Opinion ID: 572756
Heading Depth: 2
Heading Rank: 2

Heading: Dischargeability of Punitive Damages under Section 523(a)(6)

Text: 36 Britton argues that even if his conduct is found to be willful and malicious within the meaning of section 523(a)(6), that section bars discharge only of actual damages, not of punitive damages. 37 We have held that both compensatory and punitive damages are subject to findings of nondischargeability pursuant to section[ ] 523(a)(6).... Moraes v. Adams (In re Adams), 761 F.2d 1422, 1423, 1428 (9th Cir.1985). In Adams, the court rejected the debtor's argument that only the punitive portion was nondischargeable under this section. It noted,  'The exception is measured by the nature of the act, i.e., whether it was one which caused willful and malicious injuries. All liabilities resulting therefrom are nondischargeable.'  Id. (quoting Coen v. Zick, 458 F.2d 326, 329-30 (9th Cir.1972)). 38 Britton raises several arguments against the BAP's holding that, under Adams and Coen, section 523(a)(6) can except punitive damages from discharge. He suggests first that punitive damages are not a debt for injury caused by a debtor's willful and malicious acts. As the quoted language of Coen indicates, the Ninth Circuit has not read the language of section 523 so narrowly. Moreover, the Supreme Court has suggested that the term debt is to be given an expansive, not a narrow reading: 39 As is apparent, Congress chose expansive language in [the Code's definitions of claim and debt.] For example, to the extent the phrase right to payment is modified in the statute, the modifying language ... reflects Congress' broad rather than restrictive view of the class of obligations that qualify as a claim giving rise to a debt. 40 Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 2130, 109 L.Ed.2d 588 (1990); see also Placer v. Dahlstrom (In re Dahlstrom), 129 B.R. 240, 242 (Bankr.D.Utah 1991) (concluding, after analysis of Davenport and Johnson v. Home State Bank, --- U.S. ----, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991), that punitive damages are debts under the Bankruptcy Code). 41 Britton also argues that because Congress specifically provided in section 523(a)(7) that a debt will not be discharged to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, 11 U.S.C. § 523(a)(7), it intended that the other section 523 exceptions not encompass punitive damages. We have rejected this argument in In re Levy. Injured private plaintiffs are not precluded from relying on the exceptions set forth in other subsections of section 523 merely because one subsection precludes discharge of penalties owed to the government. Palmer v. Levy (In re Levy), 951 F.2d 196, 199 (9th Cir.1991); see also In re Dahlstrom, 129 B.R. at 246 (There is nothing in the language of § 523(a) or its legislative history to indicate that subsection (a)(7) was intended to preclude private entities from pursuing nondischargeability of judgments of punitive damages under other subsections.). 42 Britton argues as well that excepting punitive damages from discharge in bankruptcy contravenes the fresh start goals of the bankruptcy process. However, as the Supreme Court has noted, while the fresh start is a central purpose of the [Bankruptcy] Code, this opportunity is limited to the  'honest but unfortunate debtor.'  Grogan v. Garner, --- U.S. ----, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934)). The Bankruptcy Code has other goals, such as protecting certain classes of creditors; among such creditors are those whom the debtor has harmed by egregious conduct. In Grogan, the Supreme Court held that the preponderance of the evidence, rather than the clear-and-convincing evidence standard applies to the section 523 exceptions. The Court observed, [w]e think it unlikely that Congress, in fashioning the standard of proof that governs the applicability of these provisions would have favored the interest in giving perpetrators of fraud a fresh start over the interest in protecting victims of fraud. Grogan, 111 S.Ct. at 659. Section 523(a)(6) reflects a similar concern for the victims of willful and malicious injury. 43 Britton also argues that because the states have differing standards for the award of such damages, holding that punitive damages are nondischargeable under section 523(a)(6) would frustrate the goal of a uniform bankruptcy law. However, while state courts apply state law in awarding punitive damages, since 1970 ... the issue of nondischargeability has been a matter of federal law governed by the terms of the Bankruptcy Code. Grogan, 111 S.Ct. at 658. There is thus no uniformity problem. 44