Court Opinion

ID: 4026731
Source: CourtListenerOpinion
Date Created: 2016-08-20 00:01:33.656219+00
Date Added: 2024-06-11T14:34:01.860872
License: Public Domain

FILED
                                                                          U.S. Bankruptcy Appellate Panel
                                                                                of the Tenth Circuit
                                       PUBLISH
                                                                              August 19, 2016
              UNITED STATES BANKRUPTCY APPELLATE PANEL
                                                                              Blaine F. Bates
                              OF THE TENTH CIRCUIT                                Clerk
                         _________________________________

IN RE STEPHEN C. THOMPSON,                              BAP No. WO-15-027

          Debtor.
__________________________________

JAMES HATFIELD, individually and as                     Bankr. No. 14-12865
the surviving spouse of Wanda Hatfield,                  Adv. No. 14-01081
deceased,                                                   Chapter 7

             Plaintiff - Appellant,

   v.                                                        OPINION

STEPHEN C. THOMPSON,

             Defendant - Appellee.
                       _________________________________

                     Appeal from the United States Bankruptcy Court
                          for the District of Oklahoma Western
                        _________________________________

Submitted on the briefs: *

Kris Ted Ledford, of Ledford Law Firm, Owasso, Oklahoma, for Appellant.

Timothy Deal Kline, of Phillips Murrah, P.C., Oklahoma City, Oklahoma, for Appellee.

        *
      After examining the briefs and appellate record, the Court has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. Bankr. P. 8012. The case is therefore submitted without oral
argument.
                           _________________________________

Before ROMERO, JACOBVITZ, and MOSIER, Bankruptcy Judges.
                  _________________________________

JACOBVITZ, Bankruptcy Judge.
                  _________________________________

       James Hatfield appeals the bankruptcy court’s summary judgment in favor of

Stephen Thompson (the “Debtor”) on Hatfield’s nondischargeability complaint under 11

U.S.C. § 523(a)(2)(A). 1 Hatfield asks us to reverse because the bankruptcy court erred in

holding that (1) the underlying debt is not a debt for money, property, services, or an

extension of credit “obtained by” the alleged actual fraud; and (2) that the debt cannot be

excepted from the discharge because there is no valid fraud claim against the Debtor

under applicable Oklahoma law. As we have determined that the bankruptcy court erred

on both of these issues, we REVERSE and REMAND.

       I.       FACTUAL BACKGROUND.

       Thompson owned four limited liability companies through which he leased and

operated four nursing homes in Oklahoma. 2 The nursing home at the center of the instant

       1
         All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code,
Title 11 of the United States Code, unless otherwise indicated. All future references to
“Bankruptcy Rule” or “Bankruptcy Rules” are to the Federal Rules of Bankruptcy
Procedure, unless otherwise indicated.
       2
           Complaint at 2, in Appellant’s App. at 9; Answer at 2, in Appellant’s App. at 19.
dispute was known as the Nursing Center (the “Nursing Center”), operated by Promise

McLoud, LLC. Thompson was the sole owner of Promise McLoud, LLC. 3

       Prior to operating the Nursing Center, Thompson filled out and submitted the

Nursing Center’s application for a certificate of need to the Oklahoma State Department

of Health (the “Department of Health”). 4 Thompson represented to the Department of

Health that (a) he would be actively involved in the Nursing Center’s operations,

including formulation of governing policies affecting the quality of care; overseeing

approval and implementation of its operating budget; assisting in staffing needs;

monitoring operations and budget compliance; and being physically present at the

Nursing Center at least eight hours per month and once every other week; 5 and (b)

Promise McLoud, LLC would purchase at least $500,000.00 in “occurrence based”

liability insurance for the Nursing Center (the “Representations”). 6 A representative of

the Department of Health testified in a deposition that the Department of Health

considered the Representations important to its analysis in approving the application.

The Department of Health approved the application, and granted Promise McLoud, LLC

       3
           Complaint at 6, in Appellant’s App. at 13; Answer at 4, in Appellant’s App. at
21.
       4
         Order Granting Motion of Stephen Thompson for Summary Judgment and
Supporting Brief at 3 (the “Order”), in Appellant’s App. at 152. Unless otherwise stated,
all subsequent facts are drawn from the Order.
       5
           Dep. of Stephen Thompson at 9-16, in Appellant’s App. at 70-71.
       6
       Mot. of Def. Stephen Thompson For Summ. J. and Supp. Br. at 2 n. 1, in
Appellant’s App. at 26.

                                                  3
a certificate of need to operate the Nursing Center on August 27, 2008. The Nursing

Center commenced operations on October 1, 2008.

