Court Opinion

ID: 2996874
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:32:03.599737+00
Date Added: 2024-06-11T12:48:27.662235
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 03-3299
In re: SHMUEL E. GULEVSKY,
                                                              Debtor.

BLAKE BERKSON,
                                               Plaintiff-Appellant,
                                 v.

SHMUEL E. GULEVSKY,
                                              Defendant-Appellee.

                          ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
          No. 02 CV 6594—Blanche M. Manning, Judge.
                          ____________
  ARGUED FEBRUARY 19, 2004—DECIDED MARCH 31, 2004
                   ____________

 Before CUDAHY, POSNER, and ROVNER, Circuit Judges.
  ROVNER, Circuit Judge. Section 523(a)(2)(B) of the
Bankruptcy Code makes nondischargeable debts procured
by written misrepresentations of the debtor’s financial
condition. But does § 523(a)(6) allow for debts procured by
oral misrepresentations of the debtor’s financial condition
to be found nondischargeable? The bankruptcy court
answered that question negatively and dismissed the com-
2                                               No. 03-3299

plaint, and in a summary order, the district court affirmed.
We agree with those courts and affirm the judgment of the
district court.
  Because this case was dismissed under Rule 12(b)(6)
for failure to state a claim, we review this case de novo,
accepting the allegations of the complaint as true. Enodis
Corp. v. Employers Insurance of Wausau (In re Consolidated
Indus. Corp.), No. 02-4030, slip op. at 5 (7th Cir. March 9,
2004).
  In his complaint, Berkson alleged that he was working on
behalf of a real estate developer soliciting equity contri-
butions for a project in La Jolla, California. In March 1995,
Gulevsky contracted to invest just under $1.2 million in the
project. But he did not make his payment by the required
date. Instead, Gulevsky allegedly made “repeated assur-
ances” that he would assemble the funds he owed from
various accounts. At the end of the month the developer told
Berkson that he needed $100,000 from Gulevsky immedi-
ately in order for the project to go forward. Berkson passed
this information to Gulevsky, who told him that he had the
funds to fully fund his equity contribution, but that he
needed time to assemble the money because it was tied up.
Gulevsky asked Berkson to pay the $100,000 for him,
advising that he would reimburse Berkson shortly thereaf-
ter. So Berkson agreed to make the payment on Gulevsky’s
behalf. Gulevsky never made any further contributions to
the project. After the developer notified Gulevsky that he
was in breach of their contract, Gulevsky formally withdrew
from the project. Gulevsky never repaid Berkson, and
Berkson was not able to recover the $100,000 from the
project developer. Berkson alleges that Gulevsky knew that
he had no realistic prospect to repay the $100,000 at the
time he asked for the loan.
  Berkson obtained a judgment in 1997 against Gulevsky
for $124,000. Berkson filed this adversary complaint to
No. 03-3299                                                  3

have the debt declared nondischargeable under 11 U.S.C. §
523(a)(2)(A) and 11 U.S.C. § 523(a)(6). In an oral decision,
the bankruptcy court found that because Gulevsky’s
misrepresentations were of his financial condition, and were
oral, they were not actionable under any part of § 523(a)(2).
The court further found that Berkson did not state a claim
under § 523(a)(6) because allowing a creditor to proceed
under that section would render the writing requirement of
§ 523(a)(2)(B) superfluous. See McCrary v. Barrack (In re
Barrack), 217 B.R. 598, 606 (9th Cir. BAP 1998); Jefferey M.
Goldberg & Assoc. v. Holstein (In re Holstein), 272 B.R. 463,
482 (Bankr. N.D.Ill. 2001); Weiss v. Alicea (In re Alicea), 230
B.R. 492, 508 (Bankr. S.D.N.Y. 1999).
  Berkson argues that under the interpretation of
§ 523(a)(6) adopted by the Supreme Court in Kawaauhau v.
Geiger, 523 U.S. 57, 61-62 (1998), the standard required to
bring a claim under § 523(a)(6) is more exacting than that
required under § 523(a)(2)(B), and thereby does not render
the writing requirement superfluous. Rather, Berkson reads
the two provisions as making it easier for a creditor to prove
a written fraud compared to an oral fraud.
  The normal rules of statutory construction and inter-
pretation of § 523 work against Berkson’s position. Excep-
tions to discharge are to be construed narrowly, and the
subsections of § 523 should not be construed to make others
superfluous. Kawaauhau, 523 U.S. at 62; In re Chambers,
348 F.3d 650, 654 (7th Cir. 2003). Furthermore, when both
a specific and a general provision govern a situation, the
specific one controls. Morales v. Trans World Airlines, Inc.,
504 U.S. 374, 384-85 (1992); In re Lifschultz Fast Freight
Corp., 63 F.3d 621, 628 (7th Cir. 1995).
  Berkson’s complaint alleges that the Debtor supplied him
with false statements about the Debtor’s financial condition
to induce him to make a loan. Fraud, of course, is an
intentional tort and § 523(a)(6) makes many intentional
4                                                No. 03-3299

