Cohen v. de la Cruz

PETITIONER:Cohen
RESPONDENT:de la Cruz
LOCATION:National Endowment for the Arts

DOCKET NO.: 96-1923
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 523 US 213 (1998)
ARGUED: Jan 20, 1998
DECIDED: Mar 24, 1998

ADVOCATES:
Donald B. Ayer – Argued the cause for the petitioner
Gregory G. Diebold – Argued the cause for the respondents
Jeffrey A. Lamken – On behalf of the United States, as amicus curiae supporting the respondents

Facts of the case

After the local rent control administrator ordered Edward S. Cohen to refund $31,382.50 in excessive rents he had charged Hilda de la Cruz and other tenants, Cohen sought to discharge his debts under Chapter 7 of the Bankruptcy Code. The tenants filed an adversary proceeding, arguing that the debt Cohen owed to them was nondischargeable under ?523(a)(2)(A) of the Code, which excepts from discharge “any debt … for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by … actual fraud.” The tenants also sought treble damages, attorney’s fees, and costs under the New Jersey Consumer Fraud Act. The Bankruptcy Court ruled in their favor, finding that Cohen had committed “actual fraud” within the meaning of ?523(a)(2)(A) of the Code and that his conduct violated the New Jersey law. The court, therefore, awarded the tenants treble damages totaling $94,147.50, plus attorney’s fees and costs. The District Court affirmed, as did the Court of Appeals, which held that debts resulting from fraud are nondischargeable under ?523(a)(2)(A) of the Code, and that the award of treble damages (plus attorney’s fees and costs) in this case was therefore nondischargeable.

Question

May individuals who commit fraud discharge their debts, including damages awarded to those who were defrauded, under the Bankruptcy Code?

William H. Rehnquist:

We’ll hear argument now in Number 96-1923, Edward S. Cohen v. Hilda de la Cruz.

Mr. Ayer.

Donald B. Ayer:

Mr. Chief Justice, and may it please the Court:

Section 523 (a)(2) of the Bankruptcy Code creates an exception to discharge for individual bankruptcies applicable to, quote, debts for money, property, services, or extensions of credit to the extent obtained by fraud.

The required fraud under that section includes not only representations that are consciously false, but also reckless false statements, and the issue in this case is whether this exception reaches beyond the amounts actually obtained by the debtor to except from discharge a treble damage award ordered for reckless fraud.

Where the fraud involves intentional falsehoods and results in wilful and malicious injury, the damages, punitive and otherwise, are nondischargeable under a different section, 523 (a)(6).

Anthony M. Kennedy:

And you agree with that reading?

Donald B. Ayer:

We do.

Anthony M. Kennedy:

So then you would have a lack of parallelism between the section you’re addressing here and subsections (4) and subsection (6).

Donald B. Ayer:

We would Your Honor and, in fact, we think that’s quite clear from the language, that the structure of the 523 sections as they work, given the literal reading of 523 (a)(2), works quite well.

523 (a)(2) is a provision which, by its terms, is directed to the actual fruits of the fraud.

It’s a simple, clear directive that tells people, if they commit fraud, what they get by the fraud will not be discharged.

Anthony M. Kennedy:

Would that include accounting… if the defrauding party, the wrongdoer, makes profits from the property that he steals, are those profits recoverable?

Donald B. Ayer:

I think they would not be, Your Honor.

I think that… that the other provisions that deal with–

Anthony M. Kennedy:

That’s property obtained by the fraud.

Donald B. Ayer:

–Well, it… I think the most reasonable interpretation is to focus upon the amounts obtained by the act of the fraud, which I would think most immediately would be the amounts obtained in the fraud.

What is very–

Sandra Day O’Connor:

So you think it wouldn’t even include attorney’s fees and costs in the very action in which the recovery is made?

Donald B. Ayer:

–I think it would not, Your Honor.

I think that the other provisions, the (a)(6) provision in particular, which this Court will address tomorrow in the Geiger case, is a provision which is generally applicable, essentially, among other things, to all torts, and it sets a standard which says wilful and… a debt for wilful and malicious injury.

That has been interpreted reasonably, we think, to include punitive damages, to include other penalty sums, to include consequential damages, to include contractually arranged for attorney’s fees, and is a reasonable and uniform way of dealing with what I’ll call damages and consequential payments that are owed.

Our–

Anthony M. Kennedy:

Your answer to Justice O’Connor, it seems to me, follows easily from the answer you gave me.

I think attorney’s fees are even further removed–

Donald B. Ayer:

–Right.

Anthony M. Kennedy:

–under your interpretation–

Donald B. Ayer:

Correct, Your Honor.

Anthony M. Kennedy:

–than profits that the tortfeasor gains.

Donald B. Ayer:

Correct.

Donald B. Ayer:

Now, one interesting result of our interpretation, and it actually is played out in some detail in a decision cited in the Solicitor General’s brief, a Tenth Circuit case, In re Gerlach, is that actually the amount awarded under (a)(2), when you focus on the act of fraud and what is obtained, may actually exceed, in some cases, the damages that are otherwise owing, and in that sense it seems it is a very rational and sensible message to people who may commit fraud.

Say that again.

Donald B. Ayer:

Well, in the context… specifically, the context in Gerlach was a context where the operator of a business selling heavy equipment, selling John Deere tractors, initially got an extension of credit from John Deere, legitimately, but later on they got an extension of that credit by submitting false invoices to show they were doing business that they weren’t doing.

The Court in Gerlach said that the later extensions of credit involved the obtaining of money by fraud, and as a result the entire amount of the debt that was owed was, in fact, covered by (a)(2), even though there might in that case be no damages at all, so I… the only point I want to make is that our point is that in (a)(2) you’re dealing with what was obtained.

The other sections under the code, (a)(6) but also others, also (a)(4), also (a)(11), other… others deal with money that is gained by fraud, and they set up a different logic.

The logic is, what did you… what the debt is for, the injury, and the injury is interpreted broadly, and–

Anthony M. Kennedy:

How does Gerlach work?

In other words, the Bankruptcy Code supersedes State tort law on the measure of recovery for fraud, in the John Deere case that you’re describing.

Donald B. Ayer:

–I think the net result is that… is that it… to whatever extent there is a debt it would be nondischargeable under (a)(2) if it is–

Anthony M. Kennedy:

Ah, to the extent there is a debt.

Donald B. Ayer:

–Well, there has to be a debt, obviously, but it may, in fact, be a debt that is larger than the amount that is damages as a result of the fraud.

