Opinion
Bankruptcy No. 99-31337, Adversary No. 99-7079
May 10, 2000
Attorney for Plaintiff, Paul M. Probst, Minot, N.D.
Attorney for Defendant, Faron E. Terry, Minot, N.D.
MEMORANDUM OPINION AND ORDER
By complaint filed November 10, 1999, William Starkey seeks a determination that the state court default judgment in his favor against Debtor Charles Krueger is nondischargeable under sections 523 (a)(2)(A) and 523 (a)(6) of the Bankruptcy Code. Trial was held on March 28, 2000. The Court's findings of fact and conclusions of law are as follows:
I. FINDINGS OF FACT
The parties filed a joint stipulation of facts. On October 13, 1998, Charles Krueger, doing business as Krueger Motors, sold a 1991 Ford Explorer to William Starkey for $7,900. Starkey subsequently became aware that the mileage on the vehicle was significantly greater than the mileage indicated by Krueger at the time of sale. When Starkey brought this discovery to Krueger's attention, Krueger refused to refund or credit any amount of the purchase price to Starkey.
Starkey then commenced a civil suit in the District Court for Ward County, North Dakota, which resulted in a default judgment dated June 10, 1999. The default judgment specifically states [t]hat the Defendant fraudulently misrepresented the true mileage of the 1991 Ford Explorer sold to the Plaintiff, and that the Plaintiff relied on Defendant's representations in purchasing said vehicle. The default judgment awards Starkey economic damages of $15,229, treble economic damages of $45,687, non-economic damages of $100,000, attorney fees of $1,700, and costs of $112.33 — for a grand total of $162,728.33. In addition, the default judgment imposes 6 percent annual interest on the total award commencing October 13, 1998.
Krueger filed a motion for relief from the judgment, claiming inadvertence and excusable neglect in failing to respond to the Summons and Complaint. Krueger's motion was denied on August 4, 1999, and the default judgment was never appealed. On August 11, 1999, Krueger filed a petition for relief under chapter 7 of the Bankruptcy Code, and Starkey responded by commencing the instant adversary proceeding. At trial on March 28, 2000, Starkey introduced no evidence, asserting that collateral estoppel barred relitigation of any issues contained in the default judgment. Starkey relied solely on the default judgment to establish nondischargeability.
II. CONCLUSIONS OF LAW A. Collateral Estoppel
Collateral estoppel applies to nondischargeability proceedings in bankruptcy. Grogan v. Garner, 498 U.S. 279, Ill S.Ct. 654, 658 n. 11 (1991). In determining the preclusive effect of a state court judgment, bankruptcy courts must apply the collateral estoppel law of the state from which the judgment was taken, "giving a state court judgment preclusive effect if a court in that state would do so." Fischer v. Scarborough), 171 F.3d 638, 641 (8th Cir. 1999) (citing Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1475 (8th Cir. 1994)); Hickman v. Electronic Keyboarding. Inc., 741 F.2d 230, 232 (8th Cir. 1984) (recognizing that the full faith and credit statute, 28 U.S.C. § 1738, requires a federal court to give preclusive effect to a state court judgment when other courts in the state from which the judgment arose would do so, citing Kremer v. Chemical Constr. Corp., 456 U.S. 461, 102 S.Ct. 1883 (1982) and Migra v. Warren City School District Bd. of Educ., 465 U.S. 75, 104 S.Ct. 892 (1984)),
In North Dakota, the following elements must be satisfied to establish the preclusive effect of a prior judgment on the basis of collateral estoppel: (1) the issue decided in the prior adjudication must be identical to the one for which preclusion is sought; (2) the prior adjudication must have resulted in a final judgment on the merits; (3) the party against whom collateral estoppel is asserted must have been a party or in privity with a party to the prior adjudication; and (4) the party against whom collateral estoppel is asserted must have been given, a fair opportunity to be heard on the issue in the prior adjudication.Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1475 (8th Cir. 1994) (citing Hofsommer v. Hofsommer Excavating. Inc., 488 N.W.2d 380, 384 (N.D. 1992)).
In the case at bar, the state court default judgment indicates that Krueger "fraudulently misrepresented the true mileage" on the vehicle he sold to Starkey. Given the state court's finding, Starkey asserts that collateral estoppel bars relitigation of the fraudulent misrepresentation issue. Starkey argues that the default judgment establishes the nondisehargeability of the judgment debt under sections 523 (a)(2)(A) and 523 (a)(6) of the Bankruptcy Code. Krueger opposes the application of collateral estoppel, asserting that two elements of North Dakota's collateral estoppel doctrine have not been met. Krueger asserts (1) that the default judgment was not a final judgment on the merits and (2) that he was not given a fair opportunity to be heard in the prior adjudication. Krueger does not dispute that the other elements of collateral estoppel have been met.
Before reaching the arguments asserted by Krueger, however, there are two issues with respect to collateral estoppel that the Court is compelled to address in this case. First, there appears to be a threshold question as to whether the state court default judgment contains sufficient factual findings to support the application of collateral estoppel. Second, the Court also recognizes that Starkey is attempting to use collateral estoppel offensively — as a sword rather than a shield, Accordingly, the Court must also address the fairness considerations attendant to the application of offensive collateral estoppel in this case.
I. Sufficiency of Factual Findings for Purposes of collateral Estoppel
This Court has held that the factual basis for findings made by a previous tribunal must be clear in order to satisfy the "actually litigated" element of the federal collateral estoppel doctrine. Jellebera v. Young (In re Young.), No. 96-7072, slip op. at 6 (Bankr. D.N.D. January 21, 1997); Olson v. United States (In re Olson), 170 B.R. 161, 166 (Bankr. D.N.D. 1994); Ashton v. Burke (In re Burke), 83 B.R. 716, 723 (Bankr. D.N.D. 1988); Skaarer v. Fercho (In re Fercho), 39 B.R. 764, 766 (Bankr. D.N.D. 1984) (citing Spilman v, Harley, 656 F.2d 224 (6th Cir. 1981)). Until recently, this Court applied the federal collateral estoppel doctrine in determining the preclusive effect of state court judgments, as suggested by Johnson v. Miera (In re Miera), 926 F.2d 741, 743 (8th Cir. 1991). See Olson, 170 B.R. at 166. However, as previously discussed, the Eighth Circuit's Scarborough decision clarified that the collateral estoppel doctrine of the state that issued the judgment is to be applied. Here, North Dakota's collateral estoppel doctrine has no "actually litigated" element similar to that of the federal doctrine. Instead, North Dakota employs the lesser "fair opportunity to litigate" standard. Thus, the theoretical underpinnings of this Court's prior rulings requiring factual clarity have been undermined somewhat. Nevertheless, the Court maintains that some level of factual clarity is necessary in order to apply collateral estoppel at all — but how much?
A leading case on point dealt with the collateral estoppel effect of a pre-bankruptcy state court default judgment that established a debt for services obtained by false pretenses. See Harold v. Simpson Co. v. Shuler (In the Matter of Shuler), 722 F.2d 1253, 1254 (5th Cir. 1984). InShuler the state court judgment, in its entirety, appeared as follows:
JUDGMENT
On this day came on to be heard the above styled and numbered cause. The Court finding that Defendant, though duly cited to appear and answer herein, has wholly failed to appear and answer herein, that appearance day for the Defendant has passed, that Plaintiffs cause of action is based upon a liquidated demand and debt for obtaining by false pretenses the items furnished by Plaintiff, and that Plaintiff is entitled to judgment as prayed for:
It is, accordingly, ORDERED, ADJUDGED and DECREED that Plaintiff, Harold v. Simpson Company, have and recover of and from Defendant, Ronald W. Shuler, doing business as Bill Shuler Marketing Co., judgment in the sum of $808.52, together with interest thereon from date of judgment at the rate of nine percent (9%) per annum until paid, and for all costs of court in his behalf expended, for all of which let execution issue. In event of any appeal from or attack upon the effect of this judgment in any court, state or federal, direct or indirect, including bankruptcy proceedings, further and additional reasonable attorney's fees of $2,500.00 for each such proceeding in each such Court are hereby awarded to the extent this court has jurisdictional power to so order.
Id. at 1257 n. 7. After the debtor filed bankruptcy, the creditor sought a determination that the judgment debt was nondischargeable under 11 U.S.C. § 523 (a)(2)(A). Id. at 1254. The creditor asserted that the bankruptcy court was bound by collateral estoppel to adopt the state court's alleged finding that the debt was for services obtained by false pretenses and that, therefore, the creditor had met his burden of proving the nondischargeability of the judgment debt. Id. However, the Fifth Circuit rejected the creditor's argument, stating that the default judgment "contained merely a conclusory statement that the plaintiff was entitled to judgment on a false-pretense cause of action." Id. at 1257. Significantly, it was impossible to discern from the record what "specific false-pretense conduct," if any, had been committed by the debtor. Id. at 1258. As a result, the state court default judgment in Shuler was accorded no collateral estoppel effect on the false pretense issue. Id.
