United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit April 8, 2005
Charles R. Fulbruge III
Clerk
No. 04-30087
In The Matter Of: GUILFORD JOSEPH ACOSTA
DEBTOR
----------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
Appellant
v.
GUILFORD JOSEPH ACOSTA
Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
Before SMITH and GARZA, Circuit Judges, and VANCE,* District
Judge.
VANCE, District Judge:
General Electric Capital Corporation appeals the district
court’s affirmance of the bankruptcy court’s decision that
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
refused to hold the debt of Guilford Acosta to GECC
nondischargeable. Because we find no clear error in the court’s
treatment of the debt under 11 U.S.C. § 523(a)(2)(A), and we find
that GECC waived its appeal of the issue of nondischargeability
under 11 U.S.C. § 523(a)(2)(B), we affirm.
I. FACTS AND PROCEEDINGS BELOW
Acosta was the corporate secretary, chief administrative
officer, and director of Arnoult Equipment & Construction, Inc.,
an oilfield repair and refurbishment operations company. On
March 11, 1994, WRT Energy Corporation, AEC’s primary customer,
advanced $360,000.00 to AEC for the purchase of the vessel M/V
ENERGY VII. WRT also advanced a substantial amount of money that
AEC used to refurbish the vessel so that AEC could use the vessel
in oilfield work for WRT. On December 4, 1994, AEC executed a
$1.8 million promissory note and a preferred ship mortgage on the
ENERGY VII in favor of WRT. Acosta signed the authorizing
resolution for the transaction and understood that the note and
mortgage created a legal obligation.
In early 1995, WRT and AEC disputed the outstanding balances
of certain invoices that AEC had submitted for work it performed
for WRT. On May 18, 1995, AEC and WRT resolved the dispute by
agreeing in a memorandum of understanding that a $1,017,000
payment from WRT to AEC was “payment in full for all goods and
services rendered through this date.” On the same day, AEC
2
Energy Marine, an AEC subsidiary, executed a $3.4 million
promissory note and a mortgage in favor of WRT on five vessels
that AEC Energy Marine purportedly owned, including the M/V JANE
R. Acosta signed the authorizing resolution for the mortgage.
AEC and WRT also entered a new agreement, called a master service
contract, under which they restructured their business
relationship and required WRT to make monthly payments to AEC for
the work AEC performed.
Acosta testified that he believed that the May 18, 1995
memorandum of understanding extinguished AEC’s $1.8 million note
and accompanying mortgage on the ENERGY VII. The memorandum does
not mention the AEC promissory note or the mortgage on the ENERGY
VII, and Acosta wrote a letter five months later acknowledging
that the ENERGY VII was subject to a $1.8 million mortgage in
favor of WRT. By way of explanation, Acosta testified that when
he acknowledged the mortgage, he meant simply to indicate that
the mortgage existed as “signed paperwork,” and he continued to
believe that it had been discharged by the agreement between the
two companies.
On August 16, 1995, Claude Mayfield, the captain of the
ENERGY VII, was injured on the vessel. In September 1995,
Mayfield’s attorney contacted Acosta to demand that AEC provide
Mayfield with maintenance and cure benefits. The attorney told
Acosta that if the benefits were not provided, he would file a
lawsuit and seize the ENERGY VII. On September 8, 1995, the
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insurance carrier for the ENERGY VII informed Acosta that
insurance on the vessel had been cancelled as of August 11, 1995.
By the end of 1995, WRT had developed serious financial
trouble, and it stopped paying AEC the amounts due under the
master service contract. As a result, in late November or early
December 1995, AEC entered negotiations with GECC for a working
capital loan. Acosta was the contact person for the
negotiations. AEC offered GECC three vessels as collateral for
the loan, including the ENERGY VII and the JANE R. Before it did
so, AEC searched the United States Coast Guard records, which
reflected that the vessels were clear of all recorded liens,
including the WRT mortgage on the ENERGY VII. The Coast Guard’s
abstract of title listed the WRT mortgage on the Energy VII as
terminated.1 Acosta participated in the decision to offer the
vessels as collateral for the GECC loan.
