Bloom v. Glencove Holdings ( 2022 )

Appellate Case: 22-1005 Document: 010110709338 Date Filed: 07/12/2022 Page: 1
FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT July 12, 2022
_________________________________
Christopher M. Wolpert
Clerk of Court
In re: STEVEN W. BLOOM,
Debtor.
------------------------------
GLENCOVE HOLDINGS, LLC,
Plaintiff - Appellee,
v. No. 22-1005
(BAP No. 20-043-CO)
STEVEN W. BLOOM, (Bankruptcy Appellate Panel)
Defendant - Appellant.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before HARTZ, BALDOCK, and McHUGH, Circuit Judges.
_________________________________
Steven W. Bloom, an aircraft sales consultant and the debtor in this matter,
appeals from a United States Bankruptcy Appellate Panel of the Tenth Circuit
(“BAP”) opinion affirming the bankruptcy court’s decision allowing Glencove
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Federal Rule of Appellate Procedure 32.1 and Tenth Circuit Rule 32.1.
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Holdings, LLC’s (“Glencove”) claim as a valid debt against Mr. Bloom and holding
the debt was not dischargeable. Mr. Bloom contends the bankruptcy court erred by
holding Colorado’s economic loss rule did not bar Glencove’s tort claims and
improperly concluding the debt was excepted from discharge under 11 U.S.C.
§ 523(a)(2)(A) and (a)(6). Exercising jurisdiction under 28 U.S.C. § 158(d), we
affirm the bankruptcy court’s decision.1
I. BACKGROUND
Mr. Bloom is the sole member and manager of Bloom Business Jets, LLC
(“BBJ”). BBJ, through Mr. Bloom, entered an Agent Agreement to represent Jennifer
and Huw Pierce (the “Pierces”) in their effort to purchase a pre-owned private jet
through Glencove, a limited liability company owned and managed by the Pierces.2
As part of the Agent Agreement, BBJ agreed to locate a private jet and act as
Glencove’s agent in the purchase of the jet, and Glencove agreed to pay BBJ a fee for
its services. Colorado law governs the Agent Agreement. At all relevant times,
Mr. Bloom acted on behalf of BBJ to represent Glencove in the purchase of the
private jet.
The parties identified a private jet Glencove was interested in purchasing,
Mr. Bloom recommended a target price of $3,600,000 for the jet, and Glencove
1
Judge Hartz joins this order and judgment, except for Part II.B.2.
2
The Pierces formed Glencove the day after the Agent Agreement was
executed, but the parties agree on appeal that BBJ and Glencove were the parties to
the Agent Agreement.
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agreed. With Glencove’s authorization, Mr. Bloom began negotiating with the seller,
beginning with an offer of about $3,300,000. After receiving Glencove’s initial offer,
the seller counteroffered with a price of $3,400,000, which was significantly lower
than Mr. Bloom expected. At this point, Mr. Bloom began lying to Glencove. He told
Glencove the seller counteroffered to sell the jet for $3,775,000. In response,
Glencove authorized a counteroffer of $3,550,000. Mr. Bloom then represented to
Glencove that he was negotiating with the seller to sell the jet for $3,550,000. This,
of course, was not true because the seller had already counteroffered to sell the jet for
less than that amount. In the end, Glencove agreed to pay $3,550,000 for the jet.
Meanwhile, Mr. Bloom negotiated with the seller, and they agreed to a sale price of
$3,300,000. Mr. Bloom did not tell Glencove about these negotiations or the lower
sale price.
Before finalizing the purchase, Haggan Aviation (“Haggan”) conducted an
inspection of the jet and found more than $67,000 worth of airworthy items that
needed to be repaired. Glencove signed a conditional acceptance, agreeing to accept
the jet subject to the seller fixing the airworthy items. The seller initially refused to
perform any of the repairs and would only sell the jet in as-is condition. Mr. Bloom
then convinced Haggan to reduce the number of airworthy items that needed to be
repaired, which significantly reduced the total estimate. Mr. Bloom did not apprise
Glencove of any of these developments. Instead, he represented that the seller would
pay for all the repairs in the original estimate even though only a portion of those
repairs were completed prior to the sale.
