Keith Nunnery v. June L. Rountree

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: JUNE L. ROUNTREE,
Debtor.
PAMELA C. NUNNERY,
Plaintiff-Appellant,
and No. 05-1123 
KEITH NUNNERY,
Plaintiff,
v.
JUNE L. ROUNTREE,
Defendant-Appellee. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Jerome B. Friedman, District Judge.
(CA-04-555; BK-01-21480-SCS)
Argued: November 28, 2006
Decided: February 27, 2007
Before WILKINSON, MOTZ, and GREGORY, Circuit Judges.
Affirmed by published opinion. Judge Gregory wrote the opinion, in
which Judge Wilkinson joined. Judge Wilkinson wrote a separate
concurring opinion. Judge Motz wrote an opinion concurring in the
judgment.

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COUNSEL
ARGUED: John Edwin Bedi, Virginia Beach, Virginia, for Appel-
lant. Anthony Franklin Radd, WOLCOTT, RIVERS & GATES, Vir-
ginia Beach, Virginia, for Appellee. ON BRIEF: Paul I. Klein,
CREWS & KLEIN, P.C., Charlotte, North Carolina, for Appellant.
OPINION
GREGORY, Circuit Judge:
Pamela C. Nunnery appeals the district court’s reversal of the
bankruptcy court’s determination that a judgment debt owed to her by
June L. Rountree was not dischargeable in bankruptcy. Because
Rountree did not obtain "money, property, services, or an extension,
renewal, or refinancing of credit" via her fraud on Nunnery, we affirm
the district court’s decision and hold that the exception to discharge
does not apply.
I.
In 1991 Nunnery was involved in an automobile accident with Eric
Baucom in Charlotte, North Carolina. Florists’ Mutual Insurance
("the insurance company") defended Baucom and his company in the
subsequent lawsuit in the Superior Court of Gaston County, North
Carolina. To help prepare its defense, the insurance company hired
Rountree to investigate the validity of Nunnery’s injuries. Rountree
was a private investigator but was not licensed by the State of North
Carolina. Rountree befriended Nunnery and convinced her to attempt
activities in which Nunnery was reluctant to participate because of her
injuries. Rountree videotaped Nunnery water skiing, jet skiing, riding
horses, and enjoying amusement park rides. The insurance company
used these videotapes in its defense to Nunnery’s personal injury suit.
After the original litigation, Nunnery filed suit against Rountree in
the Superior Court of Gaston County, alleging, inter alia, fraud, inten-
tional and negligent infliction of emotional distress, and unfair and
deceptive trade practices. A non-binding arbitration awarded Nunnery
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$1,000,000, but the superior court granted Rountree a trial de novo.
Rountree then filed for bankruptcy in the Eastern District of Virginia,
prompting a stay of the North Carolina trial. Nunnery petitioned the
bankruptcy court to determine the dischargeability of the arbitration
award. The bankruptcy court transferred the case to the United States
District Court because the underlying complaint was a personal injury
tort claim. The district court then granted Nunnery’s motion to
abstain, and the trial proceeded in Gaston County. The jury awarded
Nunnery $70,000 in compensatory damages for emotional distress
and $930,000 in punitive damages, which the trial court reduced to
$250,000 pursuant to North Carolina law.
Nunnery then revived her complaint to determine the dischargea-
bility of the judgment debt and moved the bankruptcy court for sum-
mary judgment. The bankruptcy court, without oral argument, granted
summary judgment to Nunnery. The court considered the applicabil-
ity of two subsections of 11 U.S.C. § 523 (2000), "Exceptions to dis-
charge": (a)(2)(A) and (a)(6).
Subsection (a)(6) provides that the Bankruptcy Act will not dis-
charge a debtor from any debt "for willful and malicious injury by the
debtor to another entity or to the property of another entity."
§ 523(a)(6). The bankruptcy court stated that to prove an exception
under this subsection, Nunnery would have to show that Rountree
injured Nunnery, acted with intent to injure Nunnery, and acted mali-
ciously. The court found that the judgment Nunnery obtained in North
Carolina was not sufficient to establish that Rountree acted willfully
with intent to injure and so denied the application of subsection (a)(6).
