In re Cambio

• Decision Date: 02 September 2004
• Docket Number: Bankruptcy No. 02-10373-ANV.,Adversary No. 02-01032-ANV.,BAP No. RI-03-067.
• Parties: Eric CAMBIO, Debtor. Eric Cambio, Appellant, v. Guiseppe Mattera, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

Page 30

353 B.R. 30

Eric CAMBIO, Debtor Eric Cambio, Appellant, v. Guiseppe Mattera, Appellee.

BAP No. RI-03-067.

Bankruptcy No. 02-10373-ANV.

Adversary No. 02-01032-ANV.

United States Bankruptcy Appellate Panel for the First Circuit.

September 2, 2004.

Russell D. Raskin, Esq., of Raskin & Berman on brief for Appellant.

John T. Walsh, Jr., Esq. and Lawrence P. McCarthy, III, Esq., of Higgins, Cavanagh & Cooney, LLP, on brief for Appellee.

Before DE JESUS, HILLMAN and ROSENTHAL, United States Bankruptcy Appellate Panel Judges.

DE JESUS and HILLMAN, Bankruptcy Appellate Panel Judges.

This matter is before the Panel on the debtor's appeal from a July 1, 2003 final order of the United States Bankruptcy Court for the District of Rhode Island determining the debt owed to the appellee, Guiseppe Mattera ("Mattera"), be nondischargeable in the amount of $79,907.41 pursuant to 11 U.S.C. § 523(a)(2)(A).¹ The issues on appeal are: (1) whether the bankruptcy court had subject matter jurisdiction to award money damages to Mattera; (2) whether the bankruptcy court erred by awarding excessive damages; (3) whether the bankruptcy erred in finding there was sufficient evidence of damages; and (4) whether the bankruptcy court erred in determining that Mattera had established all the elements of fraud necessary for nondischargeability under 11 U.S.C. § 523(a)(2)(A). For the reasons set

BACKGROUND

The background of this case as it is set forth herein is gleaned from the limited appendix submitted on appeal.

On or about June 4, 2001, Eric Cambio ("Cambio") entered into an agreement to renovate real property owned by Mattera for a total cost of $75,000. Joint Pre-Trial Statement at ¶ 5 (App. at # 3). On that date, Mattera paid Cambio $25,000 as a down-payment for the work to be performed by Cambio. Id. at ¶ 6. He subsequently made seven additional payments to Cambio totaling $29,166.69. Id. at if ¶ 7. However, Cambio stopped all work on the project in January 2002, leaving the project only about 50 percent complete. See Decision Transcript dated July 1, 2003 at 4, 5 (Supp.App. Item # 2).

On February 1, 2002, Cambio and his wife filed a voluntary petition under Chapter 7 of the Bankruptcy Code.² On April 22, 2002, Mattera filed an adversary complaint seeking a determination that the obligations owed to him by Cambio were nondischargeable under § 523(a)(2)(A), and Cambio filed an answer. The bankruptcy court conducted a trial on June 24-26, 2003. On July 1, 2003, the bankruptcy court rendered a bench decision finding the debt owed to Mattera to be "nondischargeable in the amount of $79,907.91." On that same date, the bankruptcy court entered an Order Determining Debt To Be Nondischargeable.³ Cambio timely appealed.

DISCUSSION

I. Bankruptcy Court's Jurisdiction To Enter Money Judgment.

This case first raises the question of whether bankruptcy courts have jurisdiction to enter money judgments on nondischargeable debts. There is no First Circuit precedent on point, and other courts addressing the issue are divided, generally adopting either an "expansive approach" or a "limited jurisdiction approach."⁴

A. Expansive Approach

Most published decisions adopt the expansive approach, concluding that bankruptcy courts do have the power to enter money judgments on nondischargeable debts. See Baker v. Friedman (In re Friedman), 300 B.R. 142, 150 (Bankr. D.Mass.2003). Indeed, every circuit to address the issue has held that there is federal bankruptcy jurisdiction to liquidate and enter a judgment on a, nondischargeable debt. See, e.g., Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1017-18 (9th Cir. 997) (bankruptcy court acted within its jurisdiction in entering money judgment in nondischargeability proceeding); Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159, 164 (2d Cir.1995) ("[T]he entry of a money judgment ... finds support in the bankruptcy court's inherent equitable powers"); Longo v. McLaren (In re McLaren), 3 F.3d 958, 966 (6th Cir. 1993) (bankruptcy courts may determine money damages in nondischargeability proceedings because bankruptcy courts are equitable courts that may decide all the matters in dispute and give complete relief); N.I.S. Corp. v. Hallahan (In re Hallahan), 936 F.2d 1496, 1508 (7th Cir. 1991) (same); McGavin v. Segal (In re McGavin), 189 F.3d 1215, 1220 (10th Cir. 1999) (affirming bankruptcy court's grant of money judgment); Lang v. Lang (In re Lang), 293 B.R. 501 (10th Cir. BAP 2003) (bankruptcy courts have jurisdiction to enter money damages in § 523(a) proceeding under "the broad congressional grant of jurisdiction given to bankruptcy courts under 28 U.S.C. § 157").