In a similar case before this Court, a creditor sought to prove the nondischargeability of a default judgment debt by relying on the collateral estoppel effect of the state court default judgment itself.Je1leberg v. Young (In re Young), No. 96-7072, slip op. at 5 (Bankr. D.N.D. January 21, 1997). In Young, the default judgment appeared, in pertinent part, as follows:
FINDINGS OF FACT * * * III.
The Defendant has failed to appear or make any attempt to defend against the Complaint in this action.
IV.
The plaintiffs, in this Complaint, seek affirmative legal relief, specifically:
a. $3,000 for the Defendant's failure to comply with the terms of the contract for the painting of the Plaintiffs' home and place of business, a bed and breakfast known as the Dakotah Rose Bed Breakfast.
b. $10,000 for damages caused to the Plaintiffs' home and place of business resulting from the negligence of the Defendant.
c. $3,000 for the fraud of the Defendant in representing himself as a licensed contractor in the State of North Dakota when, in fact, he was not.
V.
The failure of the Defendant to defend or otherwise appear in this action justifies the entry of Judgment by default.
Having made its Findings of Fact, the Court hereby makes its:
CONCLUSIONS OF LAW * * * II.
The Defendant has wholly failed to appear or otherwise defend in this action.
III.
The Plaintiffs seek affirmative legal relief for the following:
a. $3,000 for the Defendant's failure to comply with the terms of the contract for the painting of the Plaintiffs' home and place of business, a bed and breakfast known as the Dakotah Rose Bed Breakfast.
b. $10,000 for damages caused to the Plaintiffs' home and place of business resulting from the negligence of the Defendant.
c. $3,000 for the fraud of the Defendant in representing himself as a licensed contractor in the State of North Dakota when, in fact, he was not.
IV.
The Plaintiffs are entitled to entry of Judgment in the amount of $16,000, plus their costs and fees allowed by law.
Young, slip. op. at 4-5. As this Court observed in Young, the state court's findings and conclusions were "couched in terms of what legal relief the Plaintiffs sought" rather than indicating what conduct had been committed by the debtor. Young, slip op at 6 Indeed, the state court in Young did not make an affirmative finding that the debtor committed fraud. Thus; the state court judgment in Young was accorded no collateral estoppel effect on that issue.
The case at bar is distinguishable from Shuler and Young. UnlikeShuler and Young, the default judgment in this case was not couched in terms of the relief sought by Starkey. Here, the state court default judgment contains a specific finding that Krueger fraudulently misrepresented the mileage of the vehicle he sold to Starkey, and this finding contains the type of information that was lacking in both Shuler and Young. First, the state court's finding in this case identified the specific conduct which Krueger committed — he misrepresented the mileage on a vehicle he sold to Starkey. Second, the court specifically used the words "fraudulently misrepresented" in making its finding. "Fraudulent misrepresentation" is a legal term of art that identifies a specific tort, and the state court was well aware of the significance of that terminology. Thus, in this case, it is reasonable to conclude that the state court made an affirmative finding that Krueger committed the tort of fraudulent misrepresentation. Accordingly, the state court default judgment contains a sufficient factual basis to allow the use of collateral estoppel with respect to the issue of fraudulent misrepresentation.
2. Fairness Considerations
Although North Dakota has not determined what fairness considerations are attendant upon application of offensive collateral estoppel, there is no indication that it would deviate from established law in the Eighth Circuit with respect to this issue, "The decision to use offensive collateral estoppel has been left to the broad discretion of the courts, with the recognition that there are situations in which its use would be unfair." AETNA Casualty and Surety Co. v. General Dynamics Corp., 968 F.2d 707, 711 (8th Cir. 1992) (citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S.Ct. 645, 651, 58 L.Ed.2d 552 (1979)). It would be unfair to apply collateral estoppel offensively if (1) the defendant had no strong incentive to litigate the prior lawsuit, (2) the judgment relied on was inconsistent with one or more previous judgments in favor of the defendant, or (3) the second action [affords] the defendant procedural opportunities unavailable in the first action that could readily cause a different result. United States v. Karlen, 645 F.2d 635, 639 (8th Cir. 1981) (citing Parklane, 439 U.S. at 330-31, 99 S.Ct. at 651-652). Furthermore, one of the underlying purposes of the collateral estoppel doctrine is the promotion of judicial economy. In furtherance of that purpose, it has been recognized that offensive collateral estoppel should not be applied when the party asserting it could have joined in the prior action. Nanninga v. Three Rivers Electric Cooperative, 203 F.3d 529, 534 (8th Cir. 2000) (citing Parklane, 439 U.S. at 331, 99 S.Ct. at 651-52).
