Distinction Without Difference: Substantial Certainty Under § 523(a)(6)

Section 523(a)(6) of the Bankruptcy Code prohibits the discharge of debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.”[1] Two decades ago, the Supreme Court clarified that “[t]he word ‘willful’ modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.”[2] In the wake of Geiger, circuits have agreed that a debtor’s “substantial certainty” of resulting injury satisfies the willfulness prong of § 523(a)(6), but have disagreed about “whether that substantial certainty must be judged subjectively or objectively.”[3] But if circuits agree that a debtor is “charged with the knowledge of the natural consequences of his actions”[4] and that willfulness may be proven by circumstantial evidence, then how would a subjective test of substantial certainty differ from an objective test?[5]

The Circuit Split

Under § 523(a)(6), an act is willful if “done intentionally and voluntarily.”[6] As the Supreme Court held in Geiger, “recklessly or negligently inflicted injuries [are not willful under] § 523(a)(6).”[7] The circuit courts have since clarified that “willful” acts, for purposes of § 523(a)(6), include both acts “the purpose of which [are] to cause injury or which [are] substantially certain to cause injury.”[8]

The circuits, however, disagree on the standard for determining substantial certainty.[9] The Fifth Circuit was the first to address the willfulness prong after Geiger.[10] In Miller, the Fifth Circuit held that “either objective substantial certainty or subjective motive meets the Supreme Court’s definition of ‘willful … injury’ in § 523(a)(6).”[11] The following year, the Sixth Circuit held that “unless the [debtor] … believes that the consequences are substantially certain to result from it, he has not committed a willful and malicious injury[,]”[12] and has since clarified that its test for that belief is subjective.[13] The Eighth, Ninth and Tenth Circuits have all adopted the subjective approach, and the question remains unanswered in the First, Second, Third, Fourth, Seventh and Eleventh Circuits.[14]

Different Definitions; Identical Results

All courts rely on circumstantial evidence to determine a debtor’s willfulness under § 523(a)(6).[15] The reason for this is obvious: “[D]ebtors rarely admit to an intent not to repay.”[16] The determination is fact-intensive and often resembles the badges of fraud used to determine actual intent in fraudulent-transfer cases.[17] Such evidence is considered “to establish what the debtor must have actually known when taking the injury-producing action.”[18]

Proof by Circumstantial Evidence May Render the Circuit Split Null

The Second Circuit recently addressed the circuit split under § 523(a)(6) and affirmed a bankruptcy court’s finding of willfulness without adopting a position.[19] The court grounded its ruling on the circumstantial evidence of the debtor’s state of mind, attributing to the debtor the natural consequences of his actions.[20]

Margulies II concerns a debtor’s attempt to discharge a debt for hitting a flagman directing traffic beside a construction site.[21] The debtor was stopped by the flagman, who continued to hold traffic even after it appeared that no one was entering or exiting the site.[22] The debtor testified that he non-verbally communicated his intent to move forward when the light turned green to the flagman, then, when the light turned green, the debtor lifted his foot off the brakes and his car rolled slowly forward.[23] When the car started rolling forward, the flagman backed into the debtor’s lane, and the debtor did not apply his brakes until after he hit the flagman.[24] The debtor later pled guilty to misdemeanor assault for “recklessly caus[ing] physical injury to another person.”[25] The flagman later sued the debtor for negligence and obtained a $4.8 million judgment.[26]

The Second Circuit avoided the issue of what test to apply to determine a debtor’s substantial certainty, but affirmed that the injury was “willful and malicious.”[27] The debtor argued that injuring the flagman was not his intent when he failed to apply his brakes until after he hit the flagman.[28] In disposing of the debtor’s argument, the court explained:

While it is an open question in this Circuit as to whether the “substantial certainty” test is objective or subjective, we need not settle the issue today. Under either the objective or subjective standard, [the debtor’s] decision not to apply the car’s brakes until after the car struck [the flagman] can only be viewed as a decision from which consequences are substantially certain to flow.[29]

The Second Circuit’s opinion comports with the reasoning of an earlier Seventh Circuit decision not to take sides on the issue.[30]

Applying Either Test Will Not Likely Affect Adversary Proceeding Outcomes

In Larsen, the Seventh Circuit faced the issue of applying § 523(a)(6) to debts related to a debtor’s attempted murder.[31] The court grimly summarized the debtor’s actions as follows:

The [debtor] … attempted to murder his ex-wife…. 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.[32]