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Mr. Bloom then created Big Horn Exploration, LLC (“Big Horn”), which
purchased the jet from the seller for $3,300,000. Immediately thereafter, Big Horn
sold the jet to Glencove for $3,550,000. As a result of Mr. Bloom’s lies, Glencove
paid an additional $250,000 for the jet, and that amount was distributed between
Mr. Bloom’s attorney, an aircraft finance company, and BBJ. The bankruptcy court
did not find Mr. Bloom personally received any of the money.
Glencove then hired BBJ to manage the jet’s operations. BBJ eventually filed
a state court lawsuit against Glencove for a dispute arising out of the management
agreement. Discovery in that matter revealed the fraud committed during the sale,
and Glencove brought counterclaims against Mr. Bloom and others who were
involved. Mr. Bloom filed for bankruptcy, and Glencove brought an adversary
proceeding asserting its tort claims as a debt against Mr. Bloom. We refer to the debt
Glencove asserted as the Glencove Claim. In the adversary proceeding, Glencove
brought claims for the nondischargeability of the Glencove Claim.
The bankruptcy court held a trial on the tort claims and allowed the Glencove
Claim in the amount of $458,470 for fraud by false representation and fraudulent
concealment. The bankruptcy court also concluded the Glencove Claim was not
dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6). Mr. Bloom appealed
to the BAP, arguing in part that (1) the bankruptcy court should not have allowed the
Glencove Claim because Colorado’s economic loss rule bars the fraud and fraudulent
concealment claims and (2) the Glencove Claim is dischargeable. The BAP affirmed
the bankruptcy court’s ruling. Mr. Bloom now appeals to this court.
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II. DISCUSSION
When a party appeals a decision by the BAP, “we treat the BAP as a
subordinate appellate tribunal whose rulings are not entitled to any deference,” so
“we review only the [b]ankruptcy [c]ourt’s decision.” In re Tung Thanh Nguyen, 783
F.3d 769, 772 (10th Cir. 2015) (quotation marks omitted). “We review matters of law
de novo, and we review factual findings made by the bankruptcy court for clear
error.” Id. (quotation marks omitted).
On appeal, Mr. Bloom contends the bankruptcy court erred when it determined
the Glencove Claim was valid. He says Colorado’s economic loss rule bars Glencove
from recovering on its fraud and fraudulent concealment claims against him. He also
argues the bankruptcy court erred by concluding the debt is not dischargeable. We
address each argument in turn.
A. Economic Loss Rule
Mr. Bloom argues primarily that the bankruptcy court erred by allowing the
Glencove Claim because Colorado’s economic loss rule prevents Glencove from
recovering on its state fraud and fraudulent concealment claims against him. See
Grogan v. Garner, 498 U.S. 279, 183 (1991) (“The validity of a creditor’s claim is
determined by rules of state law.”). Whether the economic loss rule bars a tort claim
“is an issue of law we review de novo.” Haynes Trane Serv. Agency, Inc. v. Am.
Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009) (quotation marks omitted).
Colorado’s economic loss rule provides that “a party suffering only economic
loss from the breach of an express or implied contractual duty may not assert a tort
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claim for such a breach absent an independent duty of care under tort law.” Alma v.
AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000). To determine whether the
economic loss rule bars a tort claim in Colorado, courts consider “the source of the
duty that forms the basis of the action.” Id. at 1262. If the contract is the source of the
duty, then the economic loss rule bars tort claims for purely economic loss. Id.Otherwise, the economic loss rule does not bar the claim. Id. The Colorado Supreme
Court also explained, “certain common law claims that sound in tort and are
expressly designed to remedy economic loss,” such as common law fraud or
negligent misrepresentation, “may exist independent of a breach of contract claim.”
Id. at 1263. Such claims are outside the scope of the economic loss rule. Id.After Alma, some divisions of the Colorado Court of Appeals held the
economic loss rule barred post-contractual fraud claims related to the performance of
the contract. See Top Rail Ranch Estates, LLC v. Walker, 327 P.3d 321, 328–29
(Colo. App. 2014); Former TCHR, LLC v. First Hand Mgmt. LLC, 317 P.3d 1226,
1232–33 (Colo. App. 2012); Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229
P.3d 282, 291–95 (Colo. App. 2009). These divisions reasoned that all contracts
contain the implied covenant of good faith and fair dealing, and the implied covenant
of good faith and fair dealing includes the duty not to commit fraud. See Top Rail
Ranch Estates, 327 P.3d at 329; Former TCHR, 317 P.3d at 1233; Hamon
Contractors, 229 P.3d at 292–93. Accordingly, the courts concluded the duty to not
commit post-contractual fraud did not arise independent of the contract. See Top Rail
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Ranch Estates, 327 P.3d at 329; Former TCHR, 317 P.3d at 1233; Hamon
Contractors, 229 P.3d at 293–95.
