In re Williams

Decision Date07 July 2003
Docket NumberNo. 02-50656.,02-50656.
Citation337 F.3d 504
PartiesIn The Matter of: Larry WILLIAMS; Shannon Britton Williams, Debtors. Larry Williams, Appellant, v. International Brotherhood of Electrical Workers Local 520, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Gregory Raymond Phillips (argued), Law Offices of Gregory R. Phillips, Austin, TX, for Appellant.

Matthew G. Holder, David A. Van Os (argued), David Van Os & Associates, San Antonio, TX, for Appellee.

Appeal from the United States District Court for the Western District of Texas.

Before DeMOSS and STEWART, Circuit Judges, and LITTLE*, District Judge.

LITTLE, District Judge:

This appeal centers upon the interpretation of Section 523(a)(6) of the Bankruptcy Code. That provision states, "A discharge under section 727 ... of this title does not discharge an individual debtor from any debt for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). The issues to be determined are whether this provision excepts from discharge debts arising out of a knowing breach of contract and whether the actions of the appellant, which include violating a collective bargaining agreement and an Agreed Final Judgment and Decree, caused willful and malicious injury. The district court held that the debts resulted from willful and malicious injury and were nondischargeable under Section 523(a)(6). For the reasons that follow, we AFFIRM in part and REVERSE in part.

I.

This appeal arises out of the bankruptcy filing of the Appellant-Debtor Larry Williams ("Williams"). Williams is an independent electrical contractor in Texas. He initially operated his electrical contracting business as an "open shop" that employed non-union electricians. Apparently because of this practice, Williams's business was targeted by the Appellee-Creditor, International Brotherhood of Electrical Workers Local 520 ("the Union"). Union members applied to work for Williams on a large commercial project, known as "the Eckerd project," but deliberately did not inform Williams of their affiliation with the Union. Williams hired these applicants. When work on the Eckerd project was to commence, the electricians revealed their Union membership and requested wage and benefit increases. Williams, who had used non-union wages in calculating the cost of the project, was unable to grant these demanded increases. The Union workers went on strike.1

As a result of the strike, Williams was unable to begin working as scheduled on the Eckerd project and encountered difficulty with the project's general contractor. After an unsuccessful attempt to hire non-union electricians, Williams entered a collective bargaining agreement ("CBA") with the Union, which had promised to provide the necessary employees for the Eckerd project. Under Article III, Section 2 of the CBA, Williams agreed to use the Union hiring hall as "the sole and exclusive source of referral of applicants for employment." After having additional problems with the Union electricians, however, Williams hired non-union electricians to complete the Eckerd project.2 Williams hired these electricians instead of following the grievance procedures outlined in the CBA. The Union then initiated a grievance against Williams. After a hearing before the Labor Management Committee, Williams was found to have violated Article III, Section 2 of the CBA.

The dispute between Williams and the Union was resolved when the parties entered an Agreed Final Judgment and Decree which was approved by the United States District Court for the Western District of Texas on 14 December 1999. Under the Agreed Judgment, Williams was obligated to hire electricians for commercial projects exclusively through the Union. In addition, the district court ordered an audit of Williams's books and records to determine past compliance with the CBA. Upon a finding of non-compliance, Williams was ordered to pay restitution of wages and benefits to Union members denied employment and the Union's attorney's fees.3

Williams planned to perform only non-commercial projects as a means of subverting the CBA, but a decline in residential construction projects threatened to shut down Williams's business. In violation of the Agreed Judgment, Williams performed two commercial projects for which he hired non-union electricians. The Union filed a complaint for monetary and injunctive relief with the district court. In a Judgment dated 25 April 2000, the district court found Williams had willfully and purposefully violated the Agreed Judgment and held him in contempt of court. Based upon the results of the audit it had requested, the court ordered Williams to pay $155,855.39 as restitution for his original breach of the CBA. The court ordered a second audit to determine the amount of restitution Williams owed for ongoing non-compliance with the Agreed Judgment from 1 December 1999 through 19 April 2000. This amount totaled $106,911.43. The court also awarded the Union attorney's fees for prosecuting the contempt action.