The debtor’s victim later obtained a $3.4 million judgment against the debtor; the victim’s husband and daughters obtained a $300,000 judgment against the debtor for loss of consortium.[33]

The debtor offered byzantine formalism in his effort to reverse the bankruptcy court’s determination that these debts were for “willful and malicious” injuries.[34] First, he argued that the state-court “did not decide that he’d intended to inflict the specific injuries, such as the loss of his ex-wife’s toes, that resulted from his attack on her.”[35] Next, he argued “that at least the punitive-damages component of the debt ($1.5 million) is not for ‘willful and malicious injury’ but rather for punishment and deterrence.”[36] Finally, he argued “that he didn’t intend to injure his ex-wife’s husband or her children[.]”[37] Thus, the debtor argued, only the portion of the debt for the injuries to his wife he specifically intended were subject to the bar of § 523(a)(6).

In rejecting the debtor’s arguments and affirming the lower courts, Judge Posner summarized the circuit split as follows:

The Second Circuit defines “malicious” as “wrongful and without just cause or excuse, even in the absence of personal hatred, spite, or ill will.” The Fifth Circuit equates “willful and malicious injury” to “either an objective substantial certainty of harm or a subjective motive to cause harm.” The Sixth Circuit, in Wheeler v. Laudani, defined “willful” as “deliberate and intentional,” and “malicious” as “in conscious disregard of one’s duties or without just cause or excuse; it does not require ill will or specific intent to do harm.” After the Supreme Court’s decision in Kawaauhau v. Geiger, the Sixth Circuit, without questioning the definition in Wheeler, said that the debtor “must will or desire harm, or believe injury is substantially certain to occur as a result of his behavior.” Yet the Eleventh Circuit continues to use a formula almost identical to that in the Sixth Circuit’s Wheeler opinion: “‘Malicious’ means wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill will. To establish malice, a showing of specific intent to harm another is not necessary.” We too had quoted Wheeler’s formula approvingly, in In re Thirtyacre, but we have not revisited the issue since Kawaauhau v. Geiger.

The Eighth Circuit says that conduct is “malicious” only if it is “certain or almost certain … to cause harm.” The Ninth Circuit requires, for willfulness, a showing “either that the debtor had a subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct,” while “a ‘malicious’ injury involves ‘(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.’” The Tenth Circuit in Panalis v. Moore fused “willful” and “malicious,” saying that “willful” means “the debtor must ‘desire … [to cause] the consequences of his act or … believe [that] the consequences are substantially certain to result from it,’” while “malicious” requires “proof ‘that the debtor either intend the resulting injury or intentionally take action that is substantially certain to cause the injury.’”[38]

Rather than attempt to harmonize the various circuit positions or adopt a stance on the proper test for substantial certainty, the Seventh Circuit ignored the “semantic confusion” detailed above and simply refused to allow the debtor “to shirk liability by discharging his judgment debt [under] circumstances [that] would undermine the deterrent efficacy of tort law without serving any policy that might be thought to inform bankruptcy law.”[39] In Larsen, as in Margulies II, proof of intent by circumstantial evidence and imputing knowledge of the natural consequences of the debtor’s actions on the debtor rendered the circuit split a nonissue.

Applying either the subjective or objective test for substantial certainty under § 523(a)(6) will not likely affect the outcome. As Judge Posner rhetorically posed in Larsen, “is ‘objective substantial certainty of harm’ really intended to substitute for intent to harm, or is the point rather that if harm is certain we disbelieve that it was inflicted accidentally?”[40] Because “debtors rarely admit an intent [to injure]”[41] and are therefore “charged with the knowledge of the natural consequences of [their] actions,”[42] to induce a debtor’s state of mind based on circumstantial evidence is exactly the point under either test for substantial certainty.[43] Imputing knowledge of the natural consequences of his actions to the debtor and allowing proof of the debtor’s state of mind by circumstantial evidence allows courts to make findings of fact about the debtor’s state of mind with reference to objective facts — the only evidence of a debtor’s state of mind, other than his representations, that any third-party can ever access.[44] Margulies II and Larsen illustrate exactly why the subjective and objective tests for substantial certainty represent a distinction without difference.

Conclusion

It appears obvious that “all courts would agree that a willful and malicious 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.”[45] That is because the subjective and objective tests for substantial certainty do not generate different results when the natural consequences of the debtor’s actions are imputed to the debtor. Ultimately, the circuit split over the willfulness prong of § 523(a)(6) has produced two “different legal definitions of the same statutory language that probably don’t generate different outcomes.”[46]