Court Opinion

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Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

2-6-1997

In Re: Edward Cohen v.
Precedential or Non-Precedential:

Docket 96-5155

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                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                            ____________

                            No. 96-5155
                            _____________

    IN RE: EDWARD S. COHEN, Debtor,

    EDWARD S. COHEN,

         Appellant,

         -vs-

    HILDA DE LA CRUZ; NELFO C. JIMENEZ;
    MARIA MORALES; GLORIA SANDOVAL; HECTOR SANTIAGO;
    SANTIA SANTOS; ELBA SARAVIA;
    ELVIA SIGUENZIA; ENILDA TIRADO.

                          ____________

          Appeal from the United States District Court
                 for the District of New Jersey
                   (D.C. Case No. 95-cv-04958)
                         ____________

           Submitted Under Third Circuit LAR 34.1(a)
                        October 10, 1996
        Before: MANSMANN and GREENBERG, Circuit Judges,
                  and HILLMAN, District Judge*

                      (Filed February 6, 1997)

*    Honorable Douglas W. Hillman of the United States District
Court for the Western District of Michigan, sitting by
designation.

                                 1
Edward S. Cohen (pro-se)
6021 Fountain Park Lane
Apt. #10
Woodland Hills, CA 91367

     Appellant

GREGORY G. DIEBOLD, Esquire
Hudson County Legal Services Corp.
574 Newark Avenue
Jersey City, New Jersey 07306

     Attorneys for Appellees

                           ___________

                         OPINION OF THE COURT
                            ____________

HILLMAN, District Judge.

          Edward S. Cohen appeals from the order of the New

Jersey District Court affirming the bankruptcy judge's

determination that certain debts were nondischargeable in

bankruptcy because they were obtained by fraud, as defined in 11

U.S.C. § 523(a)(2)(A).    Because we conclude that section

523(a)(2)(A) excludes punitive as well as compensatory damages

from discharge, we will affirm.
                                  I.

          In 1985, appellant, Edward Cohen ("Cohen"), and his

father, Nathan Cohen, purchased an 18-unit residential apartment

building at 600 Monroe Street in Hoboken, New Jersey.    They held

title to the Monroe Street property until December 1989.     The

Cohens also owned several other residential properties: another

                                  2
multi-family apartment building in Hoboken, one in Union City,

two in Paterson, one in Jersey City and one in Newark.

            The Hoboken Rent Leveling Act (The Act) is a

comprehensive rent control ordinance which governed the Monroe

Street property.   The rents set by the Cohens were approximately

double what they could legally charge under the Act.   Most of the

tenants in the Monroe Street units were non-native speakers of

English with little education.

          In 1989, the Hoboken Rent Control Administrator

determined that the Cohens had violated the Act.    The Cohens were

ordered to refund amounts totaling $31,382.50.   The amounts were

not refunded and the Cohens failed to perfect an appeal from the

determination of the Administrator.   Thereafter, the Cohens filed

for Chapter 7 bankruptcy, seeking to discharge these as well as

other debts.

          On February 14, 1991, the tenants filed an adversary

proceeding against Edward Cohen in the bankruptcy court.     They

claimed that the debts owed to them were procured by fraud and

were thus nondischargeable in bankruptcy under 11 U.S.C. §

523(a)(2)(A).   Additionally, each tenant sought a judgment for

three times the amount of the refund pursuant to New Jersey's

Consumer Fraud Act, N.J.Stat.Ann. §§ 56:8-1 to 8-9.

          At trial, the plaintiffs testified that they had no

knowledge of the legal amount of rent.   Most were unaware that

any rent control ordinance governed the property.   Cohen admitted

                                 3
that at the time he purchased the property, he was aware that the

rent control ordinance existed.       He claimed, however, that he

never inquired about the requirements of the ordinance nor was he

advised of its provisions.    He testified that he was aware that

he could not raise rents more than 6% per annum, but claimed to

believe that he could charge new tenants any amount up to fair

market value.    In fact, the Act limited the amount of rent the

Cohens could charge existing and new tenants.

