523 U.S. 213 (1998), 96-1923, Cohen v. De La Cruz

Docket Nº:No. 96-1923
Citation:523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341
Party Name:COHEN v. DE LA CRUZ ET AL.
Case Date:March 24, 1998
Court:United States Supreme Court
 
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523 U.S. 213 (1998)

118 S.Ct. 1212, 140 L.Ed.2d 341

COHEN

v.

DE LA CRUZ ET AL.

No. 96-1923

United States Supreme Court

March 24, 1998

Argued January 20, 1998

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Syllabus

After the local rent control administrator ordered petitioner to refund $31,382.50 in excessive rents he had charged respondent tenants, he sought to discharge his debts under Chapter 7 of the Bankruptcy Code (Code). The tenants filed an adversary proceeding, arguing that the debt owed to them was nondischargeable under 11 U.S.C. § 523(a)(2)(A) of the Code, which excepts from discharge "any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . actual fraud." They also sought treble damages, attorney's fees, and costs under the New Jersey Consumer Fraud Act. The Bankruptcy Court ruled in their favor, finding that petitioner had committed "actual fraud" within the meaning of § 523(a)(2)(A) and that his conduct violated the New Jersey law. The court therefore awarded the tenants treble damages totaling $94,147.50, plus attorney's fees and costs. The District Court affirmed, as did the Third Circuit, which held that debts resulting from fraud are nondischargeable in their entirety under § 523(a)(2)(A), and that the award of treble damages (plus attorney's fees and costs) in this case was therefore nondischargeable.

Held:

Because § 523(a)(2)(A) excepts from discharge all liability arising from fraud, treble damages (plus attorney's fees and costs) awarded on account of the debtor's fraud fall within the scope of the exception. The most straightforward reading of § 523(a)(2)(A) is that it prevents discharge of "any debt" respecting "money, property, services, or . . . credit" that the debtor has fraudulently obtained. See Field v. Mans, 516 U.S. 59, 61, 64. First, an obligation to pay treble damages satisfies the threshold condition that it constitute a "debt." That word is defined as liability on a "claim," § 101(12), which in turn is defined as a "right to payment," § 101(5)(A), which this Court has said means an enforceable obligation, Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 559. An award of treble damages is an enforceable obligation of the debtor, and the creditor has a corresponding right to payment. Moreover, the phrase "to the extent obtained by" in § 523(a)(2)(A) modifies "money, property, services, or . . . credit"—not "any debt"—so that the exception encompasses "any debt . . . for money, property, [etc.], to the extent [that the money, property, etc., is] obtained by" fraud. The phrase thereby makes clear that the share of money, property, etc., so

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obtained gives rise to a nondischargeable debt. Once it is established that specific money or property has been obtained by fraud, however, "any debt" arising therefrom is excepted from discharge.

The Court rejects petitioner's argument that a "debt for" money, property, etc., is necessarily limited to the value of the "money, property, services, or . . . credit" the debtor obtained by fraud, such that a restitutionary ceiling would be imposed on the extent to which a debtor's liability for fraud is nondischargeable. That argument is at odds with the meaning of "debt for" in parallel exceptions to discharge set forth in § 523(a), which use "debt for" to mean "debt as a result of," "debt with respect to," "debt by reason of," and the like. The Court's reading of § 523(a)(2)(A) is also reinforced by the fraud exception's history. Moreover, § 523(a)'s various exceptions from discharge reflect Congress' conclusion that the creditors' interest in recovering full payment of debts in these categories outweighs the debtors' interest in a complete fresh start, see Grogan v. Garner, 498 U.S. 279, 287. But petitioner's construction of the fraud exception would leave creditors short of being made whole whenever the loss to the creditor from the fraud exceeds the value obtained by the debtor. Because, under New Jersey law, the debt for fraudulently obtaining $31,382.50 in rent payments includes treble damages and attorney's fees and costs, petitioner's entire debt of $94,147.50 (plus attorney's fees and costs) is nondischargeable in bankruptcy. Pp. 217-223.

106 F.3d 52, affirmed.

Donald B. Ayer argued the cause for petitioner. With him on the briefs were James E. Anklam, Howard J. Bashman, and John Francis Gough.

Gregory G. Diebold argued the cause for respondents. With him on the brief was Brian Wolfman.

Jeffrey A. Lamken argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Solicitor General Waxman, Assistant Attorney General Hunger, Deputy Solicitor General Kneedler, William Kanter, and Alisa B. Klein.

Justice O'Connor delivered the opinion of the Court.

Section 523(a)(2)(A) of the Bankruptcy Code (Code) excepts from discharge in bankruptcy "any debt . . . for money,

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property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A). The issue in this case is whether § 523(a)(2)(A) bars the discharge of treble damages awarded on account of the debtor's fraudulent acquisition of "money, property, services, or. . . credit," or whether the exception only encompasses the value of the "money, property, services, or. . . credit" the debtor obtains through fraud. We hold that § 523(a)(2)(A) prevents the discharge of all liability arising from fraud, and that an award of treble damages therefore falls within the...

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