Recently, however, the Colorado Supreme Court suggested this is not the
proper understanding of the economic loss rule. In Bermel v. BlueRadios, Inc., the
Colorado Supreme Court explained it had previously applied the economic loss rule
only “to bar common law tort claims of negligence or negligent misrepresentation.”
440 P.3d 1150, 1155 (Colo. 2019). The Bermel court also clarified in a footnote that
“the economic loss rule generally should not be available to shield intentional
tortfeasors from liability for misconduct that happens also to breach a contractual
obligation.” Id. at 1154 n.6
Mr. Bloom asks us to apply the analysis in Top Rail Ranch Estates, Former
TCHR, and Hamon Contractors, and to ignore the contrary language in Bermel.
Accordingly, Mr. Bloom contends the economic loss rule bars Glencove’s fraud by
false representations and fraudulent concealment claims against him because (1) he is
a member of BBJ who acted on behalf of BBJ, an entity that had a contractual
relationship with Glencove when the fraud occurred; (2) the Agent Agreement
included the implied covenant of good faith and fair dealing, which required BBJ not
to act fraudulently; and (3) Glencove experienced only economic damages. Thus,
according to Mr. Bloom, these claims arise from a breach of an implied contractual
duty that resulted only in economic loss, which bars Glencove from recovering in
tort.
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As an initial matter, we note Mr. Bloom does not personally have a contractual
relationship with Glencove because BBJ, not Mr. Bloom, entered the agreement with
Glencove. This means Mr. Bloom did not owe any contractual duties to Glencove,
and Glencove cannot bring any contract claims against Mr. Bloom. See Rhino Fund,
LLLP v. Hutchins, 215 P.3d 1186, 1195 (Colo. App. 2008) (holding the economic
loss rule does not apply because the plaintiff had not entered into the contract and
had no contractual remedies). As such, the economic loss rule would not normally
apply to bar any tort claims against Mr. Bloom. Id. However, “[w]hen the economic
loss rule bars a claim against a corporate entity, it may also bar claims against that
entity’s officers and directors, even if the officers and directors were not parties to
the contract at issue,” when “the officers’ and directors’ duties, rights, obligations, or
liabilities arise from the contract between the corporate entity and another.” Former
TCHR, 317 P.3d at 1232; see also Parr v. Triple L & J Corp., 107 P.3d 1104, 1108
(Colo. App. 2004) (applying the economic loss rule to the sole shareholder of the
corporate party to the contract). Because Mr. Bloom is the sole member of BBJ, we
must therefore determine the source of Mr. Bloom’s duty not to act fraudulently. For
the reasons below, we hold the duty not to commit fraud arises from the common
law, independent of the Agent Agreement.
As a matter of state law, we must attempt to determine how the Colorado
Supreme Court would rule on this issue. Wade v. EMCASCO Ins. Co., 483 F.3d 657,
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666 (10th Cir. 2007).3 As noted, the Colorado Supreme Court looks to whether the
tort claim arises from a duty independent of the contract, and if not, then the
economic loss rule applies. Alma, 10 P.3d at 1263. As an example, the Colorado
Supreme Court said intentional tort claims such as common law fraud generally arise
from duties independent of contracts and are outside the economic loss rule. Id.;
Bermel, 440 P.3d at 1154 n.6; but see Dream Finders Homes LLC v. Weyerhaeuser
NR Co., 506 P.3d 108, 124–26 (Colo. App. 2021) (concluding the economic loss rule
bars a fraud claim where the contract expressly waives the damages sought via the
fraud claim). The common law fraud and fraudulent concealment claims are both tort
claims that arise independent of a contract, so they would not be barred by the
economic loss rule.