I guess that’s the point that I want to make.

Back briefly to the facts of this case, which I think are important.

The respondents here are some of the tenants of an 18-unit apartment building that was owned by the petitioner and his father between 1985 and 1989.

When their apartment rental business failed in the late eighties as a result of falling real estate values, petitioner filed bankruptcy under Chapter 7.

Thereafter, the rent control administrator entered an order to the effect that there had been an overcharge of these tenants which amounted to $31,000 and the bankruptcy court held that the overcharge was nondischargeable under the (a)(2) provision.

The court found further that actual fraud existed in that case on the ground that the act of charging rents was itself an implicit representation of their legality and, second, that petitioner’s recklessness in failing to determine what the correct rents were was sufficient to establish an intent to deceive and, finally, the bankruptcy court held that because the overcharges amounted to fraud, treble damages were appropriate under the New Jersey consumer fraud statute and then found that that amount, indeed, also was nondischargeable.

Our view is, as is apparent already, I guess, that that result is wrong.

It’s wrong essentially for three reasons: 1) the plain language of the statute, which talks about debts for money, property, services, extensions of credit to the extent obtained by fraud clearly doesn’t include the amounts that are punitive in nature–

Sandra Day O’Connor:

Well, I don’t know that it’s all that clear from the language.

What does debt for mean?

Does it mean liability on a claim for?

Donald B. Ayer:

–It does, Your Honor.

That’s… it is defined as liability on a claim for money, property, services, et cetera.

Sandra Day O’Connor:

Do you rely on the phrase, to the extent?

Donald B. Ayer:

We do.

We think that… there’s been a discussion back and forth in this case about whether to the extent modifies money, property, services, or whether it modifies debt.

I think everyone agrees… in this case, at least, agrees that it modifies money, property, services.

Our difference, I think, is that… how we understand the word for.

In the petitioner’s view, a debt for a house, or a debt for any particular thing, is a debt for what you have to pay for that thing.

Donald B. Ayer:

It’s not a debt for the act of obtaining that thing.

It’s a debt for the thing.

Sandra Day O’Connor:

Well now, you indicate that before the 1984 amendments to the statute courts generally thought punitive damages were nondischargeable.

Donald B. Ayer:

Under (a)(2)?

Mm hmm.

Donald B. Ayer:

Your Honor, what is very interesting about–

Sandra Day O’Connor:

Is that right?

I mean, that was the general holding of the courts.

Donald B. Ayer:

–I would say that–

Sandra Day O’Connor:

Well, at least that’s what your brief says.

Donald B. Ayer:

–That they were nondischarge… I think–

Right.

Donald B. Ayer:

–I think not, Your Honor.

I think that the interpret… the language prior to 1984 was language that said, debt for obtaining money, property, et cetera, by fraud.

Now, we think that’s ambiguous language.

There are a couple of cases, literally only a couple, that held necessarily that that language does, in fact, reach punitive amounts, and we don’t think that it is illogical to reach that result, but what is important is that prior to 1984 and prior to 1978 even more so, there was… there were not occasions that came up that made courts decide this issue.

The main reason is that with the presence of the (a)(6) language that talks about debts for wilful and malicious injury, with that language being there, any time conduct results in wilful and malicious injury, it doesn’t matter what (a)(2) means, or what is now (a)(2) means.

It doesn’t matter what it means to have a debt for obtaining, and so courts in deciding these cases, as we talk in some detail about in footnotes 13 and 14 of our reply brief, of the yellow brief, the courts typically didn’t focus specifically on the meaning of that prior language.

They didn’t have a reason to, and so it isn’t possible to say here, as the Court has said in a number of cases, there was an important pre-1978, or pre-1984 bankruptcy practice that had been established.

Indeed, there was no clear practice that had been established.

It is not our mission here to tell you that the meaning of those words, if it mattered what the pre-’78 words meant and you didn’t have (a)(6) and you had to decide, might a court decide that they in fact meant to include punitive damages.

Maybe they did.

It isn’t clear.

I would only say that, when reviewing… what you review Justice Breyer for the Court’s opinion in the O’Gilvie case, which talks about, under the different statute, under the IRS statute, whether damages on account of personal injury, whether those include punitive damages, and the Court ruled that they did not, if that is an admissible result, it seems to me it’s certainly admissible to conclude… one could conclude that… that a debt for obtaining money by fraud doesn’t include it.

Our only point is that it was ambiguous.

It never got clearly resolved by the courts but in a single case that we’re aware of, a Ninth Circuit case called Houtman.

Antonin Scalia:

Why isn’t that function of (6) still applicable?

I mean, I don’t understand why (6) would make the question irrelevant then and not make it irrelevant now.

Donald B. Ayer:

It is still applicable, Your Honor, and I think that it is true that this case and this Court’s decision in this case is only going to be determinative in the group of cases… and I debated whether to characterize it as the sliver of cases or a larger group of cases, but the group of cases that involves conduct that is fraudulent, meaning it’s at least reckless, but it falls short of being wilful and malicious.

Ruth Bader Ginsburg:

Then Mr. Ayer, you would concede that your argument leads to the result that is suggested in the Solicitor General’s brief at page 21.

Ruth Bader Ginsburg:

That is, the bolts that were sold with fraudulent representation for $5,000 and then there’s a crash of the plane–

Donald B. Ayer:

Justice Ginsburg, I know your question, I think.

It does lead to the result that that conduct, like other kinds of tortious conduct, will produce nondischargeability of punitive damages only where the conduct is found wilful and malicious.

Ruth Bader Ginsburg:

–So that if it isn’t wilful and malicious, just reckless–

Donald B. Ayer:

Right.

Ruth Bader Ginsburg:

–then the result is $5,000 and not what it cost to rebuild the plane.

Donald B. Ayer:

That is correct.

Antonin Scalia:

It is clear to you that wilful and malicious does not include reckless?

Punitive damages I had always thought were only given for intentional torts, and yet they’re given for recklessness.

Donald B. Ayer:

Well–

Antonin Scalia:

I assume they’re given for recklessness because it amounts to wilful and malicious, as it does in the criminal law.

You know–

Donald B. Ayer:

–Well, that… I mean, that–

Antonin Scalia:

–firing the rifle into the empty house.

You don’t know if somebody’s there at all.

You really don’t care.

Donald B. Ayer:

–I mean, that I think is some part of the question pending in the Geiger case which will be argued tomorrow, and it has been our understanding from reading the cases that we’re aware of that two things are clear under the law.