       “Many, if not most, of Thompson’s Representations never came to fruition and

were not intended to come to fruition.” 7 After obtaining the Nursing Center’s certificate

of need, Thompson had no further involvement with the Nursing Center. Similarly,

Thompson had no further involvement with the other three nursing homes for which he

obtained certificates of need from the Department of Health based on representations

substantially the same as those made to obtain the certificate of need for the Nursing

Home. 8 Thompson collected a total of $6,000.00—$1,500.00 per nursing home

facility—each month from the operations of the nursing homes. 9 However, he did not

personally oversee the operations of any of the four nursing homes. 10 Thompson

employed Janet Swisher, an experienced Oklahoma licensed nursing home administrator

and long-time registered nurse, to oversee the operations. Thompson did not interview

anyone for the position of overseeing his four nursing homes, including the Nursing

Center, but instead relied on his brother’s suggestion of whom to hire. 11 Thompson’s

brother also hired Ms. Swisher to oversee four additional nursing home centers he

       7
           Order at 3, in Appellant’s App. at 152.
       8
           Dep. of Stephen Thompson at 21-26, in Appellant’s App. at 73-74.
       9
           Dep. of Stephen Thompson at 19-33, in Appellant’s App. at 72-76.
       10
            Dep. of Stephen Thompson at 17-33, in Appellant’s App. at 72-76.
       11
            Dep. of Stephen Thompson at 23, in Appellant’s App. at 73.

                                                     4
owned. 12 Thompson did not attempt to ensure that Ms. Swisher was competent and

capable of overseeing all eight nursing home centers. 13 Thompson admitted that he

switched the Nursing Center’s liability insurance coverage from an “occurrence based”

policy to a cheaper “claims-made based” policy. 14 Additionally, Hatfield alleged that

Thompson drained Promise McLoud, LLC’s bank accounts of assets and diverted those

funds to other businesses owned by Thompson or Thompson’s brother. 15

       Soon after the Nursing Center began operations, Wanda Hatfield (“Mrs.

Hatfield”), Hatfield’s wife, became a resident at the Nursing Center. Hatfield relied upon

the fact that the Nursing Center was a state licensed facility in choosing the Nursing

Center for Mrs. Hatfield’s placement. Mrs. Hatfield died at the Nursing Center in

September 2009. 16 Hatfield alleged that Mrs. Hatfield’s death resulted from significant

and painful injuries she suffered at the Nursing Center as a result of substandard care. 17

       12
            Dep. of Janet Swisher at 9, in Appellant’s App. at 102.
       13
            Dep. of Stephen Thompson at 42-44, in Appellant’s App. at 98.
       14
          Aff. of Stephen Thompson at 2-3, in Appellant’s App. at 38-39. Thompson
alleged that the “claims-made based” policy required claims be asserted timely, that no
timely claim was asserted, but that if a timely claim had been asserted, the coverage
under the “claims-made based” policy would have been as effective as coverage under an
“occurrence- based” liability policy.
       15
            Response at 8, in Appellant’s App. at 54.
       16
            Summary Judgment Motion at 3, in Appellant’s App. at 27.
       17
            Complaint at 4-5, in Appellant’s App. at 11-12.

                                                  5
       Hatfield filed a state court action against Promise McLoud, LLC and Thompson

based on the alleged substandard care provided to Mrs. Hatfield, seeking both actual and

punitive damages (the “State Court Action”). 18 Thompson filed a Chapter 7 bankruptcy

case the morning of the trial in the State Court Action, staying the State Court Action as

against him. Promise McLoud, LLC failed to appear at trial. 19 The state court entered a

default judgment against Promise McLoud, LLC and allowed Hatfield to present

evidence concerning damages. 20 The state court then awarded $750,000 in actual

damages and $250,000 in punitive damages against Promise McLoud, LLC (the

“Judgment”). 21

       Hatfield subsequently filed an adversary proceeding against Thompson in the

bankruptcy case. 22 Hatfield alleged Thompson was personally liable for the Judgment

under a corporate veil piercing theory and that Thompson’s alleged personal liability was

nondischargeable pursuant to § 523(a)(2). 23 Hatfield based his veil piercing theory on

       18
            Id.
       19
        Complaint at 5, in Appellant’s App. at 12. Prior to the trial, counsel for Promise
McLoud, LLC filed a Notice of No Contest and advised the state court that she was
withdrawing as counsel.
       20
            Id.
       21
            Id. at 5-6, in Appellant’s App. at 12-13.
       22
            Complaint in Appellant’s App. at 8.
       23
         Complaint at 6-8, in Appellant’s App. at 13-15. Hatfield did not specify under
which specific subsection of § 523(a)(2) – (A) or (B) – he was bringing his complaint,
and therefore the bankruptcy court analyzed both in its decision. It appears clear from the
record that Hatfield intended to only assert a cause of action pursuant to § 523(a)(2)(A),
                                                   6
Oklahoma state law allowing a plaintiff to pierce the corporate veil “under the legal

doctrine of fraud.” 24 Thompson filed his Motion of Defendant Stephen Thompson for

Summary Judgment and Supporting Brief (the “Summary Judgment Motion”) 25 alleging

that there were no genuine issues as to any material facts with respect to his § 523(a)(2)

claims and that he was entitled to judgment as a matter of law. Hatfield filed his

Plaintiff’s Response to Defendant’s Motion for Summary Judgment (the “Response”) 26

asserting that there were genuine issues of material fact and that the claims for piercing

the corporate veil and holding the Judgment nondischargeable pursuant to § 523(a)(2)(A)

should proceed to trial.

