Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02500/USCOURTS-ca10-88-02500-0/pdf.json

Nature of Suit Code: 443
Nature of Suit: Civil Rights Accommodations
Cause of Action: 

---

FILED 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

United States Court of Appeals 

Tf>nth Cirn,; t 

JAN 3 - 1990 

1lOBERT L. HOECKER 

Clerk IN RE: BARRY K. GUNDERSON, f/d/b/a 

Gunderson & Kauffman, 

Debtor. 

) 

) 

) 

) 

) 

) 

FARMERS STATE BANK OF BUCKLIN, Bucklin, ) 

Kansas, 

Appellant, 

v. 

BARRY KEVIN GUNDERSON, 

Appellee. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

No. 88-2500 

(D.C. No. 88-1095) 

( D. Kan.) 

Before MOORE, BARRETT, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 88-2500 Document: 01019958658 Date Filed: 01/03/1990 Page: 1 
Appellant Farmers State Bank of Bucklin (the bank) appeals 

from an order of the district court affirming the bankruptcy 

court's order discharging appellee Barry Kevin Gunderson's 

(debtor) debt to the bank. See 11 U.S.C. § 523(a)(6). Throughout 

all court proceedings the bank has argued that the debt should not 

be discharged because debtor's conversion of the proceeds of the 

sale of the collateral securing the bank's loan caused "willful 

and malicious" injury to the bank. 

Narrowly construing the exceptions to discharge, the 

bankruptcy court relied on In re Compos, 768 F.2d 1155 (10th Cir. 

1985), when it concluded the bank failed to prove the necessary 

"willful and malicious" intent. Although the bankruptcy court 

found there was a conversion of collateral and debtor, an 

attorney, was presumed to know the applicable law, it also found 

that the bank did not monitor the loan or collateral and was 

negligent in supervising the loan. Additionally, the bankruptcy 

court found that debtor did not act secretively. Therefore, the 

bankruptcy court overruled the bank's objection to discharge. 

The district court agreed with the bankruptcy court's 

conclusion that the debt should be discharged. Also relying on 

Compos, the district court determined there was no "intentional 

and deliberate" injury because the conversion was not done with 

the intent to injure the bank. 

After the district court's opinion was filed, this court 

decided In re Posta, 866 F.2d 364 (10th Cir. 1989). The issue in 

Pesta was whether the debtors' conversion of property was 

2 

Appellate Case: 88-2500 Document: 01019958658 Date Filed: 01/03/1990 Page: 2 
"malicious" unde r § 523(a)(6). Id. at 367. Thus, we conclude 

that Posta is controlling authority in this case. 

As in Posta, there is no question here that debtor's act of 

selling the collateral and converting the proceeds was willful, in 

that he "intentionally performed the basic act complained of." 

Id. Accordingly, the issue in Posta and in this case centers on 

the maliciousness of the debtor's actions. "[T]he focus of the 

'malicious' inquiry is on the debtor's actual knowledge or the 

reasonable foreseeability that his conduct will result in injury 

to the creditor •... " Id. 

[M]alicious intent must be demonstrated by evidence that 

the debtor had knowledge of the creditor's rights and 

that, with that knowledge, proceeded to take action in 

violation of those rights. Such knowledge can be 

inferred from the debtor's experience in the business, 

his concealment of the sale, or by his admission that he 

has read and understood the security agreement. 

Id. (citations omitted). 

Even without the benefit of this court's holding and 

reasoning in Posta, the district court and bankruptcy court did 

not err in concluding the debt was dischargeable. There is no 

indication in the record that the debtor did not intend to fulfill 

the loan obligations. He did not conceal any sales of the 

equipment or his removal of funds from his business, B&G Sales, 

bank account for personal use. Furthermore, he deposited money 

from his law practice and other sources into the B&G Sales 

account. Debtor discussed his financial situation with bank 

employees several times, and, at their suggestion, agreed to do 

legal work to pay off the note. 

3 

Appellate Case: 88-2500 Document: 01019958658 Date Filed: 01/03/1990 Page: 3 
I 

The bank has fai led to prove maliciousness by clear and 

convincing evidence. See Posta, 866 F.2d at 367. We agree with 

the district court's and bankruptcy court's conclusions that the 

debt should not be excepted from discharge. 

The judgment of the United States District Court for the 

District of Kansas is AFFIRMED. The mandate shall issue forthwith. 

ENTERED FOR THE COURT 

PER CURIAM 

4 

Appellate Case: 88-2500 Document: 01019958658 Date Filed: 01/03/1990 Page: 4