The North Dakota Supreme Court has cited federal case law regarding the issue of collateral estoppel on at least two occasions, See State v. Lange, 497 N.W.2d 83, 85 (ND. 1993) (quoting Ashe v. Swenson, 397 U.S. 436, 443, 90 S. Ct. 1189, 1194, 25 L.Ed.2d 469, 475 (1970)); Hofsommer v. Hofsommer Excavating. Inc., 488 N.W.2d 380, 385 (N.D. 1992) (citingOtherson v. Department of Justice, I.N.S., 711 F.2d 267, 274 n. 6 (D.C. Cir. 1983) and Red Lake Band v. United States, 607 F.2d 930, 934, 221 Ct.CI. 325 (1979)). Moreover, although North Dakota has not abandoned the mutuality requirement traditionally employed by courts with respect to collateral estoppel, see Hofsommer, 488 N.W.2d at 384, strict mutuality exists here because the parties in the instant matter are the same ones that were involved in the previous state court action.
In the case at bar, neither fairness nor judicial economy considerations weigh against the application of offensive collateral estoppel. First, the incentive to litigate is no greater here than in the state court proceeding. The amount at stake in the instant adversary proceeding is identical to the amount of damages awarded in the prior state court default judgment. Perhaps the judgment resulting from the state court action turned out to be larger than Krueger anticipated. However, that was a risk Krueger voluntarily undertook in deciding not to defend the state court action.
Moreover, to the extent that he thought the damages awarded by the state court were excessive or incorrect, the proper avenue to challenge the default judgment would have been to appeal it. The Rooker-Feldman doctrine prohibits this Court from engaging in impermissible federal appellate review of state court judgments. See In re Hatcher, 218 B.R. 441, 447-48 (B.A.P. 8th Cir. 1998).
Second, there are no prior judgments inconsistent with the state court default judgment. Third, there are no procedural opportunities in the instant adversary proceeding which would readily cause a different result than the one obtained in the prior proceeding. Fourth, the same parties are litigating the instant adversary proceeding that were involved in the prior state court proceeding. Thus, Starkey never assumed a "wait and see" approach to the prior litigation, and allowing the use of offensive collateral estoppel would not erode the goal of judicial economy. Indeed, failing to apply collateral estoppel in this case would tend to defeat judicial economy because Krueger had every opportunity to try his case in state court but chose not to do so. Therefore, the Court concludes that fairness and judicial economy considerations do not bar the use of offensive collateral estoppel in the instant matter.
The Court will now address whether, under North Dakota's collateral estoppel doctrine, the default judgment constitues a final judgment on the merits and whether Krueger was given a fair opportunity to be heard in the prior state court proceeding.
3. Final Judgment on the Merits
In North Dakota, all judgments are final judgments. Schaff v. Kennelly, 69 N.W.2d 777, 779 (ND. 1955). In this case, the time for appealing the default judgment has passed, and no appeal was taken. Thus, the default judgment is indeed "final." The more difficult question is whether a default judgment may be considered a judgment "on the merits." For purposes of collateral estoppel and res judicata, a judgment is "on the merits" when it is "based on legal rights as distinguished from mere matters of practice, procedure, jurisdiction, or forum [sic]." FDIC v. Urbanizadora Altomar. Inc., 716 F. Supp. 701, 704 (D.P.R. 1989) (quotingHarper Plastics v. Amoco Chemicals Corp., 657 F.2d 939, 943 (7th Cir. 1981) (judgment is on the merits when it is "based on legal rights as distinguished from mere matters of practice, procedure, jurisdiction, or form")); Fairmont Aluminum Co. v. Commissioner, 222 F.2d 622, 625 (4th Cir. 1955), cert. denied 350 U.S. 838, 76 S.Ct. 76, 100 L.Ed. 748 (1955); Clegg v. United States, 112 F.2d 886, 887 (10th Cir. 1940) ("Merits means the real or substantial grounds of action or defense as distinguished from matters of practice, procedure, jurisdiction, or form."). North Dakota law would appear to conform to the federal definition of "on the merits." Cf. Schaff v. Kennelly, 69 N.W.2d 777, 780 (ND. 1955) (an order "involves the merits" if it is "decisive of the question involved in the cause or of some strictly legal right of the party appealing as distinguished from mere questions of practice"). Thus, the question before the Court is whether the default judgment in this case determined the substantive legal rights of the parties as opposed to merely reaching matters of practice, procedure, jurisdiction, or form.
