ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE.
This adversary proceeding arises from an altercation between John Carmelo ("Carmelo"), and Anthony Mickletz ("the Debtor") in March 2006. At the time of the altercation, Carmelo was an employee of Famous Fat Freddie's Pizza, LLC ("the Restaurant"), a pizza restaurant owned and operated by the Debtor. Carmelo claims that the Debtor pushed him, causing him to fall and suffer injuries that have left him unable to work. The Restaurant did not have worker's compensation insurance coverage on the day of the altercation. The Debtor denies that he pushed Carmelo.
Three (3) separate legal proceedings resulted from the incident in 2006:
The Debtor has conceded that the debt attributable to the criminal restitution order is nondischargeable.
At issue is whether the debts arising from the worker's compensation proceeding are nondischargeable.
The parties have filed cross motions for summary judgment. The outcome of those motions turns largely on three (3) issues:
For the reasons set forth below, I conclude that;
Therefore, each party's motion for summary judgment will be granted in part and denied in part.
In March 2006, the Debtor owned and operated the Restaurant. Carmelo began working for the Restaurant in either 2003 or 2004 (FOF # 7a),
On March 12, 2006, Carmelo was working as a delivery driver. (FOF # 7c). Carmelo finished his shift and went home for the day but the Debtor called him and asked him to return to the Restaurant. (FOF # 7c). The Debtor questioned Carmelo
Carmelo sought medical attention at Pottstown Hospital and later with his family physician. (FOF # 7d). Carmelo presented the testimony of his treating physician, Dr. Jeffery T. Lumley, D.O. ("Dr.Lumley") as to the extent of his injuries. Dr. Lumley treated Carmelo for approximately three (3) months. Upon his initial examination, Dr. Lumley concluded that Carmelo had strained his right hand, wrist, and lower back as a result of the fall, and had chronic cervical disc degeneration with a possible acute exacerbation. (Id. # 12b). Dr. Lumley again saw Carmelo on April 3, 2006. Carmelo complained of shooting pain in his neck and lower back and needed a cane to walk. (Id. # 12c). Two weeks later, Carmelo complained of worsening of his left-sided numbness and weakness. (Id. # 12e).
The Debtor admitted that his conversation with Carmelo was heated and that he was yelling at Carmelo. (Id. # 8c). However, the Debtor testified that he did not push Carmelo and Carmelo did not fall. (Id. # 9b). According to the Debtor, he terminated Carmelo's employment, walked him out to his car and retrieved some pizza delivery bags. (Ex. 1-D, Mickletz Testimony at 46). Two (2) witnesses, both Restaurant employees, testified at the worker's compensation hearing. One (1) witness corroborated the Debtor's version of the events and the other witness initially did so as well, but later recanted his testimony and gave subsequent testimony that supported Carmelo's version of the events.
At the conclusion of the worker's compensation hearing, which was held on four (4) separate days between June 22, 2006 and January 11, 2007, (see Ex. 1-A), the administrative law judge ("the ALJ") resolved the conflicting testimony in favor of Carmelo.
The ALJ awarded Carmelo total disability benefits; reasonable, necessary and related medical expenses resulting from the injury; reasonable litigation costs; counsel fees; and statutory interest. The ALJ further ordered the Restaurant to pay a penalty of 50% of the indemnity plus interest
On August 24, 2007, the Comp. Award was entered as a judgment in the amount of $85,484.44 in the C.P. Court at No. 2006-16219 ("the Judgment"). Subsequently, the Judgment was reassessed upward, most recently on June 7, 2011 to the amount of $279,723.98.
77 P.S. 501(b) provides that an employer who fails to comply with his obligation to provide worker's compensation insurance coverage:
On March 13, 2007, the Debtor was charged criminally in the C.P. Court for operating a business without the required worker's compensation insurance coverage.
In March 2008, Carmelo filed a civil lawsuit in the C.P. Court, at No. 08-06290 ("the Civil Action"), seeking to pierce the veil of the Debtor and his wife's companies, and to hold the Debtor and his wife (Susan Mickletz) individually liable for the Comp. Award and related Judgment.