AEC provided GECC with a financial statement for 1994 that
was prepared by a certified public accountant, based on
information provided by AEC’s chief financial officer. AEC also
produced an internally prepared financial report for 1995.
Acosta reviewed both documents to ensure they were accurate to
the best of his knowledge. There was no evidence that Acosta
1
On January 22, 1997, well after the loan closed, the Coast
Guard notified GECC’s counsel that this abstract of title was
erroneous, that a revised abstract of title indicated that WRT
did have a mortgage on the ENERGY VII, and that WRT’s mortgage
was superior to GECC’s mortgage.
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transmitted the financial statements himself, but he was listed
as a contact person. The only financial documents that Acosta
personally forwarded to GECC were AEC revenue projections, which
he testified were given to him by the CFO.
On December 6, 1995, Mayfield sued AEC’s subsidiaries, AEC
Energy Marine and Energy Labor Services, in federal district
court and served Acosta as AEC Energy Marine’s agent. Mayfield
did not sue the ENERGY VII in rem and did not seek to seize the
vessel. On December 11, 1995, GECC sent AEC a loan proposal for
$1,173,170 to be secured by the ENERGY VII, the ENERGY VI, and
the JANE R. AEC President James Arnoult accepted the proposal.
Acosta did not sign it.
On March 12, 1996, Mayfield entered a default judgment
against two AEC subsidiaries. Ten days later, GECC made a loan
to AEC, but the principal amount was $656,625, not $1,173,170 as
mentioned in the loan proposal. Acosta was present when the
mortgage and promissory note were executed on AEC’s behalf, but
only Arnoult signed the mortgage. The mortgage states that
“[t]he Owner lawfully owns and is lawfully possessed of each of
the Vessels free from any lien or other encumbrance whatsoever
prior to the lien of this Mortgage.” As the corporate secretary,
Acosta signed the authorizing resolutions for the mortgage. At
the closing, GECC requested that AEC provide “key man” life
insurance on Arnoult, but because of Arnoult’s advanced age, the
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policy was too expensive. Instead, GECC agreed to accept
personal guarantees from Arnoult and Acosta. Acosta testified
that had he believed that AEC did not intend to repay the loan,
he would not have personally guaranteed it.
AEC failed to make any payments on the note, and GECC
defaulted AEC under the terms of the mortgage. On June 7, 1996,
several months after the loan closing, Mayfield filed an action
in district court against the ENERGY VII in rem and against AEC.
GECC intervened to enforce its preferred ship mortgage on the
ENERGY VII. The court entered summary judgment in GECC’s favor.
WRT then intervened in the action, seeking to enforce its $1.8
million mortgage on the ENERGY VII. The court entered summary
judgment in favor of WRT, finding that WRT’s mortgage on the
ENERGY VII primed GECC’s mortgage. GECC and WRT eventually
reached a settlement and divided the proceeds from the judicial
sale of the ENERGY VII.
Meanwhile, GECC also filed suit against the JANE R in rem
and against AEC, Arnoult and Acosta in personam. WRT intervened
to enforce its mortgage on the JANE R. On October 29, 1997, the
court entered summary judgment in favor of GECC and dismissed
WRT’s intervention. The Court held that WRT’s mortgage on the
JANE R was invalid because it was not granted by the record owner
of the vessel.
On September 8, 2000, Acosta filed a voluntary petition for
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bankruptcy protection under Chapter 7 of the United States
Bankruptcy Code. GECC filed an adversary proceeding, arguing
that Acosta’s personal guarantee of the GECC loan was
nondischargeable in bankruptcy for two reasons. First, GECC
argued that the debt was nondischargeable under 11 U.S.C.
