The assignment of a claim confers the right to assert the nondischargeability of the claim, according to Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y., who adopted the position of the majority of courts.
Before bankruptcy, a state court entered judgment against the debtor for aiding and abetting breach of fiduciary duty and unfair competition, from the taking of customer information. The holder of the judgment sold and assigned the claim to an entity that we will refer to as the creditor.
The creditor filed a claim and an adversary proceeding alleging that the debt was nondischargeable under Section 523(a)(6) as a “willful and malicious injury by the debtor to another entity or to the property of another entity.”
In substance, the debtor moved to dismiss the Section 523(a)(6) claim, contending that the assignment of the claim did not include the right to assert nondischargeability. The debtor also argued that none of his allegedly willful and malicious actions were aimed at the creditor-assignee.
Judge Grossman held that the creditor acquired the right to claim nondischargeability.
Much of Judge Grossman’s October 3 opinion is based on policy. For instance, he said that when “a debtor’s conduct demands denial of the privilege of a discharge for all claims or a single claim,... [t]his should not change simply because pre-petition a claim or cause of action against the debtor was assigned or otherwise acquired.” [Citations omitted.]
To the same effect, Judge Grossman said, “[E]xcept in very specific instances, the Bankruptcy Code looks not to the character or identity of the creditor, but rather the conduct of the debtor.”
To test whether his instincts accord with decisions from other courts, Judge Grossman said that a “majority of courts hold that a valid assignment of a claim or cause of action allows the assignee to step into the shoes of the assignor and assert the § 523(a) rights of the assigning creditor who was injured by the debtor’s conduct.” For that holding, he cited the Sixth, Seventh and Ninth Circuits.
Judge Grossman cited “a minority of courts” for holding that “an assignment, even if valid under state law, does not include the right to object to dischargeability in bankruptcy.” However, the decisions he cited were all from bankruptcy courts.
Although bankruptcy law controls the right to except a debt from discharge, Judge Grossman said that “state law governs what can be assigned more generally.” In that regard, he cited a New York statute establishing a “general rule in New York ... that causes of action are freely assignable.” Similarly, he said that the principle of assignability “is expressly recognized” in Bankruptcy Rule 3001(e).
Ending the opinion, Judge Grossman again returned to policy, saying he was “also persuaded that it is the nature of the Debtor’s conduct that should guide the § 523(a)(6) analysis.” More to the point, he said that a “debtor should not escape the legal consequences of his or her actions simply because a cause of action was assigned by the injured party.”
Declining to dismiss the Section 523(a)(6) claim, Judge Grossman held that the assignee-creditor “may rely on injuries to its assignor, as found by the state court, in this non-dischargeability action under § 523(a)(6) of the Bankruptcy Code.”
The assignment of a claim confers the right to assert the nondischargeability of the claim, according to Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y., who adopted the position of the majority of courts.
Before bankruptcy, a state court entered judgment against the debtor for aiding and abetting breach of fiduciary duty and unfair competition, from the taking of customer information. The holder of the judgment sold and assigned the claim to an entity that we will refer to as the creditor.
The creditor filed a claim and an adversary proceeding alleging that the debt was nondischargeable under Section 523(a)(6) as a “willful and malicious injury by the debtor to another entity or to the property of another entity.”
In substance, the debtor moved to dismiss the Section 523(a)(6) claim, contending that the assignment of the claim did not include the right to assert nondischargeability. The debtor also argued that none of his allegedly willful and malicious actions were aimed at the creditor-assignee.
Judge Grossman held that the creditor acquired the right to claim nondischargeability.