Mr. Bloom does not agree that the Bermel footnote limiting the application of
the economic loss rule is binding. Instead, he contends the footnote is only dicta and
urges us to rely on the pre-Bermel Colorado Court of Appeals opinions that held the
economic loss rule bars post-contractual fraud claims. Even if the footnote in Bermel
3
Mr. Bloom moved to certify the question of whether the economic loss rule
bars claims for intentional torts to the Colorado Supreme Court. We have discretion
to certify a question of state law to a state supreme court when state law permits and
the question “(1) may be determinative of the case at hand and (2) is sufficiently
novel that we feel uncomfortable attempting to decide it without further guidance.”
Pino v. United States, 507 F.3d 1233, 1236 (10th Cir. 2007). Here, the Colorado
Supreme Court has provided guidance about how the economic loss rule applies in
Alma v. AZCO Constr., Inc., 10 P.3d 1256 (Colo. 2000), and more recently in Bermel
v. BlueRadios, Inc., 440 P.3d 1150 (Colo. 2019). Taking these cases into
consideration, this question is not so novel that we feel uncomfortable deciding it
without further guidance. Therefore, we deny the motion to certify.
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discussing the application of the economic loss doctrine to intentional torts is dicta,
see Dream Finders, 506 P.3d at 122 (referring to the footnote as “dicta”), we may
consider Colorado Supreme Court dicta because it “represents the court’s own
comment on the development of Colorado law,” Valley Forge Ins. Co. v. Health Care
Mgmt. Partners, Ltd., 616 F.3d 1086, 1093 (10th Cir. 2010).
Importantly, Mr. Bloom’s interpretation of the economic loss rule directly
conflicts with the Colorado Supreme Court’s comment on the development of
Colorado law. In Mr. Bloom’s view, all post-contractual fraud claims would be
barred by the economic loss rule because all contracts in Colorado include the
implied covenant of good faith and fair dealing. See Colo. Rev. Stat. § 4-1-304(“Every contract or duty within this title imposes an obligation of good faith in its
performance and enforcement.”). Thus, the economic loss rule would always be
available to shield intentional tortfeasors from liability for post-contract misconduct
that breaches the implied covenant of good faith and fair dealing. The Colorado
Supreme Court, however, explained “the economic loss rule generally should not be
available to shield intentional tortfeasors from liability for misconduct that happens
also to breach a contractual obligation.” Bermel, 440 P.3d at 1154 n.6. This language
is not up for debate; it clearly suggests the Colorado Supreme Court would disagree
with Mr. Bloom’s understanding of the economic loss rule.
In applying the Colorado Supreme Court’s understanding of the economic loss
rule, as we must, we conclude the economic loss rule does not bar Glencove’s fraud
and fraudulent concealment claims against Mr. Bloom. The claims are both
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intentional torts that arise from the common law—that is, they arise from duties
independent of the Agent Agreement. Alma, 10 P.3d at 1263. Without an express
waiver of damages from fraud, the economic loss rule does not bar these intentional
tort claims. See id.; Dream Finders, 506 P.3d at 122 (recognizing Bermel did not
create a bright line rule prohibiting the economic loss rule from barring all
intentional torts). Here, there is no such waiver within the Agent Agreement. Thus,
the bankruptcy court did not err by holding Mr. Bloom’s duty not to commit fraud
arose independent of the Agent Agreement and allowing the Glencove Claim as a
valid debt.
B. Exceptions to Discharge
Having concluded the bankruptcy court did not err in allowing the Glencove
Claim as a valid debt, we turn now to the dischargeability of that debt. See In re
Thompson, 555 B.R. 1, 8 (B.A.P. 10th Cir. 2016) (explaining a court must first
determine whether the debt is valid then determine whether it is dischargeable). The
Bankruptcy Code was enacted to give debtors a fresh start. In re Merrill, 252 B.R.
497, 503 (B.A.P. 10th Cir. 2000). Accordingly, “most debts are dischargeable in
bankruptcy.” Id. However, 11 U.S.C. § 523 lists the circumstances in which a debt is
not dischargeable. The bankruptcy court held the Glencove Claim was excepted from
discharge under § 523(a)(2)(A) and (a)(6). Mr. Bloom argues this was in error.
“We review a bankruptcy court’s construction of the Bankruptcy Code de
novo.” In re McDaniel, 973 F.3d 1083, 1092 (10th Cir. 2020) (quotation marks
omitted). We review factual findings related to the dischargeability of a debt for clear
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error. In re Young, 91 F.3d 1367, 1370 (10th Cir. 1996). To promote the policy of
providing debtors with a fresh start, “exceptions to discharge are to be narrowly
construed, and . . . doubt is to be resolved in the debtor’s favor.” In re Kaspar, 125
F.3d 1358, 1361 (10th Cir. 1997).
