Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-06-15928/USCOURTS-ca9-06-15928-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GLENN LOCKERBY, 

No. 06-15928 Plaintiff-Appellee,

D.C. No.

v.  CV-03-00578-CKJ

ALEXANDER L. SIERRA,

OPINION Defendant-Appellant. 

Appeal from the United States District Court

for the District of Arizona

Cindy K. Jorgenson, District Judge, Presiding

Argued and Submitted

March 10, 2008—Phoenix, Arizona

Filed August 7, 2008

Before: Michael Daly Hawkins, Sidney R. Thomas, and

Richard R. Clifton, Circuit Judges.

Opinion by Judge Hawkins

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COUNSEL

Alexander L. Sierra, Pro Se, Tucson, Arizona, for the

defendant-appellant. 

Walter F. Wood, Walter F. Wood, Ltd., Tucson, Arizona, for

the plaintiff-appellee. 

OPINION

HAWKINS, Circuit Judge: 

Sierra appeals the district court’s order and judgment

affirming the bankruptcy court’s determination that Lockerby’s breach of contract claim against Sierra was nondischargeable under 11 U.S.C. § 523(a)(6). We hold that an

intentional breach of contract cannot give rise to nondischargeability under § 523(a)(6) unless it is accompanied by

conduct that constitutes a tort under state law.

FACTUAL AND PROCEDURAL HISTORY

Sierra was Lockerby’s attorney in a previous matter. When

Lockerby sued Sierra for malpractice, the parties entered into

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a settlement agreement, in which Sierra assigned to Lockerby

50% of the attorney’s fees from the proceeds of four of Sierra’s then-pending personal injury cases. Concluding for himself that Lockerby did not have a legitimate malpractice

action, Sierra decided to breach the settlement agreement.

After Sierra filed a Chapter 7 Petition, Lockerby filed a complaint seeking to except his pre-petition claim for the breach

of the settlement agreement from discharge under 11 U.S.C.

§ 523(a)(4) and (6). 

The bankruptcy court concluded the claim failed under

§ 523(a)(4)1 because the parties were not in a fiduciary relationship with respect to the settlement agreement, but also

concluded that the debt was nondischargeable as arising from

“willful and malicious injury” under § 523(a)(6) because

Sierra possessed the “subjective intent of harming Lockerby.”

Relying on the bankruptcy court’s finding that Sierra’s conduct constituted intentional harm “without any legitimate

cause,” the district court affirmed. Citing Petralia v. Jercich

(In re Jercich), 238 F.3d 1202, 1205 (9th Cir. 2001), the district court expressly concluded that tortious conduct was not

required for a claim under § 523(a)(6). Sierra timely appealed.

STANDARD OF REVIEW

We “review the bankruptcy court’s conclusions of law de

novo and its factual findings for clear error.” Carillo v. Su (In

re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). “Whether a claim

is nondischargeable presents mixed issues of law and fact and

is reviewed de novo.” Id.

1Section 523(a)(4) renders nondischargeable debt for fraud while acting

in a fiduciary capacity. 

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DISCUSSION

1. Tortious Conduct Requirement

[1] Debtors who file for bankruptcy under Chapter 7 are

normally entitled to discharge unsecured debts. Certain types

of debt may not be discharged, including any debt “for willful

and malicious injury by the debtor to another entity.” 11

U.S.C. § 523(a)(6). 

[2] We begin from the proposition that tortious conduct is

a required element for a finding of nondischargeability under

§ 523(a)(6). Jercich, 238 F.3d at 1205 (“[a]n intentional

breach of contract is excepted from discharge under

§ 523(a)(6) only when it is accompanied by malicious and

willful tortious conduct.”) (emphasis in Jercich). The Jercich

court undertook a two-part inquiry to determine whether the

breach of contract rendered the debt excepted from discharge,

first examining whether the debtor’s conduct was “tortious,”

and then asking whether the debtor’s conduct was both “willful” and “malicious.” See id. at 1206-09. 

