Opinion ID: 730866
Heading Depth: 3
Heading Rank: 1

Heading: False pretenses

Text: 34 A debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) if it is for money obtained by ... false pretenses, a false representation, or actual fraud ... In particular, a plaintiff proceeding under section 523(a)(2)(A) must demonstrate 35 that the debtor obtained money through a material misrepresentation that at the time the debtor knew was false or made with gross recklessness as to its truth. The creditor must also prove the debtor's intent to deceive. 36 Atassi v. McLaren (In re McLaren), 990 F.2d 850, 852 (6th Cir.1993) (quoting Coman v. Phillips (In re Phillips), 804 F.2d 930, 932 (6th Cir.1986)). A plaintiff must show that a debt is nondischargeable by a preponderance of the evidence. Id. at 853 37 The Bankruptcy Court found under section 523(a)(2)(A) that debtor owes creditor a nondischargeable debt of $40,000. Debtor argues that this finding was erroneous because the Bankruptcy Court never found that debtor obtained any money from the sale of the Denver property. Debtor asserts that Bankruptcy Court instead found only that all proceeds of the Denver sale went to either creditor, KAK-REI or Group I. 38 The Bankruptcy Court, however, found that debtor misrepresented the sale price of the Denver property to creditor and then secretly transferred the 'excess' sales proceeds to another corporation controlled by debtor. Assuming that a plaintiff proceeding under section 523(a)(2)(A) must show that the debtor directly or indirectly obtained some tangible or intangible financial benefit as a result of his misrepresentation, see McHenry v. Ward (In re Ward), 115 B.R. 532, 538 (W.D.Mich.1990); Simmons v. Wade (In re Wade), 43 B.R. 976, 981-82 (Bankr.D.Colo.1984), 3 creditor has proven that debtor obtained money through his misrepresentations by showing that debtor infused a corporation which he controlled with $40,000. For example, the debtor in Ashley v. Church (In re Ashley), 903 F.2d 599, 604 (9th Cir.1990), had induced creditors to loan money to a financially-troubled corporation in which he also had invested in order to keep the corporation viable and thereby further his plan to use the corporation to gain a foothold in the industry. Although the debtor's link with the loan recipient was slightly attenuated, id., he nonetheless obtained money under section 523(a)(2)(A) through his misrepresentations because he either was sufficiently related to the corporation to be considered a loan recipient himself, or, if not a recipient of the loan, profited because he had a financial interest in the corporation. Id. at 604 n. 5. In the instant case, debtor, who controlled and was the president of the recipient of creditor's diverted funds, profited even more directly than the debtor in Ashley. See also Bates v. Winfree (In re Winfree), 34 B.R. 879, 883 (Bankr.M.D.Tenn.1983) (shareholder, officer and director of corporation who fraudulently induces a loan to the corporation obtains a benefit under section 523(a)(2)(A)). We therefore reject debtor's implication that a debt is nondischargeable under section 523(a)(2)(A) only when the creditor proves that the debtor directly and personally received every dollar lost by the creditor. But see Ballard v. Grubbs (In re Grubbs), 9 B.R. 499, 501 (M.D.Ga.1981) (stating that  'obtaining money' [under section 523(a)(2)(A) ] is capable of but one meaning, that is the direct transfer of money from a creditor to a debtor).