Rule 55 of the North Dakota Rules of Civil Procedure governs the entry of default judgments. The rule provides that in all cases other than those in which a sum certain is sought, "the court, before directing the entry of judgment, shall require such proof as may be necessary to enable it to determine and grant the relief, if any, to which the plaintiff may be entitled." N, D. R. Civ. P. 55 (a)(2). In such cases, "some form of proof must be submitted to establish liability as well as damages." Thompson v. Goetz, 455 N.W, 2d 580, 584 (ND. 1990).
In the instant matter, the default judgment did not arise from a claim for a sum certain. Thus, to obtain the default judgment in question, Starkey was required to submit evidence to the state court, probably by affidavit, which satisfied the court as to the issues of liability and damages. These issues governed the substantive rights between the parties in the state court proceeding, and if Starkey's proof had been inadequate, the language of Rule 55 indicates that the state court had the discretion to deny the requested relief. Thus, the state court proceeding was not merely procedural in nature, and the resulting default judgment was "on the merits."
4. Fair Opportunity to be Heard
The Supreme Court of North Dakota has not defined what it means to have a fair opportunity to be heard. However, Minnesota employs the same four elements of collateral estoppel as North Dakota, including the element that the party against whom collateral estoppel is asserted must have had a fair opportunity to be heard in the prior adjudication. See Bechtold v. City of Rosemount, 104 F.3d 1062, 1066-67 (8th Cir. 1997) (setting forth the elements of Minnesota's collateral estoppel doctrine). InBechtold, the Eighth Circuit indicated that a party has received a fair opportunity to be heard if the party "could have" litigated the issues in question at a proceeding that would have satisfied the minimal procedural requirements of the Due Process Clause in the 14th Amendment of the U.S. Constitution. Bechtold, 104 F.3d at 1068 (italics added); Gahr v. Trammel. 796 F.2d 1063, 1070 (8th Cir. 1986); Kremer, 456 U.S. at 481, 102 S.Ct. at 1897-98,
In the case at bar, Krueger had a fair opportunity to litigate any issues or defenses he may have had with respect to Starkey's fraudulent misrepresentation claim in a full trial upon the merits. The fact that Krueger failed to take advantage of the opportunity to try his case is no indication that the procedures available to him under state law — in this case, a full trial upon the merits — would have been inadequate under the Due Process Clause. See Kremer, 456 U.S. at 485, 102 S.Ct. at 1899 ("The fact that Mr. Kremer failed to avail himself of the full procedures provided by state law does not constitute a sign of their inadequacy."). Indeed, a full trial upon the merits satisfies the requirements of the Due Process Clause. See generally Bechtold, 104 F.3d at 1068; Gahr, 796 F.2d at 1070; Kremer, 456 U.S. at 483-85, 102 S.Ct. at 1898-99. Thus, Krueger was given a fair opportunity to be heard, and this element of collateral estoppel has been met.
Based on the foregoing, the Court concludes that (1) the state court default judgment contains a sufficient factual basis to permit the application of collateral estoppel; (2) considerations regarding fairness and judicial economy do not weigh against the application of offensive collateral estoppel in this case; and (3) the elements of collateral estoppel have been satisfied under North Dakota law. Therefore, collateral estoppel prohibits Krueger from relitigating the issue of fraudulent misrepresentation in bankruptcy court. Nevertheless, the burden remains on Starkey to prove each element of the asserted discharge exceptions by a preponderance of the evidence. Community National Bank v. Slominski (In re Slominski), 229 B.R. 432, 435 (Bankr. D.N.D. 1998);Grogan, 498 U.S. at 291, 111 S.Ct. at 661. Starkey asserts that the state court default judgment establishes the nondischargeability of the judgment debt under sections 523 (a)(2)(A) and 523 (a)(6) of the Bankruptcy Code.
B. Nondischargeability Under 11 U.S.C. § 523 (a)(2)(A)
A debt for money, property, services, or an extension, renewal, or refinancing of credit, is nondischargeable to the extent that the debtor procured such items by false pretenses, a false representation, or actual fraud. 11 U.S.C. § 523 (a)(2)(A). To establish nondischargeability under 11 U.S.C. § 523 (a)(2)(A), the following elements must be proven:
(1) that the debtor made a false representation;
(2) that the debtor knew the representation was false when he made it;
(3) that the representation was made with the intention and purpose of deceiving the creditor;
(4) that the creditor justfiably relied on the representation; and
(5) that the creditor sustained the alleged injury as a proximate result of the representation having been made.