One is that reckless misrepresentations do come within (a)(2), that it is fraud under the Restatement and, as this Court incorporated in essence the Restatement into that–

Sure they do.

Donald B. Ayer:

–And secondly–

Antonin Scalia:

So do wilful ones, though.

Donald B. Ayer:

–Correct, and secondly… I mean, our best reading of the cases is that wilful and malicious requires a measure of intentionality and knowing conduct vis a vis the harm that results.

Now, we could be wrong about that.

It’s not an issue that has been raised in this case because thus far no one has suggested that the conduct here was wilful and malicious, and I guess I would submit that that’s highly unlikely, given the fact that we’re dealing with implicit representations based simply on the fact that he charged a certain rent, and recklessness in failing to ascertain what they thought the legal rent was.

I would think that would be hard to find wilful and malicious, but I will not attempt to define, you know, the case, the outcome of the case tomorrow.

Anthony M. Kennedy:

I think you may have the better view in a close question on the reading of (a)(2), but I’m concerned about the lack of parallelism with (4) and (6), which is what we’ve been addressing… addressing here.

If you prevail, there are going to be cases that might be classified under this section or section… the section on malicious conduct, and then we’d have to decide whether it falls under this… the–

Donald B. Ayer:

Well, I mean, our understanding of the statute as it now reads is that there are several provisions that make nondischargeable various damages.

We would submit that the (a)(2) provision is essentially not a damages… it doesn’t deal with damages.

It deals with the specific act of obtaining something by fraud and it says, no, you’re going to be stuck with that if you got it by fraud.

Donald B. Ayer:

The other provisions, the (a)(4) provision relates to fraud by a fiduciary, among other things.

The (a)(11) provision is a special provision enacted with regard to fraud in the context of federally insured institutions and (a)(6), dealing with wilful and malicious, as the Court suggested in footnote 2 of the Grogan decision, that might be, the Court said there… didn’t try to decide the issue, but suggested that that might be a sensible place to focus the discussion of whether or not fraudulent conduct is wilful.

So the lack of parallelism I would submit is the product of the fact that (a)(2) is looking at something else.

(a)(2) is looking at the act, the obtaining, and saying no, you can’t keep that, and the rest of it creates, you know, frankly I would say a uniform and sensible system.

If the line that’s to be drawn as a matter of policy is that nondischargeability comes when conduct gets bad enough that you can say it’s wilful and malicious, then why should fraudulent conduct be any different than other kinds of tortious conduct?

Why would you single that out?

They’ve already singled out the act of obtaining by fraud.

That’s important.

That’s a significant thing.

But why should we reach in and say… why should the court reach in and say, well, we know it only really matters when you have reckless fraud, and we know that it’s going to make nondischargeable statutory treble damage awards such as in this case where somebody acts by an implicit representation based on reckless failure to determine facts.

That’s really… the situation of reckless fraud is the only one where this case… I think it’s the only one where this case makes any difference, because when you get beyond reckless fraud and you say wilful and malicious, then you’re dealing with it under (a)(6), and I–

William H. Rehnquist:

–Mr. Ayer, your question presented in this case is phrased in terms of punitive damages and yet, as I read them, none of the statutory sections we’re talking about refer to punitive damages.

Donald B. Ayer:

–That’s correct, Your Honor.

We use that phrase, rightly or wrongly, as a generic reference to include not only common law punitive awards and statutory treble damage awards… is that addressing your question?

We don’t mean by punitives to focus only on the amount of jury awards as a punitive damage award in the conventional sense.

William H. Rehnquist:

Then what do you mean by it?

Donald B. Ayer:

Well, we mean to encompass awards that are in the nature of a penalty.

The court below specifically assumed for purposes of this case, without deciding, that the treble damage penalty… treble damage award in this case, the trebling, was solely for punitive purposes.

William H. Rehnquist:

But now, supposing in an action, an ordinary tort action for fraud, ordinary damages or benefit of the bargain damages are recovered.

What would be your view as to those?

Donald B. Ayer:

Well, our view would be that the (a)(2) provision should be read in accordance with its terms and that would mean that the amount that the debtor got by fraud would, in fact, go back.

The benefit of the bargain damages may or may not equal that.

You can conjure up all sorts of different factual–

William H. Rehnquist:

They might be greater.

Donald B. Ayer:

–They might be greater.

As I indicated before, they might conceivably be less and I guess the affirmative point vis a vis (a)(2) is that, in doing what Congress said in this statute, they’ve created a very clear statement, we think, and a clear statement that is important as a… essentially a wall against fraudulent conduct.

It’s a directive that says, if you’ve got it by fraud, you don’t get to keep it.

William H. Rehnquist:

But it turn… the issue turns on whether there’s fraud, not where there are punitive damages–

Donald B. Ayer:

Correct.

–doesn’t it?

Donald B. Ayer:

Correct, and nor on, indeed, whether there are damages, whether there have been found to be specific damages.

Antonin Scalia:

Mr. Ayer, it seems to me you somewhat understate the consequence of the rule you’re urging on us.

You say it really only makes a difference when there’s recklessness but not wilfulness and some kind of a punitive award, but it seems to me it also makes a difference when there isn’t recklessness and the issue is whether you only get back under (a)(2) the money that the person… or whether there is covered by (a)(2) only the money that the person received, or also there is covered whatever profits are made from that money, which often happens.

Donald B. Ayer:

Well, I… that–

Antonin Scalia:

And frankly that’s the part of your interpretation that troubles me more than the other one.

Donald B. Ayer:

–Well, that is… I mean, in all honesty, Your Honor, that is a possible extension of the… of our reading of it that I will say in all honesty had not occurred to me, but it’s a possibility, that in other words it is possible, perhaps, to say that you got this money by fraud and then you got profits by fraud, but… you got profits from that money and therefore all of that was obtained by fraud and I must say, I think that’s… that is an interpretation which I do think could be reasonable in the context–

Anthony M. Kennedy:

And that’s where the distinction would be between the profits, which under this interpretation would be recoverable, and attorney’s fees and costs incurred in recovering it, which is not recoverable.

Donald B. Ayer:

–Right.

I mean, I think that… I think that punitive damages, I think that consequential damages, I think that other damages which do not grow directly from what was obtained clearly are not encompassed within (a)(2), and that you deal with those damage issues in the context of either (a)(6) or one of the other special sort of egregious wrong provisions that are in–

Antonin Scalia:

Okay.

But you think that any funds that are actually received by the defendant could be regarded as obtained by the fraud.

