Archer v. Warner

Case reversed and remanded by

Supreme Court opinion filed 3/31/03

Cert granted by Supreme Court

order filed 6/24/02

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

4444444444444444444444444444444444444444444444447

In Re: LEONARD L. WARNER and

ARLENE L. WARNER,

Debtors.

A. ELLIOTT ARCHER; CAROL A.

ARCHER,

Plaintiffs-Appellants, No. 00-2525

v.

ARLENE L. WARNER,

Defendant-Appellee,

and

LEONARD L. WARNER

Defendant.

4444444444444444444444444444444444444444444444448

Appeal from the United States District Court

for the Middle District of North Carolina, at Greensboro.

Frank W. Bullock, Jr., District Judge.

(CA-99-924, BK-96-10373, AP-A-97-2003)

Argued: September 27, 2001

Decided: March 8, 2002

Before WIDENER, NIEMEYER, and TRAXLER, Circuit Judges.

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Affirmed by published opinion. Judge Widener wrote the majority

opinion, in which Judge Niemeyer joined. Judge Traxler wrote a dis-

senting opinion.

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COUNSEL

ARGUED: Harry Glen Gordon, GORDON LAW OFFICES, Greens-

boro, North Carolina, for Appellants. Rayford Kennedy Adams, III,

TURNER, ENOCHS & LLOYD, P.A., Greensboro, North Carolina,

for Appellee. ON BRIEF: Chad A. Sharkey, TURNER, ENOCHS &

LLOYD, P.A., Greensboro, North Carolina, for Appellee.

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OPINION

WIDENER, Circuit Judge:

Elliot and Carol Archer appeal from the district court's order

affirming the bankruptcy court. The district court held that Arlene

Warner's affirmative defense of settlement in a state suit, involving

the same facts upon which rest the non-dischargeability claim at issue

here, created a novation substituting a contract debt which was dis-

chargeable for the tort claims which arguably were not. For the fol-

lowing reasons, we affirm.

I.

On May 22, 1992, Warner Manufacturing, Inc. and Leonard L. and

Arlene Warner, his wife, the owners thereof, sold the corporate assets

of Warner Manufacturing to a corporation formed by the Archers for

a total of $685,000.1 In late 1992, the Archers filed suit in Superior

Court of Guilford County, North Carolina against Leonard Warner

and Warner Manufacturing for fraudulent misrepresentation and like

misconduct arising out of the sale. An amended complaint, filed in the

state court in March 1994, asserted fraud, misrepresentation, conspir-

acy, and fraudulent conveyance, among other claims, and added

Arlene Warner and two other parties as named defendants. On May

8, 1995, the Archers again amended their complaint to include inten-

tional and negligent infliction of emotional distress, and asserted that

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1

The assets of Warner Manufacturing sold for $610,000; there was

included in the transaction a $70,000 consulting fee to Leonard Warner

and a $5000 non-competition agreement.

2

they had suffered mental and emotional distress, pain and suffering,

and loss of enjoyment of life as a consequence of the Warners'

alleged acts. Three days later, on May 11, after extensive pre-trial dis-

covery, the parties settled the state court litigation.

The settlement consisted of an agreement, an addendum to the

agreement, two releases, a promissory note, and two deeds of trust.

The settlement agreement provided that the Archers would receive

$300,000, consisting of a $200,000 cash payment which was paid,

and a $100,000 promissory note to be paid in two installments over

the next year. The agreement stated that the willingness of the Arch-

ers to resolve the case stemmed from both the non-taxable nature of

a part of the consideration for the settlement and the numerous

defenses asserted by the Warners. An addendum to the settlement

agreement specified that the agreement would be declared null and

void if the criminal charges pending against Leonard Warner were not

dismissed by the State of North Carolina. The promissory note, from

Leonard and Arlene Warner and Hosiery Industries, Inc., was secured

by two deeds of trust—one on the Warners' home and another on

business property owned by Hosiery Industries, Inc. The Warners

received both a general and mutual release of all pending and future

claims by the Archers. Specifically, the general release stated the

Archers "do hereby release and forever discharge the . . . [Warners]

from the beginning of the world to the date of this release arising out

of or relating to the matter of the litigation in Guilford County Supe-

rior Court, File No. 92-CVS-7777. . . ." In both releases, neither party

admitted liability or wrongdoing; moreover, specific clauses stated

that the payment of money should not be construed as an admission

of liability. There was no mention of bankruptcy in the settlement

package.

