The Florida Bar

Florida Bar Journal

The Willful and Malicious Injury Exception to Discharge in Bankruptcy: Just How Narrow Should it Be

Business Law

Under 11 U.S.C. §523(a)(6),debts for willful and malicious injury are excepted from discharge in bankruptcy.1 In 1904, the U.S. Supreme Court held in Tinker v. Colwell, 193 U.S. 473 (1904),
that the willful and malicious injury exception did not require proof of specific malicious intent to injure the creditor. The Court explained that if the debtor’s act was intentional and necessarily caused injury, the requisite malice could be implied in law.2 Courts applied this standard for decades following the Tinker decision,3 both under the former Bankruptcy Act and the current Bankruptcy Code.4 However, in March 1998, the Supreme Court abandoned this nearly century-old judicial construction in Kawaauhau v. Geiger, 118 S. Ct. 974 (1998) .

In Geiger, a physician treated an infection in his patient’s foot with oral penicillin.5 Although the physician knew intravenous penicillin was more appropriate, he prescribed oral penicillin because it was less expensive.6 The infection progressed, requiring amputation of the patient’s foot.7 After a trial jury awarded the patient a substantial sum in a subsequent malpractice suit, the physician, who carried no malpractice insurance, petitioned for bankruptcy.8 The bankruptcy court ruled the judgment debt was for willful and malicious injury and denied discharge.9 The district court affirmed, holding the physician’s knowing administration of inferior care constituted willful conduct and, given the substantial certainty of physical harm, the necessary malice was implied in law.10 The U.S. Court of Appeals for the Eighth Circuit reversed, holding the debt did not fall within §523(a)(6).11 The court noted the patient did not allege that injury was intended or that the physician believed injury was substantially certain to result.12

The Supreme Court framed the issue on appeal as whether §523(a)(6) applies to intentional acts that cause injury, or only to acts committed with the actual intent to injure.13 It noted that legislative reports defined willful as “deliberate or intentional.”14 Because “willful” modifies “injury” in the language of the statute, the Court determined that §523(a)(6) applies only to deliberate or intentional injuries.15 Moreover, the Court reasoned that the statutory formulation causes the lawyer’s mind to focus on intentional torts.16 Intentional torts require that an actor intend not only the act itself, but also the consequences of the act.17

The Court explained that the alternate construction of §523(a)(6) would render the exception overly broad.18 Intentionally turning the steering wheel of a car while neglecting to look for oncoming traffic could qualify as willful and malicious.19 An intentional breach of contract also might fit the description. In other words, if the exception were construed as applying to all intentional acts that cause injury, recklessly and negligently inflicted injuries would come within the statute’s compass.

The Geiger court identified the issue on appeal as a pivotal question regarding the scope of §523(a)(6).20 However, previous judicial resolutions of this same issue have had very little impact on the scope of the exception.21 Courts applying the Tinker standard required an intentional act which necessarily caused injury.22 A minority of courts rejected the Tinker standard, reasoning that it was overruled by the Bankruptcy Reform Act of 1978.23 These courts required specific intent to injure; but they held this element was satisfied if the debtor committed an intentional act which was substantially certain, from an objective point of view, to cause injury.24 Therefore, the creditor’s burden of proof was virtually identical under either judicial approach. Each required a showing of an intentional act with an objectively high probability of causing harm.

The Geiger court’s rejection of the Tinker standard was a departure from the law in most circuits.25 But, if specific intent could still be established by objective foreseeability, the scope of the exception would not have changed significantly. However, by expressly limiting §523(a)(6) to debts arising from intentional torts, the Court prescribed a new burden of proof for creditors.

26 The Restatement definition of intent, to which the Court cited,27 requires that the actor either desire the consequences of an act or know the consequences are substantially certain to result.28 Under this definition, proof of a deliberate act substantially certain to cause injury cannot establish intent. Rather, there must be evidence showing the actor knew of the substantial certainty.29 Proof of an intentional tort thus requires evidence of the actor’s subjective mindset.30

In most cases litigated under §523(a)(6), subjective intent to injure is quite difficult to prove.31 For example, in malpractice cases like Geiger, the professional who commits malpractice almost never intends to injure his or her patient or client. Rather, the professional is guilty of some degree of negligence. Under the new Geiger standard, such professional negligence, no matter how egregious, no longer satisfies the willful and malicious requirement.32 This is a drastic departure from the previously settled state of law in this area.33 Under the Geiger standard, professionals who carry no malpractice insurance may escape civil responsibility for malpractice simply by filing for bankruptcy.