Donald B. Ayer:

–I think that’s a reasonable reading, Your Honor.

Stephen G. Breyer:

Is… did… am I right in thinking you’ve looked through the legislative history of the 1984 amendments, you’ve read the reports, you’ve looked at the floor statements, et cetera, and you couldn’t find anything as to any reason why Congress made the linguistic change.

Donald B. Ayer:

There is a one sentence reference that talks about the change being stylistic.

All right.

Donald B. Ayer:

Words to that–

Stephen G. Breyer:

If there is no reason, then… and if the language permits, as Justice O’Connor pointed out before, why shouldn’t we read this exactly the same as it’s always been read in the history, i.e., liability on the claim.

They’re talking about a claim.

In other words, they’re talking about a judgment, i.e. they’re talking about what is normally in a bankruptcy proceeding a piece of paper.

The bankruptcy judge sits there, he says, I’ve a piece of paper it has a number on it.

You go read the number.

You ask the question, is this piece of paper in an action for fraud.

It is or it isn’t.

If the answer’s yes, you write in the number.

If the answer’s no, you don’t.

Now, I take it, if there’s no intent whatsoever to make a change… and we haven’t found any.

They said it was stylistic… then that’s the simple way that bankruptcy proceedings used to work, and what’s the reason for making it more complicated now?

Donald B. Ayer:

–Okay.

Antonin Scalia:

In other words, we ignore the language unless there’s legislative history to indicate that the language really means something.

Donald B. Ayer:

Thank you, Your Honor.

Donald B. Ayer:

[Laughter]

Stephen G. Breyer:

I… go back to my question.

Donald B. Ayer:

Okay.

Stephen G. Breyer:

If the language, as you read it, says liability on a claim, because debt is defined as liability on a claim, then we look to see whether the changes that were made in the lang… well you’ve heard my question.

Donald B. Ayer:

Okay.

There’s no–

Donald B. Ayer:

The language… there are several parts to the answer.

The language says liability… if you put all the pieces together, the liability on a claim as relevant here for money to the extent obtained by fraud.

That is not the same as saying liability for the act of obtaining money by fraud.

That’s our first point.

Our second point is that–

Stephen G. Breyer:

–That’s… I understand.

My question is, is there any reason for treating the interpretation of the present language differently from the interpretation of the prior language and–

Donald B. Ayer:

–Well, except for the fact–

Stephen G. Breyer:

–All right.

I… now, the answer might be yes, or it might be no, but I asked about the history–

Donald B. Ayer:

–Okay–

Stephen G. Breyer:

–because they said it was just stylistic.

Donald B. Ayer:

–I guess I would make two points, one which I made before and that is, the prior language never needed to be and in fact I would submit, looking at our footnotes 13 and 14, never was definitively interpreted the way Your Honor has indicated, but the most important reason is that… well, I won’t say the most im… I think the most important reason is the words of the statute.

Beyond the words of the statute and the structure and the lack of a prior clear precedent, all of which we submit is dispositive, there is the very important fact that this whole set of provisions, 523(a), is a set of exceptions to discharge that applies only in the context of individual bankruptcies.

More than 90 percent of individual bankruptcies are now consumer bankruptcies relating to consumer debts, and what we know is that Congress in 1978 was substantially concerned about the problems of the ineffectiveness of the bankruptcy process vis a vis consumer debtors, was concerned about overreaching creditors, was concerned about creditors who were aggressively asserting positions using the nondischarge provision specifically referred to by this Court in Field v. Mans, talking in terms of the financial statement provisions and the abuses by such creditors.

A broad construction of these words… the case before the Court involves certain facts.

It represents a relatively tiny proportion of the bankruptcy… individual bankruptcy cases in this country to which it will apply.

Sandra Day O’Connor:

Mr. Ayer, (a)(4) says in effect that a discharge does not discharge a debtor from any debt for fraud while acting in a fiduciary capacity.

There, there is no language about money, or property, or to the extent obtained by.

Donald B. Ayer:

Correct, Your Honor.

Sandra Day O’Connor:

So under (a)(4) would punitives be recoverable and attorney’s fees and so forth.

Donald B. Ayer:

They have been so held, Your Honor.

Correct, they have.

Sandra Day O’Connor:

And in the petition for certiorari filed on behalf of your client on page 9, footnote 4, it says resort to legislative history is unnecessary, given the plain language and, prior to 1984, (a)(2) barred discharge of a debt for obtaining money by fraud, which courts construed to bar discharge of both compensatory and punitive damages in fraud cases, and that’s language from your petition.

Sandra Day O’Connor:

I took it to mean that was what the interpretation was before the amendment.

Donald B. Ayer:

Well, the–

Sandra Day O’Connor:

And the amendment just added to the extent.

Donald B. Ayer:

–It is true… it is true that the Houtman case in the Ninth Circuit did so hold and we discuss that in our brief.

It did so hold in a case that did involve reckless fraud.

It did not discuss the issue, however, in any detail.

There is that case that held that.

There are other cases that held punitives to be nondischargeable in a situation where the court said generally either 523 (a), or we have (a)(2), (a)(4), (a)(6)–

Sandra Day O’Connor:

And under (a)(4) it would all be nondischargeable and the only difference in language of the two is the to extent–

Donald B. Ayer:

–No, it’s–

Anthony M. Kennedy:

–obtained by–

Donald B. Ayer:

–The structure of (a)(2) says debt for money, property, services.

It’s debt for a thing versus debt for an act.

(a)(4), (a)(6), (a)(9), others of the provisions, use the construction debt for wilful and malicious injury, debt for fraud by a fiduciary… that construction, and I think it’s quite reasonable, has been found to result in all of the damages for that act being found nondischargeable.

The construction that says debt for money, or debt for property, is a debt for the property, and that’s our position.

John Paul Stevens:

–Mr. Ayer, following up on Justice O’Connor’s thought, is it not true… you looked at the issue much more carefully when you… before you filed your merits brief, of course, and are backing away from the footnote, but doesn’t the footnote express what the treatise writers thought the law was?

Donald B. Ayer:

I think that the prior version of Collier’s took that position.

Yes.

Donald B. Ayer:

I think that that’s true, but I also think it’s true that there was virtually no authority on it.

May it please the Court, I’d like to reserve the rest of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Ayer.

Mr. Diebold, we’ll hear from you.

Gregory G. Diebold:

Mr. Chief Justice, and may it please the Court:

When considered in light of the history and structure of the code, the clear purpose of the phrase, to the extent obtained by fraud, is to distinguish between legally obtained property or money and fraudulently obtained money or property.

