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actions to recover compensation and additionally permits a party who has utilized the services of an unlicensed contractor 'to recover all compensation paid' to the contractor. The statute does not on its face limit disgorgement only to those who have been defrauded by an unlicensed contractor. . . . At issue here is whether the state court's award of $123,000 to Creditor pursuant to S 7031(b) constitutes damages 'proximately caused' by Creditor's reliance on Debtor's misrepresentation regarding his unlicensed status. More particularly, . . . whether in light of Cohen v. De La Cruz, [523 U.S. 213, 118 S. Ct. 1212, 140 L. Ed. 2d 341 (1998),] the S 7031(b) award is a debt for money 'obtained by' false pretenses, a false representation, or actual fraud under section 523(a)(2)(A). . . . While the Supreme Court held that a debtor need not 'obtain' or receive money or property fraudulently in order for a creditor to prevail under section 523(a)(2)(A), it repeatedly acknowledged that the liability must 'arise from' the fraud to be nondischargeable. All such damages, . . . 'assessed on account of the fraud,' escape discharge. . . . [T]he S 7031(b) damages were not 'assessed on account' of or flow from Debtor's fraud; in fact, the state court held that Creditor suffered no compensatory damages as a result of Debtor's fraudulent representation. . . . Creditor could have been awarded the $123,000 disgorgement even if he had known before entering the home improvement contract that Debtor [was] unlicensed. . . . As a consequence, the award did not 'arise from' Debtor's fraud and Cohen v. De La Cruz is distinguishable.").
D. 11 U.S.C. S 523(a)(3)
Mitchell v. Bigelow (In re Bigelow), 393 B.R. 667 (B.A.P. 8th Cir. 2008) (Section 523(a)(3) "is predicated on the existence of a debt; in the absence of an underlying debt S 523(a)(3) is simply not applicable. In this case, when the statute of limitations expired on [plaintiff's] claim, the [S 523(a)(3)] claim expired as well." Bankruptcy petition did not extend or toll statute of limitations on plaintiff's state law claim. Complaint in bankruptcy court to be allowed to pursue debtor in state court was "not a request for judgment . . . on the merits of his underlying claim" that would have saved the action from going stale.).
Schlueter v. State Farm Mutual Ins. Co. (In re Schlueter), 391 B.R. 112 (B.A.P. 10th Cir. 2008) (For S 523(a)(3)(A) purposes, creditor must have actual knowledge of case in time to timely file a proof of claim; that creditor had notice of case before distribution and in time to participate under S 726(a)(2)(C) does not preclude a finding of nondischargeability under S 523(a)(3)(A). Rejecting "distribution approach" adopted in Kowalski v. Romano, 59 Fed. App. 709 (6th Cir. 2003): "[L]iteral application of S 523(a)(3)(A) is [not] at odds with the literal application of S 726(a)(2)(C). One section governs the consequences for a debtor's failure to schedule a claim of which she has knowledge; the other section governs distribution of assets." Because debtor has responsibility to lists claims only if known for S 523(a)(3) purposes, material disputed fact remained whether and when debtor was aware that insurance company had subrogation claim arising out of prepetition car accident.).
©2009 Keith M. Lundin
