A district court decision from Houston is required reading for plaintiffs’ tort lawyers to understand how they must write jury instructions and special verdict forms to ensure that judgments for willful and malicious torts will be nondischargeable automatically when the defendant files bankruptcy to shed the debt.
The plaintiff-creditor was a graduate student. The debtor-defendant was his thesis advisor. Each claimed that the other stole his intellectual property. In other words, they both claimed plagiarism. The creditor-plaintiff contended that the charges ruined his academic career.
Eventually, the plaintiff-creditor won an $800,000 judgment in California state court. The jury found that the plaintiff was entitled to punitive damages.
The judgment was upheld on appeal. After the debtor filed a chapter 7 petition, the creditor-plaintiff initiated an adversary proceeding for a declaration that the judgment was nondischargeable under Section 523(a)(6) as a “willful and malicious injury.”
The creditor filed a motion for summary judgment based on issue preclusion, previously known as collateral estoppel. The creditor pointed to the verdict where the jury found “by clear and convincing evidence” that the debtor had engaged in “malice, oppression, or fraud.” Seemingly, all three would support a judgment of nondischargeability.
On summary judgment, the creditor submitted the California judgment, the jury instructions and the special verdict form. The bankruptcy court agreed with the creditor, granted summary judgment and declared the debt nondischargeable under Section 523(a)(6).
Delving into the details of California law and the special verdict form, District Judge Lee H. Rosenthal of Houston reversed the grant of summary judgment in an opinion on July 25, because the requisites of issue preclusion had not been met.
The weak point in the creditor’s argument was the requirement in California law that the critical question must have been actually litigated and decided before invoking issue preclusion.
The jury found that the debtor had intentionally inflicted emotional harm. “Despite the name of this tort,” Judge Rosenthal said, “intentional infliction of emotional distress under California law does not require a finding that the defendant acted with subjective or objective intent to cause emotional harm.”
“In California,” Judge Rosenthal said, “intentional infliction of emotional distress requires proof that the defendant’s conduct was outrageous, that the defendant intended to cause or recklessly disregarded the probability of causing emotional distress . . . .” [Emphasis in original.]
The defamation claim had a similar flaw. “California law requires only that the plaintiff show intentional conduct, not intent to harm,” Judge Rosenthal said. The jury was not asked to say whether the debtor “knew the statements were false but spread them anyway, knowing they would harm [the creditor],” Judge Rosenthal said. [Emphasis in original.]
Judge Rosenthal said that the “jury instructions and the verdict form do not, alone, support the finding that [the debtor] acted with an intent to harm.”
Similarly, the jury found by “clear and convincing evidence” that the creditor was entitled to punitive damages because the debtor had engaged in “malice, oppression or fraud.”
Again, the jury’s finding did not satisfy the requirements of issue preclusion, given the details behind California law. Malice can be either intentional conduct or despicable conduct. In California, only intentional malice requires an intent to cause injury.
Further, the jury did not distinguish which among malice, oppression or fraud was the basis for punitive damages. The verdict could have been based on despicable malice or oppression, which only require that the defendant acted recklessly, “not with subject intent to harm or with substantial certainty of harm,” Judge Rosenthal said.
Judge Rosenthal ruled that the creditor was not entitled to summary judgment because the “jury did not clearly decide that [the debtor] had acted with objective substantial certainty of harm or a subjective motive to cause harm.”
Judge Rosenthal reversed and remanded for the bankruptcy court to decide whether the debtor’s actions were “willful and malicious.” If they were, Judge Rosenthal said that the bankruptcy court might be required to decide whether all or only part of the $800,000 judgment was for “willful and malicious” conduct.
A district court decision from Houston is required reading for plaintiffs’ tort lawyers to understand how they must write jury instructions and special verdict forms to ensure that judgments for willful and malicious torts will be nondischargeable automatically when the defendant files bankruptcy to shed the debt.
The plaintiff-creditor was a graduate student. The debtor-defendant was his thesis advisor. Each claimed that the other stole his intellectual property. In other words, they both claimed plagiarism. The creditor-plaintiff contended that the charges ruined his academic career.
Eventually, the plaintiff-creditor won an $800,000 judgment in California state court. The jury found that the plaintiff was entitled to punitive damages.
The judgment was upheld on appeal. After the debtor filed a chapter 7 petition, the creditor-plaintiff initiated an adversary proceeding for a declaration that the judgment was nondischargeable under Section 523(a)(6) as a “willful and malicious injury.”
The creditor filed a motion for summary judgment based on issue preclusion, previously known as collateral estoppel. The creditor pointed to the verdict where the jury found “by clear and convincing evidence” that the debtor had engaged in “malice, oppression, or fraud.” Seemingly, all three would support a judgment of nondischargeability.