The Forbearance Agreement provided, inter alia that:
On November 26, 2014, the Debtors filed a voluntary joint chapter 7 bankruptcy case. The Debtors were granted a chapter 7 discharge on April 2, 2015.
On March 10, 2015, Carmelo filed this adversary proceeding seeking a determination that his claim against the Debtor, Anthony Mickletz, is nondischargeable pursuant to 11 U.S.C. §§ 523(a)(6) and (a)(13). The Debtor filed his Answer to the Complaint on April 10, 2015. (Doc. # 4).
Carmelo filed a motion for summary judgment ("Carmelo's Motion") on August 4, 2015. (Doc. # 's 9, 10). Carmelo's Motion is limited to his claim of nondischargeability under § 523(a)(6).
In his response to Carmelo's Motion, the Debtor acknowledged that he has continued to make instalment payments on the Criminal Restitution Debt and conceded its nondischargeability. (Debtor's Brief in Opposition to Carmelo's Motion at 4, 9) (Doc. # 19).
Thus, the only remaining issue is whether either party is entitled to summary judgment on Carmelo's claim that the Comp. Award and related Judgment are nondischargeable under 11 U.S.C. § 523(a)(6).
Summary judgment should be granted when the moving party demonstrates
Under Rule 56, the moving party is entitled to judgment as a matter of law if the court finds that the motion alleges facts which, if proven at trial, would require a directed verdict in favor of the movant. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). If the moving party meets its initial burden, the responding party may not rest on the pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material which demonstrate a genuine issue of material fact to be resolved at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The court's role is not to weigh the evidence, but to determine whether there is a disputed, material fact for resolution at trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. A genuine issue of material fact is one in which the evidence is such that a reasonable fact finder could return a verdict for the non-moving party, id. at 248, 106 S.Ct. 2505, and thereby affect the outcome of the suit, Jensen, 791 F.3d at 417. The court must view the underlying facts and make all reasonable inferences therefrom in the light most favorable to the party opposing the motion. Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir.1995); United States v. 717 South Woodward St., 2 F.3d 529, 533 (3d Cir.1993).
In this proceeding, one of the main points of contention is the Debtor's state of mind. "Issues such as intent and credibility are rarely suitable for summary judgment." Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir.2007). However,
In re Okan's Foods, 217 B.R. 739, 755 (Bankr.E.D.Pa.1998) (citations omitted).
One of the Bankruptcy Code's central purposes is to permit honest debtors to reorder their financial affairs with their creditors and obtain a "fresh start," unburdened by the weight of preexisting debt. See In re Cohn, 54 F.3d 1108, 1113 (3d Cir.1995); In re Marques, 358 B.R. 188, 193 (Bankr.E.D.Pa.2006).
Exceptions to discharge are construed strictly against creditors and liberally in favor of debtors. In re Cohn, 54 F.3d 1108, 1113 (3d Cir.1995); In re Glunk, 455 B.R. 399, 415 (Bankr.E.D.Pa. 2011). A creditor objecting to the dischargeability of an indebtedness bears the burden of proof. In re Cohn, 54 F.3d 1108, 1113 (3d Cir.1995); In re Stamou, 2009 WL 1025161, *3 (Bankr.D.N.J. Mar. 19, 2009); In re Marcet, 352 B.R. 462, 468 (Bankr.N.D.Ill.2006). The burden of proof must be satisfied by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279,
Section 523(a)(6) excepts from discharge any debt for "willful and malicious injury by the debtor to another entity or to the property of another entity."
Willful means deliberate or intentional injury, not just a deliberate or intentional act that leads to injury. In re Coley, 433 B.R. 476, 497 (Bankr.E.D.Pa. 2010) (citing Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). "[A]ctions taken for the specific purpose of causing an injury as well as actions that have a substantial certainty of producing injury are `willful' within the meaning of § 523(a)(6)." In re Coley, 433 B.R. at 497 (citing In re Conte, 33 F.3d 303, 307-09 (3d Cir.1994)). The "Code requires at least a deliberate action that is substantially certain to produce harm." Conte, 33 F.3d at 309.
