation omitted).

“It is not uncommon that intent to deceive must be established by circumstantial evidence and by

way of inference.” Thorp Credit, Inc. v. Carmen (In re Carmen), 

, 19 (6th Cir. 1983)

(Wellford, J., dissenting).

       At a minimum, Oster’s actions—signing a loan agreement directly adjacent to the marketable

securities requirement, seeking a loan under his own name when he knew that only his spouse had

an interest in the securities, and permitting his accountant to provide financial statements to

Clarkston that Oster did not review–amount to gross recklessness. See, e.g., Bank One, Lexington,

N.A. v. Woolum (In re Woolum), 

, 74 (6th Cir. 1992) (affirming the bankruptcy court’s

finding of gross recklessness when the debtor failed to include a guaranty obligation of $388,000 in

his financial statements for a $225,000 loan). If we were to adopt Oster’s position, borrowers would

be encouraged to submit statements and to sign loan agreements without having reviewed them,

knowing that they could always claim a defense of ignorance if they sought to have their debt

discharged.

       But even had Oster not acted with gross recklessness, other evidence in the record supports

the conclusion that Oster purposefully deceived Clarkston. The bankruptcy court had before it the

affidavit of Donald Bolton, a Clarkston employee, in which he stated that

       Claude Oster represented to me verbally that he personally had liquid assets in excess
       of $4 million to support his request for loans from the Bank totaling $1.35 million.
       He gave me financial statements, prepared by his accountant, which reflected over
       $8 million in marketable securities held jointly with his wife. I reviewed these
       statements with him . . . .

                                                 -9-
No. 11-1388
Oster v. Clarkston State Bank


(emphasis added). Oster asserts that it was improper for the bankruptcy court to rely on the affidavit

because Bolton did not begin working at Clarkston until 2006, two years after the first loan

originated. But, it appears that the discussions referred to in Bolton’s depositions were about the

2007 renewal, not the original 2004 loan request. Neither the bankruptcy nor district court

considered this direct evidence, but we may affirm on any grounds supported by the record. See

Lawrence v. Chancery Ct. of TN, 

, 691 (6th Cir. 1999). Because § 523(a)(2) applies

to both the original loan request and any “extension, renewal, or refinancing,” this misrepresentation

to Bolton would be strongly probative of Oster’s subjective intent to deceive.

       Taken as a whole, the record supports the bankruptcy court’s factual findings that Clarkston

satisfied § 523(a)(2)(B)(iv). It was not clear error for the bankruptcy court to conclude that Oster,

an experienced businessman who had transferred assets out of his control to keep them from

creditors, was either grossly reckless or had the requisite intent to deceive when he submitted the

false financial statements or signed the loan agreements.

 B. Oster’s Evidentiary Claim

       Oster argues that Bolton’s affidavit was clearly unreliable evidence, and the bankruptcy court

erred in relying upon it for proof of Clarkston’s reliance. Because Bolton was not employed by

Clarkston when the original loans were made, Oster insists that his affidavit should have been given

limited import. We review a bankruptcy court’s evidentiary determinations for an abuse of

discretion. U.S. Bank Nat. Ass’n v. U.S. E.P.A., 

, 210 (6th Cir. 2009).




                                                - 10 -
No. 11-1388
Oster v. Clarkston State Bank

       As already mentioned, when Bolton’s affidavit is read in conjunction with his deposition

testimony, it becomes clear that Bolton was speaking of the renewal process, not the loan origination

process. Even if this were not the case, any error made by the bankruptcy court would be harmless.

Our decision relies upon Bolton’s affidavit for only the alternative finding that Oster acted with

intent to deceive. If we were to ignore the affidavit, we would still find no clear error in the

determination that Oster acted with at least gross recklessness.

                                        III. CONCLUSION

       For the foregoing reasons, the judgment of the district court is AFFIRMED, and the debt

owed by Oster to Clarkston is nondischargeable under 11 U.S.C. § 523(a)(2)(B).




                                               - 11 -