The Honorable Pasco M. Bowman succeeded the Honorable Richard S. 1

Arnold as Chief Judge of the United States Court of Appeals for the

Eighth Circuit at the close of business on April 17, 1998.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 97-3819

___________

In re: Eliot M. Alport, *

*

Debtor. *

*

Eliot M. Alport, *

* Appeal from the United States

Appellant, * District Court for the

* Eastern District of Missouri

v. *

*

Jerry E. Ritter; *

Margaret A. Ritter, *

*

Appellees. *

___________

 Submitted: April 13, 1998

 Filed: May 29, 1998

___________

Before BOWMAN, Chief Judge, and McMILLIAN and MURPHY, Circuit Judges. 1

___________

McMILLIAN, Circuit Judge.
The Honorable David P. McDonald, United States Bankruptcy Judge for the

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Eastern District of Missouri.

The Honorable Catherine D. Perry, United States District Judge for the Eastern 3

District of Missouri.

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Eliot M. Alport (debtor) filed a voluntary Chapter 7 bankruptcy petition in the

United States Bankruptcy Court for the Eastern District of Missouri on September 16, 2

1992. Jerry E. Ritter and Margaret A. Ritter (the Ritters) timely brought an adversary

proceeding asserting the nondischargeability of their claim against debtor under 11

U.S.C. § 523(a)(2)(A), (a)(4), (a)(6). Following a three-day hearing, the bankruptcy

court entered judgment for the Ritters in the amount of $184,362.00, upon a

determination of nondischargeability under § 523(a)(2)(A). In re Alport, No. 92-

46298-293 (Bankr. E.D. Mo. June 14, 1996) (order); id. (June 19, 1996) (memorandum

opinion). In a separate order, the bankruptcy court awarded the Ritters their prepetition and post-petition attorney’s fees, totaling $93,166.90, as part of the

nondischargeable debt. Id. (Aug. 30, 1996). Debtor appealed both orders of the

bankruptcy court to the district court pursuant to 28 U.S.C. § 158(a). Upon review, 3

the district court affirmed the orders of the bankruptcy court. Id., No. 4:96CV2001

(E.D. Mo. Sept. 18, 1997). Debtor appealed the district court order to this court

pursuant to 28 U.S.C. § 158(d). For reversal, debtor argues that the bankruptcy court

erred in: (1) piercing the corporate veil to hold him personally liable for the Ritters’

claim; (2) interpreting and applying § 523(a)(2)(A); (3) applying the “collateral source

rule”; and (4) including attorney’s fees in the nondischargeable debt. For the reasons

stated below, we affirm. 

Background

The following is a summary of the underlying facts as found by the bankruptcy

court. Debtor has been in the home-building business since the late 1960s. In 1969,

he acquired ownership of Thunderbird Construction Company (Thunderbird
TAG, Thunderbird Construction, and three other business entities owned and 4

operated by debtor were housed in the same office. The costs and services of

personnel, rent, and other overhead expenses were not segregated or apportioned

among the several entities sharing the office. 

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Construction), which specializes in custom home building. Over the years, debtor has

established or acquired other companies as well. He used Thunderbird Construction

as the construction contractor for developments built by his real estate companies

including The Alport Group (TAG). In 1980, debtor moved from St. Louis to Vail,

Colorado. He set up an irrevocable living trust called the “Silverstein trust” and

transferred much of Thunderbird Construction’s assets and other investments and

holdings to the Silverstein trust. TAG was started in 1986 by debtor, Bruce Goldford,

and Ernie Niswonger. Goldford is debtor’s nephew, and Niswonger was Goldford’s

business associate. After TAG was established, debtor commuted between Vail and

St. Louis. On September 1, 1988, TAG and Thunderbird Construction entered into an

agreement whereby Thunderbird Construction was to serve as the construction

contractor for TAG’s first and only real estate development, a subdivision called

“Sheffield Estates” in St. Louis County, Missouri.4

The Ritters became interested in building a custom home in Sheffield Estates in

June of 1987. In August 1987, the Ritters signed a sales contract to purchase two lots

for $470,000. Debtor signed the sales contract as president of TAG. The contract

specified that TAG reserved the exclusive right to build a residence on the property.