"Malice" means wrongful and without just cause or excuse, even in the absence of personal hatred, spite or ill-will. 4 Collier on Bankruptcy ¶ 523.12[2] (Alan N. Resnick, Henry J. Sommer eds., 16th ed. 2009) ("Collier").
In re Wooten, 423 B.R. 108, 130 (Bankr. E.D.Va.2010) (citation omitted) (emphasis added); see also In re Vidal, 2012 Bankr.LEXIS 4198, 2012 WL 3907847, at *28 (Bankr.E.D.Pa. Sept. 7, 2012).
Therefore, in this proceeding, Carmelo must prove that:
See, e.g., In re Jacobs, 381 B.R. 128, 144-45 (Bankr.E.D.Pa.2008).
The parties' dispute largely centers on the issue whether the Debtor is precluded from relitigating the ALJ's findings regarding the cause and nature of the conduct that led to Carmelo's injuries in March 2006. For the reasons set out below, I conclude that Carmelo is entitled to invoke the doctrine of issue preclusion and preclude the Debtor from relitigating the facts found by the ALJ as to how Carmelo's work-related injuries occurred.
The doctrine of issue preclusion (also known as collateral estoppel), is based upon the principle that "a losing litigant deserves no rematch after a defeat fairly suffered, in adversarial proceedings, on an issue identical in substance to the one he subsequently seeks to raise." Dici v. Commw. of Pa., 91 F.3d 542, 547 (3d Cir.1996) (quoting Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 107, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991)).
The application of issue preclusion in a federal court action based on a prior state court judgment typically is grounded in the federal full faith and credit statute, 28 U.S.C. § 1738, which provides that state judicial proceedings "shall have the same full faith and credit in every
This adversary proceeding involves facts previously determined by a state agency, not a state court. In University of Tennessee v. Elliott, 478 U.S. 788, 796, 106 S.Ct. 3220, 92 L.Ed.2d 635 (1986), the Supreme Court held that 28 U.S.C. § 1738 does not apply to unreviewed state administrative factfinding. However, as a matter of federal common law, the Court in Elliott also held that if a state agency acting in a judicial capacity resolves issues of fact properly before it in which the parties had an adequate opportunity to litigate, a federal court should give the agency's factfinding "the same preclusive effect to which it would be entitled in the [s]tate's courts. Id. at 797, 106 S.Ct. 3220; accord Swineford, 15 F.3d at 1266-67. Therefore, I must consider Pennsylvania law and determine whether a Pennsylvania court would accord preclusive effect to the findings made by the ALJ in the worker's compensation proceeding.
As a general principle, under Pennsylvania law, a court may apply issue preclusion to the findings made in a prior adjudicative administrative proceeding; the doctrine is not limited to the findings of a prior judicial proceeding. See, e.g., Grant v. GAF Corp., 415 Pa.Super. 137, 608 A.2d 1047, 1056 (1992), aff'd sub nom., Gasperin v. GAF Corp., 536 Pa. 429, 639 A.2d 1170 (1994); Christopher v. Council of Plymouth Twp., 160 Pa.Cmwlth. 670, 635 A.2d 749, 752 n. 2 (1993); see also Oxford Investments, L.P. v. City of Philadelphia, 21 F.Supp.3d 442, 450-51 (E.D.Pa. 2014); Restatement of Judgments (Second) § 83 (1982) ("Restatement").
Therefore, I must consider whether, in the particular circumstances presented, a Pennsylvania court would apply the doctrine of issue preclusion.