On November 11, 1995, the first payment on the $100,000 promis-

sory note became due. When the Warners defaulted on this payment,

the Archers sued in Superior Court in Guilford County on December

4, 1995.2 The suit was for collection on the note. On February 5,

1996, while this collection suit was still pending, Leonard and Arlene

Warner filed for relief under Chapter 13 of the Bankruptcy Code,

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2

The second payment was due on May 11, 1996. The Warners

defaulted on this payment as well, being in bankruptcy.

3

which was converted to a case under Chapter 7 on October 29, 1996.

The present dispute originated on January 29, 1997 when the Archers

filed an adversary proceeding in the United States Bankruptcy Court

for the Middle District of North Carolina, seeking a judgment for the

amount due under the promissory note and a determination that such

indebtedness was non-dischargeable under Section 523(a) of the

Bankruptcy Code, 11 U.S.C. § 523(a). As grounds for asserting the

non-dischargeability of this indebtedness, the Archers incorporated by

reference in the bankruptcy adversary complaint the multiple allega-

tions contained in their suit in the state court.3 These were the only

grounds there stated for asserting non-dischargeability.4 Defendant

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3

In the Archers' adversary complaint to determine dischargeability of

debt, Section 13 of the complaint states:

Plaintiffs expressly incorporate by reference the terms and

conditions of the Amended Complaint plaintiffs filed against

defendants in Guilford County Superior Court, case no. 92 CVS

7777, setting forth causes of action for, among other matters,

fraud, misrepresentation, conspiracy to defraud, conspiracy to

take plaintiffs' property by false pretenses in violation of crimi-

nal statute G.S. §14-100, and, in general, for deliberate, inten-

tional, willful, wanton, malicious, and wrongful acts of

defendants in an elaborate scheme by which defendants took

hundreds of thousands of dollars from plaintiffs by false pre-

tenses.

4

The Archers attempted later to claim fraud-in-the-inducement of the

settlement as well. On June 25, 1998 the Archers moved to amend their

adversary complaint to show, among other things, that Mrs. Warner had

committed fraud when she and her husband induced the Archers to

accept the $100,000.00 note. The proposed amended complaint was filed

with the motion, but, when the motion came on for hearing, no attorney

appeared for either side and the bankruptcy court justifiably denied the

motion to amend the complaint, a plaintiff's motion for discovery, and

a motion by Arlene Warner for summary judgment. This order was filed

October 6, 1998.

On February 2, 1999 the court set the adversary proceeding for trial on

June 1, 1999, and on May 27, 1999 the Archers renewed their motion to

amend the complaint. The trial having been continued at the instance of

the Archers, the pending motions to amend the complaint came on before

the bankruptcy court for hearing on June 1, 1999, along with other

4

Arlene Warner denied any misconduct on her part and asserted an

affirmative defense of settlement of the original state court suit.5 She

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motions and objections by both the Archers and Mrs. Warner, all of

whom were represented by their attorneys at that hearing. The court

denied all of the motions and its order filed June 2, 1999 provided as the

reasons: "For the reasons stated in open court." Among the motions

denied was the renewed motion to amend the complaint. Although the

reasons were stated in open court, they are not included in the record in

this case, and we are left to speculate as to what they were. We are asked

to decide, in effect, that the bankruptcy court abused its discretion when

it did not permit the amendment of the complaint in the adversary pro-

ceeding.

A reading of the amended complaint presented to the bankruptcy court

on May 27, 1999 does not charge any fact that Mrs. Warner misrepre-

sented to the Archers, unless it be that she and her husband could only

borrow or otherwise come up with $200,000.00 of the agreed

$300,000.00 settlement, leaving $100,000.00 to be paid under the note,

as has been mentioned before. While the Archers now argue that the rea-

son the note is not dischargeable in bankruptcy is because Mrs. Archer

intended at the outset not to pay it, that reason was not presented to the

bankruptcy judge in the amended complaint at the hearing on June 1,

1999 resulting in the June 2, 1999 order.

While the amended complaint contains many conclusions charging

fraudulent or like conduct against Mrs. Warner, a reading of that paper

does not contain sufficient factual allegations for us to conclude that the

bankruptcy court abused its discretion when it did not permit the amend-

ment. In that respect, we note that the prayer of the amended complaint

includes the following:

5. That in the alternative, if defendant Arlene Warner's obliga-

tion to plaintiffs is determined to be discharged in Bankruptcy,

that plaintiffs be declared released from any agreement and

obli-

gation to take no action to cause criminal proceedings to be

brought against Arlene Warner or her son, Stuart Warner.