       After considering the Summary Judgment Motion, Response, and part of the

Defendant’s Reply to Plaintiff’s Response to Defendant’s Motion for Summary Judgment

and Supporting Brief (the “Reply”), 27 the bankruptcy court entered its Order Granting

Motion of Stephen Thompson for Summary Judgment and Supporting Brief (the “Order”).

In the Order, the bankruptcy court granted summary judgment in favor of Thompson and

and not (B). In any regard, Hatfield has not appealed the bankruptcy court’s grant of
summary judgment as to § 523(a)(2)(B).
       24
            Complaint at 6, in Appellant’s App. at 13.
       25
            Summary Judgment Motion in Appellant’s App. at 25.
       26
            Response in Appellant’s App. at 45.
       27
         Reply in Appellant’s App. at 140. The bankruptcy court stated that it only
considered the first five pages of the Reply because “[t]he Reply does not comply with
Local Rule 7056-1.D as it exceeds five pages and leave of Court was not obtained to file
an oversize reply brief.” Order at 2 n. 1, in Appellant’s App. at 151.

                                                  7
held: (1) the debt at issue was not “the type of debt that can be excepted from discharge

under Section 523(a)(2)(A);” and (2) Thompson could not satisfy the elements for fraud

under Oklahoma state law. 28 Hatfield assigns error to these two holdings.

       II.      STANDARD OF REVIEW.

       We review an order granting summary judgment de novo, applying “the same

legal standard as was used by the bankruptcy court to determine whether either party is

entitled to judgment as a matter of law.” 29 Summary Judgment is appropriate if all of the

pleadings, depositions, and discovery responses, together with any affidavits, show that

there is no genuine issue as to any material fact and that the moving party is entitled to

summary judgment as a matter of law. 30 A “defendant moving for summary judgment

need not negate the [ ] claim, but need only point out to the [ ] court that there is an

absence of evidence to support the nonmoving party’s case.” 31 “Reasonable inferences

that may be made from the proffered [facts] should be drawn in favor of the non-moving

       28
            Order at 9, in Appellant’s App. at 158.
       29
         LTF Real Estate Co. v. Expert S. Tulsa, LLC (In re Expert S. Tulsa, LLC), 522
B.R. 634, 643 (10th Cir. BAP 2014) aff’d, 619 F. App’x 779 (10th Cir. 2015) (quoting
Rushton v. Bank of Utah (In re C.W. Mining Co.), 477 B.R. 176, 180 (10th Cir. BAP
2012), aff’d, 749 F.3d 895 (10th Cir. 2014)).
       30
         Bank of Cushing v. Vaughn (In re Vaughn), No. WO-04-039, 2006 WL 751388,
at *2, 342 B.R. 385, (10th Cir. BAP Mar. 22, 2006) (citing Fed. R. Civ. P. 56(c)).
       31
          In re Stat-Tech Inter. Corp., 47 F.3d 1054, 1058 (10th Cir. 1995) (quoting
Universal Money Ctrs., Inc. v. AT&T Co., 22 F.3d 1527, 1529 (10th Cir. 1994) (internal
citations omitted)).

                                                      8
party . . . .” 32 “Once the moving party meets its burden, the burden shifts to the

nonmoving party to demonstrate that genuine issues remain for trial ‘as to dispositive

matters for which it carries the burden of proof’” or, assuming there are no issues as to

dispositive facts, that the moving party is not entitled to judgment as a matter of law. 33

“[I]f two reasonable factfinders could reach different conclusions . . . from the undisputed

facts, summary judgment is not warranted.” 34

       III.     APPELLATE JURISDICTION.

       This Court has jurisdiction to hear timely filed appeals from “final judgments,

orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of the

parties elects to have the district court hear the appeal. 35 The appealed orders together

dispose of all of the claims in the adversary proceeding, thus they are final orders for

purposes of appeal. 36 Hatfield timely filed a notice of appeal from the Order. None of

       32
            Marks v. Hentges (In re Hentges), 373 B.R. 709, 715 (Bankr. N.D. Okla. 2007).
       33
          Vaughn, 2006 WL 751388, at *2 (quoting Applied Genetics Int’l. Inv. v. First
Affiliated Secs., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990)).
       34
        Hentges, 373 B.R. at 715 (citing Luckett v. Bethlehem Steel Corp., 618 F.2d
1373, 1382 (10th Cir. 1980)).
       35
        28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir. BAP
L.R. 8001-3.
       36
          Long v. St. Paul Fire and Marine Ins. Co., 589 F.3d 1075, 1078 n. 2 (10th Cir.
2009) (“[O]nce the district court enters a final order, its earlier interlocutory orders merge
into the final judgment and are reviewable on appeal.”); Holaday v. Seay (In re Seay),
215 B.R. 780, 785 (10th Cir. BAP 1997) (bankruptcy court’s summary judgment order on
nondischargeability claim under fraud exception, combined with judgment for debtor
from trial of claims seeking denial of discharge, disposed of entire complaint, and orders
thus were final and appealable).
                                                  9
the parties elected to have this appeal heard by the United States District Court for the

Western District of Oklahoma. The parties have therefore consented to appellate review

by this Court.