1. 11 U.S.C. § 523(a)(2)(A)
Section 523(a)(2)(A) excepts from discharge a debt
for money, property, services, or an extension, renewal, or refinancing of
credit, to the extent obtained by . . . false pretenses, a false representation,
or actual fraud, other than a statement respecting the debtor’s or an insider’s
financial condition.
We have held a claim is not dischargeable pursuant to this subsection when (1) “[t]he
debtor made a false representation,” (2) “the debtor made the representation with the
intent to deceive the creditor,” (3) “the creditor relied on the representation,” (4) “the
creditor’s reliance was reasonable,” and (5) “the debtor’s representation caused the
creditor to sustain a loss.” Young, 91 F.3d at 1373. Mr. Bloom contends the language of
the statute also requires the debtor to have personally obtained money, property, services,
or credit from the false pretenses, false representation, or actual fraud. Mr. Bloom further
argues the bankruptcy court’s findings do not satisfy that requirement because the court
did not find he personally obtained money from the fraud. We begin by addressing
Mr. Bloom’s argument.
Courts have identified three views about whether the debtor must have
personally obtained the money, property, or services to except the debt from
discharge under § 523(a)(2)(A). In re Wade, 43 B.R. 976, 980–82 (Bankr. D. Colo.
1984), abrogated on other grounds by Cohen v. de la Cruz, 523 U.S. 213 (1998), as
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recognized by In re Denbleyker, 251 B.R. 891 (2000). First, some courts have
suggested the debtor must personally receive the money, property, or services for the
debt to be excepted from discharge under § 523(a)(2)(A). Id. at 980–81 (citing
Rudstrom v. Sheridan, 142 N.W. 313, 314 (Minn. 1913)). However, we have found
no courts that applied this narrow interpretation of the statute.4 See In re Ritz, 567
B.R. 715, 763 (Bankr. S.D. Tex. 2017) (“There are no circuit courts that have
adopted the first view.”). Second, some courts apply the “receipt of benefits” test
which requires the debtor to have received a benefit from the money, property,
services, or credit to render the debt nondischargeable. Wade, 43 B.R. at 981 (citing
Hyland v. Finch, 178 N.Y.S. 114, 115 (1919)). Third, some courts have held that the
debtor need not have personally obtained or benefited from the money or property
obtained by fraud. Id. (citing In re Kunkle, 40 F.2d 563, 563–64 (E.D. Mich. 1930)).
Mr. Bloom argues we should adopt the first view.
Importantly, the Supreme Court has provided some guidance for interpreting
§ 523(a)(2)(A) in Cohen v. de la Cruz, 523 U.S. 213 (1998). There, the Supreme
Court considered whether § 523(a)(2)(A) bars the discharge of treble damages
awarded against the debtor for fraud or whether the exception to discharge is limited
4
Courts have determined this view in Rudstrom v. Sheridan, 142 N.W. 313,
314 (Minn. 1913), was merely dicta and was not the holding of the court. See, e.g., In
re Bilzerian, 100 F.3d 886, 890 n.3 (11th Cir. 1996); In re Ward, 115 B.R. 532, 538
(W.D. Mich. 1990); In re Wade, 43 B.R. 976, 980–81 (Bankr. D. Colo. 1984),
abrogated on other grounds by Cohen v. de la Cruz, 523 U.S. 213 (1998), as
recognized by In re Denbleyker, 251 B.R. 891 (2000).
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to the value of the money, property, services, or credit the debtor actually obtained
through fraud. Id. at 215. In analyzing the statute, the Court explained “the phrase ‘to
the extent obtained by’ . . . does not impose any limitation on the extent to which
‘any debt’ arising from fraud is excepted from discharge.” Id. at 218 (quoting 11
U.S.C. § 523(a)(2)(A)). The Cohen Court held § 523(a)(2)(A) prevents the discharge
of all liability arising from the fraud, including treble damages which do not
represent money the debtor obtained. Id. at 215.
