Court Opinion

ID: 2967249
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:11:54.395308+00
Date Added: 2024-06-11T11:43:12.970069
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: RICHARD H. PLEASANTS, IV,
Debtor.

RICHARD H. PLEASANTS, IV,
Appellant,                                                          No. 99-2257

v.

E. G. KENDRICK, JR.; RANDY P.
KENDRICK,
Appellees.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, Chief District Judge.
(CA-99-802, BK-97-12702,
BK-97-1313)

Argued: May 3, 2000

Decided: July 12, 2000

Before WILKINSON, Chief Judge, and WILKINS and
WILLIAMS, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Wilkins and Judge Williams joined.

_________________________________________________________________

COUNSEL

ARGUED: Kenneth C. Bass, III, VENABLE, BAETJER & HOW-
ARD, L.L.P., McLean, Virginia, for Appellant. Jill Marie Dennis,
HUNTON & WILLIAMS, McLean, Virginia, for Appellees. ON
BRIEF: Damon W.D. Wright, VENABLE, BAETJER & HOWARD,
L.L.P., McLean, Virginia, for Appellant. Stephen M. Sayers, HUN-
TON & WILLIAMS, McLean, Virginia, for Appellees.

_________________________________________________________________

OPINION

WILKINSON, Chief Judge:

E.G. and Randy Kendrick filed this adversary complaint in bank-
ruptcy court, claiming that the debt Richard Pleasants owed them was
nondischargeable. The bankruptcy court found that the debt arose
from Pleasants' fraud and thus disallowed discharge pursuant to 11
U.S.C. § 523(a)(2)(A). See Kendrick v. Pleasants (In re Pleasants),
231 B.R. 893 (Bankr. E.D. Va. 1999). The district court affirmed, and
Pleasants appeals. Finding no error, we affirm.

I.

In the late 1980s, the Kendricks met Pleasants, the president and
sole shareholder of Pleasants & Associates (P&A). The Kendricks
were planning an addition to their home. In the course of discussions,
Pleasants erroneously represented that he was an architect who was
educated at the University of Virginia School of Architecture. Over
the next five years, the Kendricks paid Pleasants to prepare drawings
outlining architectural options for their home. In 1993, the Kendricks
hired P&A to prepare detailed architectural plans and to perform con-
struction estimates. In 1994, the Kendricks entered into a construction
contract with P&A.

When the project suffered from serious delays, the Kendricks hired
Frank Reifsnyder, a licensed architect and independent consultant, to
evaluate the project's status. The Kendricks discovered that Pleasants
was not a licensed architect and had not attended the University of
Virginia School of Architecture. The Kendricks confronted Pleasants.
Pleasants apologized and asked for a second chance. The Kendricks
agreed and entered into a Forbearance Agreement with P&A and
Pleasants. Under this agreement, the Kendricks would not declare

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P&A in default, terminate the construction contract, or pursue legal
remedies so long as P&A met nine milestones. When P&A failed to
meet a single milestone, the Kendricks fired Pleasants and P&A.

The Kendricks brought suit in Fairfax County Circuit Court seek-
ing $1,262,296 in damages for fraud, breach of contract, and negli-
gence. Three days before trial, Pleasants and P&A filed for
bankruptcy. The Kendricks then filed this adversary complaint, seek-
ing to have their claim against Pleasants deemed nondischargeable
pursuant to 11 U.S.C. § 523(a)(6). Section 523(a)(6) provides for
denial of a discharge "from any debt for willful and malicious injury
by the debtor to another entity or to the property of another entity."

At trial before the bankruptcy court, numerous witnesses, in addi-
tion to the Kendricks, testified about the fraud perpetrated by Pleas-
ants. One of them reported having had a "very long discussion" with
Pleasants about his "going to architectural college at UVA." Pleas-
ants' own administrative assistant testified that she had believed
Pleasants to be an architect because of the degrees hanging on his
office wall. And five witnesses reported that when Pleasants was
introduced as an architect, he made no effort to correct the introduc-
tion. The court also learned that P&A's letterhead, business cards,
advertisements, and signs stated, "Pleasants & Associates, Architec-
tural Design and Construction." Indeed, Pleasants had even listed
P&A in the phone book under "Architects." There was also testimony
about the deplorable condition in which Pleasants' delays and faulty
designs had left the Kendrick home. For example, water had been
found "in every single room." Frank Reifsnyder pointed out numerous
structural problems and building code violations. He noted that the
master bedroom roof could have collapsed when loaded with snow.
He added that a gas-fired mechanical unit had been improperly placed
below a wood stairway -- a stairway which served as the only means
of egress from the carriage house's second floor.