           After hearing the testimony, the bankruptcy judge

determined that the debts were nondischargeable and that the

Consumer Fraud Act applied.    The court found that Cohen, despite

being represented by counsel, recklessly made no effort to

investigate the statute and selectively inquired about its

application.    The court further found that Cohen conveniently

understood that the ordinance allowed him to surcharge his

tenants for increases in water bills and taxes and he knew where

he could apply for such relief.       Cohen claimed, however, that he

did not think to investigate how much he could charge new

tenants.   Based on these facts, the bankruptcy court found that

Cohen had selectively understood and applied the provisions of

the ordinance that were to his benefit, but wilfully failed to

ascertain the less advantageous provisions. On the basis of

Cohen's admittedly selective understanding of the statute, the

bankruptcy court concluded that he had committed fraud within the

meaning of the bankruptcy code.       The court also held that Cohen's

                                  4
conduct violated the New Jersey Consumer Fraud Act, N.J. Stat.

Ann. 56:8-1, and that Cohen was statutorily liable for treble

damages.   The bankruptcy court held that the treble damage award

also was nondischargeable in bankruptcy, and it entered a total

judgment for $94,147.50.   The district court affirmed.   In re

Cohen, 191 B.R. 599 (D.N.J. 1996).1

           In his appeal, Cohen contends that the district court

erred in affirming the order of the bankruptcy court.     First, he

asserts that, in finding that appellant's conduct amounted to

nondischargeable fraud under 11 U.S.C. § 523(a)(2)(A), the

bankruptcy court and the district court applied incorrect

principles of law and made clearly erroneous factual findings.

Second, he argues that, even if his conduct amounted to fraud

under the bankruptcy code, it did not constitute a violation of
     1
          The district court had jurisdiction to hear this case
pursuant to 28 U.S.C. § 158(a). Because the bankruptcy court
first heard this case, Bankruptcy Rule 8013 governed the district
court's standard of review:

On an appeal the district court or bankruptcy appellate panel may
          affirm, modify, or reverse a bankruptcy judge's
          judgment, order or decree or remand with instructions
          for further proceedings. Findings of fact, whether
          based on oral or documentary evidence, shall not be set
          aside unless clearly erroneous, and due regard shall be
          given to the opportunity of the bankruptcy court to
          judge the credibility of witnesses.

     Our jurisdiction rests on 28 U.S.C. § 1291 and 28 U.S.C. §
158(d). 8013. We exercise plenary review over the district
court's order, because a district court sits as an appellate
court in bankruptcy court. In re Cohn, 54 F.3d 1108, 1113 (3d
Cir. 1995). We review the bankruptcy court's findings of fact
for clear error. Id. We exercise plenary review over questions
of law. Id.

                                5
the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1.

Third, he contends that the treble damage provision of the New

Jersey Consumer Fraud Act is a punitive damage award.                            As such,

Cohen contends that the treble damage portion of the debt is

dischargeable under 11 U.S.C. § 523(a)(2)(A).

              We have carefully considered both the facts and the law

and we find no error in the district court's conclusion that

Cohen committed fraud within the meaning of 11 U.S.C.

§ 523(a)(2)(A) and N.J. Stat. Ann § 56:8-1.                       Both the bankruptcy

court and the district court applied the correct principles of

law, and the factual findings of the bankruptcy court were not

clearly erroneous.           Because Cohen's objections to the bankruptcy

court's findings of fraud raise no substantial questions not

fully addressed by the courts below, we affirm without discussion

the district court's order affirming the bankruptcy judge's

findings of fraud under both the bankruptcy code and the New

Jersey Consumer Fraud Act.

              However, because the question of whether punitive

damages2 are dischargeable under 11 U.S.C. § 523(a)(2)(A) is the

subject of a split in the circuits, we will address that issue in

full.
                                             II.

        2
          We assume without deciding for purposes of this opinion that the treble damages
provision of N.J. Stat. Ann. § 56:8-9 is purely punitive and does not serve a compensatory
function. But see Cox v. Sears Roebuck & Co., 138 N.J. 2, 24, 647 A.2d 454, 465 (N.J. 1994)
(suggesting that purpose of treble damage and attorney fee awards was partly compensatory).

                                               6
          Section 523(a) of the federal bankruptcy statute

provides limited exceptions to the general dischargeability of

debts of eligible claimants under the statute.     Specifically,

section 523(a) sets forth sixteen types of debts that are

nondischargeable under the code.    The subsection at issue here --

523(a)(2)(A) -- originally excepted from discharge any debt "for

obtaining money, property [or] services . .. by . . . actual

fraud. . . ."   Federal courts interpreted this provision to

include punitive as well as compensatory damages within the

exception to discharge.   See, e.g., In re Maxwell, 51 F.R. 244,

246 (Bankr. S.D. Ind. 1983); In re Carpenter, 17 B.R. 563, 564

(Bankr. E.D. Tenn. 1982).   Cf. Birmingham Trust Nat. Bank v.

Case, 755 F.2d 1474, 1477 (10th Cir. 1985).

          Congress amended this provision in 1984, thereby giving

rise to the issue we now address.      See Bankruptcy Amendments and

Federal Judgeship Act of 1984, Pub.L.No. 98-353, 1984

U.S.C.C.A.N. (98 Stat.) 333, 376.    We must determine whether

punitive damages are nondischargeable under the second of these

exceptions, which provides in relevant part:
(a) A discharge under . . . this title does not
               discharge an individual debtor from
               any debt --

                               . . .

          (2) for money, property, services, or an
               extension, renewal or refinancing
               of credit, to the extent obtained
               by --

                                7
          (A) false pretenses, a false
                         representation, or actual
                         fraud . . . .

11 U.S.C. § 523(a)(2)(A) (emphasis added).

          A number of courts, including two courts of appeals,

have interpreted this provision and have come to conflicting

conclusions about its meaning.   Several courts, including the

Court of Appeals, for the Ninth Circuit, have held that, by

including the phrase "to the extent obtained by" in the

exception, Congress intended to limit the exception strictly to

compensatory damages for the actual amount caused by the fraud.

Consequently, those courts have held that punitive damages for

fraud are dischargeable, notwithstanding § 523(a)(2)(A).   See,

e.g., In re Levy, 951 F.2d 196 (9th Cir. 1991), (the language of

the statute suggests that the subsection limits

nondischargeability to the amount of benefit to the debtor or

loss to the creditor the act of fraud itself created); In re

Auricchio, 196 B.R. 279, 289-90 (Bankr. D.N.J. 1996); In re

Bozzano, 173 B.R. 990, 998 (Bankr. M.D.N.C. 1994); In re Suter,

59 B.R. 944, 947 (Bankr. N.D. Ill. 1986).

          Other courts, however, including the Eleventh Circuit,

have concluded that the language of the statute is ambiguous and

that, because Congress' intent in adding the language is not

clear, all damages resulting from fraud, whether punitive or

compensatory, are nondischargeable under § 523(a)(2)(A).   See,
e.g., In re St. Laurent, 991 F.2d 672, 677-81 (11th Cir. 1993);

                                 8
In re Roberti, 201 B.R. 614, 622-23 (Bankr. D. Conn. 1996); In re

Winters, 159 B.R. 789, 790 (Bankr. E.D. Ky. 1993); In re Manley,

135 B.R. 137, 144-45 (Bankr. N.D. Okla. 1992).       See also 3

Collier on Bankruptcy, ¶ 523.08 at 523-52 n.27 (15th ed. 1996)

("The phrase `to the extent obtained by . . . actual fraud,'

which was added to section 523 in 1984, should not be read to

limit a finding of nondischargeability only to the compensatory

aspects of a fraud judgment.").       Cf. In re Gerlach, 897 F.2d
1048, 1051 n.2 (10th Cir. 1990) (holding that, with respect to a

fraudulently obtained extension of credit, the language "to the

extent obtained by" had not altered the amount of debt made

nondischargeable under § 523(a)(2)(A)).      See also 3 Collier on

Bankruptcy. ¶ 523.08 at 523-52 n.27 (15th ed. 1996) (The phrase

"to the extent obtained by . . . actual fraud," which was added

to section 523 in 1984, should not be read to limit a finding of

nondischargeability only to the compensatory aspect of a fraud

judgment.).

