In the Matter of James F. BONNETT and Linda J. Bonnett, Debtors. Appeal of NATIONAL BANK OF PETERSBURG and Illinois National Bank of Springfield, 110 B.R. 1129

KANNE, Circuit Judge. This is an appeal of an order of the district court which reversed the bankruptcy court’s determination that a debt was nondischargeable under 11 U.S.C. § 523(a)(2)(B). Because we find that the district court applied an improper standard of review, we reverse. BACKGROUND James and Linda Bonnett (Bonnett) owned and operated Bonnett’s Turkey Hatchery, Inc. in southern Illinois. In August, 1980, Bonnett approached the National Bank of Petersburg (NBP) for a $500,-000 loan for the business.

Since the loan request exceeded NBP’s lending limit, NBP asked another larger bank, the Illinois National Bank of Springfield (INB) to participate in the loan. We will refer to these two lenders collectively as the “Banks.” Bonnett completed the usual loan applications, and he later forwarded the Banks a host of additional information which explained the history and operation of the hatchery. An uncertified financial audit was among these additional materials.

Pri- or to reaching their loan decision, the Banks requested and received from Bon-nett a certified audit, detailing substantially the same information as the uncertified audit they previously were furnished. Both of these audits were prepared by an independent accountant, W. Leon Jones, C.P.A. Based on this information, the Banks approved the loan on December 1, 1980. On March 19, 1982, approximately sixteen months after the Banks made the loan to Bonnett, the hatchery sought reorganization under

Chapter 11. Three months later on June 10, 1982, this filing was converted to a

Chapter 7 proceeding. The Bonnetts declared personal bankruptcy under

Chapter 7 on May 17, 1982, which initiated this adversary proceeding. Banks usually do not make loans of this magnitude without a security interest in some tangible, marketable asset which is worth as much or more than the value of the loan. When the debtor defaults, the lender may force the sale of the collateral, and, in theory, is made whole. When default occurs and the sale of the collateral fetches substantially less than the lender expected, the lender often questions the appraisal. The lender may have been intentionally misinformed about the collateral’s true value. 11 U.S.C. § 523(a)(2)(

B) provides an avenue whereby a lender can seek to declare a fraudulently obtained loan nondischargeable. In this case the Banks seek such a determination. In short, the subject of this appeal is the value of turkeys. I. Under 11 U.S.C. § 523(a)(2)(B), the party seeking the exception to discharge has the burden of proving, by clear and convincing evidence, all four statutory elements. In re Bogstad, 779 F.2d 370, 372 (7th Cir.1985). The bankruptcy court held that the Banks met this burden, and found the debt nondischargeable.

Bonnett appealed, and the district court took exception as to one statutory element (reasonable reliance; 11 U.S.C. § 523(a)(2)(B)(iii)) and reversed. We review factual findings of the bankruptcy court under a clearly erroneous standard, but review conclusions of law de novo (Bankruptcy Rule 8013). Our review of the relevant facts extends not to the district court's decision, but to the findings of fact made by the bankruptcy court itself. In re First Wisc. Nat’l Bank, 849 F.2d 284, 286 (7th Cir.1988); In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985).

The clearly erroneous standard, however, does not permit a trier of fact to be overturned “simply because [the appellate court] is convinced it would have decided the case differently.” Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). Instead, where two permissible conclusions can be drawn, the factfinder’s choice cannot be clearly erroneous. EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 309 (7th Cir.1988).

Special deference must be accorded to credibility determinations “for only the trial judge can be aware of the variations in demeanor and tone of voice that bear so heavily on the listener’s understanding and belief of what is said.” Anderson, 470 U.S. at 575, 105 S.Ct. at 1512. The district court believed that Kimzey did not preclude de novo review of the issue of reasonableness, and properly noted the developing case law on reasonableness in a 11 U.S.C. § 523(a)(2)(

B) proceeding. In re Bogstad, 779 F.2d 370, 372-73 n. 4 (7th Cir.1985) (citing In re Blatz, 37 B.R. 401, 404-05 (Bankr.E.D.Wis.1984)), aff'd sub nom. Regency National Bank v. Blatz, 67 B.R. 88 (E.D.Wis.1986). This court, however, has held that a bankruptcy court’s determination of dischargeability is subject to a clearly erroneous standard of review. In re Suttles, 819 F.2d 764, 765 (7th Cir.1987). Here, the bankruptcy court held two days of trial and was able to closely evaluate the witnesses’ testimony.

Absent an abuse of discretion, an appellate court should not attempt to redetermine the credibility of witnesses. In re Pearson Brothers Co., 787 F.2d 1157, 1162 (7th Cir.1986). The reasonableness of a creditor’s reliance should be determined on a case by case basis. In re Mullet, 817 F.2d 677, 679 (10th Cir.1987). Here, the Banks received both audited and unaudited statements from Bonnett. The unaudited financial statement Bonnett provided listed assets under two columns — “FAIR MARKET VALUE” and “HISTORICAL COST” (see Appendix I).

