Thursday, November 13, 2008

After 18 Years of Litigation Ninth Circuit Holds $2.8 Million Medical Malpractice Judgment "Not Non-Dischargeable" Under Section 523(a)(6)

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

Ditto v. McCurdy (In re McCurdy)
Ninth Circuit Case No. 02-16252

December 14, 2007

This Ninth Circuit opinion addressed both substantive issues about nondischargeability "for willful and malicious injury by the debtor" under § 523(a)(6) of the Bankruptcy Code, and various procedural issues including the retroactive effect of a Supreme Court opinion decided during the pendency of a case. The nondischargeability matters are addressed in this Bulletin, the procedural one in an upcoming weekly Litigation Report.

Ninth Circuit's Holding
In the Ninth Circuit quoted the U.S. Supreme Court in Kawaauhau v. Geiger, 523 U.S. 57 (1998), “debts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6).” Therefore, in this case the debtor, a plastic surgeon, could discharge a malpractice claim against him in the amount of nearly $2.8 million after a state supreme court reversed a portion of the judgment, dismissing the portion based on fraud and affirming the portion based on gross negligence.

Procedural History
This case is noteworthy in the length and number of appeals. Briefly, the plaintiff filed her malpractice case in state court in 1989, won a judgment in 1992, when defendant filed an appeal to Hawaii Intermediate Court of Appeals and also filed his bankruptcy case, resulting in this adversary proceeding being filed by plaintiff in 1993, initially resulting in a summary judgment for plaintiff based on pre-Kawaauhau v. Geiger law. But in 1997 the state court case reached the Hawaii Supreme Court, which overturned a fraud claim and left only the gross negligence one, after which defendant filed an FRCP Rule 60(b) motion in bankruptcy court to set aside the nondischargeability summary judgment in light of the Hawaii Supreme Court decision. The bankruptcy court denied this motion, as did the district court on appeal, but the Ninth Circuit in 2000 remanded to the bankruptcy court with instructions to grant the motion to set aside the summary judgment. At the rehearing in bankruptcy court the defendant then moved for summary judgment, which was granted by the bankruptcy court, the district court affirmed, and the matter was now back at the Ninth Circuit for a final decision, no less than the sixth appellate decision on the matter, eighteen years after the case was originally filed.

The Ninth Circuit's Rationale
"[A]s to the exact mental state required of the debtor in order for a debt to fall into the [§ 523(a)(6)] exception," before Geiger in 1998 some circuits, "including this circuit, interpreted § 523(a)(6) to include unintended injuries, so long as the acts themselves were deliberate, wrongful, and necessarily caused injury." In contrast, the Supreme Court in Geiger "stated definitively that 'debts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6)'." The plaintiff, besides arguing against retroactive application of Geiger (a subject of my upcoming Litigation Report), asserted that her "malpractice judgment rested, in part, on [defendant's] failure to adequately disclose the risks inherent in her surgery," and negated her consent to the surgery, thus making her claim an intentional tort, "an unconsented touching--in other words, a battery."

But the Court here responded that "[t]he failure to obtain informed consent, without evidence of intent to injure, does not give rise to a willful and malicious injury within the meaning of § 523(a)(6)." "The elements of this cause of action--duty, breach, causation, damages--are those of a negligence claim." "In order to qualify for the § 523(a)(6) “willful and malicious” exception to discharge, therefore, the debtor must have acted with either the desire to injure or a belief that injury was substantially certain to occur." Without any such evidence, defendant's debt "is not non-dischargeable under § 523(a)(6)."

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

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