2008 Recent Developments in Discharge and Dischargeability Litigation

By Hon. Keith M. Lundin

'to the extent obtained' modifies the money, property, services, or credit that constitute the debt. A plain reading of this subsection demonstrates that Congress excepted from discharge not simply any debt incurred as a result of fraud but only debts in which the debtor used fraudulent means to obtain money, property, services, or credit. . . . Congress provided protection for creditors injured by the torts of bankrupt debtors in subsection (a)(6), which excepts from discharge a debt incurred as a result of the debtor's 'willful and malicious injury' to the creditor or her property. It would be unnecessary for subsection (a)(2)(A) also to provide relief for judgment creditors injured in tort. . . . [Debtor's] fraud may have injured [plaintiff], but [debtor] did not commit the fraud in order to obtain anything in the sense contemplated by S 523(a)(2). . . . [As explained by the Supreme Court in Cohen v. de la Cruz, 523 U.S. 213, 118 S. Ct. 1212, 140 L. Ed. 2d 341 (1998),] '[o]nce it is established that specific money or property has been obtained by fraud . . . 'any debt' arising therefrom is excepted from discharge.' The [Supreme] Court clarified its holding by stating that subsection (a)(2)(A) 'is best read to prohibit the discharge of any liability arising from a debtor's fraudulent acquisition of money, property, etc., including an award of treble damages for fraud.' . . . Both the plain language of the statute and the Supreme Court's interpretation of that language lead us to require for exception to discharge that the debtor have fraudulently obtained money, property, services, or credit. In this case, [debtor's] fraud gained her none of those things. Section 523(a)(2)(A) is not, therefore, the appropriate exception to discharge in bankruptcy for [plaintiff's] judgment claim against [debtor].").

Taylor v. Wood (In re Wood), No. 07-10828, 2007 WL 2376788 (11th Cir. Aug. 21, 2007) (False pretenses for S 523(a)(2)(A) purposes requires intent to deceive which can include knowingly or recklessly failing to discover the truth. "'The concept of false pretenses is especially broad. It includes any intentional fraud or deceit practiced by whatever method in whatever manner. False pretenses may be implied from conduct or mayconsist of concealment or non-disclosure where there is a duty to speak, and may consist of any acts, work, symbol, or token calculated and intended to deceive. . . . It is a series of events, activities or communications which, when considered collectively, create a false and misleading set of circumstances, or a false and misleading understanding of a transaction, by which a creditor is wrongfully induced by a debtor to transfer property or extend credit to the debtor. . . . Silence or concealment as to a material fact can constitute false pretenses.'. . . . The bankruptcy court found that Wood should have discovered and corrected Taylor's mistake and impression concerning another partner's limited guaranty on the loan but that Wood believed that partner's guaranty was unlimited and may not have discovered the truth until after Taylor signed the unlimited guaranty. The bankruptcy court failed to find that Wood recklessly disregarded the truth, noting only that he was in the best position to learn the truth about the other partner's limited guaranty. . . . [T]hose findings could not legally support the conclusion that Wood engaged in false pretenses to obtain a debt.").

2. Express, affirmative misrepresentations of existing facts (other than financial condition)

Prim Capital Corp. v. May (In re May) 368 B.R. 85 (B.A.P. 6th Cir. 2007) (table decision text at 2007 WL 2052185) (Oral statements with respect to overall financial condition are not actionable under S 523(a)(2)(A). Representations with respect to purpose of loan, repayment of loan and

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