Generally, courts that routinely enter money judgments on nondischargeable debts focus on the close factual and logical relationship between the dischargeability proceeding and any proceeding on the underlying debt, and rely on theories of judicial economy and the bankruptcy courts' inherent equitable powers. See, e.g., Cowen, 108 F.3d at 1017-18 (concluding that bankruptcy courts have jurisdiction to determine money damages because "`it is impossible to separate the determination of the dischargeability function from the function of fixing the amount of the non-dischargeable debt,' and `equitable jurisdiction attaches to the entire cause of action' "); Hallahan, 936 F.2d at 1508 (finding that because parties properly before courts of equity subject themselves "to all the consequences that attach to an appearance," the amount of the nondischargeable debt is properly determined by the bankruptcy court).

B. Limited Jurisdiction Approach

Courts adopting a limited jurisdiction approach conclude that bankruptcy courts do not have the power to enter money judgments on nondischargeable debts. See, e.g., First Omni Bank, N.A. v. Thrall (In re Thrall), 196 B.R. 959 (Bankr.D.Colo. 1996); see also Am. Express Centurion Bank v. Losanno (In re Losanno), 291 B.R. 1 (Bankr.D.Mass.2003) (bankruptcy courts lack authority to enter money judgments in nondischargeability cases), Porter Capital Corp. v. Hamilton (In re Hamilton), 282 B.R. 22 (Bankr.W.D.Okla.2002) (same); Barrows v. Illinois Student Assistance Comm'n (In re Barrows), 182 B.R. 640, 653 (Bankr.D.N.H.1994) ("Once a nondischargeability determination is made with regard to educational loans ... the entry of any money judgment and any repayment terms should be left to the affected parties in the first instance, and, if enforcement is required ... should be left to a court of competent jurisdiction as would have occurred had there been no bankruptcy."). These courts generally conclude either that entry of a money judgment is outside the scope of the bankruptcy courts' jurisdiction or that awards of monetary damages raise other issues appropriate only in a non-bankruptcy forum. See Thrall, 196 B.R. at 963-64.

The definitive decision cited by courts adopting the limited jurisdiction approach is In re Thrall, supra. In Thrall, the bankruptcy court examined the Bankruptcy Code and Federal Rules of Bankruptcy Procedure and concluded that while bankruptcy courts have jurisdiction to decide dischargeability complaints, they are not authorized to enter money judgments. Thrall, 196 B.R. at 963-64. The Thrall court noted that § 17(c)(3) of the former Bankruptcy Act required a bankruptcy court not only to determine the dischargeability of a debt, but also to enter judgment and to make necessary orders for its enforcement. Id. at 964. However, the more recently enacted Bankruptcy Code explicitly mentions dischargeability and not the money judgments against the debtor. The Thrall court reasoned, therefore, that since Congress did not include an explicit authorization to enter money judgments in the new Bankruptcy Code, it must have intended to restrict the power of the bankruptcy courts. Id. at 964-65.

Adopting the approach taken by the Thrall court, the bankruptcy court in Hamilton similarly concluded that by not specifically empowering bankruptcy courts to render money judgments on nondischargeable debts, Congress intended to limit bankruptcy courts to deciding the dischargeability issues. Hamilton, 282 B.R. at 24. "`Determination of dischargeability of a debt is a limited function under the Code. It only defines the scope of discharge and does not substitute for a full and complete determination of all claims and defenses which can be asserted under non-bankruptcy law.'" Id. at 24 (citing Thrall, 196 B.R. at 968).

C. The Present Case.

Here the facts show entry of the money judgment on the state law claim for damages due to a breach of contract was based on events occurring before this petition was filed. The record reveals there was no estate property available for distribution to creditors. Consequently, the only effect of the money judgment against this debtor would be to enhance Mattera's future ability to collect the debt from Cambio's post-bankruptcy income and assets, with no effect at all on property of the bankruptcy estate or creditors' claims against the estate. Under these circumstances, the bankruptcy court's role should be limited to determining the extent of Cambio's discharge by applying the limited jurisdiction approach, as

[the] state-law claim on which a creditor seeks a money judgment does not "arise under" the Bankruptcy Code. Furthermore, it does not "arise in" the bankruptcy case under the standard test for "arising in" proceedings, because the creditor's claim against the debtor would exist in exactly the same form even in the absence of the debtor's bankruptcy filing. Indeed, that is precisely the upshot of the determination of nondischargeability. Thus, if the claim on the underlying debt is within federal bankruptcy jurisdiction at all, it is because it is "related to" the debtor's `bankruptcy case. Utilizing the Pacor test, however, because the only effect of any money judgment against the debtor would be to enhance the creditor's future ability to collect the...