[3] Jercich holds that liability for a breach of contract need

not be wholly independent from liability for the tort in order

for the tortious conduct to give rise to nondischargeability

under § 523(a)(6). Id. at 1206. Jercich rejects a definition of

tortious conduct that would permit a finding of nondischargeability under § 523(a)(6) only “if the conduct at issue would

be tortious even if a contract between the parties did not

exist.” Id. at 1204. But far from doing away with the tortious

conduct requirement, Jercich affirms it. Id. at 1206 (“We . . .

hold that to be excepted from discharge under § 523(a)(6), a

breach of contract must be accompanied by some form of

‘tortious conduct’ that gives rise to ‘willful and malicious injury.’ ”).2

2Several other cases confirm that tortious conduct is a required element

for a finding of willful and malicious conduct. See, e.g., Peklar v. Ikerd

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The Supreme Court’s reasoning in Kawaauhau v. Geiger

also appears to mandate a tortious conduct requirement. 523

U.S. 57, 62 (1998). Although the holding there was limited to

a determination that only intentional torts, rather than negligent or reckless acts, can constitute willful and malicious

injury, the Court affirmed the Eighth Circuit’s holding that

“523(a)(6)’s exemption from discharge . . . is confined to

debts ‘based on what the law has for generations called an

intentional tort.’ ” Id. at 60 (citing Geiger v. Kawaauhau (In

re Geiger), 113 F.3d 848, 852 (8th Cir. 1997) (en banc)). The

Supreme Court noted that “[i]ntentional torts generally

require that the actor intend ‘the consequences of an act,’ not

simply ‘the act itself,’ ” id. at 61-62 (quoting Restatement

(Second) of Torts § 8A, cmt. a, at 15 (1964) (emphasis in Geiger)), and then rejected the expansion of § 523(a)(6) to “a

wide range of situations in which an act is intentional, but

injury is unintended.” Id. at 62. The Court then specifically

rejected the notion that a “knowing breach of contract” could

trigger exception from discharge under § 523(a)(6). Id.

Something more than a knowing breach of contract is

required before conduct comes within the ambit of

§ 523(a)(6), and Jercich defined that “something more” as

tortious conduct. 

(In re Peklar), 260 F.3d 1035, 1038 (9th Cir. 2001) (citing bankruptcy

cases that hold § 523(a)(6) is limited to intentional torts); Del Bino v. Bailey (In re Bailey), 197 F.3d 997, 1001-02 (9th Cir. 1999) (considering

whether act constitutes tort of conversion in determining nondischargeability under § 523(a)(6)); Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154

(9th Cir. 1992) (“It is well settled that a simple breach of contract is not

the type of injury addressed by § 523(a)(6)”) (citing bankruptcy case holding that “debts that are excepted from discharge under § 523(a)(6) relate

solely to tortious liabilities”)). Other bankruptcy courts within this Circuit

have also held that intentional breaches of contract cannot give rise to dischargeability under § 523(a)(6). See, e.g., Donaldson v. Hayes (In re

Hayes), 315 B.R. 579, 590 (Bankr. C.D. Cal. 2004) (Section 523(a)(6)

“applies only to intentional torts . . . when an intentional breach of contract

is accompanied by tortious conduct which results in willful and malicious

injury, the resulting debt is excepted from discharge under § 523(a)(6)”).

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2. Definition of Tortious Conduct

[4] Contrary to Lockerby’s argument, conduct is not tortious under § 523(a)(6) simply because injury is intended or

“substantially likely to occur,” but rather is only tortious if it

constitutes a tort under state law. See Jercich, 238 F.3d at

1206 (“To determine whether Jercich’s conduct was tortious,

we look to California state law.”); Bailey, 197 F.3d at 1000

(“While bankruptcy law governs whether a claim is nondischargeable under § 523(a)(6), this court looks to state law to

determine whether an act falls within the tort of conversion.”).3

[5] This approach is consistent with basic principles of tort

and contract law. Historically, injuries resulting from

breaches of contract are treated very differently from injuries

resulting from torts. In contract law, “[t]he motive for the

breach commonly is immaterial in an action on the contract.”

Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540,

547 (1903) (Holmes, J.). The concept of “efficient breach” is

built into our system of contracts, with the understanding that

people will sometimes intentionally break their contracts for

no other reason than that it benefits them financially. The definition of intent to injure as the commission of an act “substantially certain” to cause harm was born from tort

principles, not contract law principles. Restatement (Second)

3

See also Hayes, 315 B.R. at 590 (“Whether conduct is tortious is determined by state law.”); Communications Workers of America v. Allen (In

re Allen), 75 B.R. 742, 746 (Bankr. C.D. Cal. 1987) (“Neither the legislative history nor case precedent justify expanding [§ 523(a)(6)] to include

garden variety breaches of contract . . . . A foreseeable injury . . . may

have resulted from Debtor’s conduct, but it is not ‘malicious’ in the sense

that it warrants exception from discharge.”). Although Banks v. Gill Dist.

Ctrs. (In re Banks) upholds a finding of nondischargeability for breach of

a settlement agreement, the case deals only with the “intent to injure”

requirement, and does not discuss whether the conduct meets the “tortious

conduct” requirement. 263 F.3d 862, 869 (9th Cir. 2001). However, the

Banks court also recognizes that tortious conduct is required, and cites Jercich as holding that a nondischargeability finding is appropriate where

conduct “rose to the level of tort.” Id. at 869 n.6. 

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of Torts, § 8A, cmt. b (1965) (“If the actor knows that the

consequences are certain, or substantially certain, to result

from his act, and still goes ahead, he is treated by the law as

if he had in fact desired to produce the result.”). 

The Supreme Court’s reasoning in Geiger also supports this

conclusion. 523 U.S. at 62. That the Supreme Court in Geiger

assumed that § 523(a)(6) encompassed only intentional torts,

not intentional breaches of contract, strongly suggests the

Court would not approve of a definition of “tortious conduct”

that would include intentional breaches of contract whenever

it is substantially certain that the breach will cause injury. 

[6] Conflating tortious conduct with intent to injure also

conflicts with core principles of bankruptcy law and its underlying legislative scheme. A fundamental policy of bankruptcy

law is to “relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the

obligations and responsibilities consequent upon business

misfortunes.” Local Loan Co. v. Hunt, 292 U.S. 234, 244

(1934) (citation omitted). Expanding the scope of § 523(a)(6)

to include contracts that are intentionally breached whenever

it is substantially certain that injury will occur would severely

circumscribe the ability of debtors to “start afresh.” 

[7] Such an interpretation would conflict not only with the

“fresh start” policy at the heart of the Bankruptcy Code, but

also with the statutory scheme itself. The Bankruptcy Code

expressly permits intentional breaches of contract that are

substantially certain to result in injury. Under 11 U.S.C.

§ 365(a), bankruptcy trustees are permitted to reject executory

contracts and unexpired leases that do not produce a benefit

for the debtor’s estate. Section 365(g) expressly refers to this

rejection as a breach. Courts must interpret various sections

of a statute as consistent with one another in order to comport

with legislative purpose. See Kokoszka v. Belford, 417 U.S.

642, 650 (1974). Since the Code expressly permits intentional

breaches of contract (making no qualifications with respect to

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the motive of the breaching party), it would be inconsistent to

interpret § 523(a)(6) to render nondischargeable debts stemming from intentional breaches substantially certain to cause

injury.4

3. Tortious Conduct Under Arizona Law

Having determined that state-specific tortious conduct is

required under § 523(a)(6), we can only affirm the district

court if Sierra engaged in conduct that would constitute a tort

under Arizona law. See Jercich, 238 F.3d at 1206; Bailey, 197

F.3d at 1000. 

In Jercich, the court held that the breach of contract violated California law because, in California, tort recovery was

permitted when “in addition to the breach of the covenant [of

good faith and fair dealing] a defendant’s conduct violates a

fundamental public policy of the state.” 238 F.3d at 1206. At

issue was a state court judgment awarding punitive damages

for the nonpayment of employee wages despite ability to pay.