Thereafter, Goldford signed most of the documents for TAG in dealing with the Ritters

but, according to the bankruptcy court, debtor “demonstrated that he was in charge of

the project.” In re Alport, slip op. at 8 (Bankr. E.D. Mo. June 19, 1996). On July 12,

1988, the Ritters and TAG entered into a “base contract” for the construction of the

residence for $882,000. The base contract provided, among other things, that TAG

“shall not permit any mechanic’s or materialmen’s liens to be filed against the [Ritters’

house]” and that, if attorney’s fees and costs are incurred to enforce the contract or
The evidence showed that LTC agreed to this relatively unusual arrangement

5

whereby the money would be channeled through TAG, rather than paid directly from

LTC to the subcontractors and materialmen, because LTC was trying to secure debtor’s

business.

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recover damages for a breach of the contract, the non-prevailing party must pay the

prevailing party’s reasonable costs and attorney’s fees. See id. at 9. The Ritters, TAG,

and Lawyers Title Company (LTC) entered into an escrow agreement, whereby LTC

was to serve as the disbursing agent of payments made under the base contract. The

bankruptcy court found that the parties agreed that TAG would pay subcontractors and

materialmen for work performed on the Ritters’ house and then would submit lien

releases signed by the subcontractors and materialmen to LTC to obtain

reimbursements from the Ritters’ escrow account. Id. After construction on the

5

house began, the Ritters decided to make some changes to the original specifications.

Debtor suggested, and the Ritters agreed, that they would bypass LTC with respect to

the “change orders” and instead the Ritters would pay TAG directly for any additional

work. 

Debtor deposited funds received from the Ritters and from LTC into Thunderbird

Construction’s bank account. He drew money from that account not only to make

partial payments to the subcontractors and materialmen, but also to pay his own

“salary,” to make deposits into the Silverstein trust, and to pay for personal expenses

unrelated to the Ritters’ house. The bankruptcy court found that, between February

1988 and June 1989, debtor diverged to his own benefit $568,385 from the

Thunderbird Construction account; by contrast, debtor was able to demonstrate that the

Thunderbird Construction account was repaid only $169,139 by the Silverstein trust

and $35,000 by debtor. Id. at 12. In the spring of 1989, Thunderbird Construction

owed $367,556 to the subcontractors and materialmen for work on the Ritters’ house.

Meanwhile, debtor continued to submit documentation to LTC to receive payments

from the escrow account. 
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In June 1989, while debtor was away, Goldford took steps to exclude debtor

from TAG’s business operations. Goldford changed the locks on the doors to the office

which housed TAG and debtor’s other companies. He told the Ritters that many of the

subcontractors and materialmen were still owed hundreds of thousands of dollars even

though the Ritters had fully paid for the work done on the house. Goldford told the

Ritters that debtor had improperly diverted funds paid by the Ritters to debtor’s own

use. The Ritters thereafter paid the subcontractors and materialmen directly for the

remaining unfinished work on the house, at an added cost to the Ritters of $260,689.

 

Needless to say, debtor and Goldford had a “complete falling out.” Id. at 15.

Goldford wound up the business of TAG. Debtor moved to California. Neither debtor

nor Goldford paid any of the outstanding debts owed to the subcontractors and

materialmen for work done on the Ritters’ house. Id. Numerous mechanic’s liens

were filed against the house, and a lawsuit was brought to perfect those liens. The

Ritters hired an attorney who settled the liens. Pursuant to an indemnity agreement

contained in the escrow agreement, LTC partially reimbursed the Ritters for the

settlement of the mechanic’s liens. Id. at 15-16. 

