The 9th Circuit's Second § 523(a)(6) "Willful & Malicious Injury" Opinion in Two Months

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or perform any legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Barboza v. New Form, Inc.

9th Circuit Case No. 06-56319

Sept. 23, 2008

Last week the 9th Circuit issued its 2nd opinion in as many months interpreting the "willful and malicious injury" language in § 523(a)(6) of the Bankruptcy Code. That's two out of its eight published opinions on bankruptcy law during these two months, a lot of focus on interpreting one phrase.

Last week's Litigation Report in this website highlighted the 1st of these two opinions, Lockerby.v. Sierra, on what it takes for an intentional breach of contract to be a nondischargeable "willful and malicious injury."

Now in Barboza, the 9th Circuit reversed both the bankruptcy court and the BAP, primarily by finding that neither court applied the 9th Circuit's law on § 523(a)(6)'s "willful and malicious injury" language accurately. The procedural contexts were the bankruptcy court allowing the plaintiff creditor to prevail on a motion for summary judgment, and then the BAP ruling that the summary judgment was appropriate. This Bulletin summarizes the substantive law of this opinion, while this week's Litigation Report summarizes its procedural lessons.

The Context

In Barboza, before filing Chapter 7 bankruptcy the debtors were found liable for willful copyright infringement in federal District Court. The final judgment was for nearly $900,000. The "Bankruptcy Court concluded that there was uncontroverted evidence that Appellants [debtor-defendants] knew of Appellee’s copyright, and in combination with the jury finding of willful infringement, that the infringement constituted a willful injury within the meaning of § 523(a)(6)." The BAP affirmed.

The Law of "Willful & Malicious Injury" in the 9th Circuit

The 9th Circuit cited a number of 9th Circuit opinions making clear that "[w]e analyze the willful and malicious prongs of the dischargeability test separately."

On the willfulness side, the Court relied on the U.S. Supreme Court opinion of Kawaauhau v. Geiger, 523 U.S. 57(1998) that "if a finding of 'willful' copyright infringement is based merely on reckless behavior, the resulting statutory award would not fit within the § 523(a)(6) exemption." Willful injuries are limited to "deliberate and intentional" injuries. Since the meaning of "willful" under federal copyright infringement law is broader than the § 523(a)(6) meaning, including reckless disregard and insufficient supervision, the 9th Circuit reversed the lower courts' granting of summary judgment for the creditor and remanded to the bankruptcy court.

As to the malicious prong, the 9th Circuit held that the bankruptcy erred in failing to address this directly. And then the BAP erred when, "perhaps in an attempt to remedy the Bankruptcy Court's lack of discussion and findings concerning the 'malicious' prong, found that malice could be implied from willfulness." Since the BAP's implication of maliciousness "rested entirely on its conclusion that the Appellants' [debtors'] actions were willful," while the 9th Circuit had determined their actions were not necessarily willful, the Court remanded to the bankruptcy court on this prong as well.

The Barboza Bottom Line

To determine the nondischargeability of a debt for "willful and malicious injury . . . to another entity or to another entity or to the property of another entity" under § 523(a)(6), the bankruptcy court must make separate findings as to the willful and the malicious requirements. Willfulness includes only intentional injuries not reckless ones. The maliciousness cannot be implied from willfulness.

Consistency With the Most Recent "Willful & Malicious" Oregon Opinion

In January of this year Judge Perris wrote a published opinion on the specific § 523(a)(6) issue addressed at the beginning of this Bulletin, intentional breach of contract causing "willful and malicious injury." Home Instead Senior Care of Oregon v. Treon (Click on opinion name to link to the opinion at the bankruptcy court's website.) In it, after resolving the concept of "tortious conduct" specific to the breach of contract context, she "anticipated" both the 9th Circuit's Lockerby and Barboza opinions by emphasizing the importance of and then engaging in separate analyses of the willful and malicious prongs. See my summary of her opinion by clicking on its title: Debtor's Breach of Prior-Employer’s Non-Compete Agreement IS Dischargeable Under Sect. 523(a)(6)

(Also see this website's Practical Summaries of Oregon Bankruptcy Opinions for my summaries of all of 2008's opinions--scroll down to the lowest item on the far right column of the home page.)

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys