Conte, In re

• Decision Date: 17 February 1994
• Docket Number: No. 93-5407,93-5407
• Citation: 33 F.3d 303
• Parties: Bankr. L. Rep. P 76,069 In re Dominick P. CONTE, Debtor, Dominick P. CONTE, Appellant v. Urmila GAUTAM; Narinder Gautam; U.S. Trustee, Trustee. . Submitted Under Third Circuit LAR 34.1(a)
• Court: U.S. Court of Appeals — Third Circuit

Page 303

33 F.3d 303

Bankr. L. Rep. P 76,069

In re Dominick P. CONTE, Debtor,

Dominick P. CONTE, Appellant v. Urmila GAUTAM; Narinder Gautam; U.S. Trustee, Trustee.

No. 93-5407.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit LAR 34.1(a) Feb. 17, 1994.

Decided Aug. 30, 1994.

John P. Flanagan, Clapp & Eisenberg, Newark, NJ, for appellant.

Urmila Gautam, pro se.

Before: BECKER, HUTCHINSON and COWEN, Circuit Judges

OPINION OF THE COURT

BECKER, Circuit Judge.

Debtor Dominick Conte, a New Jersey lawyer and the defendant in this case, appeals from a district court order affirming a bankruptcy court order that Conte's debt to plaintiffs Urmila and Narinder Gautam arising from a jury verdict against him in a legal malpractice action was not dischargeable. The bankruptcy court held that the debt was not dischargeable because the jury verdict in the previous case established that his conduct was "willful and malicious" within the meaning of 11 U.S.C. Sec. 523(a)(6). Under Sec. 523(a)(6), willful and malicious injuries are not dischargeable in bankruptcy. At issue on the appeal is whether the jury's verdict has issue preclusive effect on the question whether Conte's actions were willful and malicious.

One of the core requirements of issue preclusion under New Jersey law is that the issue sought to be precluded is the same as was litigated in the previous action. See In re Braen, 900 F.2d 621, 628 n. 5 (3d Cir.1990). We conclude that the jury's finding on which the preclusion ruling was based, i.e., that Conte acted: (1) with knowledge that the Gautams faced a high probability of harm, and (2) with reckless indifference to the consequences, does not constitute a finding of "willful and malicious injury" within the meaning of Sec. 523(a)(6). An injury is willful and malicious under the Code only if the actor purposefully inflicted the injury or acted with substantial certainty that injury would result. Thus, we will vacate the order of the district court and direct it to remand the case to the bankruptcy court to conduct an adversary proceeding on whether the injury was willful and malicious within this frame of reference.

I.

The Gautams hired Conte to represent them in a medical malpractice action. Conte failed to comply with discovery requests, and the New Jersey Superior Court eventually dismissed the case for that reason. Conte, however, did not inform the Gautams of this dismissal, and, by the time they became aware of it, the time had passed to have the case reinstated. The Gautams sued Conte for legal malpractice and a New Jersey Superior Court jury found for the Gautams. It awarded them $520,000 in compensatory damages and $1 million in punitive damages. The jury's award of punitive damages was grounded on its affirmative answer to the following interrogatory:

It has been admitted by Mr. Conte that as of June 1980 he was aware that his client's case against Dr. Gerry Brown had been dismissed by the court.

Do you find that he deliberately omitted informing his clients of the fact that their case was dismissed with knowledge of a high degree of probability of harm to Mr. and Mrs. Gautam and reckless indifference to the consequences of his omission?

Four months after the jury's verdict, Conte filed a Chapter 7 bankruptcy petition. The Gautams then filed an adversary complaint asserting that the debt was nondischargeable under Sec. 523(a)(6) of the Bankruptcy Code, which excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. Sec. 523(a)(6). The bankruptcy court granted summary judgment for the plaintiffs on the dischargeability issue holding that the jury's finding that Conte failed to notify the Gautam's of dismissal of their action (i) with knowledge that the Gautams faced a high probability of harm and (ii) with reckless indifference to the consequences of his action, collaterally estopped Conte from claiming that his debt did not fall into the exception for willful and malicious injury.

Conte appealed. He asserted that the jury's answer to the interrogatory was not preclusive because: 1) the bankruptcy court failed to accord him an adequate hearing; 2) the issue decided in the jury trial was not the same issue as the one in bankruptcy court; and 3) he did not have a full and fair opportunity to litigate the issue at the jury trial because he had represented himself, and his illness at the time had prevented him from aggressively defending the action. The district court rejected these contentions and affirmed the order of the bankruptcy court. Conte advances these same contentions on this appeal. We address only his second contention: whether the issue on which the jury verdict was based is the same as that addressed in the bankruptcy court.

