In re Dahlstrom
| Decision Date | 03 July 1991 |
| Docket Number | Bankruptcy No. 86C-01654,Adv. No. 90PC-0678. |
| Citation | 129 BR 240 |
| Parties | In re John A. DAHLSTROM and Marilyn H. Dahlstrom, Debtors. PLACER U.S., INC., a California corporation, Plaintiff, v. John A. DAHLSTROM, Defendant. |
| Court | U.S. Bankruptcy Court — District of Utah |
Brent V. Manning, Holme Roberts & Owen, Salt Lake City, Utah, for plaintiff.
Mona Lyman, McKay, Burton & Thurman, Salt Lake City, Utah, for debtors.
The matter presently before the court is a motion filed by the plaintiff, Placer U.S., Inc. ("Placer"), for summary judgment of the above-captioned adversary proceeding seeking a determination as to the dischargeability of the debtor's debt to it under 11 U.S.C. § 523(a)(6).1 A hearing was held on December 13, 1989. Brent v. Manning, Esq. and Adam S. Affleck, Esq. appeared on behalf of Placer. Mona Lyman, Esq. appeared on behalf of the defendant-debtor, John A. Dahlstrom ("debtor"). Counsel presented argument after which the court granted Placer's motion in part holding that under principles of collateral estoppel2 that portion of a judgment which had been entered in the case of Placer Dome, U.S., Inc. v. Wagner et al., No. 13022 (Nev. 7th Dist. Ct. filed Dec. 22, 1989), aff'd, Dahlstrom et al. v. Placer Dome, U.S., Inc., No. 20758 (Nev. filed Mar. 28, 1991) awarding Placer actual damages in the amount of $186,977.94 plus interest from April 17, 1989 at a rate of 12% was not dischargeable under § 523(a)(6). The court also noted that the debtor was collaterally estopped from relitigating the issue of whether the Nevada court's award of punitive damages in the amount of $1,000,000.00 was for a "willful and malicious injury" to Placer or its property within the meaning of § 523(a)(6). Notwithstanding that fact, the court took under advisement the issue of whether punitive damages are, as a matter of law, the type of debt that can be held to be nondischargeable under § 523(a)(6). The court has carefully considered and reviewed the arguments of counsel and memoranda submitted by the parties and has made an independent review of the pertinent authorities. Now being fully advised, the court renders the following decision holding that punitive damages are debts that may be held to be nondischargeable pursuant to § 523(a)(6).
Section 523(a)(6) states, in relevant part, that "a discharge under section 727 . . . of this title does not discharge an individual debtor from any debt — (6) for willful and malicious injury by the debtor to another entity or to the property of another entity." (Emphasis added). "Debt" is defined in § 101(12) as "liability on a claim." Thus, as was explained recently by the United States Supreme Court in Johnson v. Home State Bank, ___ U.S. ___, ___ n. 5, 111 S.Ct. 2150, 2154 n. 5, 115 L.Ed.2d 66 (1991), the meaning of "debt" is "coextensive with that of `claim' as defined in § 101(5)." See also Pennsylvania Dept. of Public Welfare v. Davenport, ___ U.S. ___, 110 S.Ct. 2126, 2130, 109 L.Ed.2d 588 (1990).3 The subsection of § 101 which is relevant to this court's analysis is (5)(A) which defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. . . ." "Right to payment" was interpreted by the Supreme Court in Davenport, 110 S.Ct. at 2131, quoted in Johnson, ___ U.S. at ___, 111 S.Ct. at 2154, as meaning "nothing more nor less than an enforceable obligation, regardless of the objectives . . . to be served in imposing the obligation." In interpreting § 101(5), the Court in Johnson, ___ U.S. at ___, 111 S.Ct. at 2155, looked to the legislative history of the definition of "claim" and stated:
Although the pre-1978 Bankruptcy Act contained no single definition of `claim,\' the Act did define `claim\' as `including all claims of whatever character against a debtor or its property\' for the purposes of Chapter X corporate reorganizations. See 11 U.S.C. § 506(1)(1976 ed.)(emphasis added)4. . . . S.Rep. No. 1916, 75th Cong., 3d Sess., 25 (1938); H.R.Rep. No. 1409, 75th Cong., 1st Sess., 39 (1937). . . . In fashioning a single definition of `claim\' for the 1978 Bankruptcy Code, Congress intended to `adopt an even broader definition of claim than was found in the pre-1978 Act\'s debtor rehabilitation chapters.\' H.R.Rep. No., 95-595, 95th Cong., 1st Sess., at 309 (1977) (emphasis added); accord, S.Rep. No. 95-989, 95th Cong., 2d Sess., pp. 21-22 (1978). . . .