Under Pennsylvania law, in order for issue preclusion to apply, five (5) elements must be satisfied:
E.g., Dici, 91 F.3d at 548; Cohen v. Workers' Comp. Appeal Bd. (City of Philadelphia), 589 Pa. 498, 909 A.2d 1261, 1264 (2006); Rue v. K-Mart Corp., 552 Pa. 13, 713 A.2d 82, 84 (1998).
In considering the above requirements, a Pennsylvania court also must consider
Thus, to the extent that the ALJ made findings of "pure fact" in the worker's compensation proceeding, I need not engage in a comparative policy analysis of the Pennsylvania Worker's Compensation Law and the federal Bankruptcy Code.
A court also must consider the respective burdens of proof in the two (2) proceedings. Disparate burdens of proof may foreclose application of the issue preclusion doctrine. See In re Braen, 900 F.2d 621, 624 & n. 1 (3d Cir.1990). For example, "if the bankruptcy plaintiff prevailed in the prior proceeding on a claim requiring a less rigorous level of scienter than that required under the willful and malicious standard of § 523(a)(6), issue preclusion is not available to the plaintiff." In re Kates, 485 B.R. 86, 103 (Bankr. E.D.Pa.2012). Conversely, a party's "failure to carry a higher standard of proof on an issue does not preclude a subsequent attempt to satisfy a lower standard as to the same issue." 18 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 4422 (2d ed.2012).
Here, the burdens of proof in the two (2) proceedings are the same, rendering the burden of proof a non-issue with respect to the application of issue preclusion. As stated earlier, the burden of proof under 11 U.S.C. § 523(a)(6) is preponderance of the evidence. The burden of proof in a worker's compensation claim also is preponderance of the evidence. E.g., Rossa v. Workers' Comp. Appeal Bd. (City of Philadelphia), 576 Pa. 349, 839 A.2d 256, 260 (2003) ("It is clear that the general evidentiary burden on worker's compensation claimants, as it is traditionally formulated, is to prove the necessary factual elements of the claim by a preponderance of the evidence.") (citing cases).
Carmelo contends that he prevailed on his worker's compensation claim and that the Debtor is precluded from relitigating the ALJ's factual findings. More specifically, he asserts that the ALJ's findings of fact in the worker's compensation proceeding establish that the Debtor intentionally pushed Carmelo, causing an injury and these findings satisfy the elements under § 523(a)(6).
The Debtor disputes that issue preclusion applies on several grounds. He argues that the following elements necessary for the application of the doctrine are lacking:
The Debtor argues that the element of privity is absent because the Restaurant was the respondent party in the worker's compensation proceeding and not the Debtor individually. (Debtor Response at ¶ 30) (Doc. # 17). Respectfully, I disagree.
The concept of privity is a well-established exception to the general rule that limits the application of issue preclusion to those who were parties to the prior litigation. Nationwide Mut. Fire Ins. Co. v. George V. Hamilton, Inc., 571 F.3d 299, 310 (3d Cir.2009).
Courts have found privity to exist: "(1) where the nonparty has succeeded to, or shares a concurrent right to the party's interest in, property, (2) where the nonparty controlled the prior litigation, and (3) where the party adequately represented the nonparties' interests in the prior proceeding." First Options v. Kaplan, 913 F.Supp. 377, 383-384 (E.D.Pa.1996).
Strictly speaking, the Debtor was not a party to the worker's compensation proceedings. However, the nominal party (the Restaurant) was a closely held business entity in which the Debtor is the sole principal. (Ex. 1-D, Mickletz Testimony at 52; Ex. 1-E, Mickeltz Testimony at 7). The Debtor retained counsel and appeared in the worker's compensation proceedings, testifying on behalf the Restaurant. In these circumstances, he undoubtedly controlled the litigation. Further, the Debtor and the Restaurant's interests were aligned. The Debtor and the Restaurant were essentially one and the same. As the owner, the Debtor had every reason to avoid an adverse decision, especially one that determined he physically assaulted and injured Carmelo.
