Court Opinion

ID: 2721133
Source: CourtListenerOpinion
Date Created: 2014-08-27 05:00:32.416782+00
Date Added: 2024-06-11T12:55:32.923960
License: Public Domain

Case: 13-41030   Document: 00512746922   Page: 1   Date Filed: 08/26/2014

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT

                               No. 13-41030
                                                               United States Court of Appeals
                                                                        Fifth Circuit

                                                                      FILED
                                                                August 26, 2014
In the Matter of: LARRY GENE MCCLENDON,
                                                                 Lyle W. Cayce
                                                                      Clerk
                                         Debtor

LARRY GENE MCCLENDON,

                                         Appellant
v.

BOBBY J. SPRINGFIELD,

                                         Appellee

                Appeal from the United States District Court
                     for the Eastern District of Texas

Before HIGGINBOTHAM, CLEMENT, and HIGGINSON, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
      A state court entered judgment upon a jury verdict awarding Bobby
Springfield $341,000 in damages for defamation against Larry Gene
McClendon.     McClendon subsequently filed for Chapter 11 bankruptcy.
Springfield filed a proceeding seeking to have the debt arising from the
defamation judgment declared nondischargeable pursuant to 11 U.S.C.
§ 526(a)(6). The bankruptcy court found the defamation to have been a willful
and malicious injury and declared it nondischargeable, and the district court
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                                   No. 13-41030
affirmed. McClendon appeals, arguing insufficiency of the evidence and that
the bankruptcy court impermissibly shifted the burden of proof to him. We
affirm.
                                        I.
      McClendon was the president and sole shareholder of NIA Insurance
Agency, Inc. (“NIA”), for which Springfield served as Chief Financial Officer
from 2003 through December 2007. In December 2007, McClendon accused
Springfield of theft and fired him. The following month, NIA and McClendon
sued Springfield in Texas state court, claiming theft and conversion.
Springfield answered and counterclaimed, alleging defamation.                The suit
proceeded to trial, and the state court jury determined that Springfield was
entitled to $341,000 in actual damages for defamation.
      Following trial, on May 11, 2011, McClendon filed a voluntary petition
for Chapter 11 bankruptcy. With leave of the bankruptcy court, the state court
entered judgment in favor of Springfield on his defamation claims in the
amount of $341,000, making Springfield a creditor in McClendon’s bankruptcy.
Springfield then filed the underlying adversary proceeding on August 16, 2011,
seeking   to   have   the   debt   arising   from     the     jury   award   declared
nondischargeable pursuant to 11 U.S.C. § 523(a)(6). McClendon confirmed a
Chapter 11 plan of reorganization on January 30, 2012.
      The bankruptcy court entered judgment that the debt owed by
McClendon to Springfield pursuant to the jury award was nondischargeable.
It determined that McClendon intentionally made the false statements
regarding Springfield in a manner and under circumstances, including among
other things the pernicious nature of a false statement accusing another of a
crime, that were substantially certain to cause injury to Springfield; that in so
doing McClendon inflicted a willful and malicious injury upon Springfield; that
McClendon’s testimony that his publication of the false statements about
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Springfield could not have caused injury to Springfield and that he had no
intention to harm Springfield was not credible; and that Springfield met his
burden of demonstrating by a preponderance of the evidence the existence of a
deliberate or intentional injury by McClendon in an amount at least equivalent
to the judgment.
                                             II.
       In his action to determine the dischargeability of a debt, Springfield as
the creditor was required to bear the burden of proof to establish by a
preponderance of the evidence that his claim is nondischargeable. 1 “We review
the decision of a district court, sitting as an appellate court, by applying the
same standards of review to the bankruptcy court’s findings of fact and
conclusions of law as applied by the district court.” 2 We will not set aside
findings of fact unless they are clearly erroneous. 3 “In examining for clear
error, we review the record as a whole and not just the evidence supporting the
finding.” 4 “The bankruptcy court’s findings of fact may be reversed only if the
reviewing court has ‘the definite and firm conviction that a mistake has been
made.’” 5 “With respect to conclusions of law, the bankruptcy court’s decisions
are reviewed de novo.” 6 “The interpretation of Section 523(a)(6) is a question
of law and is reviewed de novo.” 7

       1 See Grogan v. Garner, 498 U.S. 279, 286–87 (1991).
       2 In re TransTexas Gas Corp., 597 F.3d 298, 304 (5th Cir. 2010) (quoting In re Jay, 432
F.3d 323, 325 (5th Cir. 2005)).
       3 Id. (citing In re Martin, 963 F.2d 809, 813–14 (5th Cir. 1992)).
       4 Id. (citing Anderson v. City of Bessemer City, 470 U.S. 564, 573–74 (1985)).
       5 In re Williams, 337 F.3d 504, 508 (5th Cir. 2003) (citing Cotten v. Deasy, 2002 WL
31114061, at *2 (N.D.Tex.2002)).
       6 TransTexas Gas Corp., 597 F.3d at 304 (citing Pullman-Standard v. Swint, 456 U.S.
273, 287 (1982)).
       7 Williams, 337 F.3d at 508 (citing Hickman v. Texas (In re Hickman), 260 F.3d 400,