            We find the careful analysis of the Eleventh Circuit to

be more persuasive than that of the Ninth Circuit.      We conclude

that the language "to the extent obtained by" was not intended by

Congress to limit the amount of debt considered nondischargeable

under § 523(a)(2)(A).   We therefore hold that debts caused by

fraud under § 523(a)(2)(A) are nondischargeable in their

entirety.

                                  9
           A.   The Plain Meaning of the Statute

           Liability under state law for damages caused by fraud,

whether punitive or compensatory, clearly represents a debt

within the meaning of the bankruptcy code.    In re Bugna, 33 F.3d
1054, 1058 (9th Cir. 1994); In re St. Laurent, 991 F.2d at 678.

Under the Code, a "debt" is defined as "liability on a claim."

11 U.S.C. § 101(12).    A "claim" is further defined as a "right to

payment, whether or not such right is reduced to judgment . . .

."   11 U.S.C. § 101(5)(A).   See In re St. Laurent, 991 F.2d at

678.   "A `right to payment' is `nothing more nor less than an

enforceable obligation, regardless of the objectives . . . to

[be] serve[d] in imposing the obligation.'"    Id. (quoting

Pennsylvania Dep't of Pub. Welfare v. Davenport, 495 U.S. 552,

559 (1990)).

           Despite the broad sweep of this definition of "debt,"

courts have held that punitive damages resulting from fraud as

defined by § 523(a)(2)(A) are nevertheless dischargeable because,

by including in § 523(a)(2)(A) the language "to the extent

obtained by," Congress intended "to limit the nondischargeable

debt to the amount `obtained by actual fraud.'"    In re Levy, 951
F.2d at 198 (quoting In re Ellwanger, 105 B.R. 551, 555 (B.A.P.

9th Cir.   1989)).   In In re Levy, the Ninth Circuit reasoned

that, because punitive damages "do not represent losses to the

victim of fraud or increases in the wealth of the debtor who

engages in fraud," they "`are not a debt for fraud.'"    Id.

                                 10
(quoting In re McDonald, 73 B.R. 877, 882 (Bankr. N.D. Tex.

1987)).

           At the heart of the Ninth Circuit's analysis is an

assumption that the words "to the extent obtained by" modify the

word "debt."   We disagree with such a reading of the statute.

           First, the word "debt" appears in the general section

preceding all sixteen specific exceptions to dischargeability.

In contrast, the words "to the extent obtained by" follow most

directly after a listing of other nouns:   "money, property,

services, or an extension, renewal, or refinance of credit."     It

is most sensible and most in accord with general linguistic

analysis to apply a modifying phrase to the nearest objects, in

this case "money, property, services, or an extension, renewal,

or refinance of credit."

           In addition, it strains the structure of the statute as

a whole to conclude that the definition of the word "debt," which

applies to all sixteen exceptions to dischargeability and

elsewhere in the bankruptcy code, is altered by language

contained in the second of these exceptions, and that the meaning

of the word "debt" is different only with respect to that single

exception.   Indeed, one of the basic canons of statutory

construction is "that identical terms within an Act bear the same

meaning.   “Thus, Congress' expansive definition of `debt' applies

to each subsection of § 523(a), absent clear intent to the

                                11
contrary."    In re St. Laurent, 991 F.2d at 680 (citations

omitted).

            We conclude that Congress intended the language "to the

extent obtained by" to modify not "debt," but "money, property,

services, and extension . . . of credit."     This conclusion is

reinforced when one analyzes the provision with specific

attention to the items in the list other than "money" -- i.e.,

"property," "services" or "extension of credit."    It may at first

blush appear plausible that Congress intended to limit some

damage portion of the nondischargeable debt when one asks whether

the debt in issue is a "debt . . . for money, . . . to the extent

obtained by the fraud."    However, when one asks whether the debt

is a "debt . . . for refinancing of credit, . . . to the extent

obtained by the fraud," it is apparent that the meaning of "to

the extent obtained by the fraud" is to distinguish between

fraudulently and legally refinanced credit, not to limit the

objectives being "serve[d] in imposing the obligation."