       IV.       DISCUSSION.

       The issues presented in this appeal relate to whether Thompson is entitled to

summary judgment on Hatfield’s claim that his debt is excepted from discharge under

§ 523(a)(2)(A)’s actual fraud exception to discharge. Hatfield asserts that the bankruptcy

court erred by (1) not distinguishing that, while Hatfield’s claim against Promise

McLoud, LLC was based on negligence, his claim against Thompson was a fraud-based

corporate veil piercing claim under Oklahoma law; and (2) by not properly applying the

actual fraud exception to discharge under § 523(a)(2)(A). We will address both issues.

       A.        A debt proven under state law on grounds other than fraud can be excepted
                 from discharge under the actual fraud provision of § 523(a)(2)(A).

       Subject to an exception not applicable here, the actual fraud exception to discharge

under § 523(a)(2)(A) excepts from discharge (a) any debt; (b) for money, property,

services, or other credit; (c) to the extent obtained by actual fraud. 37 Dischargeability

actions require a two-part analysis: first, the bankruptcy court must determine the validity

of the debt under applicable law (the claim on the debt); 38 and second, the bankruptcy

       37
          See Husky Int’l Elecs., Inc. v. Ritz, 136 S.Ct. 1581, 1586 (2016) (holding that
actual fraud is a separate ground under § 523(a)(2)(A) for excepting a debt from
discharge). The Supreme Court decided Husky after the bankruptcy court issued the
Order at issue in this appeal. We rely heavily on Husky in deciding to reverse.
       38
         Although the validity of the debt typically is governed by state law, there are
circumstances where it may be governed by federal law, and even the Code itself. For
                                                 10
court must determine the dischargeability of that debt under § 523 (the dischargeability

claim). 39

       The dischargeability analysis begins with a determination of whether there is a

valid debt. “Debt” is defined in the Code as “liability on a claim,” 40 and “claim” is

defined in turn as a “right to payment.” 41 For purposes of § 523(a)(2)(A), “debt” means

liability on “an enforceable obligation.” 42 Whether a debt exists is determined by looking

to applicable law, frequently state law. Section 523(a)(2)(A)’s use of the term “any debt”

example, the debt may be established under bankruptcy law where a money judgment
was entered against an individual in a fraudulent transfer adversary proceeding under
§ 548 in a prior bankruptcy case of a different debtor, and that individual later files his or
her own bankruptcy case to discharge that debt. Diamond v. Vickery (In re Vickery), 488
B.R. 680, 684 (10th Cir. BAP 2013).
       39
          Resolution Tr. Corp. v. McKendry (In re McKendryI, 40 F.3d 331, 336 (10th
Cir. 1994) (“In bankruptcy court there are two separate and distinct causes of action:
‘One cause of action is on the debt and the other cause of action is on the dischargeability
of that debt, a cause of action that arises solely by virtue of the Bankruptcy Code and its
discharge provisions.’” (quoting In re Moran, 152 B.R. 493, 495 (Bankr. S.D. Ohio
1993) (internal citations omitted)). Cf Brown v. Felsen, 442 U.S. 127, 138 (1979)
(holding that a non-fraud based state court judgment does not preclude the bankruptcy
court from determining dischargeability if the “true nature of the debt” sounds in fraud).
We use “claim” as synonymous with “cause of action” for purposes of applying §
523(a)(2)(A), consistent with the synonymous nature of those terms under the doctrines
of res judicata and claim preclusion.” Compare Restatement (First) of Judgments § 62
(Am. Law Inst. 1942) (using the term “cause of action”) with Restatement (Second) of
Judgments § 25 (Am. Law Inst. 1982) (using the term “claim”).
       40
             11 U.S.C. § 101(12).
       41
             11 U.S.C. § 101(5)(A).
       42
         Cohen v. de la Cruz, 523 U.S. 213, 218 (1998) (quoting Pa. Dept. of Pub.
Welfare v. Davenport, 495 U.S. 552, 559 (1990) (reaching this conclusion after
examining the definition of “debt” under §§ 101(5)(A) and 101(12)).

                                                 11
(emphasis added) indicates that “debt” as used in § 523(a)(2)(A) is not restricted to a debt

established under any particular theory of recovery. To establish the validity of the debt

under § 523(a)(2)(A), the claimant must establish that the debtor is liable on an

enforceable obligation under applicable law, nothing more nor less.