Nunnery has chosen not to appeal the bankruptcy court’s ruling that
§ 523(a)(6) does not apply to her claim.
The bankruptcy court also found, however, that Nunnery had satis-
fied the requirements of subsection (a)(2)(A), which excepts from dis-
charge any debt "for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent obtained by—false pre-
tenses, a false representation, or actual fraud." § 523(a)(2)(A). The
court considered all five elements of fraud—(1) false representation,
(2) knowledge that the representation was false, (3) intent to deceive,
(4) justifiable reliance on the representation, and (5) proximate cause
of damages—and concluded that Nunnery’s North Carolina judgment
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proved all five. Without considering the "to the extent obtained by"
language, the court ruled that under § 523(a)(2)(A) Rountree could
not discharge her judgment debt (both compensatory and punitive) in
bankruptcy proceedings and granted Nunnery’s motion for summary
judgment.
Rountree appealed to the district court, and that court, emphasizing
the "obtained by" language, reversed the bankruptcy court’s ruling.
The district court found that the bankruptcy court had properly
applied the law of fraud but erred in applying § 523(a)(2)(A) because
Rountree never obtained anything by defrauding Nunnery. The court
relied on Cohen v. De La Cruz, 523 U.S. 213 (1998), and Collier on
Bankruptcy1 and distinguished Pleasants v. Kendrick, 219 F.3d 372
(4th Cir. 2000), to make its ruling. The court emphasized that for the
exception to apply, either the debtor must obtain or the creditor must
lose "money, property, services, or an extension, renewal, or refinanc-
ing of credit." Nunnery appealed the district court’s ruling that her
claim did not satisfy the requirements of § 523(a)(2)(A) to this Court.
II.
We review "the judgment of a district court sitting in review of a
bankruptcy court de novo, applying the same standards of review that
were applied in the district court." Foley & Lardner v. Biondo (In re
Biondo), 180 F.3d 126, 130 (4th Cir. 1999). Because the district court
made no factual findings, we review its conclusions of law de novo.
Id. at 130.
1Collier on Bankruptcy interprets this subsection of the bankruptcy
code as follows:
For a debt to fall within this exception, money, property or ser-
vices, or an extension, renewal or refinancing of credit must
actually have been obtained by the false pretenses or representa-
tions or by means of actual fraud. The purposes of the provision
are to prevent a debtor from retaining the benefits of property
obtained by fraudulent means and to ensure that the relief
intended for honest debtors does not go to dishonest debtors.
Before the exception applies, the debtors’ fraud must result in a
loss of property to the creditor.
¶ 523.08[1][b] (15th ed., rev. 2004).
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III.
The Bankruptcy Act provides several exceptions to its general dis-
charge of an individual’s debts. Under 11 U.S.C. § 523(a)(2)(A), the
code will not discharge a debtor from any 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." When considering the applicability of an exception to dis-
charge, we construe the exception narrowly "to protect the purpose of
providing debtors a fresh start." Biondo, 180 F.3d at 130.
The plain language of the subsection under which Nunnery seeks
relief requires the debtor to have obtained money, property, services,
or credit through her fraud or use of false pretenses. It is clear from
the structure of the phrase that "to the extent obtained" modifies the
money, property, services, or credit that constitute the debt. A plain
reading of this subsection demonstrates that Congress excepted from
discharge not simply any debt incurred as a result of fraud but only
debts in which the debtor used fraudulent means to obtain money,
property, services, or credit. Structurally, the subsection can have no
other meaning.
We adhere to the principle of statutory construction that advises us
to "account for a statute’s full text." U.S. Nat’l Bank of Or. v. Indep.
Ins. Agents of Am., Inc., 508 U.S. 439, 455 (1993). We thus note that
in the exceptions to discharge articulated in § 523, Congress provided
protection for creditors injured by the torts of bankrupt debtors in sub-
section (a)(6), which excepts from discharge a debt incurred as a
result of the debtor’s "willful and malicious injury" to the creditor or
her property. It would be unnecessary for subsection (a)(2)(A) also to
provide relief for judgment creditors injured in tort. The additional
subsection of § 523(a)(2), which excepts from discharge debts for
money, property, services, or credit to the extent obtained by use of
a false written statement, § 523(a)(2)(B), makes clear that Congress
intended § 523(a)(2) to protect creditors who were tricked by debtors
into loaning them money or giving them property, services, or credit
through fraudulent means. In Nunnery’s case, Rountree’s fraud may
have injured her, but Rountree did not commit the fraud in order to
obtain anything in the sense contemplated by § 523(a)(2).