A few weeks after the district court issued its judgment, Williams and his wife filed a petition for relief under Chapter 13 of the Bankruptcy Code. In the bankruptcy proceedings, Williams challenged the accuracy of the two audits conducted by the Union. On appeal, it was determined that Williams was precluded from relitigating in bankruptcy the accuracy of the first audit ordered by the district court and that Williams had forfeited his right to challenge the accuracy of the second audit by refusing to cooperate with auditors. See Williams v. International Brotherhood of Electrical Workers Local 520 (In re Williams), 298 F.3d 458, 460 (5th Cir. 2002). The underlying nature of the debts for purposes of Section 523(a)(6) was not addressed in this prior proceeding. See Archer v. Warner, ___ U.S. ___, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003) (explaining that the underlying nature of a debt is not intended to be determined in a proceeding in which "nondischargeability concerns are not directly in issue and neither party has a full incentive to litigate them." (citation omitted)).

The Williamses converted their Chapter 13 petition to a Chapter 7 petition on 1 June 2001, and an Order of Discharge was entered. The Union filed a complaint with the bankruptcy court seeking to have the two debts from the CBA violations excepted from discharge under 11 U.S.C. § 523(a)(6). In a Judgment dated 19 February 2002, the United States Bankruptcy Court for the Western District of Texas, Austin Division, held that the Union's unsecured claims in the amounts of $155,855.39, representing the restitution ordered for the first CBA violation, and $106,911.43, representing damages for Williams's violation of the Agreed Judgment, were excepted from discharge. The court held these debts arose from willful and malicious injury. The bankruptcy court further excepted from discharge the attorney's fees awarded by the district court in its 25 April 2000 order.

On 20 May 2002, the district court affirmed the bankruptcy court's decision in an Order and Final Judgment. Williams timely filed notice of appeal to the United States Court of Appeals for the Fifth Circuit on 10 June 2002. We have jurisdiction under 28 U.S.C. § 158(d).

II.

We review the bankruptcy court's findings of fact for clear error and conclusions of law de novo. Hickman v. Texas (In re Hickman), 260 F.3d 400, 401 (5th Cir.2001) (citing In re Mercer, 246 F.3d 391, 402 (5th Cir.2001)). The interpretation of Section 523(a)(6) is a question of law and is reviewed de novo. See id. (applying the de novo standard of review to the interpretation of Section 523(a)(7)). The bankruptcy court's findings of fact may be reversed only if the reviewing court has "`the definite and firm conviction that a mistake has been made.'" Cotten v. Deasy, 2002 WL 31114061 *2 (N.D.Tex. 2002) (citing Matter of Allison, 960 F.2d 481, 483 (5th Cir.1992)).

The United States Supreme Court has established guidelines for determining whether a debt arises from a willful and malicious injury and, therefore, is excepted from discharge under Section 523(a)(6). See Kawaauhau v. Geiger, 523 U.S. 57, 59, 118 S.Ct. 974, 975-76, 140 L.Ed.2d 90 (1998) (holding that Section 523(a)(6) does not except from discharge debts arising from negligently or recklessly inflicted injuries). In Kawaauhau, the Court examined the language of Section 523(a)(6) and concluded the provision applies to "acts done with the actual intent to cause injury," but excludes intentional acts that cause injury. Id. at 61, 118 S.Ct. at 977. "Willful," as used in the provision, "modifies the word `injury,' indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Id. The Court also noted that the language of Section 523(a)(6) mirrors the definition of an intentional tort, which requires an actor to "intend `the consequences of an act,' not simply `the act itself.'" Id. at 61-62, 118 S.Ct. at 977 (citing Restatement (Second) of Torts § 8A, cmt. a (1964) and adding emphasis).

Applying the Supreme Court's pronouncement that Section 523(a)(6) requires actual intent to cause injury, the Fifth Circuit has held that for a debt to be nondischargeable, a debtor must have acted with "objective substantial certainty or subjective motive" to inflict injury. Miller v. J.D. Abrams, Inc. (In re Miller), 156 F.3d 598, 603 (5th Cir.1998). Despite similarities in the language used to describe an injury under Section 523(a)(6) and intentional torts, Section 523(a)(6) creates a narrower category of tortious conduct. Id. at 604 (noting, "Merely because a tort is classified as intentional does not mean that any injury caused by the tortfeasor is willful.").

Turning to the meaning of "malicious," the Miller court concluded Section 523(a)(6)...

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