Opinion ID: 794648
Heading Depth: 2
Heading Rank: 2

Heading: Exception to Discharge for Willful and Malicious Injury

Text: 9 Under the Bankruptcy Code, discharge is not available for a debt for willful and malicious injury by the debtor to another. 11 U.S.C. § 523(a)(6). As used in that section, the word willful indicates a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). The injury caused by the debtor must also be malicious, meaning wrongful and without just cause or excuse, even in the absence of personal hatred, spite, or ill-will. In re Stelluti, 94 F.3d 84, 87 (2d Cir.1996). Malice may be implied by the acts and conduct of the debtor in the context of [the] surrounding circumstances. Id. at 88 (alteration in original, internal quotation marks omitted). 10 A creditor seeking to establish nondischargeability under § 523(a) must do so by the preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Parties may invoke collateral estoppel to preclude relitigation of the elements necessary to meet a § 523(a) exception. Id. at 285 n. 11, 111 S.Ct. 654; see also, e.g., In re Docteroff, 133 F.3d 210, 215 (3d Cir. 1997) (Collateral estoppel is applicable if the facts established by the previous judgment... meet the requirements of nondischargeability....). Federal principles of collateral estoppel, which we apply to establish the preclusive effect of a prior federal judgment, require that (1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits. Purdy v. Zeldes, 337 F.3d 253, 258 & n. 5 (2d Cir.2003) (internal quotation marks omitted). 11 Collateral estoppel applies here to facts found by Judge Melancon concerning the nature of Ball's conduct in the Gautreau proceeding. Those facts were fully litigated in the evidentiary hearing before the Louisiana district court and were necessary to Judge Melancon's decision to impose sanctions against Ball. 1 In fact, both parties urge us to apply collateral estoppel to the judge's findings; they disagree only as to the effect of those findings on the present proceeding. Ball argues that Judge Melancon merely found his actions unreasonable and that we are now estopped from finding that Ball's actions were malicious. A.O. Smith contends that the judge necessarily determined that Ball acted maliciously when he imposed sanctions under 28 U.S.C. § 1927. 12 Judge Melancon made specific factual findings that satisfy the Bankruptcy Code's malice requirement. The judge found that Ball interviewed the Gautreaus and reviewed two questionnaires they had filled out prior to instigating the lawsuit. These questionnaires detailed the Gautreau's experience with their A.O. Smith-manufactured Harvestore silos, including representations made by Harvestore representatives. Judge Melancon explicitly found that Timothy Gautreau's testimony at the evidentiary hearing was truthful. Among other things, Gautreau testified that he told Ball prior to filing the lawsuit that he and his brother were aware by the early 1980s that their Harvestore silos were failing to live up to expectations. Judge Melancon also found that Ball should have known the Gautreaus' claims were obviously barred, in part because Ball has been involved in many Harvestore cases against A.O. Smith from at least the mid-1990s, including three cases in the Fifth Circuit that were dismissed on statute-of-limitations grounds. Ball also acknowledged, in response to the judge's questioning, that he was aware of relevant precedent concerning the statute of limitations for the Gautreaus' claims. 13 As noted above, the term malicious in the context of § 523(a)(6) means wrongful and without just cause or excuse. In re Stelluti, 94 F.3d at 87. Although Judge Melancon's opinion did not use the terms malicious or malice, his decision to award sanctions under § 1927 was affirmed by the Fifth Circuit, which has adopted standards for such an award requiring findings that are the equivalent of findings of malice. 14 Under Fifth Circuit law, a district court may not properly impose sanctions pursuant to § 1927 unless the court finds the conduct to have been both unreasonable and for an improper purpose. See, e.g., FDIC v. Calhoun, 34 F.3d at 1300 (Section 1927 requires a sanctioning court to do more than disagree with a party's legal analysis; the court must make a separate determination on both the issue of the reasonableness of the claims and the purpose for which suit was instituted.); FDIC v. Conner, 20 F.3d 1376, 1384 (5th Cir.1994) (Before a sanction under § 1927 is appropriate, the offending attorney's multiplication of the proceedings must be both `unreasonable' and `vexatious.'). Thus, in Calhoun, the Fifth Circuit reversed a § 1927 award because the district court made only a finding of unreasonableness, not a finding of improper purpose: Because no separate showing of improper purpose was made, the district court abused its discretion in imposing sanctions under this statute. 34 F.3d at 1301. 15 In awarding § 1927 sanctions to A.O. Smith in the present case, Judge Melancon made the findings described above and cited Calhoun, thereby indicating that he was applying the Calhoun standard. The Fifth Circuit affirmed without opining on this issue. In these circumstances, we must infer that the affirmance constitutes a ruling that Judge Melancon's opinion sufficed as findings that Ball's commencement of the suit against A.O. Smith was unreasonable and for an improper purpose. 16 As we view conduct that is undertaken without just cause or excuse as unreasonable, and acts that are performed for an improper purpose as wrongful, we conclude that the facts found by Judge Melancon encompassed the concept of malice as used in § 523(a)(6).