Based on these undisputed facts, I conclude, as a matter of law, that the Debtor was in privity with the Restaurant for purposes of issue preclusion. See Sicalides v. Hartford Cas. Ins. Co., 94 Fed. Appx. 882, 884-85 (3d Cir.2004); see also Restatement § 59(3) (judgment against closely held corporation is preclusive as to the principal if the principal actively participated in the prior action on behalf of the corporation unless his interests and those of the corporation differed).
As the moving party, Carmelo has the burden of proof to demonstrate that issues actually litigated in the Worker's Compensation proceeding are identical to issues currently before this court. Hitchens, 98 Fed.Appx. at 112. As explained above,
The Debtor contends that the issues decided in the Worker's Compensation proceedings are not identical to the issue presented here, i.e., whether a willful and malicious injury occurred. The Debtor is correct that his state of mind is a distinct element of the claims in this § 523(a)(6) proceeding and that issue was not litigated in the worker's compensation proceedings. However, in making this argument, the Debtor confuses issue preclusion with claim preclusion. Of course there are differences between the elements of a worker's compensation claim and a nondischargeability claim under 11 U.S.C. § 523(a)(6). That is why claim preclusion is inapplicable. But, if factual issues decided in the course of the worker's compensation proceeding also are material issues in the subsequent nondischargeability proceeding, issue preclusion is at play. This is particularly true with respect to any historical facts necessarily decided in the course of the worker's compensation proceeding. See e.g., In re Weidner, 476 B.R. 873, 885 n. 16 (Bankr.E.D.Pa.2012).
The worker's compensation proceeding and this adversary proceeding arise out of the same set of events that occurred on March 12, 2006, when Carmelo was injured. In the prior proceeding, the ALJ was required to decide whether a work related injury occurred. In doing so, it is axiomatic that the ALJ had to determine the historical facts, i.e., what occurred.
Those historical facts are likewise at issue in this proceeding. The ALJ determined what happened on March 12, 2006 and those findings are identical to the issue before this court. See Capobianchi v. BIC Corp., 446 Pa.Super. 130, 666 A.2d 344, 349 (1995).
The Pennsylvania Worker's Compensation Act is designed to establish an efficient and inexpensive structure and procedure that allowed a worker a right to compensation from one's employer without regard to negligence. See 54 P.L.E. Workers' Compensation § 2 & 3 (Matthew Bender 2013); accord 21 Summ. Pa. Jur.2d Employment and Labor Relations § 13:3 (2d ed. West 2016) (the statute "substitute[s] a method of accident insurance in place of common-law rights and liabilities for substantially all employees who suffer work-related injuries").
To establish a worker's compensation claim, the claimant must prove that an injury occurred during the course of employment and the injury resulted in loss of earning power. E.g., Cruz v. Workers Comp. Appeal Bd. (Kennett Square Specialties), 627 Pa. 28, 99 A.3d 397, 407 (2014) (citing Bethlehem Steel Corp. v. W.C.A.B. (Baxter), 550 Pa. 658, 708 A.2d 801, 802 (Pa.1998)); Gibson v. W.C.A.B. (Armco Stainless & Alloy Products), 580 Pa. 470, 861 A.2d 938, 943 (Pa.2004).
The Debtor argues the factual finding that he pushed Carmelo to the ground during the course of an argument was not an essential determination in the worker's compensation proceeding. He posits that the ALJ needed to find only that an injury during the course of employment occurred, without regard to the precise cause (i.e., that the Debtor pushed Carmelo to the ground). The Debtor reasons that because, (in his view), the finding was not necessary, he is not precluded from relitigating the issue whether he pushed Carmelo to the ground thereby causing a willful and malicious injury.