That aspect of the prayer alone would seem to be sufficient reason to

justify the action of the bankruptcy court in denying the sought for

amendment of the complaint, but, again, since the record does not dis-

close the reasons, we decline to find the bankruptcy court abused its dis-

cretion in its denial of the motion to amend the complaint, and do not

speculate as to its reasons.

5

Arlene Warner contested this issue of non-dischargeability in the

bankruptcy court. We are told her husband, Leonard Warner, did not. No

5

argued that the Archers may not rely upon the same alleged miscon-

duct in the original suit in the state court as grounds for non-

dischargeability because that suit was settled in toto.

On August 24, 1999 the bankruptcy court had ordered the trial

bifurcated, first hearing issues on what it called the affirmative defense.6

On August 26, 1999 the case was tried on the affirmative defense of

the dischargeability action. The bankruptcy court decided in favor of

Mrs. Warner, upholding her affirmative defense. The Archers

appealed this decision contending that the bankruptcy court misinter-

preted the exception to dischargeability under 11 U.S.C.

§ 523(a)(2)(A). The district court affirmed the bankruptcy court's

decision. It concluded that the releases and settlement agreement cre-

ated a novation, substituting a dischargeable contract debt for a fraud-

based tort claim which may not have been dischargeable. The district

court continued by holding that the argument of fraud-in-the-

inducement of the settlement agreement was not properly before the

court because such claim was not presented to or decided by the bank-

ruptcy court. Nevertheless, the district court commented that any suc-

cessful fraud-in-the-inducement contention must establish that Mrs.

Warner planned all along to file bankruptcy to escape her contractual

settlement commitments with the Archers. The district court doubted

such a plan because the Warners had ready paid $200,000 in cash pur-

suant to the settlement agreement, and had given deeds of trust on real

estate to secure the payment of the note as well. In any event, because

of the novation which we affirm, see infra, and our opinion that the

Archers have not shown an abuse of discretion by the bankruptcy

court in its refusal to permit the amendment to the adversary com-

plaint, that is a contention upon which we express no opinion.

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issue with respect to the liability of Leonard Warner is before this court

on appeal, and, again, we are told that the Warners are divorced.

6

As previously noted, the Archers' motion to amend their complaint

was last denied by the bankruptcy court on June 2, 1999. Whether the

bankruptcy court has foreclosed such a claim is a question we do not

decide. The bankruptcy court called for trial the issue presented here,

which was whether the settlement agreement effected a novation of the

dischargeability claim which might have existed into a claim upon the

settlement which does exist. No evidence was offered in the bankruptcy

court as to fraudulently inducing the settlement.

6

II.

We have jurisdiction to hear this case under 28 U.S.C. § 158(d).

This court "reviews the judgment of a district court sitting in review

of a bankruptcy court de novo, applying the same standards of review

that were applied in the district court." In Re Biondo, 180 F.3d 126,

130 (4th Cir. 1999).7 Specifically, we review the factual findings of

the bankruptcy court for clear error, while we review questions of law

de novo. In Re Biondo, 180 F.3d at 130.

The pertinent bankruptcy code, 11 U.S.C. § 523, provides:

§ 523. Exceptions to discharge

(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

debtor's or an insider's financial condition; . . .

(6) for willful and malicious injury by the debtor

to another entity or to the property of another

entity . . . .

The issue we address is whether the district court erred in deter-

mining that a prepetition settlement of claims involving the same

claims pursued here, alleged fraud or intentional tort, extinguished the

Archers' subsequent non-dischargeability claims under Section

523(a)(2)(A) when Mrs. Warner filed for bankruptcy relief without

having paid the settlement promissory note. As noted by the district

court, there is a split among the circuits concerning this issue. Under

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7

We note in passing that the Archers do not depend on Biondo.

7

one line of cases, a settlement agreement does not distinguish a dis-

chargeability claim under Section 523(a). See United States v. Spicer,

57 F.3d 1152 (D.C. Cir. 1995); Greenberg v. Schools, 711 F.2d 152

(11th Cir. 1983). According to this line of cases, examining the under-

lying fraudulent allegations leading to the settlement agreement best

effectuates Congressional policy by its construction of the statutes as

not permitting the discharge of debts that Congress intended to sur-

vive bankruptcy. Greenberg v. Schools, 711 F.2d 152 (11th Cir.

