              United States Bankruptcy Appellate Panel
                               FOR THE EIGHTH CIRCUIT

                                       ____________

                                        99-6008MN
                                       ____________


In re: Jerome E. Moen; Jane M. Moen           *
                                              *
       Debtors                                *
                                              *
The Merchants National Bank of Winona         *
                                              *   Appeal from the United States
       Plaintiff - Appellee                   *   Bankruptcy Court for the
                                              *   District of Minnesota
              v.                              *
                                              *
Jerome E. Moen                                *
                                              *
       Defendant - Appellant                  *

                                       ____________

                                 Submitted: July 20, 1999
                                 Filed: September 15, 1999
                                       ____________

Before KOGER, Chief Judge, SCHERMER and SCOTT, Bankruptcy Judges.
                               ____________

KOGER, Chief Judge.


       This is an appeal from a bankruptcy court1 ruling that a debt owed by the
debtor/appellant, Jerome E. Moen, to the plaintiff/appellee, The Merchants National Bank
of Winona, is nondischargeable under 11 U.S.C. § 523(a)(2)(A).


       1
          The Honorable Dennis D. O’Brien, Chief Judge, United States Bankruptcy Court for the
District of Minnesota.
                                            Facts

        On December 27, 1990, Jerome E. Moen and his wife, Jane M. Moen (who is not a
party to either the nondischargeability action or this appeal), entered into a ten-year Equity
Credit Agreement with The Merchants National Bank of Winona (“Merchants”), which was
secured by a mortgage on the Moens’ home. The Equity Credit Agreement provided for a
maximum line of credit in the amount of $75,000.00 and clearly stated that it was “an
agreement about your home equity line of credit.” The Agreement provided that the
borrower could request a loan under the line of credit by “writ[ing] a check for at least the
minimum advance listed above using one of the special checks you have for that purpose.”
The Agreement further stated that “[t]o be sure that you pay us the money you may owe us
under this plan, we have taken a security interest in the following collateral: 1617 Clubview
Rd., Winona, MN 55987.” Under the heading ATTORNEY’S FEES, the Agreement stated
that the Moens “agree[d] to pay all costs we have (including reasonable attorney’s fees and
court costs) to collect this debt (unless prohibited by law).” The Equity Credit Revolving
Line of Credit Rider, which Jerome Moen signed, provides that “All advances made at any
time by [Merchants] in accordance with the terms of the [Equity Credit Agreement] . . . shall
be secured by the Mortgage.” When Jerome Moen signed the Equity Credit Agreement he
understood that the line of credit would be available only as long as the home secured the
loan.

       Between January 2, 1991, and July of 1996, the Moens periodically borrowed against
the home equity line of credit by writing special purpose checks issued by Merchants, and
made all payments due under the account. From May of 1994 until July of 1996, the balance
due under the line of credit was never less than $68,000.00, and occasionally reached the
maximum amount of $75,000.00. In either June or July of 1996, Jerome Moen approached
Town and Country State Bank of Winona (“Town and Country”) for a $150,000.00 loan for
the purpose of expanding his solely owned corporation, the Minnesota City Sweatshirt
Company.2 Town and Country agreed to the loan, but wanted a first secured position in the


       2
          Before Moen approached Town and Country for a loan, he had acted as a borrower either
individually or on behalf of many of his businesses in connection with several commercial and
residential loan transactions from various lending institutions, including Merchants.

                                              2
Moens’ home. Moen sought lending from Town and Country because Merchants was
unwilling to increase the line of credit under the home equity credit account from $75,000.00
to $150,000.00 in order to finance Moen’s proposed expansion of his business.3 On July 8,
1996, Town and Country paid off the balance due under the Merchants’ line of credit in the
amount of $73,805.77, and Merchants executed a Satisfaction of Mortgage and released its
lien on the Moens’ home. Thereafter, Town and Country loaned Jerome Moen the sums
requested using the Moens’ home as collateral for the loan. Jerome Moen understood that
the Merchants’ home equity line of credit would terminate when Merchants released the lien
on the home.