Davenport, 495 U.S. at 559.     See In re Manley, 135 B.R. at 145.

So understood, the language appears not to distinguish actual

from punitive damages, but "contractual debts tainted with fraud

from debts for mere breach of contract or `failure to pay.'"    In
re Manley, 135 B.R. at 145.

             In the instant case, Cohen obtained substantial sums in

rent from plaintiffs, only $31,382.50 of which was obtained by

fraud.   As a result, the amount of Cohen's debt for this

                                  12
fraudulently-obtained sum is nondischargeable.     The dissent

agrees with our analysis that "to the extent obtained by"

modifies "money" not "debt."    It suggests, however, that the

amount in excess of $31,382.50 awarded as treble damages was not

obtained by fraud and therefore is not within the exception.

However, the statutory language specifically states that the

"debt for . . . money . . . to the extent obtained by . . .

fraud" is not dischargeable.     One's debt for fraudulently

obtained monies may and frequently does exceed the actual sum of

the fraud.    For example, the debt normally includes interest,

costs of recovery and attorney fees, as well as compensatory and

punitive damages.    Under New Jersey law, one's debt for such

fraudulently obtained monies includes three times the amount of

the fraudulently obtained sum.    Nothing in the language "to the

extent obtained by" requires distinguishing between the theories

of recovery under which the debt is owed.

             We therefore conclude that the language on its face

does not clearly limit nondischargeable damages under §

523(a)(2)(A) to compensatory damages only.
             B.   Legislative History

          Where, as here, statutory meaning is at best unclear,

we look to the legislative history to resolve any conflict.      See

Patterson v. Shumate, 504 U.S. 753, 761 (1992) (stating that

resort to statutory history is appropriate where language of

statute is ambiguous or confusing).     "The normal rule of

                                  13
statutory construction is that if Congress intends for

legislation to change the interpretation of a judicially created

concept, it makes that intent specific."   Kelly v. Robinson, 479
U.S. 36, 47 (1986).   In particular, the Supreme Court has

observed that a court should "not read the Bankruptcy Code to

erode past bankruptcy practice absent a clear indication that

Congress intended such a departure."   Davenport, 495 U.S. at 563.

          As the Tenth Circuit previously has observed about the

1984 amendments,
there is no reason to conclude that the 1984
               amendments were anything but
               technical and cosmetic. We have
               found no legislative history
               reflecting that Congress intended
               to significantly alter the rights
               and obligations of creditors and
               debtors governed by this section .
               . . .

In re Gerlach, 897 F.2d 1048, 1051 n.2 (10th Cir. 1990) (holding

that "to the extent obtained by" was not intended to limit the

amount of nondischargeable credit extensions).   See also In re

St. Laurent, 991 F.2d at 680.

          Prior to the 1984 bankruptcy amendments, the statute

provided that a debtor was not entitled to a discharge of "any

debt . . . for obtaining money, property, services, or an

extension, renewal, or refinance of credit, by . . . false

pretenses, a false representation, or actual fraud . . . ."     The

language change in 1984 merely struck "obtaining" preceding

"money," and added "to the extent obtained" at the end of the

                                14
list of things which may be obtained by fraud.    In this

historical context, the language seems a simple (though arguably

less clear) rewording of the earlier phrasing.

          Nothing in the 1978 version of the statute suggests

that punitive damages for fraud should be distinguished from the

compensatory portion of such debt.    Instead, under the 1978

phrasing, subsection (2) of section 523(a) should be interpreted

consistently with the other exceptions, which have been broadly

construed to cover both punitive and compensatory portions of

debt for culpable conduct, even by those courts that have

rejected such a broad interpretation of the modified §

523(a)(2)(A).   See, e.g., In re Bugna, 33 F.3d 1054, 1058-59 (9th

Cir 1994) (punitive damages nondischargeable under § 523(a)(4));

In re Britton, 950 F.2d 602, 606 (9th Cir. 1991) (punitive

damages nondischargeable under § 523(a)(6)).     In fact, prior to

the 1984 amendments, courts had held that punitive damages as

well as compensatory damages for fraud were nondischargeable

under § 523(a)(2).   See, e.g., In re Maxwell, 51 B.R. 244, 246

(Bankr. S.D. Ind. 1983) ("Punitive damages awarded pursuant to

state law for actions which would render a debt nondischargeable,

see 11 U.S.C.A. § 523(a)(2), (4), and (6), are nondischargeable

in bankruptcy."); In re Carpenter, 17 B.R. 563, 564 (Bankr. E.D.
Tenn. 1982) (both compensatory and punitive damages

nondischargeable under § 523(a)(2).   Cf. Birmingham Trust Nat.

