Cohen v. De La Cruz

Cohen v. De La Cruz

Opinion

 [*214]   [**1214]   [***344]  JUSTICE O'CONNOR delivered the opinion of the Court.

Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge in bankruptcy "any debt . . . for money,  [*215]  property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false [****5]  pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A). The issue in this case is whether § 523(a)(2)(A) bars the discharge of treble damages awarded on  [**1215]  account of the debtor's fraudulent acquisition of "money, property, services, or . . . credit," or whether the exception only encompasses the value of the "money, property, services, or . . . credit" the debtor obtains through fraud. We hold that § 523(a)(2)(A) prevents the discharge of all liability arising from fraud, and that an award of treble damages therefore falls within the scope of the exception.

Petitioner owned several residential properties in and around Hoboken, New Jersey, one of which was subject to a local rent control ordinance. In 1989, the Hoboken Rent Control Administrator determined that petitioner had been charging rents above the levels permitted by the ordinance, and ordered him to refund to the affected tenants, who are respondents in this Court, $ 31,382.50 in excess rents charged. Petitioner did not comply with the order.

Petitioner subsequently filed for relief under Chapter 7 of the Bankruptcy Code, seeking to discharge his debts. The tenants filed an adversary proceeding [****6]  against petitioner in the Bankruptcy Court, arguing that the debt owed to them arose from rent payments obtained by "actual fraud" and that the debt was therefore nondischargeable under 11 U.S.C. § 523(a)(2)(A). They also sought treble damages and attorney's fees and costs pursuant to the New Jersey Consumer Fraud Act. See N. J. Stat. Ann. §§ 56:8-2, 56:8-19 (West 1989).

Following a bench trial, the Bankruptcy Court ruled in the tenants' favor. In re Cohen, 185 B.R. 171 (1994); 185 B.R. 180 (1995). The court found that petitioner had committed "actual fraud" within the meaning of 11 U.S.C. § 523(a)(2)(A) and that his conduct amounted to an "unconscionable commercial  [*216]  practice" under the New Jersey Consumer Fraud Act. As a result, the court awarded the tenants treble damages totaling $ 94,147.50, plus reasonable attorney's fees and costs. Noting that courts had reached conflicting conclusions on whether § 523(a)(2)(A) excepts from discharge punitive damages (such as the treble damages at issue here), the Bankruptcy Court sided with those decisions holding that § 523(a)(2)(A) encompasses all obligations arising out [***345]  of fraudulent conduct, including both punitive and compensatory [****7]  damages. ¹ 185 B.R. at 188-189. The District Court affirmed. 191 B.R. 599 (1996).

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