In fact, the precise language that was used in the amendment was taken from a case, In re Danns, a Second Circuit case, which discussed that very issue, noted that there was a conflict in authority, and held that in a situation where a debtor obtains money through a legal credit transaction and then subsequently commits an act of fraud and then obtains additional money through a refinancing, the amount of money that gives rise to the debt is the amount obtained through fraud, but it’s the debt which is nondischargeable, and the debt has been defined and is still defined by the code as the liability on a claim.

The liability on a claim is the amount that you become liable for as a result of the money that you obtained by fraud.

Antonin Scalia:

It depends on how you use the word claim.

I mean, you can say you have a claim for money that someone owes you, using the word, the object of the claim is what you’re entitled to.

But you can also say you have a claim for fraud, or a claim for personal injury, and in that case you’re using it to refer to the cause of action rather than what you’re entitled to, and the point made by your colleague here is that this statute uses the word in different sections in different ways.

In (4) and in (6) and in (9) it’s a claim for death, for personal injury, a claim for wilful injury, and so forth, whereas in this it says a claim for money.

Antonin Scalia:

That’s quite different.

And then it says, for money to the extent that.

Gregory G. Diebold:

Well, it’s–

Antonin Scalia:

What’s your response to that?

Gregory G. Diebold:

–My response, Justice Scalia, is that it’s a… what’s nondischargeable is the debt.

The debt is based on a claim for money to the extent that the money was obtained by fraud.

Anthony M. Kennedy:

Yes, but it’s very difficult to say that the punitive damages were obtained by fraud.

Gregory G. Diebold:

It’s difficult to say that if you concede, which we don’t, that obtained is used to limit the amount of debt that you occur… incur, but what you’re… what we say obtained is limiting is to explain that the fraud, that there must be fraud in connection with the money you obtained and that gives rise to the nondischargeable debt, which in this case, under New Jersey law, is three times the amount of the overcharged rents.

Like in–

Stephen G. Breyer:

I just want to go back to that one case you said.

I mean, the odd… I think the language that gives me the most trouble from your point of view is the words, to the extent.

Why did they put that in if they meant claim?

You know, liability on a claim, a claim for fraud, you just say the thing that’s nondischargeable is liability on a claim for a fraud.

That’s the end of it.

Why did they put this word, to the extent?

Gregory G. Diebold:

–I think they used to the extent as a way of showing that the debt was limited to the extent that you obtain money through fraud, but what is nondischargeable is that debt which arises from the obtaining–

Stephen G. Breyer:

Where… is there such a thing as a claim, and the claim–

Gregory G. Diebold:

–Well, the debt–

Stephen G. Breyer:

–Was that the case that you just mentioned that?

You have a claim for money, or a claim for property and the claim is for money, and part of the claim is for money… some of the money is obtained by fraud and some of it’s not obtained by fraud.

I mean, is there such an animal as that?

Gregory G. Diebold:

–I think that happens all the time in the commercial world.

How does that work?

Gregory G. Diebold:

Let me use an example in the credit transaction.

It very often happens that in a credit card situation you charge things, you incur bills, and then you decide you’re going to file for bankruptcy, and a month before you go to the attorney and you file for bankruptcy you run up $10,000 worth of debt.

Courts have held that that money is obtained by fraud, so to the extent that your credit card bill was obtained by fraud, that debt is nondischargeable, but if the State of New Jersey, as it has in this case, chooses to impose a penalty for that–

William H. Rehnquist:

But you don’t usually think of one obtaining a bill.

I mean, you obtain property for which you get a bill.

Obtain sounds like it’s… you’ve succeeded in doing something.

Gregory G. Diebold:

–That’s correct, you don’t obtain… you obtain money.

William H. Rehnquist:

Yes.

Gregory G. Diebold:

But you obtain a debt for obtaining that money which is nondischargeable.

The debt here happened to be more than the money you actually obtained, three times more.

Sandra Day O’Connor:

Well, let me ask you another question.

Referring to this general section of (a), subsection (a).

Subsection (a)(7) says that it’s not dischargeable to the extent such debt is for a penalty payable to a governmental unit and is not compensation for actual pecuniary loss, other than a tax penalty.

There the Congress has specified certain penalties that will be nondischargeable, those payable to the Government.

Does that mean that they thought about penalties such as punitive damages that aren’t payable to the Government and didn’t include them anywhere?

Gregory G. Diebold:

No, Justice, I don’t think it–

No?

Gregory G. Diebold:

–it does.

I think that first of all with (a)(7), the difference between (a)(7) and (a)(2) is that it has to be a debt owed to, or penalty owed to the Government, but there’s nothing in the code itself which restricts or makes each of those sections exclusive.

a non Government–

Sandra Day O’Connor:

Well, at least we know from (a)(7) that Congress thought about penalties–

Gregory G. Diebold:

–Exactly, and we also know–

Sandra Day O’Connor:

–to the extent they’re payable to the Government.

Sometimes punitive damages are payable to a governmental unit.

Maybe in that case it would go under (7).

Gregory G. Diebold:

–That’s correct.

There’s no requirement of fraud in (a)(7), so that the Government can recover those penalties regardless of what the reason for their imposition was.

In (a)(2), of course, there’s a requirement that the private party show fraud.

But (a)(7) also demonstrates that Congress knew clearly how to distinguish between compensatory damages and punitive damages if they wanted to.

Stephen G. Breyer:

Is this… can I just… are you finished, because I want to get my… are you finished with that response?

Gregory G. Diebold:

Yes.

Stephen G. Breyer:

All right.

The… I want to be sure I understand this.

The credit card company says Smith went bankrupt, and Smith owes me $50,000, so my claim as the credit card company is, I have a claim… I say Smith is liable on my claim for $50,000.

Now, $20,000 of that he obtained by fraud, so I have a claim for 50, and that claim for 50 is fraud… is for fraud to the extent of 20,000.

Gregory G. Diebold:

That’s correct.

Stephen G. Breyer:

And your position, your view is that that claim is a claim for fraud to the extent of $20,000, and any liability on that claim for $20,000 is liability on a claim to the extent obtained by fraud.

Stephen G. Breyer:

So if liability on that portion of the claim $20,000 is $100,000 because of punitives, et cetera, the whole thing’s nondischargeable.

Gregory G. Diebold:

The $100,000 is nondischargeable.

Stephen G. Breyer:

And the case that said all that is?

Gregory G. Diebold:

In re Danns made the distinction between those.

