The actions of a 13-year-old boy resulted in a $1 million default judgment against the parents based on vicarious liability. Unwilling to expand the Bartenwerfer holding, the Ninth Circuit Bankruptcy Appellate Panel upheld dismissal of a complaint in an opinion on May 2, holding:

Bartenwerfer compels us to conclude that the presence of the phrase “by the debtor” in § 523(a)(6) necessarily means that vicarious liability for willful and malicious injuries caused by someone else does not render such liability of the debtor nondischargeable under § 523(a)(6).

See Bartenwerfer v. Buckley, 598 U.S. 69 (2023). To read ABI’s report, click here.

A Prank Turns Costly

A 13-year-old boy put a thumbtack in a classmate’s seat. The classmate was injured when he sat down. The injured student sued his classmate and the classmate’s parents in state court. As Bankruptcy Judge Gary Spraker said in his opinion for the BAP, “The state court complaint contained no allegations suggesting that [the parents] were directly involved in their son’s misconduct.”

The plaintiff obtained terminating sanctions for the parents’ “failure to cooperate in discovery,” Judge Spraker said. The result was a $1 million judgment against the parents. Judge Spraker added, “[T]he form default judgment was silent as to the basis of [the parents’] liability.”

The parents responded with a chapter 7 petition, prompting the judgment creditor to file a complaint alleging that the debt was nondischargeable under Section 523(a)(6) “for willful and malicious injury by the debtor to another entity.”

The debtors filed a motion to dismiss. Bankruptcy Judge Victoria S. Kaufman granted the motion and dismissed the complaint without leave to amend. The judgment creditor appealed to the BAP, to no avail.

Parsing Bartenwerfer

Judge Spraker characterized the creditor’s theory as being based on the idea that “a debtor’s vicarious liability” after Bartenwerfer “is now treated as establishing their misconduct for purposes of excepting all the resulting debts from discharge under § 523(a).” More specifically, he described the creditor as arguing “that vicarious liability not only extends liability but also imputes the wrongful conduct and intent of the tortfeasor to the third-party debtor for purposes of determining nondischargeability of a debt under § 523(a)(6).”

Scribing the outer boundaries of Bartenwerfer’s holding, Judge Spraker began by noting how the Supreme Court focused on the use of the passive voice in Section 523(a)(2)(A) in concluding that “‘Congress was “agnosti[c]’” about who committed it.’” Bartenwerfer, supra, 598 U.S. at 75. However, he said that Bartenwerfer “then contrasted the passive nature of § 523(a)(2)(A) with its ‘neighboring provisions, which both require action by the debtor herself.’ Id. at 77.”

For those reasons, Judge Spraker said that Bartenwerfer “conclude[d] that § 523(a)(2)(A) rendered nondischargeable a debtor-partner’s vicarious liability for another partner’s fraud.”

Applying Bartenwerfer to the Facts

Judge Spraker described the creditor as having made an “unwarranted conclusion” from Bartenwerfer that the presence or absence of the words “by the debtor” in the statute is no longer determinative as to whether there can be vicarious or derivative liability. He disagreed, saying, “the presence of the phrase ‘by the debtor’ in § 523(a)(6) is critical. To hold otherwise would violate the very statutory interpretation and dichotomy on which Bartenwerfer focused.”

Judge Spraker read Bartenwerfer to mean that the presence of “by the debtor” in Section 523(a)(6) “must be given at least the same weight as Bartenwerfer gave its omission from § 523(a)(2)(A).” On the other hand, he said that the creditor “offers no argument as to why the clear language of § 523(a)(6) should not be applied as it reads: to require the creditor to prove that the debtor both caused the willful and malicious injury and harbored the requisite intent.”

The words “by the debtor” were not present in the similar dischargeability provision under the former Bankruptcy Act. Noting that Congress added the words “by the debtor” in the Bankruptcy Code when adopting Section 523(a)(6), he said that “Bartenwerfer compels the conclusion that by changing the statutory language of § 523(a)(6) from passive to active, Congress precluded the nondischargeability of a debtor’s vicarious liability for intentional torts other than fraud.”

Judge Spraker ended his opinion by explaining why issue preclusion based on the state court judgment did not compel a finding of nondischargeability. He said, “[T]here is nothing to suggest that the state court actually and necessarily litigated this issue when it imposed liability on [the] debtors for their son’s actions.”

Judge Spraker affirmed the bankruptcy court’s dismissal of the dischargeability complaint without leave to amend.