Prior to the Cohen decision, the circuit courts that reached the issue required
the debtor to have received a benefit from the fraud to render the claim
nondischargeable under the subsection. Muegler v. Bening, 413 F.3d 980, 983 (9th
Cir. 2005) (collecting pre-Cohen cases applying the receipt-of-benefits requirement
from the Ninth, Eleventh, and Fifth Circuits). With the language in Cohen, however,
the Supreme Court applied a broader interpretation of § 523(a)(2)(A) such that the
“obtained by” language amounts to a causation requirement. Denbleyker, 251 B.R. at
896–97 (concluding the Cohen analysis treated the phrase “obtained by” as if it was
referring simply to causation); see also Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 356,
365 (2016) (holding any debts traceable to a fraudulent conveyance is
nondischargeable under § 523(a)(2)(A) even though the debtor did not receive the
funds in the fraudulent conveyance). That is, it requires only that the debt be
traceable to fraud. Husky Int’l Elecs., 578 U.S. at 365; see also Denbleyker, 251 B.R.
at 896–97.
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Since Cohen, an increasing number of courts have applied the third view—that
the debtor need not have personally obtained or benefited from the money or property
obtained by fraud. Denbleyker, 251 B.R. at 897–99; Muegler, 413 F.3d at 983–84
(holding the receipt-of-benefits element under § 523(a)(2)(A) no longer applies after
Cohen); In re M.M. Winkler & Assocs., 239 F.3d 746, 749–51 (5th Cir. 2001)
(considering Supreme Court precedent and clarifying that § 523(a)(2)(A) does not
require a “receipt of benefit” to except a debt from discharge); In re Pleasants, 219
F.3d 372, 375 (4th Cir. 2000) (applying Cohen and holding § 523(a)(2)(A) applies
even when “no portion of a creditor’s claim was literally transferred to the fraudulent
debtor”); In re Speisman, 495 B.R. 398, 403 (Bankr. N.D. Ill. 2013) (collecting cases
holding § 523(a)(2)(A) does not require the debtor to have received a benefit); cf. In
re Rountree, 330 B.R. 166, 170–75 (E.D. Va. 2004) (holding the creditor must have
lost some money, property, or services as a result of the fraud to satisfy the
requirements of § 523(a)(2)(A)). We have yet to decide which approach applies.
With the broad interpretation in Cohen, the Supreme Court has suggested
§ 523(a)(2)(A) does not require that the debtor personally obtain money, property, or
services to render the debt nondischargeable. This leaves open the question of
whether the debtor needs to have received a benefit from the fraud to be excepted
from discharge or whether the creditor must show only that the debt arose from the
debtor’s fraud. We need not decide this question, however, because even if we apply
the receipt-of-benefits requirement, the bankruptcy court’s findings support the
nondischargeability of the Glencove Claim under § 523(a)(2)(A). Specifically, the
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bankruptcy court found Mr. Bloom is the sole member of BBJ and BBJ obtained
money from Mr. Bloom’s fraud. Mr. Bloom thus received a benefit from the fraud.
See In re Grasso, 497 B.R. 434, 443 (Bankr. E.D. Pa. 2013) (concluding the debtor
received a benefit from the alleged fraud because he was a managing member and
held an ownership interest in the entity that received the proceeds of the loan); In re
Holwerda, 29 B.R. 486, 489 (Bankr. M.D. Fla. 1983) (explaining the defendant
received a benefit from the fraud because he was a principal of the corporation that
received the loan). Therefore, even if the receipt-of-benefits requirement applies, that
requirement has been met.
Moreover, the bankruptcy court did not commit clear error by finding the
Glencove Claim meets the other elements of § 523(a)(2)(A) because there was
evidence in the record supporting those findings. See Young, 91 F.3d at 1373 (listing
the elements required for nondischargeability under § 523(a)(2)(A)). Specifically,
there was evidence that Mr. Bloom made a false representation with the intent to
deceive Glencove when he lied about the negotiations with the seller and the amount
of the sale price. There was also evidence that BBJ, through Mr. Bloom, acted as an
agent for Glencove pursuant to the Agent Agreement, and Glencove reasonably relied
on its agent’s representations about the negotiations. Evidence also supported a
finding that Mr. Bloom’s lies caused Glencove to sustain a loss of at least the
difference between the seller’s price and the price Glencove agreed to pay as well as
the difference between the amount of repairs that Glencove believed would be
completed and the amount of repairs that were completed. Thus, Glencove has shown
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the necessary elements, and the bankruptcy court did not err by holding the Glencove
Claim was nondischargeable under § 523(a)(2)(A).