§ 523(a)(2)(A) because Acosta made false representations with the
intent to deceive GECC when he failed to disclose the existence
of the mortgages and the Mayfield personal injury claim. Second,
GECC argued that the debt was nondischargeable under 11 U.S.C.
§ 523(a)(2)(B) because Acosta obtained money by causing to be
made or published, with the intent to deceive, a written
statement that was materially false respecting the debtor’s
financial condition.
After a bench trial, the bankruptcy court found that GECC
had failed to meet its burden to prove by a preponderance of
evidence that Acosta’s debt should be excepted from discharge.
The bankruptcy court credited Acosta’s testimony that he did not
make false representations with the intent to deceive GECC, and
it therefore found that Acosta’s debt was not excepted from
discharge under section 523(a)(2)(A). The bankruptcy court also
found that GECC had failed to prove that Acosta “prepared or
furnished” any financial statements or financial information,
because he simply transmitted information furnished by others.
The court therefore held that Acosta’s debt was not
nondischargeable under section 523(a)(2)(B).
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The district court affirmed the bankruptcy court’s decision
on the first claim on similar grounds. The district court
affirmed on the second claim because GECC waived the issue by
failing to brief and argue that Acosta prepared or furnished
financial statements on appeal. GECC timely appeals.
II. STANDARD OF REVIEW
We review the decision of the district court by applying the
same standard to the bankruptcy court’s findings of fact and
conclusions of law that the district court applied. A bankruptcy
court’s findings of fact are subject to review for clear error,
and its conclusions of law are reviewed de novo. In re Jack/Wade
Drilling, Inc., 258 F.3d 385, 387 (5th Cir. 2001).
III. SECTION 532(a)(2)(A) DISCHARGEABILITY EXCEPTION
Section 523(a)(2)(A) of the Bankruptcy Code provides that a
debt will not be discharged in bankruptcy if it is “for money,
property, services, or an extension, renewal, or refinancing of
credit,” to the extent that it was “obtained by false pretenses,
a false representation, or actual fraud.” 11 U.S.C.
§ 523(a)(2)(A). A creditor must prove its claim of
nondischargeability by a preponderance of the evidence. In re
Mercer, 246 F.3d 391, 403 (5th Cir. 2001). For a debt to be
nondischargeable under section 523(a)(2)(A), the creditor must
show (1) that the debtor made a representation; (2) that the
debtor knew the representation was false; (3) that the
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representation was made with the intent to deceive the creditor;
(4) that the creditor actually and justifiably relied on the
representation; and (5) that the creditor sustained a loss as a
proximate result of its reliance. Id.
Debts that satisfy the third element, the scienter
requirement, are debts obtained by frauds involving “moral
turpitude or intentional wrong, and any misrepresentations must
be knowingly and fraudulently made.” In re Martin, 963 F.2d 809,
813 (5th Cir. 1992). An intent to deceive may be inferred from
“reckless disregard for the truth or falsity of a statement
combined with the sheer magnitude of the resultant
misrepresentation.” In re Norris, 70 F.3d 27, 30 n.12 (5th Cir.
1995), citing In re Miller, 39 F.3d 301, 305 (11th Cir. 1994).
Nevertheless, an honest belief, even if unreasonable, that a
representation is true and that the speaker has information to
justify it does not amount to an intent to deceive. Palmacci v.
Umpierrez, 121 F.3d 781, 788 (1st Cir. 1997). Thus, a “dumb but
honest” defendant does not have scienter. Id., citing 2 F.
Harper, et al., Law of Torts § 7.3, at 393 (2d Ed. 1986).
The bankruptcy court found that GECC failed to meet its
burden under section 523(a)(2)(A). The court acknowledged that
Acosta’s silence as to material facts could constitute a false
representation. See In re Mercer, 246 F.3d at 404.