Now, in addition to that we have the–

Anthony M. Kennedy:

Well, I’m not sure how Danns helps you, because in Danns it was just the first part of Justice Breyer’s hypothetical, as I recall the case, the $20,000 and the $30,000, and they said that the $20,000 that was obtained by fraud, that is nondischargeable, not the 30, or am I misreading the case?

Gregory G. Diebold:

–No, Your Honor is misreading… is not misreading the case, but the… Danns did not involve the imposition of a trebling punitive factor, but the… what Danns did hold is that the statutes permitted the discharge of that portion of the debt which was not obtained by fraud.

Anthony M. Kennedy:

So that the debt is severable for purpose of applying the dischargeability provisions, which is what the petitioner is saying, or am I misstating?

Gregory G. Diebold:

I respectfully think that Your Honor is.

We both agree that the statute… I believe we both agree that the statute permits a severing of that obtained legally and that obtained by fraud.

The question is, does the statute in addition prohibit the imposition of treble damages or other penalties or punitive damages based on the amount obtained by fraud, which in Your Honor’s hypothetical would be the $20,000.

David H. Souter:

Am I correct that in your answer to Justice Breyer’s question you were assuming that debt or claim and money are synonymous, but it seems to me that under the statute they’re not synonymous.

There are certain debts or claims, and those debts or claims may to some extent represent money obtained, so that if you recognize the distinction between claim on the one hand and the money that may or may not be represented by that claim on the other hand, you would have to answer differently, wouldn’t you?

Gregory G. Diebold:

Well, I’m not sure I’m following–

David H. Souter:

You would have to… you would have to say that if you recognize the distinction you simply cannot amalgamate money obtained by fraud and damages assessed with respect to that money obtained by fraud and that, it seems to me, is what you consistently do in your argument.

You do identify or amalgamate those two things and yet the statute seems not to do that.

Gregory G. Diebold:

–Well, except that the statute defines debt as a liability on a claim.

David H. Souter:

Mm hmm.

Gregory G. Diebold:

And in this case the liability on the respondent’s claim was, under New Jersey law, three times the amount of the money obtained by fraud.

David H. Souter:

Which means that part of the claim represents money obtained and part of the claim represents something else.

Gregory G. Diebold:

Well, if I can use an example to I think answer what I believe to be Your Honor’s question, let’s assume that in this case the legal rent is $500 and the landlord had a good faith reasonable belief that the rent was $600, but he decided to tack on another $100 because he thought he could get away with it.

What we’re saying is that the amount between $500 and $600 would be fully dischargeable.

The amount between $600 and $700 is the amount that he obtained by fraud but that… but the debt that that obtaining would create would be $300 under New Jersey law.

David H. Souter:

But the statute does not, in terms, speak in subsection (2)(A) of debts, it speaks of money.

Gregory G. Diebold:

It speaks–

David H. Souter:

And the money is less, in your example, than the debt.

Gregory G. Diebold:

–The statute, though, as a whole, deals with the nondischargeability of debt.

David H. Souter:

Yes, but when you start talking about statutes as a whole, that means this particular language is against me, but I’m going to try to find a broader purpose.

Do you concede that as long as you make the distinction between the debt or claim and the money on the other hand, recognizing that the latter may be less than the former, the language of the statute is against you?

Gregory G. Diebold:

No, I don’t concede that.

Antonin Scalia:

Then I–

–Let me try it another way.

I think I’m asking the same question.

It seems to me perfectly reasonable to add on the trebling in those sections that speak of any debt for fraud, for wilful and malicious injury, when they talk about a debt for the wrongful act.

Anything that you get by reason of the wrongful act, including the trebling, belongs to you.

But when they’re using claim in the other way, or debt in the other way… that is, a liability for a claim… and they’re saying debt for money, money isn’t a wrongful act.

When it says debt for money to the extent that, there it seems to me not proper to add on any trebling that you get.

Now, what’s the response for that?

You have to understand that (2) and maybe (7) are different from the other sections in that they refer to debt for what you’re asking for, not for the wrongful act.

Gregory G. Diebold:

I don’t think it’s possible to define debt in different ways depending on the subsection that you’re using.

Antonin Scalia:

I’m not defining debt in different ways.

I’m just noting that the object of the debt is phrased differently in these different subsections.

In some cases the object is the wrongful act.

In other cases, it is what you are asking for by reason of the wrongful act.

Gregory G. Diebold:

I think as a matter of grammar that’s a possible interpretation, but to reach that conclusion, Your Honor would have to assume that in 1984 Congress intended to change what was I believe concededly the… at least the majority position that punitive damages under (a)(2) were not dischargeable.

David H. Souter:

But wasn’t the prior law in exactly the form that Justice Scalia used as his contrast?

Wasn’t the operative phrase in the prior law debt for obtaining, as opposed to debt for money obtained by?

Isn’t that correct?

Gregory G. Diebold:

That’s correct, but I think that the danger of looking at just the phrase that we’re concerned about in this case is that it disregards the complete absence of any legislative history to support the position that the petitioner wishes you to adopt.

I don’t think that it’s reasonable to assume that Congress would have decided to reduce the liability of a debtor for fraudulent conduct without at least some discussion or reference to it in the legislative history.

William H. Rehnquist:

Did the pre-1984 language deal in terms of punitive damages?

Gregory G. Diebold:

It didn’t deal in terms of punitive damages specifically.

William H. Rehnquist:

And this one doesn’t either, does it?

Gregory G. Diebold:

No.

Anthony M. Kennedy:

Are you saying that the petitioner, Mr. Ayer, is interpreting debt differently in (2) and in (6)?

Gregory G. Diebold:

Yes.

Anthony M. Kennedy:

Because in (2) you look at it from the standpoint of what the debtor owns and in (4) and (6) you look at it from what the standpoint of what the creditor is owed?

Gregory G. Diebold:

That’s correct.

That would be my position, and I think–

David H. Souter:

Well, but doesn’t his argument use debt in exactly the same way?

David H. Souter:

Debt is used synonymously with claim, but his argument simply depends upon the fact that the statute recognizes that some debt is for money obtained and other debt is for judgments rendered.

That is to say, and this is the same question, that debt means claim as further defined subsection by subsection by subsection?

Gregory G. Diebold:

–I don’t think that the language, the operative language in section (2) is attempting to further define debt, though.

I think that even the petitioner concedes that the holding in the Levy case, which held that the phrase modified debt, is correct.