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Both Supreme Court and our own precedent support our interpreta-
tion of the exception in this case. The Supreme Court explained the
rationale behind Congress’s adoption of the exceptions to discharge
in Local Loan v. Hunt, 292 U.S. 234 (1934). The Court stated that
bankruptcy proceedings provide "a new opportunity in life and a clear
field for future effort" to an individual burdened by excessive debt,
but it also cautioned that such a new opportunity is available only for
the "honest but unfortunate debtor." Hunt, 292 U.S. at 244. When a
debtor has acquired debt through fraudulent means, the exceptions to
discharge protect the duped creditor and demand that the debtor make
good for her misdeeds. Brown v. Felsen, 442 U.S. 127, 138 (1979).
The Supreme Court has provided some guidance for our analysis
of the specific question in this case. It has ruled that a bankruptcy
court may look behind the record of the underlying judgment to deter-
mine if the debtor indeed obtained the debt through fraudulent means.
Brown, 442 U.S. at 138-39. The Court has held that a bankruptcy
court should use a preponderance of the evidence standard to deter-
mine fraud in exception cases. Grogan v. Garner, 498 U.S. 279, 287
(1991). It has determined that subsection (a)(2)(A) provides an excep-
tion to the discharge of punitive damages when those punitive dam-
ages arise from a debt obtained through fraud. Cohen, 523 U.S. at
215. The Court has also held that the subsection excepts from dis-
charge the settlement agreement in a fraud case. Archer v. Warner,
538 U.S. 314, 316 (2003).
The dicta in the Court’s fraud-exception jurisprudence lend support
to Nunnery’s claim that Rountree’s judgment debt cannot be dis-
charged in bankruptcy. In Brown, the Court stated that the "broad lan-
guage" of the code "suggests that all debts arising out of the conduct
specified in § [523] should be excepted from discharge." 442 U.S. at
138. The Court repeated this "all debts arising from" language in
Cohen. 523 U.S. at 215, 222. In Archer, the Court reiterated its own
language from Brown that the Bankruptcy Act excepts "from dis-
charge . . . all fraud claims creditors have successfully reduced to
judgment." 538 U.S. at 321.
Other statements from the Court support the district court’s inter-
pretation of the statutory language that the debtor needs to have
obtained something through her fraud. In Grogan, the Court empha-
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sized that the subsection excepted from discharge "money obtained by
‘actual fraud.’" Grogan, 498 U.S. at 280-81. In a footnote in that case,
the Court pointed out that § 523 provides other avenues for victims
of fraud whose debtors have not obtained anything from them to pro-
tect their claims: "[F]raud judgments in cases in which the defendant
did not obtain money, property, or services from the plaintiffs . . . are
more appropriately governed by § 523(a)(6)." Id. at 282 n.2.2
This Circuit infrequently has considered the fraud exception. In
Biondo, in which we addressed the "refinancing of credit" language
of the subsection, we stated that the statutory language contemplates
the debtor’s obtaining something from the creditor:
Section 523(a)(2)(A) covers debts incurred through the
direct provision of "money, property, [or] services." As
noted above, the primary debtor-creditor relationship is cov-
ered by § 523(a)(2)(A) through express language extending
its scope to debts incurred through the direct acquisition of
value.
180 F.3d at 131 (emphases added). We also emphasized that we do
not allow "perpetrators of fraud . . . to hide behind the skirts of the
Bankruptcy Code." Id. at 130.
In Pleasants, we excepted from discharge a judgment debt awarded
to a creditor to compensate for damages caused by the debtor’s fraud.
The Kendricks had contracted with Pleasants for construction on their
house. They relied on Pleasants’s representation that he was a
licensed architect who had graduated from the University of Virginia.