       The bankruptcy court held that Hatfield’s claim to establish the validity of the debt

must satisfy the elements of an Oklahoma state law fraud claim. The Code, however,

does not require that to except debt arising under state law from discharge under

§ 523(a)(2)(A) the claimant necessarily must prove fraud under state law. 43 Claims

established under state law on grounds other than fraud are not automatically precluded

from qualifying for the exception to discharge under § 523(a)(2)(A). 44

       In reaching its holding, the bankruptcy court relied on a confusing statement of

law in In re Lang, 293 B.R. 501, 513 (10th Cir. BAP 2003). In Lang, relying on Grogan

v. Garner, 45 the Bankruptcy Appellate Panel for the Tenth Circuit held that “[t]he state

       43
          Cf. Brown v. Felsen, 442 U.S. 127 (holding that a creditor is not barred by res
judicata [claim preclusion] from establishing nondischargeability of a debt liquidated
under a state court judgment that did not contain a finding of fraud.); McKendry, 40 F.3d
at 333 (identifying the underlying debt merely as a “deficiency judgment” without
referring to fraud).
       44
          See e.g., Tummel & Carroll v. Quinlivan (In re Quinlivan), 434 F.3d 314, 319
(5th Cir. 2005) (holding that a debt established under a state law breach of contract theory
of recovery could be excepted from discharge under § 523(a)(2)(A)); Kaleta v. Sokolow,
183 B.R. 639, 642 (M.D. Ala. 1995) (holding that the creditor’s claim established under a
state law breach of contract theory of recovery could be excepted under § 523(a)(2)(A)
where the creditor would be time barred from liquidating its claim under a fraud but not a
breach of contract theory of recovery).
       45
            498 U.S. 279 (1991).

                                                12
law of fraud controls with respect to whether fraud has occurred, while bankruptcy law

controls with respect to the determination of nondischargeability.” 46 However, in

Grogan, the Supreme Court of the United States did not state that only a debt sounding

fraud under state law can potentially be excepted from the discharge under

§ 523(a)(2)(A). In Grogan, the Supreme Court held in the context of a debt arising under

state law that “[t]he validity of a creditor’s claim is determined by rules of state law.

Since 1970, however, the issue of nondischargeability has been a matter of federal law

governed by the terms of the Bankruptcy Code.” 47 In Lang, the creditor’s claim under

state law was based on false representations. Put in that context, the statement in Lang

that “the state law of fraud controls with respect to whether fraud has occurred” 48 is

accurate. 49 Lang does not stand for the broader proposition that that only debts

established under state law fraud theories of recovery may be excepted from discharge

under § 523(a)(2). 50 To the extent the bankruptcy court may have interpreted Lang to

       46
            Lang, 293 B.R. at 513 (citing Grogan v. Garner, 498 U.S. 279, 283-84, (1991)).
       47
         Grogan v. Garner, 498 U.S. 279, 283-84, (1991) (internal citations omitted)
(citing Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 161 (1946) and
Brown v. Felsen, 442 U.S. 127, 129-30, 136 (1979)).
       48
            Lang, 293 B.R. at 513.
       49
            Id.
       50
           In Vickery, the debtor was an owner of a business that had previously filed a
Chapter 11 bankruptcy petition. The trustee in the previous case obtained a $3.6 million
joint liability judgment against the business, the debtor, and others. In the debtor’s
bankruptcy case, the trustee sought to have that debt excepted from discharge on the basis
of actual fraud under § 523(a)(2)(A). Footnote 63 in Vickery directs the bankruptcy court
as follows: “Upon remand to the bankruptcy court, we note also that we have previously
                                                 13
lend itself to such a broad proposition, such interpretation clearly conflicts with binding

Supreme Court precedent 51 and we decline to give Lang any such broad interpretation.

       Hatfield alleged Thompson was liable for the debts owed to him by of Promise

McLoud, LLC under a veil piercing theory. 52 Hatfield’s state law claim to pierce the

corporate veil of Promise McLoud, LLC, however, was not raised in Thompson’s

Summary Judgment Motion and, accordingly, the bankruptcy court did not address it. 53

Ultimately, the bankruptcy court’s application of the legal standard to determine whether

there existed a debt under state law of the type that potentially could be excepted from the

discharge under § 523(a)(2)(A) was in error. The state law elements of fraud need not

necessarily be met to establish that a debt arising under state law is nondischargeable

under § 523(a)(2)(A).

       B.       There are facts in genuine dispute that preclude summary judgment in
                favor of Thompson on Hatfield’s § 523(a)(2)(A) claim.

stated that the ‘state law of fraud controls with respect to whether fraud has occurred,
while bankruptcy law controls with respect to the determination of nondischargeability.’”
(quoting Lang, 293 B.R. at 513). Because the only issue on appeal in Vickery was the
dischargeability of the debt, not the validity or amount of the debt, this statement is dicta.
       51
         Husky Int’l Elecs., Inc. v. Ritz, 136 S.Ct. 1581, 1586 (2016); Grogan, 498 U.S.
at 283-84.
       52
            Complaint at 8, in Appellant’s App. at 15.
       53
          Order at 6, in Appellant’s App. at 155 (“Hatfield argues that the wrongful death
judgment against Promise McLoud can be imposed on Thompson based on a the theory
of piercing the corporate veil. . . . The Court does not address such argument as the
[Summary Judgment] Motion seemingly assumes that the debt is a debt of Thompson.”).
       w
                                                 14
       Once the creditor has established the claim on the debt under applicable law, the

court must determine whether the debt is dischargeable. To establish that a debt is

excepted from discharge under § 523(a)(2)(A) based on actual fraud, the creditor must

show: (a) the debtor committed actual fraud; (b) the debtor obtained money, property,

services, or credit by the actual fraud; and (c) the debt arises from the actual fraud. We

will discuss each of these elements in turn. But before doing so, will address some of the

things these elements do not require.

