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Hughes v. Arnold

August 11, 2008

MELANIE HUGHES, APPELLANT,
v.
CLAYEO C. ARNOLD AND CLAYEO C. ARNOLD, PROFESSIONAL LAW CORPORATION, APPELLEES.



ORDER DENYING APPEAL AND AFFIRMING BANKRUPTCY COURT'S PARTIAL SUMMARY JUDGMENT ORDER

Appellant/Debtor Melanie Hughes ("Appellant") appeals the bankruptcy court's granting of partial summary judgment in favor of Appellees/Creditors Clayeo C. Arnold and Clayeo C. Arnold, Professional Law Corporation (collectively "Appellees"). The bankruptcy court ruled that a state court judgment awarding attorney's fees and costs in favor of Appellees and against Appellant was non-dischargeable debt under 11 U.S.C. § 523(a)(6). For the reasons set forth below, the bankruptcy court's decision is AFFIRMED.*fn1

I. PROCEDURAL BACKGROUND

On or about March 14, 2005, Appellant filed a petition for relief under Chapter 7 of the Bankruptcy Code, thereby commencing the underlying bankruptcy case. On June 14, 2005, Appellees filed a complaint to determine dischargeability of debts and for denial of discharge, thereby commencing an adversary action requesting that certain debts owed to Appellees be adjudicated as non-dischargeable, including a state court judgment awarding attorney's fees and costs ("attorney's fees" award) to Appellees following a jury verdict in their favor in a sexual harassment action brought by Appellant.*fn2

On May 22, 2007, the parties filed cross-motions for summary judgment. On August 24, 2007, Appellees' summary judgment motion was granted to the extent it sought a determination that the attorney's fee award was non-dischargeable debt under § 523(a)(6) ("Partial Summary Judgment Order"). On September 4, 2007, Appellant filed a notice of appeal of the Partial Summary Judgment Order and a statement of election to have the appeal heard by the district court. The district court subsequently granted Appellees' motion to dismiss the appeal on the ground that the Partial Summary Judgment Order was not a final judgment because it adjudicated fewer than all the claims in the adversary proceeding.

In the meantime, on October 3, 2007, Appellees filed two motions in the adversary proceeding: (1) a motion seeking a determination of the amount owed by Appellant on the non-dischargeable attorney's fee award; and (2) a motion for relief from the automatic stay. On February 19, 2008, the bankruptcy court issued an order determining that the amount owed on the attorney's fee award to be $122,702.37 to Clayeo C. Arnold and $190,237.01 to Clayeo Arnold, Professional Law Corporation ("Order Determining Amounts"). On March 3, 2008, the bankruptcy court entered an order certifying the Partial Summary Judgment Order as a final order, as supplemented by the Order Determining the Amounts, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.*fn3 Upon entry of the final appealable judgment, the bankruptcy court lifted the automatic stay precluding execution on the non-dischargeable attorney's fee award. Appellant then filed a notice of appeal. On March 24, 2008, the bankruptcy court denied Appellant's motion to stay proceedings pending appeal. Appellant then sought an order from this Court staying the proceedings pending appeal. On May 14, 2008, Appellant filed her opening brief with this Court. On May 22, 2008, this Court denied Appellant's motion to stay proceedings pending appeal. On May 29, 2008, Appellees filed their opening brief.

II. OPINION

A. Standard of Review

An appellant may petition the district court for review of a bankruptcy court's decision. Fed.R.Bankr.P. 8013. A district court has jurisdiction to review a bankruptcy court's decision pursuant to 28 U.S.C. § 158(a). A district court's standard of review over a bankruptcy court's decision is the same as that used by an appellate court over a district court's decision. Towers v. Boyd (In re Boyd), 243 B.R. 756, 759 (N.D. Cal. 2000). Whether a particular type of debt is non-dischargeable presents mixed issues of law and fact and is reviewed de novo. Carrillo v. Sue (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). Legal conclusions are reviewed on a de novo basis, and factual determinations are assessed pursuant to a "clearly erroneous" standard. Murray v. Brammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997) (en banc).

B. Analysis

This appeal presents two issues. The first question is whether the attorney's fees award is non-dischargeable debt under § 523(a)(6). The second question is whether the bankruptcy court properly relied on the state court's factual findings in determining that the attorney's fees award is non-dischargeable debt under § 523(a)(6). These questions are addressed individually below.

1. Non-dischargeable Debt Under § 523(a)(6)

As to whether the attorney's fees award is non-dischargeable debt under § 523(a)(6), the question is whether the debt arising from the state court judgment falls within the ambit of § 523(a)(6). As to be expected, the parties advance opposing positions. Appellant contends that the attorney's fees award is dischargeable debt under § 523(a)(6) because the state court judgment was not based upon an intentional tort. Appellees, on the other hand, contend that the attorney's fee award is non-dischargeable debt under § 523(a)(6) because Appellant initiated and prosecuted the state court action with the intent to injure, and therefore the attorney's fees award arose out of "willful and malicious injury" within the meaning of § 523(a)(6).

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." "In order to qualify for the § 523(a)(6) 'willful and malicious' exception to discharge . . . the debtor must have acted with either the desire to injure or a belief that injury was substantially certain to occur." Ditto v. McCurdy, 510 F.3d 1070, 1078 (9th Cir. 2007). The "willfulness" and "maliciousness" prongs of § 523(a)(6) are analyzed separately. In re Su, 290 F.3d at 1146. A creditor must demonstrate nondischargeability by a preponderance of the evidence. Jett v. Sicroff (In re Sicroff), 401 F.3d 1101, 1106 (9th Cir. 2005).

An injury is "willful" under § 523(a)(6) if the debtor intends the consequences of his action. Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). The word "willful" indicates "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Id. (emphasis in original). The willful injury requirement under § 523(a)(6) is met "only when the debtor has a subjective motive to inflict injury or when the debtor believes that injury is substantially certain to result from his own conduct." In re Su, 290 F.3d at 1142. The focus is on the debtor's state of mind at the time the injurious action is taken: either the debtor must have the subjective intent to cause harm, or have the subjective belief, i.e., actual knowledge, that harm is substantially certain to result. In re Su, 290 F.3d at 1145-46 ("The subjective standard correctly focuses on the debtor's state of mind and precludes application of § 523(a)(6)'s nondischargeability provision short of the debtor's actual knowledge that harm to the creditor was substantially certain."). Subjective intent or substantial certainty may be inferred from all of the facts and ...


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