Geiger ’s greatest impact, however, has been in collateral conversion cases.34 Creditors most commonly raise the willful and malicious injury exception in this type of case, when the debtor has breached a security agreement before filing for bankruptcy.35 In the typical scenario, the debtor converts the creditor’s collateral to the debtor’s own use in an attempt to maneuver a financial turnaround. When this effort fails, the debtor files for bankruptcy, leaving the creditor with a worthless unsecured claim. In these cases, the debtor usually intends the act of conversion,36 But not the subsequent injury to the creditor. The debtor is not trying to injure the creditor, but to avoid personal financial ruin.37

Before Geiger, an intentional conversion which necessarily injured a creditor was willful and malicious, even without a showing that the debtor intended injury.38 However, for the past year since Geiger was decided, courts have required creditors to prove that their debtors either converted collateral with intent to injure or converted collateral with knowledge that injury was substantially certain to result.39 As noted by one Florida court, it is no longer sufficient to show that the debtor’s conversion was substantially certain, from an objective point of view, to cause injury.40

The burden of proof that Geiger imposes on creditors is nearly insurmountable in collateral conversion cases.41 Proof of a debtor’s subjective mindset is difficult even in cases when the debtor likely harbors the requisite intent. But in collateral conversion cases, where the debtor invariably lacks malicious intent toward the creditor, the burden is particularly onerous.

The Geiger standard decreased the protection that courts traditionally supplied to creditors. Therefore, lenders now will have to take other measures to ensure the safety of their collateral. For the consumer borrower, this may mean more difficulty in obtaining a loan with favorable terms. For the commercial borrower, this may mean closer monitoring of the proceeds of inventory collateral. This will consequently increase the costs of business operation; and those costs likely will be passed on to the consumer.

In an attempt to avoid an excessively broad exception from discharge, the Geiger court rendered §523(a)(6) overly narrow. The Court could have just as easily achieved its objective while retaining the Tinker standard. Courts applying the Tinker standard in the past imposed varying foreseeability requirements.42 Some courts held that malice could be implied in law if the debtor’s act had only a high probability of causing harm, while others required that the debtor’s act be almost certain to cause harm.43 If the Geiger court had retained the Tinker standard, it could have fashioned its own foreseeability requirement to create a reasonable exception from discharge. It could have imposed a foreseeability requirement strict enough to avoid a slippery slope, while sparing creditors the burden of proving subjective intent.

The Tinker standard has proven workable for nearly a century, and the courts should not abandon it now. Congress should amend §523(a)(6) to state explicitly that a finding of willful and malicious injury does not require proof of specific intent to injure. q