       In determining the nondischargeability of the debt under § 523(a)(2)(A) based on

actual fraud, there is no requirement that a creditor rely on the actual fraud or part with

assets or receive credit at the inception of, or concurrently with, the actual fraud. 54 Nor is

there a requirement that the debtor’s actual fraud induced the creditor to part with

property or extend credit. 55

       The First Element – Actual Fraud

       The first element of a nondischargeability claim under § 523(a)(2)(A) predicated

on actual fraud is to show “actual fraud.” Showing “actual fraud” has two parts: “actual”

       54
            Husky, 136 S.Ct. at 1587, 1591.
       55
         Id. at 1587 (“[in fraudulent conveyance cases], the fraudulent conduct is not in
dishonestly inducing a creditor to extend a debt. It is in the acts of concealment and
hindrance.”).

                                                 15
and “fraud.” 56 For fraud to be “actual” fraud there must be wrongful intent. 57

Constructive or implied fraud is not actual fraud. 58

       “Fraud,” as used in § 523(a)(2)(A), connotes deception or trickery. 59 In Husky, the

Supreme Court specifically decided not to adopt a definition of the “fraud” component of

“actual fraud” for all times and all circumstances but did give some guidance. 60 Actual

fraud does not require that the debtor make any misrepresentations. 61 Further, the debtor

must have taken some action in furtherance of the debtor’s wrongful intent. In Husky, the

Supreme Court held that the debtor, by causing a corporation he controlled to transfer

assets to other entities he controlled for the purpose of impeding collection of a judgment

against the transferor corporation, committed actual fraud. 62 In Vickery, this Court held

that “[w]hen a debtor intentionally engages in a scheme to deprive or cheat another of

       56
            Id. at 1586.
       57
         Id. (quoting Neal v. Clark, 95 U.S. 704, 709 (1878)); see also In re Vickery, 488
B.R. at 690 (defining “actual” fraud as “involving fraudulent intent.”).
       58
            Id. at 1586.
       59
            Id.
       60
            Husky, 136 S.Ct. at 1586.
       61
            Id. at 1587.
       62
            See Id. at 1585-86.

                                                 16
property or a legal right, that debtor has engaged in actual fraud and is not entitled to the

fresh start provided by the Bankruptcy Code.” 63

       In support of his fraud claim, Hatfield alleges the following:

       (a)    Hatfield owned and controlled Promise McLoud, LLC, which in turn

owned the Nursing Home;

       (b)    To obtain a certificate of need to operate the Nursing Home, Thompson

made representations to the Department of Health (i) that he would be actively involved

in the Nursing Center’s operations, including formulation of governing policies affecting

the quality of care; overseeing approval and implementation of its operating budget;

assisting in staffing needs; monitoring operations and budget compliance; and being

physically present at the Nursing Center at least eight hours per month and once every

other week; and (ii) that Promise McLoud, LLC would purchase at least $500,000.00 in

“occurrence based” liability insurance for the Nursing Center;

       (c)    The Department of Health relied on those representations in issuing a

certificate enabling the Nursing Home to operate;

       (d)    Thompson did not do, and never intended to do, any of these things he

represented to the Department of Health that he would do in order to obtain issuance of

the certificate of need;

       63
         Vickery, 488 B.R. at 690 (quoting Mellon Bank, N.A. v. Vitanovich (In re
Vitanovich), 259 B.R. 873, 877 (6th Cir. BAP 2001)).

                                                 17
       (e)    Thompson collected monthly payments from the operations of the Nursing

Center and the other three nursing homes;

       (f)    Thompson drained Promise McLoud, LLC’s bank accounts of assets and

diverted those funds to other businesses Thompson or his brother owned;

       (g)    Thompson acted throughout with fraudulent intent;

       (h)    Mrs. Hatfield would not have died had Thompson acted in accordance with

his representations to the Department of Health and not drained the bank accounts; and

       (i) Mrs. Hatfield’s death was a foreseeable consequence of Thompson’s conduct.

       If proven, such facts together with other relevant facts and circumstances could

establish the requisite wrongful intent and conduct sufficiently imbued by deception or

trickery to deprive or cheat another of property or a legal right that would allow Hatfield

to succeed on his § 523(a)(2)(A) claim. Hatfield thus pleads a set of facts, that if proven,

could establish actual fraud under § 523(a)(2)(A). 64 In connection with the Summary

Judgment Motion, not all of these allegations have been established as facts. 65 As there

are remaining genuine issues of material fact with respect to the first element—actual

fraud—summary judgment is not appropriate.