Bank v. Case, 755 F.2d 1474, 1477 (10th Cir. 1985) ("[T]he plain

                                15
language of the statute suggests that dischargeability is an `all

or nothing' proposition.").

          The Supreme Court's dicta in Grogan v. Garner, 498 U.S.
279, 282 n.2 (1991), is not to the contrary.     In Grogan, the

Court specifically declined to address the question presently

before us:    "whether § 523(a)(2)(A) excepts from discharge that

part of a judgment in excess of the actual value of money or

property received by a debtor by virtue of fraud."    Id.    While

the Court recognized that such a proposition was "arguable," it

expressly avoided deciding the issue.     The Court's mere

acknowledgment of an arguable position not only is dicta, but

also does not suggest any future direction of the Court.     As a

practical matter, the Grogan Court actually reinstated a district

court’s decision that a state court judgment for fraud, including

punitive and compensatory damages, was nondischargeable under §

523(a)(2)(A).

             We therefore conclude from the legislative history that

Congress intended with § 523(a)(2)(A) to create an exception for

a type of debt caused by limited, culpable conduct.     Congress did

not intend, however, that the amount of such debt or claim,

including the theories of recovery for such conduct, was to be

limited by the section.
             C.   Policy Considerations

          Sound policy also supports our decision.     First, in the

absence of the fraud that gave rise to the nondischargeable,

                                  16
compensatory portion of the debt, there would be no liability for

punitive damages.   "To discharge an ancillary debt which would

not exist but for a nondischargeable debt seems erroneous."      In

re Roberti, 201 B.R. at 623 (quoting In re Weinstein, 173 B.R.
258, 273-75 (Bankr. E.D.N.Y. 1994)) (internal quotations

omitted).

            Second, our result is consistent with the "fresh start"

policy of the bankruptcy code.    As the Supreme Court has stated,

"the opportunity for a completely unencumbered new beginning [is

limited] to the “honest but unfortunate debtor.”     Grogan, 498
U.S. at 286-87.   Where a debtor has committed fraud under the

code, he is not entitled to the benefit of a policy of liberal

construction against creditors.    Id.; Birmingham Trust, 755 F.2d

at 1477.    Cf. In re Braen, 900 F.2d 621, 625 (3d Cir. 1990)

("Although it is true that the bankruptcy laws were generally

intended to give troubled debtors a chance, the

nondischargeability exceptions reflect Congress' belief that

debtors do not merit a fresh start to the extent that their debts

fall within § 523."), cert. denied, 498 U.S. 1066 (1991).       We

think it unlikely that Congress, in excepting fraud from

dischargeability, "would have favored the interest in giving

perpetrators of fraud a fresh start over the interest in

protecting victims of fraud."    Grogan, 498 U.S. at 287.
            Furthermore, the amount of actual damages in consumer

fraud cases, although significant to the plaintiffs, is often not

                                  17
large.   Without including treble damages in the nondischargeable

debt, victims of fraud will have even greater difficulty

obtaining competent legal representation to pursue adversarial

actions in bankruptcy court and prevent fraudulent debtors from

using the Bankruptcy Code to evade lawful state judgments.

          Finally, we observe that our decision is consistent

with the punitive damages at issue in this case.   Under New

Jersey law, treble damages are statutorily mandated for every

violation of the Consumer Fraud Act.    See Cox v. Sears, Roebuck &

Co., 647 A.2d 454, 465 (N.J. 1994).    As a result, the debtor is

fully aware at the time of his commission of a fraud of the full

amount of the "debt" he will owe on a determination that he has

committed such fraud.   In this practical, additional sense,

treble damages should be nondischargeable as an indistinguishable

component of the debt owed.