Discussion

Standard of review

We apply the same standards of review to the bankruptcy court’s orders as the

district court. Findings of fact are reviewed for clear error and conclusions of law are

reviewed de novo. Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8 Cir. 1987). th

Piercing the corporate veil

Debtor first argues that the bankruptcy court erred in piercing the corporate veil

of TAG to hold him personally liable for its debts. Debtor points out that he had only
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a one-third ownership interest in TAG. He also argues that he had far less control over

TAG than Goldford. Debtor argues that Goldford’s actions, not his, caused the Ritters’

losses because Goldford had unilaterally decided to tell the Ritters that the funds did

not exist to pay the subcontractors and materialmen. Debtor also contends that,

contrary to the bankruptcy court’s findings, the Ritters still owed TAG over $300,000,

and therefore, in the end, cash flow would not have been a problem. The bankruptcy

court pierced the corporate veils of TAG and Thunderbird Construction on the basis

of the non-party testimony of Goldford and others whom the bankruptcy court found

to be credible. Upon review of the well-supported findings made by the bankruptcy

court, we agree with the district court that the record as a whole amply supports the

bankruptcy court’s decision to disregard the corporate forms of TAG and Thunderbird

Construction in holding debtor personally liable for the Ritters’ losses.

11 U.S.C. § 523(a)(2)(A)

Debtor next challenges the legal and factual bases for the bankruptcy court’s

grant of relief under § 523(a)(2)(A), which excludes from discharge debts obtained by

“false pretenses, a false representation, or actual fraud, other than a statement

respecting the debtor’s or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A).

Debtor maintains that the Ritters failed to prove by the requisite preponderance of the

evidence certain elements of fraud or false representation. See, e.g., In re Ophaug, 827

F.2d 340, 342 n.2 (8 Cir. 1987) (setting forth elements of fraudulent

th

misrepresentation). Debtor suggests that the Ritters established, at best, a breach of

contract. He argues that the escrow arrangement did not require TAG to pay the

subcontractors and materialmen first; rather, he contends, TAG agreed to obtain the

funds from LTC and then pay the subcontractors and materialmen. He also maintains

that, to the extent the escrow arrangement caused the Ritters’ losses, Goldford was

responsible because he signed the vouchers and endorsed the Ritters’ escrow payments.

To the extent the change orders caused the Ritters’ losses, debtor claims, the person
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responsible was the Thunderbird Construction employee who prepared the invoices for

the change orders. 

The bankruptcy court found that debtor represented to the Ritters that he would

pay the materialmen and subcontractors before seeking payment from the LTC escrow

account or from the Ritters under the change orders, but instead debtor consistently

failed to pay the materialmen and subcontractors first. Moreover, the bankruptcy court

concluded that debtor had presented LTC with false documentation implying that he

had made such prior payments. Jerry Ritter testified at the bankruptcy hearing about

the escrow arrangement as it was explained to him by debtor; that testimony directly

supports the bankruptcy court’s findings. Moreover, it was reasonable for the

bankruptcy court to infer from the evidence that debtor knew his representations were

false, that he acted with the intent to defraud the Ritters, that the Ritters relied on his

representations about timely payment of the subcontractors and materialmen, and that

the Ritters’ reliance was justified in light of debtor’s apparent expertise in residential

construction and financing. Finally, proximate cause was sufficiently established

because, absent debtor’s misrepresentations, the Ritters would not have put funds into

the LTC escrow account or paid TAG directly for work under the change orders. 

Collateral source rule

As stated above, LTC partially reimbursed the Ritters for the amount they paid

to settle the mechanic’s liens. The bankruptcy court held that, under the “collateral

source rule,” as set forth in Overton v. United States, 619 F.2d 1299, 1306 (8 Cir.

th

1980), the payment from LTC to the Ritters should not be a basis for reducing the

amount of the nondischargeable debt. On appeal, debtor argues that the bankruptcy

court erred in applying the collateral source rule to exclude consideration of LTC’s

reimbursement to the Ritters because, under the indemnity agreement contained in the

escrow agreement, LTC had the right to sue the contractor (i.e., Thunderbird

Construction) as the subrogee of the Ritters’ rights. Debtor also argues that the
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collateral source rule was erroneously applied in the present case because the Ritters’

claim is based upon a contract rather than tort claim, the collateral source (i.e., LTC)

is not wholly independent from the alleged wrongdoer (i.e., debtor), and the parties

have not expressly contracted for such a “double recovery.” See id. at 1306-07. 

