Thursday, July 06, 2006

Fourth Circuit Finds Insufficient Basis for Treating Prior Wrongful Death Award as a Nondischargeable Debt under 11 U.S.C. s. 523(a)(6)

Per In re Duncan, 448 F.3d 725 (4th Cir. May 24, 2006):

Jacqueline Duncan filed a petition for Chapter 7 bankruptcy in the Eastern District of Virginia and listed the wrongful death award as a debt [to the estate of her daughter]. The Estate brought this adversary proceeding to contest the dischargeability of the award under 11 U.S.C. § 523(a)(6), which makes debts that arise from willful and malicious injuries nondischargeable in bankruptcy. The Estate then moved for offensive summary judgment, arguing that the state court judgment collaterally estopped relitigation of the controlling issue of whether Jacqueline Duncan intended to injure Meigan…. The district court … held that Jacqueline Duncan's debt, stemming from that verdict, was dischargeable as a part of her bankruptcy petition. The Estate then appealed to this court.

The controlling issue in the adversary proceeding is whether Jacqueline Duncan intended to injure her daughter. Under 11 U.S.C. § 523(a)(6), a debt is not dischargeable in a Chapter 7 bankruptcy if it arises from a “willful and malicious injury by the debtor to another.” [It] is not satisfied by negligent, grossly negligent or reckless conduct. Moreover, the mere fact that a debtor engaged in an intentional act does not necessarily mean that he acted willfully and maliciously for purposes of § 523(a)(6). See In re Moore, 357 F.3d 1125, 1128 (10th Cir.2004). Therefore, in order for collateral estoppel to apply here, the issue of whether Jacqueline Duncan intended to injure Meigan (as opposed to engaging in an intentional act that injured the child) must have been both litigated in and necessary to the state court proceeding. Sharma, 472 S.E.2d at 275. It must also be identical to an issue litigated in the state court. Angstadt, 457 S.E.2d at 87-88. The Estate grounds its argument for precluding the litigation of this issue on two aspects of the state court judgment: (a) the finding that Jacqueline Duncan was liable for wrongful death, and (b) the jury's award of punitive damages.

The finding that Jacqueline Duncan was liable for wrongful death does not support the application of collateral estoppel because it was judged by a different legal standard than the “willful and malicious injury” inquiry under § 523(a)(6)…. The state court judgment for punitive damages likewise does not support application of collateral estoppel because the record does not establish that it was based on a finding identical to the controlling issue under § 523(a)(6).


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