        Merchants, however, failed to terminate Jerome Moen’s access to the line of credit.
Merchants readily admits that it was a mistake on its part to leave the home equity line of
credit open after releasing the lien on the Moens’ home. In August of 1996, Merchants sent
Jerome Moen a statement for the Equity Credit Plus account which showed that the account
balance was paid off on July 8, 1996, and which reflected that the available credit line was
$75,000.00. Before receiving this statement, Jerome Moen thought that the home equity line
of credit was null and void because the balance had been paid off and the security for the line
of credit had been moved to Town and Country. After receiving the statement, Jerome Moen
thought the indication that he had $75,000.00 of available credit might be an error, but
wondered if the line of credit actually was still open. Jerome Moen called Merchants and
spoke to either a bookkeeper or a teller; he did not speak to a loan officer or other officer at
Merchants. When Moen asked the bookkeeper or teller if the line of credit was indeed still
open, the computer record of the account as observed by the bookkeeper or teller still showed
that the line of credit was secured by the Moens’ home and was still open. The bookkeeper
or teller confirmed that the line of credit was still open.

      According to Jerome Moen’s testimony, he needed to put a lot of money into his
business “fast” in order to expand from 8 to 25 stores. After his conversation with the


       3
           Previously, in approximately November of 1995, Merchants had refused to extend secured
credit in the amount of $9000.00 to Moen’s corporation, personally guaranteed by Jerome Moen, for
the purchase of a van because the corporation was showing losses, had a highly leveraged position,
had a negative cash flow, was not liquid and was rapidly expanding.

                                                3
bookkeeper or teller, Moen rapidly started writing checks on the now unsecured home equity
line of credit account. Between August 9, 1996, and August 19, 1996, Moen wrote 5 special
purpose checks on the line of credit account totaling $74,263.95. Moen used the funds to
purchase inventory and pay bills for his expanding business. Between August 19, 1996, and
August 15, 1997, Moen made the monthly minimum payments due on the account and
continued to write checks against the line of credit in small amounts. As of August 15, 1997,
the balance due on the home equity line of credit account was $71,340.18. Merchants never
realized the home equity line of credit account was still open until the Moens filed for
bankruptcy protection in October of 1997. Jerome Moen had personally guaranteed most,
if not all, of the loans to his solely-owned corporation. When the business failed and it filed
for relief under the Bankruptcy Code, the Moens likewise were required to file a bankruptcy
case.

       Following the Moens’ bankruptcy filing, Merchants filed a complaint seeking to have
the $71,340.18 debt, plus interest along with attorney’s fees and costs, declared
nondischargeable under section 523(a)(2)(A) of the Bankruptcy Code. After trial, the
bankruptcy court entered judgment in favor of Merchants and granted all of the relief
requested in the complaint. Jerome Moen timely appealed from the bankruptcy court’s
decision.

       Jerome Moen challenges three determinations made by the bankruptcy court. First,
Moen contends that the bankruptcy court erred in finding that he made false representations
in accessing the line of credit and that he knew the representations were false were made.
Next, Moen asserts that the bankruptcy court erred in finding that he acted with the purpose
and intent of deceiving Merchants. Finally, Moen contends that there was no basis upon
which the bankruptcy court could award attorney’s fees to Merchants.

                                     Standard of Review

       “We review the bankruptcy court’s legal conclusions de novo and its factual findings
under the clearly erroneous standard.” In re Jones, 31 F.3d 659, 661 (8th Cir. 1994)(quoting
Miller v. Farmers Home Admin. (In re Miller), 16 F.3d 240, 242 (8th Cir. 1994). “A finding
of whether a requisite element of [a] section 523(a)(2)(A) claim is present is a factual

                                              4
determination reviewed for clear error.” In re Anastas, 94 F.3d 1280, 1283 (9th Cir. 1996).
“A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm conviction that a mistake has
been committed.” In re Leuang, 211 B.R. 908, 909 (B.A.P. 8th Cir. 1997)(quoting Anderson
v. City of Bessemer, 470 U.S. 564, 573, 105 S. Ct. 1504, 1511, 84 L. Ed. 2d 518 (1985)).
On appeal, the reviewing court shall give “due regard . . . to the opportunity of the
bankruptcy court to judge the credibility of the witnesses.” Fed. R. Bankr. P. 8013.