torts nondischargeable. Kawaauhau, 523 U.S. at 61; In re
Williams, 337 F.3d 504, 508 (5th Cir. 2003); In re Diamond,
285 F.3d 822, 828 (9th Cir. 2002). But § 523(a)(6) cannot
make all debts procured by fraud nondischargeable, because
that would make superfluous § 523(a)(2), § 523(a)(4), and §
523(a)(11), all of which make different sorts of debts
procured by fraud nondischargeable. Berkson argues that
because § 523(a)(6) requires a higher standard of proof than
§ 523(a)(2), the two subsections do not overlap. Berkson’s
brief does not indicate exactly what the differing standards
are in the two subsections, but at oral argument, Berkson
suggested that the difference was that under Kawaauhau,
§ 523(a)(6) requires a creditor to prove that the injury was
intended, which is unnecessary under § 523(a)(2)(B).
Berkson argues that because of this, a creditor seeking to
hold a debt nondischargeable based on a false written
financial statement has an easier burden under
§ 523(a)(2)(B) than a creditor proceeding under § 523(a)(6).
  But the distinction Berkson wishes to draw between
§ 523(a)(2)(B) and § 523(a)(6) is vanishingly thin. For al-
though § 523(a)(6) does require proof that the injury was
intended, § 523(a)(2)(B) requires proof that the debtor had
the intent to deceive. We do not believe that any rational
distinction can be drawn between these two different intent
formulations, at least on the facts of this case. A debtor who
obtains money through false statements intended to deceive
by definition intends the financial injury that he causes.
Berkson’s argument therefore fails.
  The few other courts that have been confronted with the
dischargeability of false oral statements of financial con-
dition are unanimous that § 523(a)(6) cannot be used to
circumvent § 523(a)(2)(B)’s writing requirement. See
Spencer v. Bogdanovich (In re Bogdanovich), 292 F.3d 104,
114-15 (2d Cir. 2002); McCrary v. Barrack (In re Barrack),
217 B.R. 598, 606 (9th Cir. BAP 1998); Jefferey M. Goldberg
& Assoc. v. Holstein (In re Holstein), 272 B.R. 463, 482
No. 03-3299                                                5

(Bankr. N.D.Ill. 2001); Weiss v. Alicea (In re Alicea), 230
B.R. 492, 508 (Bankr. S.D.N.Y. 1999). We agree that
creditors should not be able to use § 523(a)(6) in that way,
in no small part because of the Pandora’s box that would be
opened in the absence of § 523(a)(2)(B)’s writing require-
ment.
   Finally, we note that in the conclusion of his brief,
Gulevsky requests sanctions against Berkson for filing a
frivolous appeal. The request will not be granted because it
does not comply with the requirements of Federal Rule of
Appellate Procedure 38, which requires sanctions requests
to be presented in a “separately filed motion.” See
McDonough v. Royal Carribean Cruises, Ltd., 48 F.3d 256,
258 (7th Cir. 1995). Although the rule does allow this court
to sua sponte initiate sanctions proceedings, that power is
discretionary. See Fed.R.App.P. 38; Pokuta v. Trans World
Airlines, 191 F.3d 834, 841 (7th Cir. 1999). In any event, we
do not believe that sanctions are warranted in this case. An
appeal is frivolous when the appellant’s arguments are
utterly meritless and have no conceivable chance of success.
E.g., Jimenez v. Madison Area Technical College, 321 F.3d
652, 657-58 (7th Cir. 2003); United States v. Insurance
Consultants of Knox, Inc., 187 F.3d 755, 761 (7th Cir. 1999).
Berkson’s brief is relatively insubstantial but his argument
is not so foreclosed by precedent that it warrants sanctions.
                                                  AFFIRMED
6                                         No. 03-3299

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—3-31-04