Nevertheless, the court concluded that Acosta’s testimony that he
9
believed that the May 18, 1995 memorandum of understanding
between WRT and AEC had extinguished the $1.8 million WRT note
and mortgage on the ENERGY VII “was at least a reasonable
explanation.” As for the failure to disclose the Mayfield claim,
the court found that Acosta’s nondisclosure was not a false
representation made with intent to deceive GECC because, although
Acosta knew of the default judgment against the two AEC
subsidiaries, Mayfield had not sued the ENERGY VII in rem or
seized the vessel until after the GECC loan closed. Further,
there was no evidence that Acosta knew that a maritime lien
arising from the personal injury claim would prime GECC’s
mortgage. The Court held that the preclosing threats made by
Mayfield’s lawyer that he would seize the vessel were just that,
and they did not compel Acosta to inform GECC of the Mayfield
claim.
GECC argues that the bankruptcy court’s findings were
clearly erroneous because, it asserts, the totality of the
evidence required the bankruptcy court to find that Acosta made
false representations and to infer that he did so with intent to
deceive GECC. GECC relies on the absence of language releasing
the $1.8 million mortgage from the memorandum of understanding
and on a document showing that Acosta represented the $1.8
million WRT mortgage as valid even after the date of the
memorandum of understanding. As for the Mayfield claim, GECC
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asserts that it established that Acosta knew that this uninsured
claim existed, that a default judgment had been rendered against
AEC’s subsidiaries, that the claim gave rise to a maritime lien
against the ENERGY VII, that the subsidiaries could not pay the
judgment, and that Mayfield’s attorney had threatened to seize
and sell the ENERGY VII to satisfy the Mayfield claim. GECC also
relies on Acosta’s failure to disclose the mortgage on the JANE
R.
To address GECC’s weakest argument first, as to the JANE R,
WRT’s mortgage was invalid. Thus, Acosta did not make a false
representation when he failed to disclose it. We will affirm the
lower court’s decision if it is correct, even if, as here, we do
so for a reason not articulated by the lower court. Doody v.
Ameriquest Mortgage Co., 242 F.3d 286, 289 (5th Cir. 2001).
GECC’s argument as to the mortgage on the JANE R does not warrant
further discussion.
We will not set aside the bankruptcy court’s findings of
fact on the remaining issues unless they are clearly erroneous.
In re Martin, 963 F.2d at 813-14. We must be “left with the
definite and firm conviction that a mistake has been made,”
before we will disturb the bankruptcy court’s factual findings.
Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530,
533 (5th Cir. 2003). As long as there are two permissible views
of the evidence, we will not find the factfinder’s choice between
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competing views to be clearly erroneous. Anderson v. Bessemer
City, 470 U.S. 564, 574 (1985) (citation omitted). If the
bankruptcy court’s account of the evidence is plausible in light
of the record viewed as a whole, we will not reverse it. Id.
As to WRT’s $1.8 million mortgage on the ENERGY VII, the
bankruptcy court based its findings largely on Acosta’s testimony
concerning his knowledge and intent when he failed to disclose
the mortgage. Acosta provided an explanation for his actions,
and the bankruptcy court credited his testimony that he honestly
believed that the WRT mortgage had been extinguished by the
memorandum of understanding. As to the Mayfield claim, the
bankruptcy court credited Acosta’s testimony that he did not
believe the claim affected GECC’s mortgage. When the bankruptcy
court bases its findings on credibility determinations, this
Court gives “due regard” to the opportunity of the bankruptcy
court to judge the credibility of the witnesses firsthand. In re
Webb, 954 F.2d 1102, 1104 (5th Cir. 1992) (citing Federal Rule of
Bankruptcy Procedure 8013). The bankruptcy court observed
Acosta’s demeanor and the demeanor of the other witnesses, which
placed the bankruptcy judge “in a far superior position to gauge
[the debtor’s] credibility than this Court is in by merely
reading the transcripts.” In re Martin, 963 F.2d at 814. Thus,
the bankruptcy court’s findings that Acosta honestly believed
that WRT’s $1.8 million mortgage had been terminated and the
personal injury claim would not affect GECC’s mortgage are
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entitled to significant weight.