                                         Discussion

       Section 523(a)(2)(A) of the Bankruptcy Code states that:

       (a) A discharge under section 727, 1141, 1228(a) 1228(b), or 1328(b) of this
       title does not discharge an individual debtor from any debt–
               ....
       (2) for money, property, services, or an extension, renewal, or refinancing of
       credit, to the extent obtained, by–
            (A) false pretenses, a false representation, or actual fraud, other than a
       statement respecting the debtor’s or an insider’s financial condition.

11 U.S.C. § 523(a)(2)(A).

       To prevail under 11 U.S.C. § 523(a)(2)(A) the creditor must prove:

       1) that the debtor made a representation;
       2) that at the time the debtor knew the representation was false;
       3) that the debtor made the representation deliberately and intentionally with the
       intention and purpose of deceiving the creditor;
       4) that the creditor justifiably relied on such representation; and
       5) that the creditor sustained the alleged loss and damage as the proximate result of
       the representation having been made.

In re Ophaug, 827 F.2d 340 (8th Cir. 1987), as supplemented by Field v. Mans, 516 U.S. 59,
116 S. Ct. 437, 133 L. Ed. 2d 351 (1995).


                                              5
        “Actual fraud, by definition, consists of any deceit, artifice, trick or design involving
direct and active operation of the mind, used to circumvent and cheat another – something
said, done or omitted with the design of perpetrating what is known to be a cheat or
deception.” RecoverEdge L.P. v. Pentecost, 44 F.3d 1284, 1293 (5th Cir. 1995)(quoting 3
Collier on Bankruptcy ¶ 523.08[5], at 523-57 to 523-58 (footnote omitted)). “The concept
of actual or positive fraud consists of something said, done, or omitted by a person with the
design of perpetrating what he knows to be a cheat or deception.” In re Stentz, 197 B.R.
966, 981 (Bankr. D. Neb. 1996).

      “A ‘false pretense’ involves implied misrepresentation or conduct intended to create
and foster a false impression.” In re Guy, 101 B.R. 961, 978 (Bankr. N.D. Ind. 1988).
“[W]hen the circumstances imply a particular set of facts, and one party knows the facts to
be otherwise, that party may have a duty to correct what would otherwise be a false
impression. This is the basis of the ‘false pretenses’ provision of Section 523(a)(2)(A).” In
re Malcolm, 145 B.R. 259, 263 (Bankr. N.D. Ill. 1992)(citing In re Dunston, 117 B.R. 632,
639-41 (Bankr. D. Colo. 1990)).

        A debtor’s silence regarding a material fact may constitute a false representation
actionable under section 523(a)(2)(A). See, e.g., In re Van Horne, 823 F.2d 1285, 1287-88
(8th Cir. 1987); In re Larkin, 189 B.R. 234, 239 (Bankr. D. Mass. 1995); In re Demarest, 176
B.R. 917, 920 (Bankr. W.D. Wash. 1995), aff’d, 124 F.3d 211 (9th Cir. 1997); In re Jenkins,
61 B.R. 30, 40 (Bankr. D.N.D. 1986); In re Maier, 38 B.R. 231, 233 (Bankr. D. Minn. 1984).
For purposes of section 523(a)(2)(A), a “misrepresentation” denotes “not only words spoken
or written but also any other conduct that amounts to an assertion not in accordance with the
truth.” In re Melancon, 223 B.R. 300, 308-09 (Bankr. M.D. La. 1998)(quoting Restatement
(Second) of Torts § 525, comment (b) (1976)). In Van Horne, 823 F.2d at 1288 (citations
omitted), the Eighth Circuit opined that “[a] borrower has the duty to divulge all material
facts to the lender. . . . While it is certainly not practicable to require the debtor to ‘bare his
soul’ before the creditor, the creditor has the right to know those facts touching upon the
essence of the transaction.”