1 S ee 11 U.S.C. §523(a)(6) (1978).
2 See Tinker, 193 U.S. at 488.
3 See, e.g., Printy v. Dean Witter Reynolds, Inc. , 110 F.3d 853 (1st Cir. 1997); In re Cecchini , 780 F.2d 1440 (9th Cir. 1986); McIntyre v. Kavanaugh , 242 U.S. 138 (1916).
4 Section 523(a)(6) is virtually identical to its predecessor under the Bankruptcy Act. See An Act to establish a uniform system of bankruptcy throughout the United States, ch. 541, §17a, 30 Stat. 544, 550–51 (repealed 1978).
5 See Kawaahau, 118 S. Ct. 974.
6 See id.
7 See id.
8 See id.
9 See id. at 975.
10 See id.
11 See id.
12 See id.
13 See id. at 977.
14 See id. at n.3 (citing S. R ep. No. 95-989 at 79 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5864; H.R. Rep. No. 95-595, at 365 (1977), reprinted in U.S.C.C.A.N. 5963, 6320).
15 See id.
16 See id.
17 See id. (citing Restatement (Second) of Torts §8A, cmt. A, p. 15 (1964)).
18 See id.
19 See id.
20 See id.
21 See, e.g., Perkins v. Scharffe , 817 F.2d 392, 394 (6th Cir. 1987) (holding §523(a)(6) only requires an intentional act which necessarily results in injury). Compare In re Walker , 48 F.3d 1161, 1165 (11th Cir. 1995) (holding §523(a)(6) requires a deliberate injury, which requires a showing that the debtor committed an intentional act which was either intended to cause injury or was substantially certain to do so).
22 See, e.g., Perkins , 817 F.2d at 394; Cecchini , 780 F.2d at 1443.
23 See, e.g., Walker , 48 F.3d at 1164; Matter of Delaney , 97 F.3d 800 (5th Cir. 1996).
24 See, e.g., Walker , 48 F.3d at 1165; Delaney , 97 F.3d at 802 (holding that while §523(a)(6) requires intent to cause injury, creditor may establish intent with showing that debtor committed an intentional act that either necessarily caused injury or had a substantial certainty of causing injury).
25 See Printy , 110 F.3d at 859; In re Stelluti , 94 F.3d 84 (2d Cir. 1996); Matter of Thirtyacre , 36 F.3d 697 (7th Cir. 1994); Perkins , 817 F.2d at 394; Cecchini , 780 F.2d at 1443; St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003 (4th Cir. 1985).
26 Geiger , 118 S. Ct. at 978 (“We hold that debts arising from recklessly or negligently inflicted injuries do not fall within the compass of §523(a)(6).”).
27 See id. at 977.
28 See Restatement (Second) of Torts §8A, cmt. A, p. 15 (1964).
29 The Walker court cited the Restatement definition of intent, but did not recognize this distinction. See Walker , 48 F.3d at 1165.
30 See supra note 28.
31 See St. Paul , 779 F.2d at 1009. “To require specific malice or some other strict standard of malice for non-dischargeability of a debt under the Bankruptcy Code would undermine the purpose of that provision and place a nearly impossible burden on a creditor who wishes to show that a debtor intended to do him harm. To require such specific malice would restrict §523(a)(6) to the small set of cases where the debtor was foolhardy enough to make some plainly malevolent utterance expressing his intent to injure his creditor.” Id. at 1009–10 (internal quotation and citations omitted).
32 Prior to Geiger , most courts employed the Tinker standard to determine whether professional negligence constituted willful and malicious conduct. Under this standard, professional negligence was not per se willful and malicious; but, if the professional committed an intentional act with some degree of foreseeability that injury would result, courts often found willful and malicious injury. See cases cited infra note 33.
33 See , e.g., Perkins , 817 F.2d at 394; In re Franklin , 726 F.2d 606, 610 (10th Cir. 1984) (holding physician committed willful and malicious acts by prescribing anesthetic without checking patient history and over-inducing patient with anesthesia, even though physician did not intend the resulting cardiac arrest and brain damage to patient).
34 See cases cited infra note 39.
35 See Charles Jordan Tabb, The Scope of the Fresh Start in Bankruptcy: Collateral Conversions and the Dischargeability Debate , 59 Geo. Wash. L. Rev. 56, 57 (1990) (noting that literally hundreds of collateral conversion cases were decided under §523(a)(6) in the decade following its enactment).
36 But see Davis v. Aetna Acceptance Co ., 293 U.S. 328, 332 (1935) (holding a conversion was innocent or “technical” and neither willful nor malicious where debtor converted collateral under “an honest but mistaken belief, engendered by a course of dealing, that powers ha[d] been enlarged. . . . ”).
37 See Tabb, supra note 35, at 83; see also In re Kidd , 219 B.R. 278, 284 (D. Mont. 1998) (“The problem with conversion cases. . . is that rarely are the debtors acting out of a desire to injure the creditors, even though the injury to the creditor, although not desired, is almost always substantially certain to result form [sic] a debtor’s actions.”).
38 See, e.g., Cecchini , 780 F.2d at 1443; McIntyre , 242 U.S. at 141.
39 See, e.g., In re Slominski , 229 B.R. 432, 438 (Bankr. D.N.D. 1998) (holding debtor’s unauthorized disposition of inventory and equipment in which bank had security interest was not willful and malicious because bank did not prove debtor intended injury); In re Powers, 227 B.R. 73, 77 (Bankr. E.D. Va. 1998) (holding debtor’s wrongful transfer of collateral from one creditor to another was not willful and malicious because debtor did not intend to injure the initial creditor); In re Wikel , 229 B.R. 6, 10 (Bankr. N.D. Ohio 1998) (holding debtor’s conversion of accounts receivable collateral was not willful and malicious because debtor was attempting to preserve the value of her business and did not intend injury); In re Tomlinson , 220 B.R. 134, 137–38 (Bankr. M.D. Fla. 1998) (holding debtor’s failure to turn over proceeds of inventory collateral was not willful and malicious because creditor did not prove debtor’s retention of proceeds was intended to injure creditor); Kidd, 219 B.R. at 285–86 (holding consumer debtor’s unauthorized disposition of collateral was not willful and malicious because creditor did not prove debtor acted with intention of injuring creditor).
40 See Tomlinson , 220 B.R. at 137–38.
41 See supra notes 31 and 39.
42 See In re Conte , 33 F.3d 303, 306–07 (3d Cir. 1994) (explaining that some courts, such as Perkins and Franklin , required only that the injurious act have a high probability of causing harm, while others, such as Cecchini , required that th e injurious act would almost certainly produce harm).
43 See supra note 42.

This article is the winner of the second annual Business Law Section Student Writing Contest. At the time it was written William A. Rountree was a student at the University of Florida College of Law.
This column is submitted on behalf of the Business Law Section, Howard J. Berlin, chair, and T.A. Borowski, Jr., editor.

Business Law