Upon careful review, we hold that the bankruptcy court’s application of the

collateral source rule is not inconsistent with Overton. We read the language in

Overton, stating that either the collateral source must be independent from the alleged

wrongdoer or the parties must have contracted for double recovery, id. at 1307, in the

context of that case. In Overton, the collateral source and the alleged wrongdoer were

one and the same. In the present case, by contrast, LTC and debtor are not the same

entity and, moreover, debtor never contributed anything toward LTC’s indemnity

payment. Moreover, LTC’s right of subrogation does not bar the Ritters’ right of

recovery in the present case. See, e.g., Mason-Rust v. Laborers’ Int’l Union, 435 F.2d

939, 945 (8 Cir. 1970) (indicating that collateral source rule may apply even when

th

source has right of subrogation); see also Overton, 619 F.2d at 1306 n.8 (same).

Finally, we are compelled by the observation in Overton that “‘it is more just that the

windfall should inure to the benefit of the injured party than that it should accrue to the

tort feasor.’” 619 F.2d at 1306 (quoting Hamilton v. Slover, 440 S.W.2d 947, 958

(Mo. 1969)). 

Inclusion of attorney’s fees

Debtor also argues that the bankruptcy court improperly awarded the Ritters

attorney’s fees under § 523(a)(2)(A). Debtor notes that the bankruptcy court relied on

In re Hunter, 771 F.2d 1126 (8 Cir. 1985), as authority for awarding attorney’s fees th

in this case. In In re Hunter, this court noted that:
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when the parties have included a provision authorizing recovery of

attorneys’ fees in a contractual agreement, and those fees are incurred in

connection with a debt determined to be nondischargeable in bankruptcy,

some courts have permitted recovery of reasonable attorneys’ fees as part

of the compensatory relief to which a creditor is entitled under 11 U.S.C.

§ 523(a)(2)(A). 

Id. at 1131 (citing cases). However, debtor argues, the Eighth Circuit merely remanded

the case to the district court, which had affirmed the bankruptcy court’s exclusion of

post-petition fees. See id. Therefore, debtor argues, In re Hunter does not require this

court to affirm the award of attorney’s fees in the present case. Debtor further argues

that attorney’s fees should not be included within the nondischargeable debt under

§ 523(a)(2)(A) because requiring a bankruptcy debtor to pay the creditor’s attorney’s

fees will have a chilling effect on bankruptcy filings and because creditors are generally

better able to bear the cost of litigation than bankruptcy debtors. He also contends that

he should not be bound under the attorney’s fees provision of the base contract between

the Ritters and TAG because he personally was not a party to that contract and, in fact,

it was Goldford who signed the base contract on behalf of TAG. 

We note that the base contract clearly states the parties’ right to recover

reasonable attorney’s fees upon prevailing in any matter arising under the contract

documents. The Ritters’ attorney’s fees were properly included in the nondischargeable debt under § 523(a)(2)(A) because attorney’s fees provided by contract, like

accrued interest, can become part of the debt. In re Hunter, 771 F.2d at 1131; cf. In

re Fobian, 951 F.2d 1149, 1153 (9 Cir. 1991) (“[w]here a contract . . . provides for th

an award of attorneys’ fees, a creditor may be entitled to such fees in bankruptcy

proceedings”), cert. denied, 505 U.S. 1221 (1992). As to whether a factual basis exists

to excuse debtor personally because he was not a party to the base contract or because

Goldford signed it on TAG’s behalf, we hold that the bankruptcy court’s reasons to

pierce TAG’s corporate veil apply to this issue as well.
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Conclusion

For the reasons stated, the order of the district court, affirming the orders of the

bankruptcy court, is affirmed. See 8 Cir. R. 47B. th

A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.