Opinion ID: 2834679
Heading Depth: 2
Heading Rank: 2

Heading: The Court’s Recognition of a State Common Law Malicious Prosecution Claim

Text: for Adversary Proceedings Conflicts with Congress’s Decision Not to Create Such a Claim for Voluntary Chapter 7 Bankruptcies. “[B]ankruptcy principles come from federal rather than state law.” Randolph v. IMBS, Inc. , 368 F.3d 726, 730 (7th Cir. 2004) (Easterbrook, J.) (citing Cox v. Zale Del., Inc. , 239 F.3d 910, 916 (7th Cir. 2001) (Posner, J.). In bankruptcy, “the debtor’s protection and remedy remain[] under the Bankruptcy Act.” Kokoszka v. Belford , 417 U.S. 642, 651 (1974) (holding superceded in part by statute). The “delicate balance of a debtor’s protections and obligations during the bankruptcy procedure” have been fixed, modified, overhauled, and set by Congress over more than a century, eminating from explicit constitutional authority to make the bankruptcy laws. Kokoszka , 417 U.S. at 651. Congress provided a roadmap to its intent in the relevant provisions of the Bankruptcy Code. It includes both voluntary and involuntary bankruptcies under Chapters 7 and 11. See 11 U.S.C. §§ 301, 303. In section 303, Congress promulgated a statutory analogue to state law malicious prosecution claims for abuse of bankruptcy proceedings in involuntary cases. Id. Section 303(i) provides for recovery of “any damages proximately caused,” including actual and exemplary damages, by filing an involuntary petition in bad faith. Id. By its language, section 303(i) remedies include the damages that may be recovered under Texas common law for malicious prosecution . See, e.g. , Fifth Club, Inc. v. Ramirez , 196 S.W.3d 788, 798 (Tex. 2006) (allowing mental anguish damages); Ellis County State Bank v. Keever , 915 S.W.2d 478, 479 (Tex. 1995) (discussing sufficiency of the evidence for punitive damages). Courts have consistently held that section 303(i) preempts state law actions for malicious prosecution in involuntary bankruptcy proceedings. [6] Importantly, for this case and Fuqua’s claim, Congress did not similarly create a vehicle for recovery of “all damages proximately caused” or exemplary damages for voluntary Chapter 7 proceedings. Instead, Congress created remedies to recover attorneys’ fees and costs as sanctions. The extensive remedial provisions for involuntary petitions indicate that Congress did not ignore but considered sanctions, equitable remedies, and compensatory and exemplary damages in the bankruptcy scheme. MSR Exploration , 74 F.3d at 913. Where Congress includes damages provisions in one section of a statute but omits them in another section of the same statute, we presume Congress acted intentionally and purposefully in the disparate inclusion or exclusion. Clay v. U.S. , 537 U.S. 522, 528 (2003); Duncan v. Walker , 533 U.S. 167, 173 (2001). In this context, Congress’s creation of sanctioning tools, albeit broad, rather than damages, speaks loudly to Congress’s intent for conduct constituting malicious prosecution in voluntary Chapter 7 proceedings. By allowing Fuqua’s Texas common law prosecution claim to proceed for actions that occurred entirely in bankruptcy, the Court, in effect, creates a malicious prosecution claim for voluntary Chapter 7 bankruptcies that Congress saw fit not to create. There is no provision comparable to a Texas malicious prosecution claim directed specifically at the voluntary filings of a debtor or an adversary proceeding instituted by a creditor. There are, however, many other remedial provisions in the Code that could apply. See, e.g. , 11 U.S.C. § 362(k) (willful violation of automatic stays); 11 U.S.C. § 707(b) (dismissal for “substantial abuse”); 11 U.S.C. § 930(a) (dismissal under Chapter 9); 11 U.S.C. § 1112(b) (dismissal under Chapter 11); 28 U.S.C. § 1927 (liability for excessive costs for “unreasonably and vexatiously” multiplying proceedings). And like 303(i), section 362(k) has been held to preempt state law abuse of process claims for violations of an automatic stay. See E. Equip. & Servs. Corp. v. Factory Point Nat’l Bank , 236 F.3d 117, 120 (2d Cir. 2001) (preemption of jurisdiction); Periera v. Chapman , 92 B.R. 903, 908 (C.D. Cal. 1988); Brandt v. Swisstronics, Inc. (In re Shape) , 135 B.R. 707, 708-09 (Bankr. D. Me. 1992); Koffman , 182 B.R. at 123-28 (preemption holding based on both section 303(i) and section 362(k)); Smith v. Mitchell Constr. Co. , 481 S.E.2d 558, 561 (Ga. Ct. App. 1997). See also Halas v. Platek , 239 B.R. 784, 792 (N.D. Ill. 1999) (holding that because a claim for sanctions under section 362(k) is within the exclusive jurisdiction of federal courts, state court lacked subject matter jurisdiction over claim). The existence of such an extensive remedial scheme indicates congressional intent for bankruptcy law to “occupy exclusively” the regulation of conduct amounting to malicious prosecution or abusive filings in the bankruptcy process. English v. Gen. Elec. Co. , 496 U.S. 72, 79 (1990). An overlay of fifty states’ common law claims would damage or interfere with the federal scheme. In addition to the Bankruptcy Code’s extensive remedial scheme indicating congressional intent, the constitutionally prescribed need for uniformity in the bankruptcy laws is a special feature that warrants preemption. Id.