I think that what Congress was intending to do, as was shown by the 1978 legislative report that’s quoted at page 19 of the Solicitor General’s brief, is to distinguish between how that debt was obtained.

The entire structure of the… of 523 is to define or list certain types of conduct for which debts will not be dischargeable.

The conduct that is non… that gives rise to a nondischargeable debt under (a)(2) is that conduct which is fraudulent.

If you obtain money legally and fraudulently, then the statute allows you to separate those two situations and only the debt based on the fraudulently obtained money would be nondischargeable.

Stephen G. Breyer:

And that’s what In re Danns was about.

Gregory G. Diebold:

Yes.

Stephen G. Breyer:

And so you’re saying, if you want to know why Congress used the language it did, read In re Danns and at that point you’ll see what the drafter had in front of him, or whoever drafted it, and that’s why they chose that language.

Gregory G. Diebold:

That’s right, and the very language to the extent by is in the In re Danns opinion.

Our position, if I may sum up, is that there is… there is really no question, if this case were brought 20 years ago, that the punitive damages would not be discharged.

Congress in 1984, throughout the little–

John Paul Stevens:

Of course, they dispute that.

I mean, you say there’s no question, but he thinks there’s a question.

Gregory G. Diebold:

–Well, even this Court’s opinions have talked about liabilities for fraud.

Ruth Bader Ginsburg:

There was no opinion of this Court.

Gregory G. Diebold:

There was no opinion directly deciding this issue prior to 1984 under the old language of the code, but there are… there were opinions of this Court that used the term liabilities for fraud.

Ruth Bader Ginsburg:

Judge Greenberg said, this statute says money obtained by fraud.

It doesn’t say, monetary relief imposed because of fraud.

Gregory G. Diebold:

Well, that’s correct, and perhaps Congress could have written this a little better but the fact is, I believe, that Congress would not have changed this statute and how it operates significantly in the way that the petitioner wishes you to read it without some discussion of it.

The discussion, what little there was, about consumer debt and bankruptcy show that Congress was concerned about curtailing debtor abuse.

You would have to conclude, in order to rule in favor of the petitioner, that what Congress did in 1984 was stop and say, okay, but let’s give a break to fraudulent debtors and reduce their liability and I don’t think that under the legislative history of this statute that that’s what Congress intended to do.

John Paul Stevens:

Well, there isn’t any legislative… may I just ask this one question.

We’ve talked about a hypothetical in which the debt would be… Justice Breyer’s $50,000, the $20,000 of it was obtained by fraud and that you’re only talking about the consequence of that $20,000.

Are there any real live cases out there that you can cite that present situations similar to that hypothetical?

This one doesn’t.

Gregory G. Diebold:

Well, I can’t cite actually reported cases, but I think it occurs all of the time that credit card companies seek the nondischargeability of debts which are run up, say, at the last minute, prior to filing bankruptcy.

John Paul Stevens:

Oh, I understand, but they would not have added onto them any penalty, as you do here.

John Paul Stevens:

That’s the problem.

Gregory G. Diebold:

Well, they may.

Under New Jersey law they would, if the court determined–

John Paul Stevens:

Theoretically, but I… I’m just concerned about the absence of any litigated case that presents the hypothetical that you rely on.

Gregory G. Diebold:

–I’m not aware of any.

Thank you.

William H. Rehnquist:

Thank you, Mr. Diebold.

Mr. Lamken, we’ll hear from you.

Jeffrey A. Lamken:

Mr. Chief Justice, and may it please the Court:

For nearly a century, bankruptcy law has excluded from discharge all liabilities arising from the debtor’s fraud, including consequential and, where imposed, punitive damages.

Nothing in section 523(a)(2) alters that settled practice.

The code defines the term, debt, as liability on a claim.

Section 523 (a)(2) thus exempts from discharge liability on a claim for money or services to the extent the money or services were obtained by fraud.

Anthony M. Kennedy:

Well, you don’t define punitive damages as consequential damages, do you?

Jeffrey A. Lamken:

No, I would not define punitive damages as consequential damages.

Anthony M. Kennedy:

That’s the colloquy we had with Mr. Ayer, and I think he conceded that maybe some consequential damages are within (a)(2), even under his interpretation.

We’re talking about… consequential and punitive are quite different.

Jeffrey A. Lamken:

No, Your Honor, I don’t think Mr. Ayer would concede that consequential damages to the creditor are within his interpretation.

His interpretation limits what is nondischargeable to the amount actually obtained by the debtor.

Now, if the debtor also makes an additional profit, he was considering the possibility of including that, but the consequential damages are clearly excluded–

William H. Rehnquist:

Well, I think of consequential damages in connection with contracts, in Hadley v. Baxendale, not torts.

What do you mean by consequential damages?

Jeffrey A. Lamken:

–Consequential damages do follow from torts.

I think the example on page 21 of our brief, for example, where the defective bolts are sold to an airline with a representation that they’re aircraft quality, the consequential damages would be the cost of actually replacing those bolts.

That would not represent money obtained by the debtor, but it would represent consequential damages and therefore a proper recovery under–

William H. Rehnquist:

Well, what’s the difference between consequential damages and actual damages in your view?

Jeffrey A. Lamken:

–In this case… well, consequential damages I’ve used rather loosely.

I should apologize.

Those are actual damages, but they are not restitutionary damages.

They are damages that are incurred by the creditor but do not represent a gain to the debtor.

Antonin Scalia:

But don’t you see a difference between what you can get for a claim for fraud and what you can get on a claim for money obtained by fraud?

Jeffrey A. Lamken:

Your Honor, I think the question assumes that the phrase, a claim for money obtained by fraud, means a claim to acquire or to obtain the money which was obtained by fraud.

I think it’s clear that Congress did not use the phrase, debt for, or claim for, in that sense.

From section (a)(2)(A) itself, that refers to a claim for services obtained by fraud.

It’s clear that the creditor is not trying to acquire the services that were obtained by fraud.

What the creditor wants is the liability that was imposed as a result and that liability can include punitive and consequential damages.

Stephen G. Breyer:

That part, though, I don’t think was conceded by Mr. Ayers.

I don’t know that they concede that even… so we go back to Danns and we say, this is all the same for the history of bankruptcy law.

They’ve always meant the same thing.

But what is that same thing, and at that point I think they have not conceded that even if you go back to 1890, that there would be liability for the punitives and–

Jeffrey A. Lamken:

I don’t think if you go back to 1898 it could be disputed.

The 1898 act excepted from discharge judgments in actions for fraud.