Considering the narrow elements necessary to establish a worker's compensation
Carmelo's only factual theory in support of his claim of a work-related injury was that the Debtor pushed him to the ground. (He had no alternative theory, such as an accidental slip and fall). The Debtor defended against Carmelo's worker's compensation claim by asserting that he did not push Carmelo, Carmelo did not fall to the ground and Carmelo was not injured during the course of his employment. Given the manner in which the parties presented the factual dispute to the worker's compensation tribunal, the only way the ALJ could find that Carmelo had suffered a work-related injury and was entitled to benefits was if he found that the Debtor pushed Carmelo to the ground. Indeed, this was the central litigation issue in the proceeding, with multiple witnesses lining up on both sides of the question. In these circumstances, the ALJ's factual findings were essential to the award of benefits to Carmelo.
As mentioned earlier, Carmelo was awarded worker's compensation benefits for the injuries suffered during the course of his employment. With respect to the compensatory aspect of the worker's compensation award,
As explained above, the Debtor cannot relitigate the fact that Carmelo's injury occurred because the Debtor pushed Carmelo to the ground. However, the preclusive effect of that finding advances the Plaintiff's nondischargeability claim only so far. The ALJ's findings of fact do not address directly the scienter element under § 523(a)(6).
Ordinarily, the issue of intent is not suitable for disposition on summary judgment. In re Kilmartin, 508 B.R. 35, 42 (Bankr.W.D.Ky.2014). Generally, intent is a question of fact. But, "[w]hen the evidence is so one sided that reasonable minds could not differ as to the only rational outcome ... the factual issue of intent can be decided by the court as a matter of law." In re Weidner, 476 B.R. 873, 883 (Bankr.E.D.Pa.2012) (citing Okan's Foods, 217 B.R. at 755)); accord In re Dygert, 2000 Bankr.LEXIS 626, 2000 WL 630833, at *9 (Bankr.D.Minn. May 11, 2000). In the particular circumstances of
As explained in Part VI.D, supra, the Debtor chose to defend the Worker's Compensation Claim on the ground that the injury never occurred. Once that issue was determined adversely to the Debtor by the ALJ (with the accompanying, necessary finding that the injury occurred when the Debtor pushed Carmelo to the ground), the Debtor cannot offer evidence of any different version of events.
Thus, the binding facts are as follows.
On the day in question, the Debtor and Carmelo had a conversation regarding missing sales receipts and the Debtor accused Carmelo of stealing money. The conversation escalated into a heated argument. The Debtor was angry because he felt betrayed by Carmelo's alleged theft. He lost his temper and pushed Carmelo with both hands on the dead center of his chest. Absent from the record is any evidence that Carmelo instigated the physical altercation or struck first, which may have justified a defensive reaction from the Debtor. And, because the Debtor claims that he never pushed Carmelo, he of course, has not produced any evidence that his actions were justified or unintentional or accidental. Judging by the extent and severity of Carmelo's injuries, the Debtor pushed Carmelo forcefully. The Debtor had been described as bigger or more stocky than Carmelo.
These facts support the conclusion that the compensatory portion of the worker's compensation award is a nondischargeable debt for willful and malicious injury. The Debtor's intentional push of Carmelo, in a moment of anger and with enough force to knock him to the ground and cause a significant injury is sufficient to establish that the Debtor was subjectively aware that his action was substantially certain to cause injury. Accord Conte, 33 F.3d at 309; In re Graham, 455 B.R. 227, 232 (Bankr.D.Colo.2011); In re Hermosilla, 430 B.R. 13, 25 (Bankr.D.Mass.2010).
In support of his Cross-Motion, the Debtor makes two (2) related arguments.
First, he argues that the Comp. Award is grounded in a statutory cause of action that imposes liability without any scienter requirement; a claimant need establish only (1) a work-related physical or mental injury and (2) some disability. E.g., Brubacher Excavating, Inc. v. W.C.A.B. (Bridges), 575 Pa. 168, 835 A.2d 1273, 1276 (2003). Accordingly, the Debtor characterizes the Comp. Award as a liability divorced from any requirement that the requisite injury be willful and malicious.
Based on existing § 523(a) jurisprudence, I conclude that both arguments are without merit.
In evaluating the Debtor's first argument, I begin with the text of § 523(a)(6), which excepts from discharge a "debt ... for willful and malicious injury by the debtor to another entity or to the property of another entity."
