634 B.R. 559
10th Cir. BAP2021Background
- The Pierces (Glencove Holdings, LLC) hired the Debtor (Steve Bloom), an experienced aircraft broker, to locate and buy a Raytheon Hawker 800XP under an Agent Agreement; Bloom ran Bloom Business Jets, LLC (BBJ).
- Bloom lied about the seller’s identity and the seller’s counteroffer, secretly arranged for his wholly owned Big Horn Exploration, LLC to purchase the airplane from Loretto for $3.3M, then flipped it to Glencove for $3.55M — a $250,000 undisclosed markup; he also misrepresented maintenance/repairs.
- Glencove financed the purchase, later discovered Bloom’s scheme, and sued in state court; Bloom filed bankruptcy and Glencove filed a proof of claim plus an adversary nondischargeability action under 11 U.S.C. § 523(a)(2)(A) and (a)(6).
- The Bankruptcy Court found Bloom not credible, concluded he committed fraud and fraudulent concealment, allowed Glencove’s claim for $458,470 (including the $250,000 upcharge, agent fee, repair shortfall, and prorated loan costs/interest), and held the debt nondischargeable under § 523(a)(2)(A) and § 523(a)(6).
- Bloom appealed; the Bankruptcy Appellate Panel affirmed the allowance, the damages award, the agency/fiduciary-duty findings, rejection of the economic-loss defense, and the nondischargeability rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Allowance of claim for fraud/fraudulent concealment | Bloom made material misrepresentations and concealed facts causing Glencove loss | No liability because contract terms and disclaimers limit duties; damages improper | Claim allowed: court found fraud and fraudulent concealment and awarded $458,470 |
| 2. Existence of agency / duty to disclose | Bloom acted as Glencove’s agent by conduct and communications; fiduciary duty to disclose | Agent Agreement disclaims employer/agency relationship; Bloom was an "independent" agent/transaction broker | Agency found based on conduct; contract disclaimer not controlling; fiduciary duty existed |
| 3. Applicability of Colorado economic-loss rule | Economic-loss rule should not bar intentional torts and does not apply when no contract with tortfeasor | Economic-loss rule bars tort claims overlapping contract remedies | Economic-loss rule rejected: Bermel and post-Bermel authority support allowing intentional fraud claims; rule inapplicable here |
| 4. Measure of damages (agent fee, repairs, loan fees, interest) | Recover full losses caused by fraud (upcharge, commission paid, unperformed repairs, prorated loan costs) | Overcompensation; benefit-of-the-bargain / out-of-pocket limits should cap recovery | Damages awarded: $250,000 upcharge; $120,000 agent fee; $29,947 unrepaired work; prorated origination/lender fees and extra interest — within court's discretion |
| 5. Nondischargeability under § 523(a)(2)(A) | Debt obtained by false representations/pretenses/actual fraud; Glencove justifiably relied | Bloom did not personally receive proceeds (used shell company), so § 523(a)(2)(A) inapplicable per Cohen reading | Nondischargeable: false representation, false pretenses, and actual fraud proven; using shell entities does not avoid nondischargeability |
| 6. Nondischargeability under § 523(a)(6) | Bloom willfully and maliciously caused injury by intentional deception | Actions were mere contract breaches or non-willful acts | Nondischargeable: injury was deliberate and malicious; § 523(a)(6) applies |
Key Cases Cited
- Glencove Holdings, LLC v. Bloom (In re Bloom), 622 B.R. 366 (Bankr. D. Colo. 2020) (bankruptcy court opinion finding fraud, awarding damages, and declaring debt nondischargeable)
- Cohen v. De La Cruz, 523 U.S. 213 (1998) (fraud-derived debts are nondischargeable; discussion of debt "obtained by" fraud)
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016) (definition and scope of "actual fraud" under § 523(a)(2)(A))
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (willful and malicious standard for § 523(a)(6))
- Grogan v. Garner, 498 U.S. 279 (1991) (policy context for nondischargeability of fraud debts)
- Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256 (Colo. 2000) (Colorado economic-loss rule)
- Bermel v. BlueRadios, Inc., 440 P.3d 1150 (Colo. 2019) (limits application of economic-loss rule; courts should not permit it to shield intentional tortfeasors)
- McWhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC, 486 P.3d 439 (Colo. App. 2021) (post-Bermel application permitting intentional tort claims despite contract overlap)
- BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004) (economic-loss rule applied where duties were defined by a network of interrelated contracts)