Id. at 1204. The state trial court had concluded that this intentional nonpayment was “willful and deliberate” and “constituted substantial oppression” under California law. Id. The

state trial court also emphasized California courts’ strong policy regarding employers’ obligation to pay their employees.

Id. at 1206-07. The Jercich court based its finding of “tortious

conduct” on the state court findings of oppression and the

public policy violation, finding that the conduct was tortious

under state law. Id. The Jercich court also emphasized that

“[w]ages are not ordinary debts.” Id. at 1207. 

[8] The conduct at issue here involves an “ordinary debt,”

4While an intentional breach of contract followed by a bankruptcy filing

may strike us as unfair, bankruptcy law already wards against systemgaming, for example, by rendering non-dischargeable purchases for “luxury” items made within ninety days of bankruptcy filing. 11 U.S.C.

§ 523(a)(2)(C)(i)(I). 

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and the conduct would not be tortious under Arizona law.

Sierra decided not to pay Lockerby, thereby breaching the settlement agreement; in doing so, he knew that this action

would injure Lockerby. Lockerby does not even allege that

Sierra engaged in tortious conduct, instead asserting, “[w]hile

a simple breach of contract may not be the basis for an exception to discharge, absent more, an intentional breach of contract provides the more that is necessary when it is

accompanied with knowledge that a person is bound by an

agreement and without just cause chooses to ignore it with

consequent harm to the [other] party.” 

[9] However, there is no indication that lack of just cause

alone renders a breach of contract tortious under the law of

Arizona (or any state, for that matter). Again, parties often

breach contracts simply because it is to their financial benefit.

Such a reason may not be “just,” but that does not render it

tortious. Sierra’s breach of contract would not give rise to a

tort action under Arizona law, and it is not “willful and malicious” under § 523(a)(6).5

5Lockerby does not allege any specific tort, such as a breach of good

faith and fair dealing, but the breach would not constitute this tort under

Arizona law in any event. In Arizona, “no tort claim for breach of good

faith and fair dealing is cognizable . . . outside of the insurance context

unless it involves a violation of public policy.” Nelson v. Phoenix Resort

Corp., 888 P.2d 1375, 1383 (Ariz. Ct. App. 1994). No violation of public

policy has been alleged here. Arizona law also constrains tort recovery for

breach of good faith and fair dealing to situations in which “there is a ‘special relationship arising from elements of public interest, adhesion, and

fiduciary responsibility.’ ” Enyart v. Transamerica Ins. Co., 985 P.2d 556,

561 (Ariz. Ct. App. 1998) (citing Burkons v. Ticor Title Ins. Co. of Cal.,

813 P.2d 710, 720 (Ariz. 1991)). These “special relationships” include

“those undertaken for something more than or other than commercial

advantage, such as the procurement of service, professional help, security,

or other intangibles.” Id. Although Sierra was Lockerby’s lawyer, the parties did not enter the settlement agreement in a lawyer-client relationship.

The bankruptcy court also concluded that the settlement agreement was

insufficient to create a fiduciary relationship within the meaning of

§ 523(a)(4). Accordingly, no special relationship existed that would give

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CONCLUSION

A breach of contract is not “willful and malicious conduct”

under § 523(a)(6) unless accompanied by conduct that would

give rise to a tort action under state law. We REVERSE the

district court’s decision, VACATE the judgment of the Bankruptcy Court, and REMAND for further proceedings. Each

party shall bear its own costs on appeal.

rise to a tort claim for a breach of the covenant of good faith and fair

dealing—even if such a breach were alleged. Lockerby also does not

allege that Sierra’s conduct amounts to the tort of conversion, and, in any

event, the conduct would not constitute conversion under Arizona law.

“[A]n action for conversion will not lie for money that is simply a debt.”

Universal Mktg. and Ent., Inc. v. Bank One of Arizona, 53 P.3d 191, 195

(Ariz. Ct. App. 2002). If the money that Sierra owed Lockerby was the

proceeds of the sale of an item in which Lockerby held a possessory interest, a conversion action would lie. See id. However, Lockerby has not

alleged that the settlement agreement gives him a possessory interest in

the proceeds of the four cases specified in the agreement. 

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