After the trial had ended, the Kendricks filed a motion to amend
their complaint to include a reference to 11 U.S.C.§ 523(a)(2)(A).
Section 523(a)(2)(A) provides for a denial of a discharge "from any
debt for money, property, services . . . to the extent obtained by false
pretenses, a false representation, or actual fraud." The bankruptcy
court granted the Kendricks' motion to amend and found their

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$1,262,296 claim nondischargeable pursuant to § 523(a)(2)(A). See In
re Pleasants, 231 B.R. at 897-901. The court did not address the
applicability of § 523(a)(6). The district court affirmed the bankruptcy
court's judgment. Pleasants now appeals.

II.

Pleasants raises two contentions with respect to the bankruptcy
court's judgment on the merits of the Kendricks'§ 523(a)(2)(A)
claim. Pleasants first argues that § 523(a)(2)(A)'s "obtained by" lan-
guage requires that some portion of a creditor's claim must have been
directly transferred from the creditor to the debtor. And Pleasants
notes that none of the Kendricks' claim was for consideration directly
transferred to Pleasants. Rather, the Kendricks' claim included only
amounts paid by the Kendricks to third parties, such as payments to
the architect and builder hired to correct and complete the project.

Pleasants' argument is misplaced. In Cohen v. de la Cruz, a group
of tenants filed an adversary proceeding against their bankrupt land-
lord, seeking to have their claim for excess rents, treble damages, and
attorney's fees deemed nondischargeable pursuant to§ 523(a)(2)(A).
523 U.S. 213, 215 (1998). The Supreme Court found that the tenants'
entire claim was nondischargeable, not simply the portion of the
claim that was transferred to the fraudulent debtor. The Court stated,
"We hold that § 523(a)(2)(A) prevents the discharge of all liability
arising from fraud." Id. (emphasis added); see also id. at 218 (Section
523(a)(2)(A) bars "discharge of debts `resulting from' or `traceable
to' fraud." (quoting Field v. Mans, 516 U.S. 59, 61, 64 (1995)). This
language is broad enough to encompass a situation in which no por-
tion of a creditor's claim was literally transferred to the fraudulent
debtor.

Indeed, if it were otherwise, the Bankruptcy Code's objectives
"would be ill served." Id. at 222. The Code is intended to "afford[ ]
relief only to an honest but unfortunate debtor." Id. at 217. Thus, "per-
petrators of fraud" such as Pleasants "are not allowed to hide behind
the skirts of the Bankruptcy Code." Foley & Lardner v. Biondo (In
re Biondo), 180 F.3d 126, 130 (4th Cir. 1999). It is "`unlikely that
Congress . . . would have favored the interest in giving perpetrators
of fraud a fresh start over the interest in protecting victims of fraud.'"

                     4
Cohen, 523 U.S. at 223 (quoting Grogan v. Garner, 498 U.S. 279,
287 (1991)).

In a related argument, Pleasants contends that his fraud did not
proximately cause the Kendricks' damages. In fact, however, Pleas-
ants' fraud caused the Kendricks no end of trouble and expense. The
bankruptcy court found that it was precisely "because Pleasants mis-
represented his credentials, thereby inducing the Kendricks to hire an
unqualified firm," that the Kendricks suffered the damages they did.
Kendrick, 231 B.R. at 896 n.4, 899 & nn.11-13. And the Kendricks
note that "Pleasants' lack of architectural credentials resulted in a
project plagued with structural defects and code violations," and "his
inability to perform the architectural work necessary to bring the proj-
ect to closure caused the endless delays that resulted in still more
damages."

Pleasants counters that the Forbearance Agreement serves as an
intervening cause, thereby breaking the chain of proximate cause with
respect to Pleasants' original misrepresentations. The Forbearance
Agreement, however, was a way for the Kendricks to salvage what
they could from the situation at hand -- a situation into which the
Kendricks had been drawn deeper and deeper because of Pleasants'
misrepresentations. We decline to hold that the Forbearance Agree-
ment absolves Pleasants of the consequences of his misconduct,
thereby punishing the Kendricks for trying to minimize their damages
and for giving Pleasants a second chance. As the Forbearance Agree-
ment is not an intervening cause, the Kendricks' damages are, as
found by the bankruptcy court, attributable to Pleasants' misrepresen-
tations.*
_________________________________________________________________

*Pleasants also claims that the bankruptcy court improperly permitted
the Kendricks to proceed to judgment under § 523(a)(2)(A). Inasmuch as
this case was both pled and tried before the bankruptcy court as a matter
of fraud, we discern no prejudice whatsoever to Pleasants from
having the Kendricks' judgment of nondischargeability rest upon
§ 523(a)(2)(A).

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III.

For the foregoing reasons, the judgment of the district court is

AFFIRMED.

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