The Debtor's argument requires a determination as to what Congress meant when it used the word "debt for willful and malicious injury" in this context. Was Congress limiting the discharge exception to those debts in which applicable non-bankruptcy law that created the creditor's right to payment
As stated earlier, exceptions to discharge are construed strictly against creditors and liberally in favor of debtors. Nevertheless, in the circumstances presented here, a competing policy is paramount: "[a]s a matter of social policy, section 523(a)(6) of the Bankruptcy Code prevents a debtor from using a Chapter 7 bankruptcy case to discharge debts for injuries to persons or property resulting from intentional torts committed by the debtor." In re McCarthy, 179 B.R. 876, 880 (Bankr.N.D.Ill.1995); accord In re McGuffey, 145 B.R. 582, 585 (Bankr. N.D.Ill.1992) ("[t]he policy behind § 523(a)(6) is to preserve the benefits of bankruptcy's fresh start for the honest debtor, not the malicious wrongdoer"). As another court put it, § 523(a)(6) "is aimed at the type of both socially and morally reprehensible conduct that is not deserving of the fresh-start policy which underlies the Bankruptcy Code." In re West, 446 B.R. 813, 815 (Bankr.N.D.Ohio 2010)
A debtor should not be able to escape the policy limitations on the bankruptcy discharge simply because, prior to the bankruptcy filing, the injured person employed a remedial mechanism under non-bankruptcy law with less onerous elements than those set forth in 11 U.S.C. § 523(a)(6). Nor, as a matter of bankruptcy policy, should an otherwise nondischargeable
For these reasons, I conclude that in evaluating the dischargeability of a debt under § 523(a)(6), a bankruptcy court can and should look behind the formalities of the pre-bankruptcy proceedings and determine whether a creditor's injury was caused by the debtor's willful and malicious conduct.
The Debtor's conduct created a debt for willful and malicious injury, which was memorialized in the compensatory component of the Comp. Award. However, prior to the Forbearance Agreement, the Debtor was not personally liable for that debt. In the Civil Action, Carmelo sought to extend liability for that debt to the Debtor by piercing the Restaurant's corporate veil. As a practical matter, he succeeded in that effort when the parties entered into the Forbearance Agreement.
Based on this history, the Debtor characterizes his liability as a mere, contractual, dischargeable debt. Largely on the strength of the Supreme Court's decision in Archer v. Warner, 538 U.S. 314, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003), I reject the Debtor's argument.
In Archer, the plaintiffs alleged that the debtors had committed fraud in the purchase of a business. They filed suit and settled the action. The settlement agreement provided for a complete release of the claims and no admission of any fraud. The debtors later defaulted on the obligation and filed bankruptcy.
The plaintiffs as creditors then sought to have the debt determined nondischargeable. The lower courts, including the Fourth Circuit Court of Appeals, found that the settlement agreement, releases, and the promissory note "had worked a kind of `novation.'" 538 U.S. at 318, 123 S.Ct. 1462. Thus, under the new contract, the debt was a different obligation, one that was not potentially obtained by fraud. The lower courts held it to be a debt under the settlement agreement and dischargeable in bankruptcy.
The Supreme Court reversed on the ground that the outcome was controlled by its earlier decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).
As summarized in Archer, the factual scenario in Brown was as follows:
Archer, 538 U.S. at 319, 123 S.Ct. 1462.
In Brown, the Court unanimously held that "[c]laim preclusion did not prevent the Bankruptcy Court from looking beyond the record of the state-court proceeding and the documents that terminated that proceeding (the stipulation and consent judgment) in order to decide whether the
In Brown and Archer, the Supreme Court has instructed that a debt retains its underlying initial character even though it may change its form. "[T]he mere fact that a conscientious creditor has previously reduced his claim to judgment should not bar further inquiry into the true nature of the debt." Archer, 538 U.S. at 320-21, 123 S.Ct. 1462 (quoting Brown, 442 U.S. at 138, 99 S.Ct. 2205).