1983). The opposing line of cases favors the basic principle of

encouraging settlements by way of freedom to enter into settlement

agreements, regardless of the nature of the claim subject to the settle-

ment agreement. See In re Fischer, 116 F.3d 388 (9th Cir. 1997); In

re West, 22 F.3d 775 (7th Cir. 1994); Maryland Casualty Co. v. Cush-

ing, 171 F.2d 257 (7th Cir. 1948). Under this theory, parties willing

to settle disputes over fraud, misrepresentation, or like tort claims

may do so by way of settlement through contract, and such contrac-

tual claims are then dischargeable in bankruptcy. Otherwise, the

incentive to settle is gone.

We agree with the district court and the bankruptcy court that the

better reasoned decisions are those of the Seventh and Ninth Circuits

rather than those of the District of Columbia and Eleventh Circuits.

So we follow West, Md. Casualty, and Fischer. We are of opinion that

Congress did not intend that 11 U.S.C. § 523(a) be construed, as a

reversal here would require, so as to discourage the settlement of

claims because they might be subject to freedom from discharge

under § 523(a).

When following the novation theory,8 the terms of the settlement

should be examined to determine whether the non-dischargeability

claims under Section 523(a)(2)(A) were released. The Archers would

have us hold that courts must determine whether the underlying fac-

tual basis for the settlement agreement consisted of fraud; however,

under the novation theory, courts need only address the validity and

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8

While novation is sometimes interpreted to mean the replacement of

a third party to an existing contract, see Black's Law Dictionary, 7th Ed.,

1999, p. 1091, we, like the Ninth Circuit, use the term in the context of

§ 523(a)(2)(A) to express the substitution of a contract claim for a tort

claim through a settlement agreement, the Seventh Circuit use.

8

completeness of the bargained for agreement and release. We review

these factual issues for clear error.

The settlement package, consisting of the settlement agreement

with addendum, two releases, a promissory note, and two deeds of

trust, completely released Arlene Warner from potential non-

dischargeability claims under Section 523(a)(2)(A). The settlement

agreement referred explicitly to the general and mutual releases. The

general release further announced the complete waiver of all pending

and future related personal claims against Arlene Warner. It provides

that the Archers

do hereby release and forever discharge the [Warners] from

any and every right, claim, or demand . . . arising out of or

relating to the matter in Guilford County Superior Court,

excepting only obligations under a Note and deeds of trust

executed contemporaneously herewith.

This release continued by specifying the claims released:

The payment of the sum of $300,000 . . . is paid to [the

Archers] in settlement of their personal claims for emotional

distress/personal-injury-type damages they claim to have

suffered for the torts of fraud, intentional misrepresentation,

intentional infliction of emotional distress, and negligent

infliction of emotional distress. The parties further acknowl-

edge that all sums set forth above constitute payment for

claims of damages resulting from personal injuries or sick-

ness or mental and emotional distress in a case involving

prosecution of a legal suit or action based upon tort or tort-

type rights . . . .

As noted in West, "A promissory note does not discharge the underly-

ing obligation unless the parties expressly release the old and substi-

tute the new." West, 22 F.3d at 778. The settlement agreement and

promissory note here, coupled with the broad language of the release,

completely addressed and released each and every underlying state

law claim.

9

We therefore follow Fischer, West, and Md. Casualty and affirm

the judgment of the district court that the prepetition settlement of

claims involving alleged fraud and intentional tort extinguished the

Archers' subsequent non-dischargeability claim under Section 523(a)

when Mrs. Warner filed for bankruptcy relief without having paid the

entire amount of the settlement.

The judgment of the district court is accordingly

AFFIRMED.

TRAXLER, Circuit Judge, dissenting:

A unanimous Supreme Court reminded us as recently as four years

ago that "[t]he Bankruptcy Code has long prohibited debtors from dis-

charging 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, 217

(1998) (quoting Grogan v. Garner, 498 U.S. 279, 287 (1991)). To this

end, "Congress intended the fullest possible inquiry" into the nature

of debts for purposes of determining dischargeability. Brown v. Fel-

sen, 442 U.S. 127, 138 (1979). Because I believe the approach

employed by the D.C. and Eleventh Circuits in United States v.