End Note # 2 of the unaudited statement showed “the value of the breeding stock is the accumulated cost in the hens and toms.” This unaudited statement was reviewed by the Banks at a meeting with Bonnett on October 9, 1980. During that meeting, the parties also discussed the turkey flock to be used as collateral. A representative of INB requested a certified audit be provided to supplement the unaudited statement already received. A week after this meeting the Banks toured the hatchery.

Bonnett provided another detailed packet of information shortly thereafter, and referred three times to the unaudited statement in the accompanying letter. On December 1, 1980, the Banks met again with Bonnett, and discussed the recently provided audited financial statement. The audited statement reflected a “breeder stock” value of $963,690, again reproducing end note # 2. No “fair market value” column was shown on the audited statement (see Appendix II). The district court addressed the two bankers’ testimony, and found they had fundamentally different

definitions of “fair market value.” The district court believed that since the two bankers could not agree as to what “fair market value” meant, a “red flag” should have been raised to question the value of the collateral. The Banks did not, in the district court’s opinion, reasonably rely on the comparison of the audited and unaudited financial statements in determining whether to make their loan. At trial, the bankruptcy court heard testimony from Jones, the CPA who prepared the statements. Jones testified that the audited statement reflected a sizeable typographical error (somewhere between $300,-000 to $500,000). Jones testified at the original

Chapter 11 proceedings that the value of the turkeys was approximately $400,000. In any event, there is little question that the turkeys were worth substantially less than the “fair market value” figure stated in the unaudited financial statement. II. Courts should not be eager to intrude into the business practices of lending institutions. In re Bogstad at 373.

We believe that even if the Banks’ comparison of the financial statements should have raised “red flags,” the bankruptcy court did not commit clear error m determining the Banks proved, by clear and convincing evidence, they reasonably relied on that comparison. This conclusion is bolstered by the fact that the Banks toured the facility and had numerous meetings with Bonnett. We do not believe that the current state of the law requires the Banks to seek a more detailed investigation under the circumstances, and the bankruptcy court did not misapply the law to the facts.

Therefore, the judgment of the district court is Reversed. APPENDIX I TRIAL EXHIBIT #22 BONNETT’S TURKEY HATCHERY, INC.

STATEMENT OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY June 30, 1980 (Unaudited) ASSETS Fair Market Values Historical Cost CURRENT ASSETS Accounts Receivable $ 76,239 $ 76,239 Inventory Eggs 71,194 71,194 Breeder Stock-Note 2 914,340 914,340 Medication and Supplies 15,915 21,220 Feed and Grain 42,874 42,874 Federal Tax Refund 4,132 4,132 Prepaid Insurance 2,317 2,317 Total $1,127,011 $1,132,316 FIXED ASSETS — Note 3 Land $ 286,800 $ 47,173 Hatchery Building 222,000 71,741 Hatchery Equipment 288,995 78,730 Delivery Equipment 47,500 60,242 Office Furniture & Fixtures 10,700 8,599 Breeder Barn and Equipment 1,444,510 794,775 Grower Equipment 351,600 233,743 Farm Equipment 75,400 78,530 1,373,643 Less Accumulated Depreciation (388,075) Total 2,727,505 985,568 OTHER ASSETS PCA Stock-Note 4 $ 18,566 $ 18,445 Investment-Subsidiary O O o r-H Other Investments 500 500 Total 28,945 19,045 Total Assets $3,883,461 $2,136,929 NOTE 2-The value of the breeding stock is the accumulated costs in the hens and toms.

APPENDIX II TRIAL EXHIBIT # 5 BONNETT’S TURKEY HATCHERY, INC.

BALANCE SHEET June 30, 1980 (Audited) ASSETS CURRENT ASSETS Accounts Receivable $ 55,163 Inventory Eggs — Note 3 58,943 Breeder Stock — Note 2 963,690 Medication and supplies — Note 3 23,833 Feed and Grain — Note 3 25,350 Federal Tax Refund 4,132 Prepaid Insurance 39 Total $1,131,150 FIXED ASSETS Land $ 47,173 Hatchery Building 71,741 Hatchery Equipment 117,275 Delivery Equipment 60,242 Office Furniture and Fixtures 8,599 Breeder Barn and Equipment 493,638 Grower Equipment 157,653 Farm Equipment , 39,937 Less Accumulated Depreciation (336,612) Total 659,646 OTHER ASSETS PC A Stock-Note 4 $ 18,445 Investment-Subsidiary 100 Other Investments 500 Total 19,045 Total Assets $1,809,841 NOTE 2-The value of the breeding stock is the accumulated costs in the hens and toms. .

The relevant portion of

section 523(a)(2)(

B) reads: (

a) A discharge ... does not discharge an individual debtor from any debt— (2) for money ... obtained by— (

B) use of 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....