Upon learning that Pleasants had lied to them and had constructed a
house with serious defects, the Kendricks sued Pleasants for the
money they paid to a third party to fix the damage Pleasants had
caused. Pleasants, 219 F.3d at 374. We relied on Cohen in ruling that
although the money the Kendricks lost went to a third party, their
2As noted above, in this case, the Bankruptcy Court rejected Nun-
nery’s claim under subsection (a)(6), and Nunnery did not appeal that
decision. Given our understanding of the extent of the exception articu-
lated in subsection (a)(2)(A), Nunnery perhaps would have had a
stronger claim for relief had she made that appeal.
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fraud claim against Pleasants was excepted from discharge under
§ 523(a)(2)(A). Id. at 375. We stated that Cohen’s language "is broad
enough to encompass a situation in which no portion of a creditor’s
claim was literally transferred to the fraudulent debtor." Id.
Nunnery argues that this Court should reverse the district court and
declare Rountree’s judgment debt nondischargeable because the debt
arises out of Rountree’s fraudulent actions. She relies on the language
quoted above and claims that the Supreme Court’s statement in Cohen
that "§ 523(a)(2)(A) prevents the discharge of all liability arising from
fraud," Cohen, 523 U.S. at 215, applies to debt arising from fraudu-
lent actions even where those actions do not result in the debtor’s
obtaining anything from the creditor. She also relies on the Court’s
interpretation of debt as "liability on a claim" and claim as "right to
payment" or "nothing more or less than an enforceable obligation." Id.
at 218 (citing 11 U.S.C. § 101 and Pa. Dep’t of Pub. Welfare v. Dav-
enport, 495 U.S. 552, 559 (1990)). Finally, Nunnery relies on Pleas-
ants, arguing that this Court did not require that the debtor have
obtained anything from the creditor. She claims that because her
enforceable obligation against Rountree arose out of Rountree’s
fraud, this Court should consider that obligation nondischargeable.
A closer reading of Cohen, however, demonstrates that the district
court was correct in its interpretation of the statute. In Cohen, the
Court considered the dischargeability of an award of treble damages
under a New Jersey rent-control law. Cohen, 523 U.S. at 215. In the
underlying action, the bankruptcy court found that Cohen had fraudu-
lently obtained $31,382.50 in excess rent from his tenants. Id. The
court further found that Cohen had violated the New Jersey law and
consequently awarded treble damages to those tenants. Id. at 215-16.
The Supreme Court ruled that the Bankruptcy Act excepted both the
compensatory damages and the punitive damages from discharge
because the punitive damages could be considered a debt arising from
the debtor’s obtaining money through fraud. Id. at 218.
The key in Cohen is that the debtor obtained something through his
fraud. The Court requires at the threshold that the debtor gain some-
thing: "Once it is established that specific money or property has been
obtained by fraud, however, ‘any debt’ arising therefrom is excepted
from discharge." Id. The Court clarified its holding by stating that
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subsection (a)(2)(A) "is best read to prohibit the discharge of any lia-
bility arising from a debtor’s fraudulent acquisition of money, prop-
erty, etc., including an award of treble damages for fraud." Id. at 221
(emphasis added). Admittedly, the Court states several times that the
subsection "bars the discharge of all liability arising from fraud," but
in each example the Court uses to illustrate its point, the debtor has
fraudulently obtained money or property from the creditor. Id. at 222
(emphasis added). Although Cohen expands the notion of debt in the
context of the fraud exception, it still requires that the debtor have
obtained something from the creditor for that debt to qualify for the
exception.
This Court’s ruling in Pleasants does not require us to read the sub-
section as Nunnery requests. In light of the understanding of the stat-
ute that we set forth in Biondo and of the Supreme Court’s statement
in Grogan that § 523(a)(6) provides the more appropriate avenue for
creditors damaged by the fraud of debtors who obtained nothing from
their actions, we distinguish Pleasants. Although Pleasants obtained
no part of the creditors’ subsequent judgment claim through his fraud,
he did gain money through the fraud,3 and the creditor lost money as
a result of that fraud. This reading of Pleasants, which was the district
court’s reading, is consistent with Collier on Bankruptcy and with
Supreme Court precedent.