Spicer, 57 F.3d 1152 (D.C. Cir. 1995), and Greenberg v. Schools, 711

F.2d 152 (11th Cir. 1983) (per curiam), ultimately accomplishes the

congressionally enacted policy objective embodied in the nondischar-

geability provisions, I respectfully dissent.

I.

There are two competing views to the main issue in this case and

both have much to commend them. The bankruptcy court adopted the

approach of the Ninth and Seventh Circuits reflected in In re West,

22 F.3d 775 (7th Cir. 1994), and Key Bar Invs., Inc. v. Fischer (In re

Fischer), 116 F.3d 388 (9th Cir. 1997) (per curiam). The analysis

employed in those cases is best illustrated by the test articulated by

the Ninth Circuit in Fischer: "[I]f it is shown that the [promissory]

note, by express agreement is given and received, as a discharge of

the original obligation or tort action, then the execution of the note

10

extinguishes the tort action and it would be error for the court to look

behind the note." Fischer, 116 F.3d at 390 (internal quotation marks

omitted); accord West, 22 F.3d at 778 ("[I]f it is shown that the

[promissory] note [that was executed pursuant to the settlement] was

given and received as payment or waiver of the original debt and the

parties agreed that the note was to substitute a new obligation for the

old, the note fully discharges the original debt, and the nondischargea-

bility of the original debt does not affect the dischargeability of the

obligation under the note."). The basic rationale of these cases is that,

having accepted a settlement and released the underlying tort action,

the plaintiff voluntarily accepted a contract debt, which is discharge-

able under the bankruptcy laws, in lieu of pursuing a potentially non-

dischargeable tort debt.

The competing approach adopted by the D.C. and Eleventh Cir-

cuits in Spicer and Greenberg can be quickly illustrated by examining

Spicer. In that case, John Spicer had been convicted of one count of

interstate transportation of money obtained by fraud from the United

States Department of Housing and Urban Development and had there-

after settled the government's multiple civil claims against him. In

accord with the civil settlement agreement, Spicer executed two

promissory notes and the government expressly released its civil

claims against him. Spicer later filed for bankruptcy protection and,

relying on West, sought to have the promissory notes discharged.

Addressing West directly, the D.C. Circuit declared that it could not

"agree with a rule under which, through the alchemy of a settlement

agreement, a fraudulent debtor may transform himself into a non-

fraudulent one, and thereby immunize himself from the strictures of

§ 523(a)(2)(A)." Spicer, 57 F.3d at 1155. The court found the govern-

ment's release of the underlying tort action immaterial, declaring that

"a fraudulent debtor may not escape nondischargeability, imposed as

a matter of public policy by Congress . . ., merely by altering the form

of his debt through a settlement agreement." Id. at 1156. Accordingly,

the court affirmed the bankruptcy court's holding that the promissory

notes executed by Spicer were not dischargeable. Id. at 1157. Thus,

simply stated, the Spicer approach is a policy-based approach

intended to effectuate the considered judgment of Congress.

II.

The Archers urge us to adopt the Spicer approach and allow them

the opportunity to prove in bankruptcy court that Arlene Warner com-

11

mitted fraud against them and that the promissory note executed as

part of the settlement of the state-court tort action is therefore nondis-

chargeable under § 523(a)(2)(A). In my judgment, Supreme Court

precedent strongly suggests that the Spicer approach is the correct

one.

In 1979, for example, the Supreme Court decided Brown. In that

case, G. Garvin Brown had been guarantor of a loan that financed

Mark Paul Felsen's business. When the creditor instituted a collection

action against Brown and Felsen, Brown filed a counterclaim against

Felsen alleging that Felsen had induced Brown to sign the guarantee

"by misrepresentations and non-disclosures of material facts." Brown,

442 U.S. at 128 (internal quotation marks omitted). The suit settled

and was reduced to a consent judgment indicating that Brown should

have judgment against Felsen but not indicating the cause of action

upon which the liability was based or whether Felsen had in fact

engaged in fraud. Felsen subsequently filed for bankruptcy, and

Brown sought to challenge in bankruptcy court the dischargeability of

Felsen's debt to him. Felsen argued that because the state-court suit

had been reduced to a consent judgment and the documents evidenc-

ing that judgment did not result in a finding that he had in fact com-

mitted fraud, res judicata barred further inquiry into the nature of the

debts. Gleaning from the legislative history of the Bankruptcy Act

"[s]ome indication that Congress intended the fullest possible inquiry"

into the true nature of debts for purposes of determining dischargea-

bility, the Supreme Court unanimously rejected that argument. Id. at

138. After "careful inquiry," the Court concluded that "the policies of

the Bankruptcy Act" would best be served by allowing Brown to

"submit[ ] additional evidence to prove his case." Id. at 132.