401 (5th Cir.2001)).
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                                          III.
      McClendon first appeals on the ground that he could not have inflicted
the “willful and malicious” injury on Springfield required by section 523(a)(6)
of the Bankruptcy Code 8 because he believed the statements to be true. He
argues in a similar vein that the bankruptcy court’s finding of a willful and
malicious injury was in error because injury inflicted through an honest
mistake, as he alleges his was, cannot be willful and malicious.              Section
523(a)(6) of the Bankruptcy Code provides that a debt “for willful and malicious
injury by the debtor to another” is not dischargeable. The Supreme Court
determined in Kawaauhau v. Geiger 9 that this provision does not cover a debt
arising from negligent or reckless conduct; in other words, section 523(a)(6)
does not cover mere acts, done intentionally, that cause injury, but rather only
acts done with the actual intent to cause injury.              This Court applied
Kawaauhau in Matter of Miller, 10 defining a “willful and malicious” injury as
one “where there is either an objective substantial certainty of harm or a
subjective motive to cause harm.” Miller specified that an individual who acts
under an “honest, but mistaken belief . . . cannot be said to have intentionally
caused injury,” because absent the fact about which there has been a mistake,
legally cognizable injury would not meet the test of “substantial certainty.” 11
      McClendon maintains that he made the statements under an honest but
mistaken belief that they were true, but the bankruptcy court was of course
free to—and did—disbelieve his testimony to this effect. Although the state
court judgment was entered upon a jury verdict finding defamation, the jury’s
determination could be sustained either on intentionality or recklessness. It

      8 11 U.S.C. § 523(a)(6).
      9 523 U.S. 57, 59, 61 (1998).
      10 156 F.3d 598, 606 (1998).
      11 Id.

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did not necessarily determine the federal question of a willful and malicious
injury necessary under § 523(a)(6). The bankruptcy court therefore conducted
an independent inquiry into the willful and malicious character of McClendon’s
defamatory statements, conducting a trial of its own into questions not
determined by the state court jury.                  McClendon argues that the judge’s
disbelief of his testimony is insufficient evidence for an affirmative conclusion
that he knew the statements were false. McClendon points to the principle
from the distinct context where there is a “total rejection” of a witness’s
testimony that “[a] trial judge may not use his disbelief of a witness as
affirmative support for the proposition that the opposite of the witness’s
testimony is the truth.” 12 But here, the factual inquiry was binary, a question
whether McClendon acted willfully and maliciously or not.                       Against the
backdrop of all testimony and the state court record, the bankruptcy court’s
disbelief of McClendon’s statements that he did not know the statements were
false leaves only the alternative that he did know—a conclusion the
bankruptcy court was free to reach. Additionally, McClendon testified to the
bankruptcy court that he knew the alleged theft did not exceed one million
dollars, and the jury determined he made statements to this effect. We see no
basis, in fact or in precedent, to overturn the bankruptcy court’s conclusions
here.
                                               IV.
        McClendon also contends that the Bankruptcy Court impermissibly
shifted the burden of proof to him by applying a presumption of objective
substantial certainty of harm for statements imputing criminal conduct,
without considering the context of the statements.                     We disagree.       The
bankruptcy court reached two pertinent conclusions of law:

        12   E.g., Seymour v. Oceanic Navigating Co., 453 F.2d 1185, 1190–91 (5th Cir. 1972).
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   • [T]he pernicious nature of a false statement to a third party accusing
     another person of a crime creates an objective substantial certainty of
     harm to that person in the absence of some extenuating circumstance.
   • Under the circumstances presented in this case, the false statements
     made by McClendon to the designated third parties regarding
     Springfield created an objective substantial certainty of harm to
     Springfield.
     McClendon’s claim that the bankruptcy court examined the statements
in a vacuum without considering their context is belied by the record of the
proceedings and by the court’s own findings.                McClendon testified to the
circumstances in which he made the statements.                  The bankruptcy court’s
findings of fact acknowledge the importance of context and expressly found
McClendon’s false statements to create an objective substantial certainty of
harm under the circumstances presented in this case.
       McClendon alleges in addition that the bankruptcy court presumed
willful and malicious injury from the face of the statements—thereby
improperly shifting the burden of proof to McClendon to disprove the
exemption. This claim, meritless in any event, is waived because McClendon
did not argue this alleged error of law before the district court. Bankruptcy
Rule 8006 provides that in an appeal to a district court, the appellant must file
a statement of the issues to be presented. 13 It is “clear under the law of this
circuit that an issue that is not designated in the statement of issues in the
district court is waived on appeal when the district court rules on the merits,”
“even if the issue was argued before the district court.” 14                  McClendon’s
statement of issues in the district court asked only whether the bankruptcy

       13  Fed. R. Bankr. P. 8006.
       14 In re McCombs, 659 F.3d 503, 510 (5th Cir. 2011); see also In re GGM, P.C., 165 F.3d
1026, 1032 (5th Cir. 1999) (“[E]ven if an issue is argued in the bankruptcy court and ruled on
by that court, it is not preserved for appeal under Bankruptcy Rule 8006 unless the appellant
includes the issue in its statement of issues on appeal. [Appellant] failed to do so, and we
thus hold that he may not raise the . . . claim in this appeal.”)
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court erred by finding the debt nondischargeable pursuant to 11 U.S.C.
§ 523(a)(6), and his argument there was defended specifically on other grounds.
This does not fairly encompass his argument here that the bankruptcy court’s
interpretation of § 523(a)(6) errs as a matter of law by impermissibly shifting
the burden of proof to the debtor, a claim neither argued to nor decided by the
district court. Having failed to preserve this argument for appeal, McClendon
has waived it.
                                      V.
      For these reasons, we AFFIRM the judgment of the district court
affirming the bankruptcy court’s holding that the debt at issue here is
nondischargeable under § 523(a)(6).

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