In Part VIII.A., supra, I determined that the compensatory component of the Comp. Award was a debt for willful and malicious injury under 11 U.S.C. § 523(a)(6). In the Civil Action, Carmelo asserted that the Restaurant and the Debtor were one and the same. The purpose of the Civil Action was to obtain a judicial determination that the Debtor was personally liable for the Comp. Award — just as if, from the start, he had been named individually as the employer-respondent in the worker's compensation proceeding. Indeed, had the Debtor been the respondent in the worker's compensation proceeding (either because the Restaurant was a sole proprietorship or due to a piercing of the corporate veil), it would be indisputable, based on my conclusions earlier in this Opinion, that the compensatory component of the Comp, Award would be a nondischargeable debt under § 523(a)(6). The mere fact that the Debtor's personal liability for that nondischargeable debt was effected through the Civil Action and by a settlement agreement rather than completion of litigation, should not change the result. Brown and Archer both instruct that, in these circumstances, the nondischargeable nature of the debt is unaltered. Consequently, the Forbearance Agreement provides no defense to Carmelo's § 523(a)(6) nondischargeability claim against the Debtor.
The ALJ found that the Restaurant had not carried Worker's Compensation insurance since June 17, 2005 and did not have insurance at the time of Carmelo's injury on March 12, 2006. (FOF # 6). The Restaurant was without insurance for many months without just cause or excuse. (Id. # 19). In these circumstances, the ALJ assessed a penalty of 50% of all outstanding compensation benefits. (Id. # 21).
With respect to the penalty component of the Comp. Award, the issue under 11 U.S.C. § 523(a)(6) is whether a monetary penalty imposed for the failure to carry worker's compensation insurance is a debt for willful and malicious injury.
The case law is divided on the issue of whether the failure to obtain or maintain worker's compensation is a willful and malicious injury. Compare In re Lashley, 2000 Bankr.LEXIS 2036 (Bankr.D.Neb. Oct. 16, 2000); In re Strauss, 99 B.R. 396 (N.D.Ill.1989); In re Erickson, 89 B.R. 850 (Bankr.D.Idaho 1988); In re Holmes, 53 B.R. 268 (Bankr.W.D.Pa.1985), with In re Popa, 214 B.R. 416, 421 (1st Cir. BAP 1997); In re Walker, 48 F.3d 1161 (11th Cir.1995); In re Kirk, 2009 WL 700192, at *2 (Bankr.S.D.Iowa Mar. 13, 2009); In re Vizzini, 348 B.R. 339, 347 (Bankr.E.D.La. 2005).
I agree with the majority of cases that hold that the failure to obtain or maintain worker's compensation insurance
Walker, 48 F.3d at 1165.
Accordingly, I find that the penalty portion of the Comp. Award is a dischargeable debt.
The motions for summary judgment are granted in part and denied in part. Pursuant to 11 U.S.C. § 523(a)(6), the compensatory component of the Comp. Award is nondischargeable, the penalty component of the Comp. Award is dischargeable and the debt attributable to the Criminal Restitution Debt is nondischargeable.
An appropriate order will be entered.
It is hereby
In this Opinion, I will not cite to any of the Debtor's exhibits. I will cite to the exhibits attached to Carmelo's Motion as "Ex. 1-A" etc. and the exhibits attached to Carmelo's reply to the Debtor's response to the Motion as "Ex. 2-A" etc.
Edward Brosky ("Brosky") was a cook for the Restaurant. He was first called to testify for the Restaurant on December 5, 2006. Brosky described the argument over the delivery slips. Brosky said he did not see the Debtor push Carmelo nor did he see Carmelo slip and fall. (FOF # 10a).
Brosky testified again at a later hearing on January 11, 2007 and changed his testimony dramatically. At the later hearing, he testified that he saw the Debtor push Carmelo in the chest and Carmelo fell back and landed on his back. (Id. # 11c).