Twelve years after Brown, the Supreme Court was asked in Gro-

gan to resolve a circuit split on the question of whether, in bankruptcy

court, a creditor was required to prove the nondischargeability of his

claim by a preponderance of the evidence or by clear and convincing

evidence. The Court unanimously found that the preponderance stan-

dard best reflected the "congressional decision to exclude from the

general policy of discharge certain categories of debts—such as . . .

liabilities for fraud," and the Court therefore held that a creditor need

only prove that his claim was nondischargeable under the preponder-

ance standard. Grogan, 498 U.S. at 287. "We think it unlikely," the

12

Court declared, "that Congress, in fashioning the standard of proof

that governs the applicability of these provisions, would have favored

the interest in giving perpetrators of fraud a fresh start over the inter-

est in protecting victims of fraud." Id.

And finally, in 1998, in Cohen, a unanimous Supreme Court yet

again stressed the importance of reinforcing the congressional policy

objective underlying the nondischargeability provisions. In Cohen,

the Court decided that a treble damages award that was imposed as

punishment for a state-court defendant's fraudulent conduct was non-

dischargeable under the fraud exception to dischargeability, rejecting

the debtor's argument that only an amount equal to the actual value

obtained by fraud should be nondischargeable. Cohen, 523 U.S. at

219. In support of its decision, the Court cited "the historical pedigree

of the fraud exception, and the general policy underlying the excep-

tions to discharge." Id. at 223.

Thus, the message delivered by a unanimous Supreme Court on

three separate occasions has been clear. In deciding cases dealing

with the fraud exceptions to dischargeability, courts should effectuate

congressional policy objectives by conducting the fullest possible

inquiry into the nature of the debt and limiting relief to the honest but

unfortunate debtor. The Spicer approach is squarely grounded in these

policy interests.

Under any other approach, a defendant can completely immunize

himself from § 523 by simply settling any fraud claims against him

with a promise to pay, having the plaintiff release the underlying tort

action as part of the settlement, and then filing for bankruptcy. The

acceptance of the defendant's promise to make payment should not

prevent the plaintiff, upon a default by the defendant and subsequent

filing of bankruptcy, from showing the bankruptcy court that the debt

had its genesis in fraud. If, as the Supreme Court has declared, "the

mere fact that a conscientious creditor has previously reduced his

claim to judgment should not bar further inquiry into the true nature

of the debt," Brown, 442 U.S. at 138, then I see no reason why the

mere fact that a conscientious creditor has previously reduced his

claim to settlement should bar such an inquiry. See Ed Schory & Sons,

Inc. v. Francis (In re Francis), 226 B.R. 385, 391 (B.A.P. 6th Cir.

1998) (choosing to "follow[ ] Spicer because Brown v. Felsen com-

13

pels the Spicer result"); see also Giaimo v. Detrano (In re Detrano),

266 B.R. 282, 288 (E.D.N.Y. 2001) (finding Brown "[i]nstructive").

Moreover, because the nondischargeability provisions of the Bank-

ruptcy Code evidence a considered congressional policy to favor "the

interest in protecting victims of fraud" over "the interest in giving per-

petrators of fraud a fresh start," Grogan, 498 U.S. at 287, and because

the Supreme Court has so strongly and unwaveringly signalled

through three uninamimous opinions over the course of twenty years

that that policy objective is to be jealously protected, I would adopt

the Spicer approach.* Cf. Foley & Lardner v. Biondo (In re Biondo),

180 F.3d 126, 130 (4th Cir. 1999) (noting the importance of "ensuring

that perpetrators of fraud are not allowed to hide behind the skirts of

the Bankruptcy Code").

III.

For these reasons, I would elevate substance over form and allow

the Archers to offer such proof as they might have to show that

Arlene Warner's debt resulted from a fraud perpetrated upon them.

Therefore, I respectfully dissent.

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*I do not view the settlement documents as forbidding the Archers

from proving in bankruptcy court the nondischargeability of the debt

because, among other things, the releases specifically excepted the

Warners' obligations under the promissory note and deeds of trust, (J.A.

45, 48), which I would interpret as permitting a full and fair hearing on

the dischargeability of the debt in bankruptcy court.

14