2. 11 U.S.C. § 523(a)(6)
The bankruptcy court also concluded the Glencove Claim was not
dischargeable under 11 U.S.C. § 523(a)(6). Section 523(a)(6) excepts from discharge
a debt “for willful and malicious injury by the debtor to another entity or to the
property of another entity.” Mr. Bloom argues this subsection does not apply because
(1) § 523(a)(6) cannot apply when the more specific exception to discharge in
§ 523(a)(2)(A) applies and (2) the Glencove Claim does not meet the willful-injury or
malicious-injury requirements for nondischargeability under § 523(a)(6).
While there are meaningful distinctions between § 523(a)(2)(A) and
§ 523(a)(6), a debt that is nondischargeable under one subsection may also be
nondischargeable under the other so long as all the requirements are met under both
subsections. Husky Int’l Elecs., 578 U.S. at 363–64. Thus, to determine
nondischargeability under § 523(a)(6) we must review whether Mr. Bloom caused
both a willful and malicious injury. See In re Moore, 357 F.3d 1125, 1129 (10th Cir.
2004) (noting nondischargeability under § 523(a)(6) requires both willful injury and
malicious injury).
“Willful injury may be established by direct evidence of specific intent to
harm a creditor or the creditor’s property.” In re Longley, 235 B.R. 651, 657 (B.A.P.
10th Cir. 1999). The Supreme Court suggested the willfulness requirement is more
akin to intentional torts than negligent or reckless torts or a “knowing breach of
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contract.” Kawaauhau v. Geiger, 523 U.S. 57, 61–62 (1998). Mr. Bloom, therefore,
argues the willful-injury requirement cannot be met because Colorado’s economic
loss rule bars any tort claims against him arising out of the Agent Agreement. We
already concluded Colorado’s economic loss rule does not apply, so Mr. Bloom’s
argument against the willful-injury finding cannot succeed. Moreover, the bankruptcy
court did not clearly err by finding a willful injury because there is evidence that
Mr. Bloom deceived Glencove with the intent to make Glencove pay an extra
$250,000 for the private jet.
Next, malicious injury requires “evidence of the debtor’s motives.” In re
Smith, 618 B.R. 901, 919 (B.A.P. 10th Cir. 2020) (quotation marks omitted). To be
malicious, the debtor must have “acted with a culpable state of mind vis-à-vis the
actual injury caused the creditor.” Id. (quotation marks omitted). The malicious
element requires that the action be “wrongful and without just cause or excuse.” Id.Mr. Bloom, however, argues there is no malicious injury here because there is no
evidence that he had personal animus against Glencove or the Pierces. This argument
was not raised before the bankruptcy court or the BAP, so the argument is forfeited,
and we would normally decline to address it. In re Williams, 49 F. App’x 845, 849
(10th Cir. 2002) (unpublished) (applying the preservation rule to a bankruptcy
appeal); see also United States v. Leffler, 942 F.3d 1192, 1196 (10th Cir. 2019)
(describing the principles of forfeiture and waiver). Even considering it on appeal,
however, Mr. Bloom cannot succeed because personal animus is not a requirement
for malicious injury. Smith, 618 B.R. at 919 (describing the requirements for
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malicious injury); see also Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006)
(explaining malicious injury means “wrongful and without just cause or excuse, even
in the absence of personal hatred, spite, or ill-will” (quoting In re Stelluti, 94 F.3d 84,
87 (2d Cir. 1996))).
The bankruptcy court did not commit clear error in finding malicious injury
because evidence in the record suggests Mr. Bloom deceived Glencove in order to
benefit himself and his colleagues through BBJ. This does not constitute a just cause
or excuse and supports a finding that Mr. Bloom “acted with a culpable state of mind
vis-à-vis the actual injury caused” to Glencove. Smith, 618 B.R. at 919. Therefore,
the bankruptcy court did not err by concluding the Glencove Claim was
nondischargeable under § 523(a)(6).
III. CONCLUSION
Because the bankruptcy court did not err by allowing the Glencove Claim and
concluding it was not dischargeable, we AFFIRM the bankruptcy court’s decision in
this matter. We also DENY Mr. Bloom’s Motion for Certification of Question of
State Law.
Entered for the Court
Carolyn B. McHugh
Circuit Judge
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