                                18
                              III.

          For the above reasons, we conclude that punitive

damages are nondischargeable under 11 U.S.C. § 523(a)(2)(A).

Accordingly, the district court’s decision affirming the judgment

of the bankruptcy court will be affirmed.

In re Cohen, No. 96-5155

                               19
GREENBERG, Circuit Judge, dissenting.

           Judge Hillman obviously has written a thoughtful

opinion.   Nevertheless, I respectfully dissent insofar as the

majority holds that the damages to the extent trebled are not

dischargeable.   In this opinion I will treat the trebled portion

of the damages as punitive damages in accordance with the

majority opinion.

           11 U.S.C. § 523(a)(2)(A) provides that a discharge

"does not discharge an individual debtor from any debt for money,

property, services, or an extension, renewal, or refinancing of

credit, to the extent obtained by false pretenses, [or] a false

representation . . . ."   The initial issue on this appeal is thus

whether "to the extent obtained" relates to "debt" or to "money,

property, [or] services."   The majority holds that "to the extent

obtained" refers to "money, property, [or] services" and I agree.

 After all, it would be awkward to think that the debtor

"obtained" a "debt," for what the debtor obtains is something of

value, thus creating a debt.

           But at that point I part company with the majority

because treating "to the extent obtained" as referring to "money,

property, [or] services," makes it clear to me that punitive

damages are dischargeable, for the punitive damages do not

reflect money, property, or services the debtor "obtained."

Punitive damages are simply a penalty and are something a debtor

                                20
pays rather than obtains.   Here, Cohen "obtained" only the

overcharges which are reflected in the compensatory damages which

we all agree are not dischargeable.

           Furthermore, if Congress intended that punitive damages

under section 523(a)(2)(A) were to be non-dischargeable, as the

majority holds, it seems to me that the statute simply would read

that "A discharge . . . does not discharge an individual debtor

from any debt for false pretenses, [or] a false representation. .

. ."   That formulation would be consistent with treating punitive

damages as part of the debtor's "debt."   In other words, if

punitive damages are not to be dischargeable, there is no need

for the "money, property, services . . . to the extent obtained"

provision in section 523(a)(2)(A).    I believe that we should not

construe a statute so as to render portions of it superfluous.

           Congress used the structure that I suggest would

support the majority's result in 11 U.S.C. § 523(a)(4) which

recites that "A discharge . . . does not discharge an individual

debtor from any debt for fraud or defalcation while acting in a

fiduciary capacity, embezzlement, or larceny."   Thus, in a

section 523(a)(4) case the exception to the discharge is not

confined by a provision equivalent to the "money, property,

services . . . to the extent obtained" provision in section

523(a)(2).   There is a structure similar to section 523(a)(4) in

11 U.S.C. § 523(a)(6) which provides that "A discharge . . . does

not discharge an individual debtor from any debt for willful and

                                21
malicious injury by the debtor to another entity or to the

property of another entity."    It therefore follows that

fiduciaries in the enumerated cases, embezzlers, thieves and

persons who commit willful and malicious torts cannot obtain

discharges of punitive damage awards.

           Congress thus carefully distinguished the types of

wrongdoing when it set forth the exceptions to a discharge.      I,

like the majority, would honor that distinction by holding that

"to the extent obtained" in section 523(a)(2) relates to "money,

property [or] services" and not to "debt," but would go further

and hold that the punitive damages simply are not "money,

property, [or] services" as those three terms relate to something

the debtor obtained.   Thus, punitive damages are dischargeable in

cases coming within section 523(a)(2).   I point out that while I

have reached my result through my own analysis, it is hardly

innovative as I merely am taking the position taken by most other

courts.    See In re Auricchio, 196 B.R. 279, 290 (Bankr. D.N.J.

1996).    ("Most courts have found that punitive damages awards are

dischargeable under § 523(a)(2).") (collecting cases).

