Punitive Damage Award Held Nondischargeable

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Posted 04/30/2012 by Roger Cox

May you beat your ex-spouse, file bankruptcy, and discharge the punitive damage judgment resulting from the personal injury claim?  Short answer:  No. 

In In re Larsen, 2012 U. S. App. LEXIS 7793 (7th Cir. 2012), the court described the factual background as follows:

The defendant in this adversary proceeding in bankruptcy, David Larsen, attempted to murder his ex-wife, Teri Jendusa-Nicolai. He was convicted of state and federal crimes and sentenced to life in prison. Although his attempt had failed, he had inflicted severe injuries that resulted in her suffering a miscarriage and the amputation of all her toes; for after beating her with a baseball bat he had sealed her in a garbage can filled with snow and left it (and therefore her) in an unheated storage facility, causing severe frostbite. In a tort suit that she brought together with her present husband and her two daughters, a Wisconsin state court awarded  [*2] her a $3.4 million judgment against Larsen for battery, false imprisonment, and intentional infliction of emotional distress, and her husband and daughters $300,000 for loss of consortium.

After the state court judgment (and presumably, the criminal conviction), the debtor filed for Chapter 7 relief.  The ex-wife filed an adversary proceeding seeking to have her judgment found nondischargeable under 11 U.S.C. § 523(a)(6), which provides that debts “for willful and malicious injury by the debtor to another entity or to the property of another entity” are nondischargeable.

Collateral estoppel (issue preclusion) precluded the debtor from challenging the findings from the state court judgment, and not surprisingly, the Seventh Circuit affirmed the bankruptcy court’s ruling that the judgment resulting from the physical injuries caused by the debtor were nondischargeable.

The opinion is not all that notable for its outcome, but it is authored by Justice Richard Posner, who has long been considered an influential jurist.  Posner examined two things of interest in the opinion:

Punitive Damages:  First, the debtor challenged the applicability of a nondischargeablity finding to the punitive damage portion of the state court judgment.  Posner made quick work of this, noting that “punitive damages are a debt owed by a tort-feasor to his victim, and in this case they are a debt consequent upon a willful and malicious injury.”  Id., citing Fischer v. Scarborough, 171 F.3d 638, 644-45 (8th Cir. 1999). 

Similarly, the court found awards for loss of consortium also nondischargeable, noting that although derivative in nature, they derived from the intentionally caused injury.

Willful and Malicious Injury in other Circuits: Second, Judge Posner compared the various definitions that had been given by other Courts of Appeals to the phrase “willful and malicious injury.”  For example, most familiar to readers in the Fifth Circuit is the concept that “willful and malicious injury” equates to “either an objective substantial certainty of harm or a subjective motive to cause harm.”  Miller v. J.D. Abrams, Inc., 156 F.3d 598, 606 (5th Cir. 1998).

The court noted that other circuits had developed definitions that differ to a certain degree, but after exploring examples from other circuits, Judge Posner concluded as follows:

But whatever the semantic confusion, we imagine that all courts would agree that a willful and malicious injury, precluding discharge in bankruptcy of the debt created by the injury, is one that the injurer inflicted knowing he had no legal justification and either desiring to inflict the injury or knowing it was highly likely to result from his act.

Noting that many courts repeat the mantra that the purpose of bankruptcy is to provide relief for “honest debtors,” Posner observed that the purpose of bankruptcy is actually twofold – that is, to grant the honest debtor a fresh start and “to minimize creditors’ losses from defaults.”    

The Court concluded that the entire state court damage award was nondischargeable.

[The district court’s opinion can be found at Larsen v. Jendusa-Nicolai, 442 B.R. 905, 2010 U.S. Dist. LEXIS 137662 (E.D. Wis., 2010).]

*Roger Cox, a shareholder with the Underwood Law Firm, is Board Certified in Business Bankruptcy Law (and formerly Board Certified in Commercial/Real Estate Law) by the Texas Board of Legal Specialization and a member of the American Bankruptcy Institute.  Mr. Cox is a co-author of Bankruptcy Road Map, published by the State Bar of Texas, and he most recently served on the faculty of the SBOT’s 2011 Advanced Business Bankruptcy Course. 

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

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