       The Second Element – Obtaining Money,
       Property, Services, or Credit by Actual Fraud

       64
          We need not decide what portion of this conduct would be sufficient to
establish actual fraud.
       65
        Order at 3-5, in Appellant’s App. at 152-54. Unless otherwise stated, all
subsequent facts are drawn from the Order.

                                                18
       The second element requires that the debtor obtained “money, property, services,

or . . . credit” by the actual fraud. The bankruptcy court concluded that “[b]ecause the

state court judgment does not represent a debt by Thompson for anything that Thompson

obtained from Hatfield, such debt does not constitute the type of debt that can be

excepted from discharge under Section 523(a)(2)(A).” 66 However, there is no

requirement that the debt be for something the debtor obtains from the creditor.

       Section 523(a)(2)(A) provides that a debtor is not discharged “from any debt . . .

for money, property, services, or an extension, renewal, or refinancing of credit, to the

extent obtained by . . . actual fraud.” 67 “Obtained by” modifies “money, property,

services, or an extension, renewal, or refinancing of credit” not “debt.” 68 Therefore, if

       66
            Order at 9, in Appellant’s App. at 158.
       67
            11 U.S.C. § 523(a)(2)(A) (emphasis added).
       68
         Cohen v. de la Cruz, 523 U.S. 213, 216 (1998). In Husky, the Supreme Court,
addressing § 523(a)(2)(A)’s “obtained by” requirement and without citing to Cohen,
stated:

       [T]he recipient of a [fraudulent] transfer—who, with the requisite intent,
       also commits fraud—can obtain assets by his or her participation in the
       fraud. If that recipient later files for bankruptcy, any debts traceable to the
       fraudulent conveyance . . . will be nondischargeble under
       § 523(a)(2)(A). . . . [Thus,] at least sometimes a debt ‘obtained by’ a
       fraudulent conveyance scheme could be nondischargeable under
       § 523(a)(2)(A).

Husky, 136 S.Ct. at 1589 (internal citations and quotation marks omitted). While these
statements could be read to impliedly undermine Cohen’s interpretation of
§ 523(a)(2)(A)’s “obtained by” requirement, we are bound to apply the Cohen holding
because it directly and explicitly addresses whether “obtained by” in § 523(a)(2)
modifies “debts” or “money, property, services” etc. See United States v. Hatch, 722
F.3d 1193, 1204–05 (10th Cir. 2013) (“Thus, even if we assume Hatch's authorities
                                                  19
the debtor obtains money, property, services, or an extension, renewal, or refinancing of

credit by false pretenses, false representations, or actual fraud, any liability of the debtor

arising from 69 the false pretenses, fraud, representations, or actual fraud is excepted from

the discharge. 70 Further, the nondischargeable liability under § 523(a)(2)(A) is not

impliedly undermine Jones's approach to the Thirteenth Amendment, we may not blaze a
new constitutional trail simply on that basis: ‘If a precedent of [the Supreme] Court has
direct application in a case’—such as Jones has to this case—‘yet appears to rest on
reasons rejected in some other line of decisions, the Court of Appeals should follow the
case which directly controls, leaving to [the Supreme] Court the prerogative of overruling
its own decisions.’” (quoting Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490
U.S. 477, 484, (1989)).
       69
          The Supreme Court has characterized the required causal link between the “false
pretenses, false representations, or actual fraud” and the “debt” by using the terms
“arising from,” “resulting from,” and ‘traceable to” as interchangeable in that context.
See Cohen, 523 U.S. at 218 (“Moreover, the phrase ‘to the extent obtained by’ in
§ 523(a)(2)(A) . . . does not impose any limitation on the extent to which ‘any debt’
arising from fraud is excepted from discharge.” (emphasis added)); Field v. Mans, 516
U.S. 59, 61, (1995) (“The Bankruptcy Code’s provisions for discharge stop short of
certain debts resulting from ‘false pretenses, a false representation, or actual fraud.’
(emphasis added)); Husky, 136 S.Ct. at 1589 (“If that recipient later files for bankruptcy,
any debts ‘traceable to’ the fraudulent conveyance, will be nondischargable under
§ 523(a)(2)(A).” (internal citations omitted)(emphasis added)). For consistency, we use
only “arising from” in this Opinion to mean the same thing as “resulting from” and
“traceable to.” What is required to satisfy the required causal link is not at issue in this
appeal. As such, we decline to address it.
       70
         Id. at 220-21 (“When construed in the context of the statute as a whole, then,
§ 523(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 the fraud.”). See also Husky 136 S. Ct. at 1589 (a debtor with the requisite
intent who commits actual fraud can obtain assets by his or her participation in the fraud
rendering the debt nondischargeable under § 523(a)(2)(A)); In re Vickery, 488 B.R. at
691 (“[T]he Trustee may prevail under § 523(a)(2)(A) if he shows that the debt [owed] is
for money obtained by actual fraud”). The Tenth Circuit has not directly addressed the
requirement that money, property, services, or other credit be obtained by the fraud. The
Tenth Circuit’s decision in Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373
                                                  20
limited to compensatory damages, 71 nor does the value of the money, property, services,