The district court’s ruling in this case is consistent with both the
statute and the case law. Nunnery obtained a judgment based, in part,
on Rountree’s fraud. Neither side disputes the fraud underlying the
judgment. Neither side disputes the fact that Rountree obtained noth-
ing directly or indirectly from Nunnery as a result of her fraud. Roun-
tree claims that Nunnery lost neither money, property, services, nor
credit as a result of Rountree’s fraud. Consequently, the only real
3In Pleasants we point out that the Kendricks paid Pleasants to design
and prepare architectural plans for their home. Pleasants was only able
to receive payment through his fraudulent representation to the Kendr-
icks that he was an architect. The relief the Kendricks sought in their suit
against Pleasants included money paid to third parties to correct the dam-
age that Pleasants had done, but it is clear that their need for relief arose
out of the fraud through which Pleasants had obtained money from the
Kendricks. 219 F.3d at 374-75.
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issue in this case is whether the law requires that the debtor have
fraudulently obtained something from the creditor or that the debtor
simply have engaged in fraud that results in a debt owed to the credi-
tor.
Both the plain language of the statute and the Supreme Court’s
interpretation of that language lead us to require for exception to dis-
charge that the debtor have fraudulently obtained money, property,
services, or credit. In this case, Rountree’s fraud gained her none of
those things. Section 523(a)(2)(A) is not, therefore, the appropriate
exception to discharge in bankruptcy for Nunnery’s judgment claim
against Rountree.
IV.
We affirm the district court’s decision to reverse the summary
judgment awarded to Nunnery. We hold that the plain language of 11
U.S.C. § 523(a)(2)(A) and the Supreme Court’s interpretations of that
language require that the debtor must obtain something through fraud
for the exception to apply.
AFFIRMED
WILKINSON, Circuit Judge, concurring:
I am pleased to concur in Judge Gregory’s opinion in this case. I
write simply to emphasize that it does not open the floodgates to debt-
ors receiving discharges from debts brought about by their own fraud
or misrepresentation. Rountree’s activity here was nothing if not
deceitful as she tracked Nunnery’s behavior on behalf of an insurance
company under the cloak of a pretended friendship. To condemn the
behavior, however, is not to say that Rountree obtained "money, prop-
erty, services" or other financial benefit by virtue of her conduct as
required by the statute. See 11 U.S.C. § 523(a)(2)(A) (2000).
I suspect this will not be the usual situation. The more common
occurrence will reflect the fact that frauds and misrepresentations are
committed precisely for the purpose of obtaining that which the stat-
ute forbids. See, e.g., Maj. Op. at 7-8 (discussing Pleasants v. Kendr-
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ick, 219 F.3d 372, 374-75 (4th Cir. 2000)). As Pleasants illustrates,
to be nondischargeable, money need not pass directly to the debtor
from the creditor: the statutory language simply does not add that
qualification. See 11 U.S.C. § 523(a)(2)(A). With that understanding,
I am happy to join Judge Gregory’s very thoughtful opinion.
DIANA GRIBBON MOTZ, concurring in the judgment:
For the following reasons, I agree with my colleagues that 11
U.S.C. § 523(a)(2)(A) (2000) does not render Rountree’s debt to Nun-
nery nondischargable.
Section 523(a)(2)(A) provides that the bankruptcy code "does not
discharge an individual debtor from any debt — . . . for money, prop-
erty, services, or an extension, renewal, or refinancing of credit, to the
extent obtained by — false pretenses, a false representation, or actual
fraud" (emphasis added). The statute does not render Rountree’s debt
to Nunnery nondischargable because Nunnery has not demonstrated
that the debt was "obtained by" fraud.
To be sure, Rountree apparently made misrepresentations in Nun-
nery’s tort suit. But, as the district court noted, it "is impossible to
determine with any degree of certainty" that Nunnery would have
won the tort case absent Rountree’s misrepresentations. Although
Nunnery later obtained an award against Rountree for emotional dam-
ages to her resulting from Rountree’s misrepresentations, Nunnery
never claimed, let alone proved, that she lost the tort action because
of Rountree’s fraud. Thus, Nunnery has not met the § 523(a)(2)(A)
requirement that "the debtor’s fraud must result in a loss of property
to the creditor." Collier on Bankruptcy, ¶ 523.08 [1][a] (15th ed., rev.
2004).
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