I don’t think that the phrase, judgments in–

Stephen G. Breyer:

–But has it been clearly held that if you go back, let’s say, to the 1898 act or the 1978 code, et cetera, that it does include punitives?

I’m not… have they conceded that?

I’m not certain.

Jeffrey A. Lamken:

–No.

I think there’s a concession in the petition, but I think the concession has been retracted.

However, the cases, first the language itself, judgments in actions, is unmistakably clear.

A judgment includes the consequential damages and the punitive damages.

In this case, the Court’s case Brown v. Felsen explains that when the change was made to… from judgments in actions to liabilities for obtaining–

Stephen G. Breyer:

But you might say, liabilities for means liabilities to this person and a punitive damage award, after all, is not in respect to a liability to this person and represents a liability to the whole community for bad action deterrent.

You know, that kind of argument.

I’m not–

Jeffrey A. Lamken:

–Right.

Stephen G. Breyer:

–I’m trying to generate a little more counterargument on your part.

Jeffrey A. Lamken:

I don’t think that that construction of the word liability could be used, because the term debt, which is defined as liability unclaimed, has been held by this Court to include punitive damages where payable to private parties.

Sandra Day O’Connor:

Well, the language of (a)(2) really does favor the petitioner.

A discharge doesn’t include a debt for, in this case, money to the extent obtained by fraud.

It favors the position taken by the petitioner, and you ask us to look back at the older provisions for guidance, I guess.

Jeffrey A. Lamken:

That’s correct, Your Honor, but I would disagree that the language favors petitioner, because that is only true if you don’t look at the definition of the word debt.

The word debt is liability on a claim.

I don’t think you could be any clearer that a claim for money or property or services obtained by fraud under New Jersey law is three times the damages so imposed and therefore the claim, the liability on the claim is the full amount of the judgment that would be entered by a New Jersey court in this context.

The structure of 523 (a) I believe confirms this.

Section 523 (a)(6) and (a)(9) make nondischargeable liability on a claim for death or injury, or liability on a claim for wilful or malicious injury.

Anthony M. Kennedy:

One of the arguments made by the respondent, and we didn’t have time… I didn’t have time to question him about it further, was that at the last minute, before going bankrupt, people run up a lot of bills, but that’s covered by a separate section, is it not, or would subsection (c) not permit the nondischargeability under Mr. Ayer’s theory for the–

Jeffrey A. Lamken:

Yes, I think the run up–

–person that runs up the debts?

Jeffrey A. Lamken:

–The run up of credit card bills at the last minute has been specifically addressed.

What has not been addressed, Your Honor, however, is the trans… repeated credit transactions in which some portion of credit is obtained by fraud and some portion is not.

Before 1970 there was a split in the courts on whether or not the full amount of credit was nondischargeable simply because a small portion thereof had been obtained by fraud, and that’s the In re Danns decision.

The legislative history in 1978 shows that Congress was aware of this issue.

I believe that the language added in 1984 is most reasonably read as making it unmistakably clear that there must be a parsing process to determine how much was obtained by fraud, how much was not obtained by fraud, and all of the liability on a claim for the portion that was obtained by fraud is nondischargeable, and that liability may include consequential and punitive damages.

David H. Souter:

You’re saying, in a word… in a short phrase, I guess, that debt for money means exactly the same thing as the old statute meant when it said debt for fraud, except that it defines the money with respect to the fraudulent means of obtaining it, by a later phrase.

Is that… in one sentence, is that your argument?

Jeffrey A. Lamken:

That is absolutely correct.

Lawyers often refer to a claim by what caused the claim to arise, and sometimes by the result.

We might speak of a claim for personal injury, the result, or we might speak of a claim for battery, what caused the injury.

In the context of this statute, Congress has used those two interchangeably, as lawyers often do.

Sometimes they spoke of a debt for fraud, the action that produced the injury, or a debt for wilful and malicious injury, the result.

In our portion, in (a)(2), it says a debt for money, property, or services to the extent obtained by fraud, the result, but that does not alter the amount of liability, necessarily.

The amount of liability is that amount which would be imposed by a State court and that amount, in this case, is three times the injury so imposed.

If there are no further questions, I’ll cede the remainder of my time.

William H. Rehnquist:

Thank you, Mr. Lamken.

Mr. Ayer, you have 2 minutes remaining.

I’m sure Mr. Lamken didn’t mean to cede it to you.

[Laughter]

Donald B. Ayer:

Thank you, Your Honor.

I just want to make one point, and it relates to Justice Breyer’s hypothetical about the credit card situation.

I would submit that a broad reading of this provision here so as to essentially use the prior language, read broadly, as it’s read in (a)(6), reading debt for obtaining money by fraud creates… that broad reading to include all essentially consequential, punitive, and other damages would create a situation where a credit card company who could come in and argue reckless fraud with regard to the $20,000 that was spent, and then can argue $30,000 more in interest at 18 percent under their contract and then can argue another $10,000 in attorney’s fees, that in that circumstance they can come in and make a credible, if not a winning argument that in fact all of that is something that’s entitled to nondischarge.

Donald B. Ayer:

Now, that is something that’s a real life issue.

I would direct the Court, if it’s interested, to the 1997 National Bankruptcy Review Commission report.

Antonin Scalia:

You don’t want them to get the interest.

You mean, all they can get is the $20,000 that the person got, and he gets it interest free, right?

Donald B. Ayer:

We would submit, Your Honor, that’s correct, that they get the… well, they may get a market interest.

Whether they get a contractual interest rate I would submit is–

Antonin Scalia:

Why even the market interest rate?

Donald B. Ayer:

–Well, I’m sorry.

The measure under Justice Scalia’s hypothetical earlier would be the benefit that… and I think it may be correct… the benefit that was obtained by the debtor, not the amount that’s contractually owed to the credit card company.

John Paul Stevens:

Could I get you to comment on one question that came up in your opponent’s argument?

The prior law is uncertain, you say, but what about the 1898 statute?

That was perfectly clear, wasn’t it?

Donald B. Ayer:

The 1898 statute talked about judgments.

Right.

Donald B. Ayer:

It talked about judgments, and–

John Paul Stevens:

Which would necessarily include the punitive–

Donald B. Ayer:

–Well, if that language were transported to today, when punitive damages is an issue, which really only started in a big way in the 1970’s, that may well be where the Court would come out.

The fact is, no one has come up with a case construing that language.

John Paul Stevens:

–Of course, that language may be clear enough that you didn’t need a case.

William H. Rehnquist:

Thank you, Mr. Ayer.

The case is submitted.