Slominski, 229 BR. at 435 (italics added); Thul v. Onhaug (In re Onhaug), 827 F.2d 340, 342 n. 1 (8th Cir. 1987); Field v. Mans, 516 U.S. 59, 73-75, 116 S.Ct. 437, 445-46, 133 L.Ed.2d 351 (1995) (establishing that nondischargeability under section 523 (a)(2)(A) requires "justifiable" reliance by the creditor).
In the instant matter, Starkey relies solely on the state court default judgment to establish the five elements required for nondischargeability of the judgment debt pursuant to section 523 (a)(2)(A). However, the default judgment contains no indication whatsoever that Starkey's reliance was justified. The default judgment merely states that "[Starkey] relied on [Krueger's] representations in purchasing" the vehicle — nothing more. Since Starkey has submitted no evidence indicating that his reliance was justified, he has failed to carry his burden of proof, and the Court need not determine whether any of the other elements necessary to establish nondischargeability under section 523 (a)(2)(A) have been met. Accordingly, section 523 (a)(2)(A) does not operate to except the judgment debt at issue from discharge.
C. Nondischargeability Under 11 U.S.C. § 523 (a)(6)
A debt "for willful and malicious injury by the debtor to another entity or to the property of another entity" is nondischargeable. 11 U.S.C. § 523 (a)(6). However, the question as to whether section 523 (a)(6) applies to nondischargeability claims based on intentional fraud is an open one. The statutory scheme set out in section 523 (a) indicates that such nondischargeability claims should be brought under section 523 (a)(2)(A). See McCrary v. Barrack (In re Barrack), 201 B.R. 985. 990-91 (Bankr. S.D.Cal. 1996) (the more specific statute, § 523 (a)(2)(A), controls fraud nondischargeability rather than the more general statute, § 523 (a)(6)). Indeed, section 523 (a)(2)(A) expressly applies to debts "for money" obtained by "actual fraud." 11 U.S.C. § 523 (a)(2)(A). Nevertheless, some bankruptcy courts have concluded that nondischargeability claims based on fraud may also be brought under section 523 (a)(6). See Mosley v. Sims (In re Sims), 148 B.R. 553, 555 (Bankr. E.D.Ark. 1992) (citations omitted). So far, two Circuits have ruled that section 523 (a)(2) and section 523 (a)(6) are not mutually exclusive. Ferris v. Stokes (In re Stokes), 995 F.2d 76, 77 (5th Cir. 1993); Printy v. Dean Witter Reynolds. Inc., 110 F.3d 853, 858 (1st Cir. 1997). However, the Supreme Court suggested that nondischargeability claims based on fraud fall within the ambit of section 523 (a)(6) only if (1) the debtor fraudulently obtained something other than money, property, or services, or (2) the fraud claim involved punitive damages. Grogan, 111 S.Ct. at 657 n. 2. The Supreme Court has since clarified that all damages (both actual and punitive) resulting from a debtor's fraud are nondischargeable under section 523 (a)(2)(A).See Cohen v. De La Cruz, 523 U.S. 213, 118 S. Ct. 1212 (1998). Therefore, nondischargeability claims based on fraud should be governed by section 523 (a)(6) only if the debtor obtained something other than money, property, services, or credit. Under those circumstances, the nondischargeability claim would fall outside the express language of section 523 (a)(2).
In the case at bar, Krueger fraudulently misrepresented the actual mileage on a vehicle he sold to Starkey, thereby causing Starkey to pay far more for it than he otherwise should have paid. Thus, Krueger's fraud resulted in a debt "for money" obtained by "actual fraud" as contemplated within section 523 (a)(2)(A) of the Bankruptcy Code. Since the debtor did not fraudulently obtain something other than money, property, services, or credit, section 523 (a)(6) is inapplicable and the judgment debt at issue is dischargeable.
III. CONCLUSION
For the foregoing reasons, the Default Judgment of the District Court for Ward County, State of North Dakota, Case No. 99-C-0452, entered in favor of William Starkey and against Charles Krueger on June 10, 1998, in the amount of $162,728.33, together with legal interest, is hereby declared dischargeable in the debtor's bankruptcy case.
JUDGMENT MAY BE ENTERED ACCORDINGLY.
SO ORDERED.