      “In assessing a debtor’s knowledge of the falsity of the representation . . ., the Court
must consider the knowledge and experience of the debtor.” In re Duggan, 169 B.R. 318,

                                                6
324 (Bankr. E.D.N.Y. 1994). “A false representation made under circumstances where a
debtor should have known of the falsity is one made with reckless disregard for the truth, and
this satisfies the knowledge requirement.” Id.

        “The intent element of § 523(a)(2)(A) does not require a finding of malevolence or
personal ill-will; all it requires is a showing of an intent to induce the creditor to rely and act
on the misrepresentations in question.” In re Swan, 156 B.R. 618, 623 n.6 (Bankr. D. Minn.
1993)(citing In re Hunter, 771 F.2d 1126, 1129 (8th Cir. 1985)). “Because direct proof of
intent (i.e., the debtor’s state of mind) is nearly impossible to obtain, the creditor may present
evidence of the surrounding circumstances from which intent may be inferred.” Van Horne,
823 F.2d at 1287. “Intent to deceive will be inferred where a debtor makes a false
representation and the debtor knows or should know that the statement will induce another
to act.” Duggan, 169 B.R. at 324. The minimum monthly payments made by Jerome Moen
on the line of credit after he ran up the balance on the account following the payoff by Town
and Country do not operate to negate the intent to deceive. See Demarest, 176 B.R. at 920
(“The intent issue . . . revolves around the procurement of the funds, not the intent to repay
or not to repay.”).

         To succeed with its claim against Jerome Moen under section 523(a)(2)(A),
Merchants was required to prove its contentions by a preponderance of the evidence. See
Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). Normally,
“exceptions to discharge [are to] be narrowly construed against the creditor and liberally
against the debtor, thus effectuating the fresh start policy of the Code.” Van Horne, 823 F.2d
at 1287. However, “[t]he Bankruptcy Code has long prohibited debtors from discharging
liabilities incurred on account of their fraud, embodying a basic policy animating the Code
of affording relief only to an ‘honest but unfortunate debtor.’” Cohen v. de la Cruz, 523 U.S.
213, ___, 118 S. Ct. 1212, 1216, 140 L. Ed. 2d 341 (1998) (citations omitted). “[F]raud
may be proved by direct as well as circumstantial evidence, since palpable evidence of the
mental state of an individual is rarely, if ever, available.” In re Fenninger, 49 B.R. 307, 310
(Bankr. E.D. Pa. 1985).

        Additionally, Merchants’ mistake in failing to terminate the home equity line of credit
after releasing the security has no bearing on the presence or absence of fraud on the part of

                                                7
Jerome Moen. See In re Marlar, 142 B.R. 304, 306 (Bankr. E.D. Ark. 1992); In re Karelin,
109 B.R. 943, 948 (B.A.P. 9th Cir. 1990).4

       In this case, the bankruptcy court took its cue from the United States Supreme Court’s
decision in Field v. Mans, 516 U.S. 59, 116 S. Ct. 437, 133 L. Ed. 2d 351 (1995), and looked
to the Restatement (Second) of Torts (1976), for guidance in determining whether Jerome
Moen’s conduct met the elements of a cause of action under section 523(a)(2)(A). In Field
v. Mans, in the context of ruling that a creditor’s reliance must be “justifiable” under section
523(a)(2)(A) in order to place a debt beyond discharge, the Supreme Court opined:

             Since the District Court treated Mans’s conduct as amounting to fraud,
       we will look to the concept of “actual fraud” as it was understood in 1978
       when that language was added to § 523(a)(2)(A). Then, as now, the most
       widely accepted distillation of the common law of torts was the Restatement
       (Second) of Torts (1976), published shortly before Congress passed the
       [Bankruptcy Reform] Act [of 1978].

Field v. Mans, 516 U.S. at 70, 116 S. Ct. at 443-44. The Supreme Court then proceeded to
examine sections 537, 540, 541 and 545A, and the accompanying comments. Id. at 70-71,
116 S. Ct. at 444.