or credit obtained by fraud limit the amount of the nondischargeable debt. 72 There is no

requirement under § 523(a)(2)(A) that the debtor obtain the debt by actual fraud or that

the debt is for something the debtor obtained by actual fraud. 73

(10th Cir. 1996), which addressed exceptions to discharge under § 523(a)(2)(A) based on
false representations, predates Cohen and Husky.
       71
            Id. at 222-23.
       72
         Id. (the debtor’s liability may exceed the value obtained by the debtor). In
Cohen, the Supreme Court used the following example to illustrate § 523(a)(2)(A)’s
function of allowing full recovery of all losses arising from fraud:

     [I]f . . . the fraud exception only barred discharge of the value of any money,
     property, etc., fraudulently obtained by the debtor, the objective of ensuring
     full recovery by the creditor would be ill served. Limiting the exception to
     the value of the money or property fraudulently obtained by the debtor could
     prevent even a compensatory recovery for losses occasioned by fraud. For
     instance, if a debtor fraudulently represents that he will use a certain grade of
     shingles to roof a house and is paid accordingly, the cost of repairing any
     resulting water damage to the house could far exceed the payment to the
     debtor to install the shingles. Id. at 222.
       73
          There is a circuit split regarding whether a debtor must personally receive
money, property, services, or other credit. See HSSM #7 Ltd. P’ship v. Bilzerian (In re
Bilzerian), 100 F.3d 886, 890 (11th Cir. 1996) (discussing whether a debtor must
personally receive money before the exception to discharge of § 523(a)(2)(A) can apply).
The first approach requires the debtor personally receive money, property, services, or
credit “through her fraud or use of false pretenses.” Nunnery v. Rountree (In re
Rountree), 478 F.3d 215, 219 (4th Cir. 2007). The second approach prevents an innocent
debtor from discharging liability for the fraud of his partners, regardless whether he
receives a monetary benefit. Deodati v. M.M. Winkler & Assocs. (In re M.M. Winkler &
Assocs.), 239 F.3d 746, 751 (5th Cir. 2001). The Ninth Circuit has adopted a third
approach, holding that “the receipt of a benefit is no longer an element of fraud under §
523(a)(2)(A).” Muegler v. Bening, 413 F.3d 980, 984 (9th Cir. 2005). As Thompson
personally received money or property from the alleged fraud, we need not decide this
issue.

                                                 21
       Facts in genuine dispute preclude summary judgment in favor of Thompson on the

second element, that the debtor “obtained money, property, services, or . . . credit” by the

alleged actual fraud. Thompson obtained $6,000.00 per month based on the operations of

the Nursing Center and the three other nursing homes. 74 Thompson obtained a certificate

of need for Promise McLoud, LLC, which is a property right in itself, and allowed his

wholly owned limited liability company to operate a nursing home. 75 This presumably

would have increased the value of his interest in Promise McLoud, LLC.

       The Third Element – The Debt Arises From the Actual Fraud

       The third element requires that the debt arise from the actual fraud. 76 The debt

Thompson seeks to except from discharge is his fraud-based corporate veil piercing

claim, not Promise McLoud, LLC’s debt based on providing substandard care. The

conduct upon which Hatfield’s state law veil piercing claim is based is substantially the

same conduct underlying Hatfield’s claim of actual fraud under § 523(a)(2)(A).

Similarly, in Husky, the conduct that was the basis for the state law fraudulent

conveyance claim and the claim for actual fraud under § 523(a)(2)(A) was substantially

       74
            Response at 10, in Appellant’s App. at 56.
       75
            Summary Judgment Motion at 2, in Appellant’s App. at 26.
       76
           Cohen, 523 U.S. at 215, 218 (“We hold that § 523(a)(2)(A) prevents the
discharge of all liability arising from fraud . . . .” Id. at 215. “Once it is established that
specific money or property has been obtained by fraud . . . ‘any debt’ arising therefrom is
excepted from discharge.” Id. at 218.). See also Husky, 136 S. Ct. at 1589 (“any debts
‘traceable to’ the fraudulent conveyance will be nondischargable under § 523(a)(2)(A).”)
(internal citation omitted).

                                                  22
the same. 77 Although Hatfield may not have a claim for fraud under Oklahoma law,

Hatfield alleges a fraud-based corporate veil piercing claim under Oklahoma law that

may arise from actual fraud under § 523(a)(2)(A). Because genuine issues of material

fact remain with respect to the third element of Hatfield’s claim under § 523(a)(2)(A) an

entry of summary judgment is not appropriate.

      Based on the foregoing, we hold that summary judgment in favor of Thompson

under § 523(a)(2)(A) is not appropriate. We REVERSE and REMAND for further

proceedings consistent with this opinion.

      77
           Husky, 136 S. Ct. at 1585-86.
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