Furthermore, our review of the other evidence in the record
does not leave us with the definite and firm conviction that the
bankruptcy court made a mistake. Rather, bearing in mind that
the burden of proof is on GECC, we are convinced that, based on
the whole record, the bankruptcy court reasonably found that
Acosta did not intend to deceive GECC. Although the memorandum
of understanding between WRT and AEC does not mention the $1.8
million WRT mortgage and note, Acosta testified that there were
“a lot of things” between WRT and AEC “that were never written.”
Moreover, Acosta’s explanation that he thought the memorandum
discharged the $1.8 million debt was confirmed by the search of
the Coast Guard records, which revealed no encumbrances on the
vessel and, indeed, stated that WRT’s mortgage on the ENERGY VII
had been terminated. As for the Mayfield claim, it had not been
asserted against AEC, and the lawsuit seeking to enforce the
maritime lien against the ENERGY VII had not been filed when the
loan closed. GECC points to no evidence to contradict the
bankruptcy court’s finding that Acosta did not know that the
personal injury claim might result in a maritime lien that would
prime the GECC mortgage, and that finding is plausible in light
of the record. Indeed, Acosta did not testify that he knew that
a personal injury claim necessarily results in a maritime lien,
much less that he knew what priority such a lien would have, if
it arose.
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Having reviewed the record in this case, we conclude that it
is plausible that Acosta, although mistaken in his understanding
of the effect of the $1.8 million mortgage and of the Mayfield
claim, acted without dishonest intent. See In re Miller, 39 F.3d
301, 305-06 (11th Cir. 1994) (affirming bankruptcy court’s
finding that debtors who omitted promissory notes from their
financial statements and instead stated the value of their
businesses on a net basis did not act with dishonest intent).
Although the evidence might support an inference of an intent to
deceive, “[it does] not compel such a finding and [does] not
require us to reverse the court’s holding.” Palmacci, 121 F.3d
at 790 (alterations and emphasis in original) (citations
omitted). We cannot say that the bankruptcy court clearly erred
when it chose not to infer an intent to deceive from the evidence
presented to it, or that the district court erred in affirming
the bankruptcy court. We therefore affirm the finding that GECC
failed to prove by a preponderance of the evidence that Acosta
made false representations with intent to deceive GECC.
IV. SECTION 523(a)(2)(B) DISCHARGEABILITY EXCEPTION
Section 523(a)(2)(B) provides that a debt is excepted from
discharge to the extent it is obtained by use of a written
statement “(i) that is materially false; (ii) respecting the
debtor’s or an insider’s financial condition; (iii) on which the
creditor to whom the debtor is liable for such . . . credit
reasonably relied; and (iv) that the debtor caused to be made or
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published with the intent to deceive.” 11 U.S.C. § 523(a)(2)(B).
The district court held that GECC waived its appeal of the
bankruptcy court’s ruling that GECC failed to satisfy section
523(a)(2)(B).
GECC has waived an appeal of this issue in this Court as
well. Although GECC listed the waiver ruling as an issue in its
statement of the issues and statement of the case, it failed to
argue the point in the body of its opening brief. An assertion
that a ruling is being appealed, in the absence of any argument
in the body of the brief supporting the appeal, does not preserve
the issue on appeal. See Gann v. Fruehauf Corp., 52 F.3d 1320,
1328 (5th Cir. 1995). Any argument by GECC on the waiver issue
is, therefore, not properly presented for appeal. Moreover, “[a]
court may decline to address an argument that is not adequately
briefed.” In re HECI Exploration Co., 862 F.2d 513, 525 (5th
Cir. 1988). Because GECC failed to advance any argument on the
waiver ruling in the body of its opening brief on appeal, we find
that GECC waived the issue.
IV. CONCLUSION
For the foregoing reasons, the judgment of the district
court, affirming the bankruptcy court, is AFFIRMED.
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