Wednesday, February 25, 2009

New Wife Creditor Wins Nondischargeability Battle With Ex-Wife Debtor: A Judgment for Statutory Attorney Fees Alone Fits Within Section 523(a)(6)

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

Suarez v. Barrett (In re Suarez)
Ninth Circuit BAP No. SC-07-1401-MoJuKw
January 16, 2009

In "a case of apparent first-impression in the Ninth Circuit," may a Chapter 7 debtor "discharge a state court judgment for attorneys fees and costs under § 523(a)(6) of the Bankruptcy Code in which that is the only monetary liability imposed on her for civil contempt in violating a court order."

No, she may not. Since Suarez's conduct leading to the contempt judgment was "willful and malicious," the debt arising from that conduct constitutes an "injury" under § 523(a)(6). The lack of any underlying compensatory damages in the judgment is not a meaningful distinction; a judgment debt consisting only of statutory attorney fees and costs arising "as a result of" Suarez’s willful and malicious violation of an injunction is nondischargeable.

Good Summary of the Law of § 523(a)(6)
Because debtor-defendant was not represented by counsel on appeal, "in the interest of completeness," the BAP "address[ed] briefly all of the relevant issues presented in a § 523(a)(6) determination such as this." So this opinion is a handy outline of the elements of a § 523(a)(6) claim.

Barrett won a state court judgment against her husband's ex-wife, Suarez, for contempt of a court injunction, which had been imposed because of an alleged assault by Suarez on Barrett. The judgment required Suarez to serve 5 days in jail and to pay $11,573 in Barrett's attorney fees and costs. Suarez filed a Chapter 7, and Barrett sought a declaration of nondischargeability of her monetary judgment as a willful and malicious injury, under section 523(a)(6). The bankruptcy court determined that the judgment was nondischargeable, and Suarez appealed.

Debtor's Argument
Suarez argued that
since Barrett received no damage award for any injury, and the Fees and Costs Judgment awarded was merely statutory and penal in nature and not compensatory or punitive, it fails to satisfy the elements of a willful and malicious “injury” under section 523(a)(6) and is therefore dischargeable.
A Summary of the Elements of a § 523(a)(6) Claim
§ 523(a)(6) excludes from discharge "any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity."
  • "The creditor must prove that the debtor’s conduct in causing the injuries was both willful and malicious."
  • "Willfulness requires proof that the debtor deliberately or intentionally injured the creditor, and that in doing so, the debtor intended the consequences of his act, not just the act itself."
  • "The debtor must act with a subjective motive to inflict injury, or with a belief that injury is substantially certain to result from the conduct."
  • "For conduct to be malicious, the creditor must prove that the debtor: (1) committed a wrongful act; (2) done intentionally; (3) which necessarily causes injury; and (4) was done without just cause or excuse."
Nondischargeability of Contempt Sanctions
The BAP here did not read § 523(a)(6) or any other part of § 523(a) to make contempt sanctions per se nondischargeable. Without any controlling Ninth Circuit law, while acknowledging "[t]wo frequently cited bankruptcy court cases holding contempt judgments nondischargeable" "as a matter of law," the Panel relied chiefly on a 2001 Eighth Circuit decision, Siemer v. Nangle (In re Nangle), 274 F.3d 481 which did not go so far. The rule of Nangle is: "when the debtor’s conduct leading to the contempt judgment was 'willful and malicious,' then the debt arising from that willful and malicious conduct suffices as an injury and is nondischargeable under section 523(a)(6)."

Application of Nangle Standard
On the "willful" element, the Panel held "that Suarez's Injunction violations were clearly 'willful' within the meaning of section 523(a)(6) because they were aimed at Barrett and substantially certain to result in injury to Barrett." And Suarez' conduct was “malicious” "because she knowingly and intentionally violated the Injunction, her conduct was wrongful, done without just cause or excuse, and that it caused Barrett “injury” in the form of attorneys fees and costs."

"Injury" Without Compensatory Monetary Award
As stated above in the summary of the elements of a § 523(a)(6) claim, the creditor must show that the intentional, wrongful act necessarily caused injury. Is this element met when a judgment excludes any compensatory damages, includes only statutory attorney fees and costs? The Panel found no Ninth Circuit or any other circuit case law on this narrow question, but analogized to a Ninth Circuit opinion holding that a judgment for sanctions against a debtor for filing a frivolous appeal was not dischargeable regardless that the judgment was only for attorney fees and costs.

The Conclusion
"Although we appreciate the fine line Suarez would have us draw between contempt judgments with and without compensatory awards, it is clear that the Fees and Costs Judgment debt was 'as a result of,' 'with respect to' and 'by reason of' Suarez’s willful and malicious violation of the Injunction. Barrett’s action against Suarez arose solely out of those wrongful acts . . .." Therefore, that judgment debt is not dischargeable under § 523(a)(6).

The Concurring Opinion
The Concurring judge believed that the conclusion of nondischargeability was plainly dictated by the 1998 Supreme Court's opinion, Cohen v. De La Cruz, 523 U.S. 213: "Although there was an underlying monetary judgment in Cohen, that factual circumstance did not impact the Supreme Court’s statutory analysis, nor should the lack of a damages judgment here impact ours" Since the judgment here "unquestionably is 'as a result of', 'with respect to' and 'by reason of' debtor's violation of the injunction and court order," "[t]he plain meaning of § 523(a)(6) as construed by the Cohen court compels our conclusion that the fees and costs are nondischargeable."

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
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