       Here, the bankruptcy court generally reviewed sections 525 through 552 of the
Restatement (Second) of Torts (1976), and specifically relied upon sections 525, 526, 531
and 532 of the Restatement when making its ruling. Section 525 of the Restatement states:

       One who fraudulently makes a misrepresentation of fact, opinion, intention or
       law for the purpose of inducing another to act or to refrain from action in
       reliance upon it, is subject to liability to the other in deceit for pecuniary loss
       caused to him by his justifiable reliance upon the misrepresentation.

Restatement (Second) of Torts § 525 (1976).

       4
         Although Merchants’ failure to terminate the line of credit would appear to have created
a more difficult row to hoe for Merchants regarding proving the elements of justifiable reliance and
proximate cause, Moen does not appeal the bankruptcy court’s findings that Merchants satisfied these
elements of its cause of action under section 523(a)(2)(A).

                                                 8
      Section 526 of the Restatement provides that:

      A misrepresentation is fraudulent if the maker
      (a) knows or believes that the matter is not as he represents it to be,
      (b) does not have the confidence in the accuracy of his representation that he
      states or implies, or
      (c) knows that he does not have the basis for his representation that he states
      or implies.

Restatement (Second) of Torts § 526 (1976).

      Section 531 of the Restatement states that:

      One who makes a fraudulent misrepresentation is subject to liability to the
      persons or class of persons whom he intends or has reason to expect to act or
      to refrain from action in reliance upon the misrepresentation, for pecuniary
      loss suffered by them through their justifiable reliance in the type of
      transaction in which he intends or has reason to expect their conduct to be
      influenced.

Restatement (Second) of Torts § 531 (1976).

      Finally, section 532 of the Restatement provides:

      One who embodies a fraudulent misrepresentation in an article of commerce,
      a muniment of title, a negotiable instrument or a similar commercial document,
      is subject to liability for pecuniary loss caused to another who deals with him
      or with a third person regarding the article or document in justifiable reliance
      upon the truth of the representation.

Restatement (Second) of Torts § 532 (1976).

      The bankruptcy court found that:

              Mr. Moen’s testimony on the nature of his alleged call to the bank was
      less than precise, but the Court concludes that Mr. Moen did call the bank. He
      did so because his business needed cash and the statement from Merchants

                                             9
Bank indicated that the bank would probably continue to honor Mr. Moen’s
special purpose checks. He called not to determine if the bank had approved
a new, unsecured line of credit, but to determine what would happen if he
wrote checks drawing against the old account.
        Once he determined that the bank did not recognize its error, and that
the checks would be honored, he wrote a series of drafts on this “line of
credit” consistent with his earlier borrowing habits while the loan was secured.
Mr. Moen did not alert the bank to what he knew to be an error because he
planned to use the error to his advantage. The bank had just refused to extend
an additional $75,000 of credit on a secured basis and Mr. Moen, an
experienced businessman and entrepreneur, knew Merchants Bank would not
extend the same $75,000 of credit on an unsecured basis. Mr. Moen knew he
was not authorized to use the equity credit line because he knew it was no
longer secured by a lien on his home.
        Mr. Moen’s behavior takes him beyond the critical issue in most §
523(a) cases involving bad checks, the debtor’s intent to repay. [Citation
omitted.] The writing and presentation of a check denotes a representation that
the bank will honor the check. In most cases the court must determine whether
the check constitutes a misrepresentation of the debtor’s intent to pay the debt.
. . . But this Court’s determination is much simpler: Did Mr. Moen represent
he had a right to credit with the special purpose checks? Since Mr. Moen had
no right or reasonable expectancy that Merchants Bank should honor the
checks, any such representation was false.
                ....
        Mr. Moen presented special purpose checks, originally issued in
conjunction with his secured home equity credit line, to borrow on an account
he understood should have been closed. The Court need not fault Mr. Moen
for anything said or unsaid in his conversation with Merchants Bank, but
signing and negotiating a check on an account he knew was not open to his
borrowing manifested a false representation that he was entitled to borrow
additional funds on an unsecured basis.
                ....
The Court accepts the Defendant’s testimony that he intended to repay the
loan, the payments made to the bank before filing bankruptcy provide further
credible support for this position. His reasons for doing so, and his intent to
pay back the loan at the time he presented the special purpose checks, are
irrelevant. Given the purpose and scope of Mr. Moen’s phone conversation
to Merchants Bank, the Court can only conclude that when he wrote the
checks he knew the account was no longer available, and that he had no right
to access it.
                ....

                                       10
               Mr. Moen clearly hoped and believed the bank would extend additional
       credit when he wrote the special purpose checks. That places the Plaintiff
       within the “class of persons whom he intends or has reason to expect to act or
       to refrain from action in reliance upon the misrepresentation[.]” Restatement
       (Second) of Torts § 531 (1976). The evidence of Mr. Moen’s intent is
       circumstantial, but sufficient to establish his intent to deceive. . . .
               Mr. Moen admits he never told anyone at the bank that he believed his
       credit line had been left active by mistake. . . . Mr. Moen’s failure to alert the
       bank of their error is a further demonstration of his intent.

        The bankruptcy court properly applied the law and did not err by following the
Supreme Court’s lead in relying upon the Restatement (Second) of Torts (1976), for guidance
in this case. Normally, every action brought under section 523(a)(2)(A) is unique and very
fact specific. Even though it may be obvious, based upon the particular facts of a given case,
that the debtor has committed fraud, it is not always possible to neatly categorize the conduct
that amounts to fraud as being either “actual fraud,” a “false representation” or a “false
pretense.” Here, the bankruptcy court weighed and sorted through the conflicting evidence,
correctly applied the law to the evidence presented and made decisions concerning the
credibility of the witnesses. The bankruptcy court’s factual determinations that Jerome
Moen knowingly committed fraud with the intent and purpose of deceiving Merchants within
the meaning of section 523(a)(2)(A) are not clearly erroneous.

        The evidence before the bankruptcy court shows that Jerome Moen was a
sophisticated borrower with extensive lending experience both personally and in connection
with his corporation. Jerome Moen was well-versed in secured versus unsecured lending.
Jerome Moen knew that continued access to the Merchants’ home equity line of credit
account was contingent on the Moens’ residence remaining as security for the line of credit.
After Town and County paid off the balance due under the Merchants’ home equity line of
credit account in July 1996, Jerome Moen thought the line of credit account was “null and
void.” After receiving the equity credit account statement following the payoff that
mistakenly reflected the unterminated line of credit, Jerome Moen failed to bring the open
line of credit to the attention of appropriate officers at Merchants. Instead, Moen merely
talked to a bookkeeper or teller, who looked at incorrect data on the computer, and received
confirmation that the home equity credit account was indeed still open and accessible. Moen
quickly accessed the equity credit account and, beginning August 9, 1996, wrote 5 special

                                              11
purpose checks within a span of 11 days, which raised the balance due on the account to just
under the $75,000.00 maximum limit.

        A review of the evidence submitted to the bankruptcy court reveals that its conclusion
that Jerome Moen knew exactly what he was doing and that his conduct amounted to fraud
under section 523(a)(2)(A) is not clearly erroneous. Moen accessed the home equity line of
credit account and borrowed money from Merchants with the knowledge that the account
was no longer secured and should have been “null and void” because Merchants had released
the lien on the Moens’ home. Jerome Moen knew that access to the home equity line of
credit depended upon Merchants having a secured position in the Moens’ home; he knew that
Merchants had released the lien; he believed Merchants’ failure to terminate the line of credit
was probably an error; he had no reason to believe that Merchants would extend the line of
credit on an unsecured basis; he wrote checks on an account he knew Merchants should have
closed; and as a result of his fraud, Moen obtained almost $75,000.00 in funds to which he
was not entitled. Through his fraud, Jerome Moen obtained unsecured financing from
Merchants at a time when Merchants was unwilling to increase the secured line of credit
from $75,000.00 to $150,000.00.

        Finally, the bankruptcy court did not err by awarding Merchants its attorney’s fees
in this action.5 The Eighth Circuit Court of Appeals has ruled that attorney’s fees provided
by contract can become part of the nondischargeable debt under section 523(a)(2)(A). See
In re Alport, 144 F.3d 1163, 1168 (8th Cir. 1998); In re Hunter, 771 F.2d 1126, 1131 (8th Cir.
1985). In this case, the Equity Credit Agreement clearly provides that Jerome Moen will pay
all costs incurred by Merchants to collect the debt, including reasonable attorney’s fees.