            There is court of appeals support for my position for,

as the majority points out, the Court of Appeals for the Ninth

Circuit has reached a result opposite to that the majority

reaches today.   See In re Levy, 951 F.2d 196 (9th Cir. 1991),
cert. denied, 504 U.S. 985, 112 S. Ct. 2965 (1992); see also In re

                                 22
Bugna, 33 F.3d 1054, 1058-59 (9th Cir. 1994).   That court in

Bugna explained the law as follows:
          This plain reading of section 523(a)(4) is
          consistent with our interpretation of other
          subsections within section 523(a). We have
          interpreted section 523(a)(6), which contains
          language similar to that in section
          523(a)(4), as barring discharge of punitive
          damages liability. See In re Britton, 950
F.2d 602, 606 (9th Cir. 1991); In re Adams,
          761 F.2d 1422, 1427-28 (9th Cir. 1985). And,
          though we have said that section 523(a)(2)
          does not bar discharge of punitive damages,
          In re Levy, 951 F.2d 196, 199 (9th Cir.
          1991), that section is clearly
          distinguishable: '[U]nlike sections
          523(a)(4) and 523(a)(6), [section 523(a)(2)]
          does not bar discharge of punitive damages.'
           Id. at 198. Congress specifically limited
          the application of section 523(a)(2) to 'debt
          . . . to the extent obtained by false
          pretenses, a false representation, or actual
          fraud.' 11 U.S.C. § 523(a)(2)(A) (emphasis
          added). Because punitive damages are not
          obtained by fraud but rather imposed because
          of it, they are not restitutionary as
          required under section 523(a)(2). Levy, 951
F.2d at 199. Section 523(a)(4), like section
          523(a)(6), conspicuously lacks this limiting
          language.

Bugna, 33 F.3d at 1058-59.   The majority criticizes the analysis

in Levy because Levy presumes "that the words 'to the extent

obtained by' modify the word 'debt'."   Majority typescript at 9.

 While I agree that "to the extent obtained by" does not modify

"debt," still it seems clear to me that the Court of the Appeals

for the Ninth Circuit correctly distinguished between section

523(a)(2) on the one hand and sections 523(a)(4) and (a)(6) on

the other.

                                23
            I believe my proposed result is consistent with the

fresh start policy of the Bankruptcy Code.      While the majority

expresses concern that a debtor acting fraudulently will escape

the consequences of his or her action, I think it is important to

understand how broadly fraud has come to be defined.       See N.J.

Stat. Ann. § 56:8-2 (West 1989) (definition of conduct wrongful

under the Consumer Fraud Act).     Consider fraud under RICO.    As

every federal judge knows, in RICO civil cases plaintiffs

frequently allege mail fraud as the racketeering activity in

situations in which no United States Attorney would seek a RICO

indictment.     See 18 U.S.C. § 1961(1)(B).   In RICO cases, just as

under the New Jersey Consumer Fraud Act, treble damages are

recoverable.    18 U.S.C. § 1964(c).   This case will come to be

authority that the trebled portion of the damages in a civil RICO

case are not dischargeable, even though the dispute leading to

the judgment is essentially commercial, and the racketeering

activity is mail fraud.

            Indeed, in this case, while I have not dissented from

the finding that Cohen committed fraud, his conduct was hardly

shocking.    The district court described Cohen's conduct as

follows:    "[Cohen] made an implicit representation regarding the

rent he charged -- his silence coupled with the rental amount

fixed constituted a representation that he was charging lawful

rent."     In re Cohen, 191 B.R. 599, 605 (D.N.J. 1996).
Furthermore, the finding of fraud was not predicated on Cohen's

                                  24
actual knowledge.   Rather, as the district court explained, it

was based on his reckless disregard of the truth.

          I recognize that Cohen's situation is not one that can

generate much sympathy.   He was, after all, a landlord dealing

with persons whose primary language was Spanish and who had

little education.   Id. at 602.   Nevertheless, if "an implicit

representation" can give rise to a non-dischargeable punitive

damages judgment, in some cases poor or uneducated people may

feel the thrust of our opinion as such persons may make "implicit

representation[s]" just as Cohen did.    The majority's opinion may

come to haunt such people seeking to make a fresh start.

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