II.

In common law tort cases, willfulness has generally been equated with recklessness, which requires taking an action in disregard of a significant risk. According to Prosser and Keeton, "[t]he usual meaning assigned to 'willful,' 'wanton' or 'reckless' ... is that the actor has intentionally done an act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow ..." W. Page Keeton et al. Prosser and Keeton on the Law of Torts Sec. 34, at 213 (5th ed. 1984). And maliciousness requires either that an act be wrongful (without just cause or excuse) or that the act be done based on an evil motive.

Prior to 1978, consistent with the common law cases, courts held that acts were willful and malicious within the meaning of the bankruptcy code so long as they were reckless and performed without good cause or excuse. They based their holdings on Tinker v. Colwell, 193 U.S. 473, 487, 24 S.Ct. 505, 509, 48 L.Ed. 754 (1904), in which the Supreme Court held that under the 1898 Bankruptcy Act

a willful disregard of what one knows to be his duty, an act which is against good morals, an act likely to cause injury, and wrongful in and of itself, and which necessarily causes injury and is done intentionally, may be said to be done willfully and maliciously, so as to come within the exception.

Courts interpreted Tinker "to stand for two propositions: first, that the term willful can include reckless disregard of a duty, and second, that constructive or implied malice was sufficient to establish malice under the exception, and that a showing of special malice was not required." St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1009 (4th Cir.1985) (internal quotation omitted).

The landscape has changed in the wake of the 1978 Bankruptcy Code. Although the language of the 1898 Act was imported into the 1978 Code, the House Judiciary Committee's report accompanying the bill made clear that recklessness was no longer to be the standard. It stated that " 'willful' means deliberate or intentional. To the extent that Tinker v. Colwell, ... held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a 'reckless disregard' standard, they are overruled." H.R.Rep. No. 595, 95th Cong., 2d Sess., at 365, reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6320-21. See also S.Rep. No. 989, 95th Cong., 2d Sess., 79, reprinted in 1978 U.S.C.C.A.N. 5787, 5864.

While this legislative history excludes recklessness, it does not state exactly what is required. "The bankruptcy courts that have decided this matter have been divided as to whether the statute requires an intentional act that results in injury or an act with intent to cause injury." Perkins v. Scharffe, 817 F.2d 392, 393 (6th Cir.1987). Moreover, the meaning of either of these two interpretations is not self-evident. By stating that the statute requires an act with intent to cause injury, some courts seem to require that the purpose of the defendant's act be to injure. See, e.g., In re Hartley, 869 F.2d 394, 395 (8th Cir.1989) (the Bankruptcy Code requires that defendant intended to cause injury--throwing a firecracker into a gasoline-fume filled basement as a joke is not enough); In re Compos, 768 F.2d 1155, 1159 (10th Cir.1985) (intentionally driving vehicle while under the influence of alcohol constitutes recklessness but does not mean the injury caused was intentional as is required by the Bankruptcy Code); Cassidy v. Minihan, 794 F.2d 340, 344 (8th Cir.1986) (drunk driving is reckless but does not show an intent to cause injury). These courts, however, do not explicitly exclude the possibility that if a defendant acts with the knowledge that there is a substantial certainty of causing injury, this would constitute an act with intent to cause injury.

Similarly, those courts that have held that the statute requires only an intentional act that results in injury have not made clear the meaning of this requirement other than the fact that there is no requirement of a purpose to injure. Indeed, some courts seem to require only an intentional act that has a high probability of producing harm. See, e.g., Perkins, 817 F.2d at 394 (a debt based on a doctor's unnecessary injection of a patient with an unsterile needle or contaminated medication, failure to perform timely tests when infection was apparent, and decision to ignore tests that identified the appropriate treatment was nondischargeable because it was based on deliberate acts performed without just cause or excuse even absent personal hatred or ill will); In re Franklin, 726 F.2d 606, 610 (10th Cir.1984) (a doctor's debt based on prescribing anesthetic without a patient history, the provision of too much anesthesia, and the cover up of records of the surgery necessarily resulted in injury under the conditions present in this situation and is therefore nondischargeable). ¹

Other courts seem to require an act that will almost certainly produce harm. See In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986) (wrongful conversion of funds...