       Further, last year the United States Supreme Court in Cohen v. de la Cruz, 523 U.S.
213, 118 S. Ct. 1212, 140 L. Ed. 2d 341 (1998), affirmed the lower courts’ holding that
section 523(a)(2)(A) prevents the discharge of all liability arising from fraud, including an
award of punitive damages assessed on account of the fraud plus attorney’s fees and costs,
and other relief that may exceed the value obtained by the debtor. In Cohen the Hoboken


       5
           Jerome Moen does not contest the award of costs, which are permitted by Fed. R. Bankr.
P. 7054.

                                                12
Rent Control Administrator determined that the debtor had been charging excessive rents and
ordered him to refund $31,382.50 to the affected tenants. The debtor did not comply with
this order and subsequently filed a Chapter 7 bankruptcy petition. The tenants filed an
adversary proceeding contending that the debt was nondischargeable under section
523(a)(2)(A) and also sought treble damages and attorney’s fees and costs under the New
Jersey Consumer Fraud Act. The bankruptcy court granted the relief requested by the
tenants and ruled that the debt in the total amount of $94,147.50 plus attorney’s fees and
costs was nondischargeable.

        The Supreme Court rejected the debtor’s argument that any “debt” incurred for
money, property, services or credit obtained by fraud must be limited to the value of the
money, property, services or credit actually received by the debtor. The Supreme Court
observed that under New Jersey law, because the debtor used fraudulent means to obtain the
$31,382.50, he was subject to the imposition of treble damages plus attorney’s fees and
costs, and opined that:

       Once it is established that specific money or property has been obtained by
       fraud, however, “any debt” arising therefrom is excepted from discharge. In
       this case, petitioner received rent payments from respondents for a number of
       years, of which $31,382.50 was obtained by fraud. His full liability traceable
       to that sum – $94,147.50 plus attorney’s fees and costs – thus falls within the
       exception.
                       ....
               As petitioner acknowledges, his gloss on § 523(a)(2)(A) would allow
       the debtor in [certain] situations to discharge any liability for losses caused by
       his fraud in excess of the amount he initially received, leaving the creditor far
       short of being made whole. And the portion of a creditor’s recovery that
       exceeds the value of the money, property, etc., fraudulently obtained by the
       debtor – and that hence would be dischargeable under petitioner’s view –
       might include compensation not only for losses brought about by fraud but
       also for attorney’s fees and costs of suit associated with establishing fraud.

Cohen, 118 S. Ct. at 1216, 1218.

       Moen argues that Merchants is not entitled to an award of attorney’s fees because the
basis for Merchants’ cause of action under section 523(a)(2)(A) is that the Equity Credit

                                              13
Agreement was terminated upon release of the mortgage and, therefore, Moen committed
fraud by writing special purpose checks on the account after the account should have been
closed. Moen contends that if the Equity Credit Agreement was terminated, the provision
for attorney’s fees is no longer viable. However, Moen confuses the issue of whether he was
an authorized borrower under the Equity Credit Agreement with the separate issue of
Merchants’ right to recover attorney’s fees incurred in its attempt to collect the outstanding
debt arising from Moen’s misuse of the special purpose checks. Here, Moen chose to
fraudulently access the home equity line of credit account by writing special purpose checks
after Merchants had released the home mortgage and should have closed the account. The
terms of the Equity Credit Agreement unequivocally provide that Moen will pay the
reasonable attorney’s fees expended by Merchants to collect any debt which arose out of
Moen’s use of the special purpose checks. It makes no difference whether such debt was
legally or fraudulently incurred. Under the authority of the Eighth Circuit and Cohen,
Merchants is entitled to an award of attorney’s fees. The bankruptcy court did not err by
making such an award in this case.

                                         Conclusion

       The bankruptcy court’s judgment is AFFIRMED in all respects.

       A true copy.

              Attest:

                        CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
                        EIGHTH CIRCUIT




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