(Emphasis added.) The expansive nature of the term "claim" and, therefore, "debt" was also noted in Davenport, 110 S.Ct. at 2130, where the Court stated:
As is apparent, Congress chose expansive language in both definitions of `claim\' and `debt\'. . . . For example, to the extent the phrase `right to payment\' is modified in the statute, the modifying language (`whether or not such right is . . .\') reflects Congress\' broad rather than restrictive view of the class of obligations that qualify as a `claim\' giving rise to a `debt.\' See also H.R.Rep. No. 95-595, supra, at 309, U.S.Code & Admin.News 1978, p. 6266 (); accord S.Rep. No. 95-989, supra, at 22, U.S.Code & Admin.News 1978, p. 5808.
Given the plain language of § 523(a)(6), which must be read in conjunction with § 101(5) & (12) as those subsections have been interpreted by the Supreme Court in Johnson and Davenport, the court is compelled to conclude that "debts" held to be nondischargeable under that subsection include punitive damage awards. See also Commercial Factors of Salt Lake City, Inc. v. Jensen (In re Jensen), 113 B.R. 51, 54-55 (Bankr.D.Utah 1990) ()5
In addition to the plain language of § 523(a)(6), § 726(A)(4) indicates that Congress considers punitive damages to be debts under the Code. That section, which deals with the distribution of property of a Chapter 7 estate, provides for fourth priority to:
payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim. . . .
(Emphasis added.)
The court also points out that the Supreme Court and the Tenth Circuit have indicated that, if confronted with the issue, they would conclude that punitive damage judgments may be held to be nondischargeable under § 523. In Grogan v. Garner, ___ U.S. ___, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), the Court was faced with the issue of the proper burden of proof to be applied in action brought pursuant to § 523. The bankruptcy court held that, under principles of collateral estoppel, a state court judgment, which included an award of actual and punitive damages, was nondischargeable under § 523(a)(2)(A). The district court affirmed the bankruptcy court. The Eighth Circuit reversed the lower court on the basis that collateral estoppel was inapplicable because the state court judgment required that fraud be proved by a preponderance of the evidence, whereas 523(a) required proof by clear and convincing evidence. In reversing the Eighth Circuit and applying a preponderance standard, the Supreme Court noted that because the debtor did not challenge the conclusion that the elements of the claim proved in state court were sufficient to establish fraud within the meaning of § 523, it did not deem it necessary to:
Consider the question whether § 523(a)(2)(A) excepts from discharge that part of a judgment in excess of the actual value of money or property received by a debtor by virtue of fraud. See In re Rubin, 875 F.2d 755, 758, n. 1 (CA9 1989). Arguably, fraud judgments in cases in which the defendant did not obtain money, property, or services from the plaintiffs and those judgments that include punitive damages awards are more appropriately governed by § 523(a)(6). See 11 U.S.C. § 523(a)(6) (); In re Rubin, 875 F.2d, at 758, n. 1.6
Id. 111 S.Ct. at 657 n. 2. The court went on to hold the entire amount of the judgment, including the punitive damage award, to be nondischargeable under § 523(a)(2)(A).
In Klemens v. Wallace (In re Wallace), 840 F.2d 762 (10th Cir.1988), the plaintiff, in a motion for summary judgment, sought to have a state court judgment awarding him compensatory and punitive damages deemed nondischargeable under § 523(a)(4). The Tenth Circuit affirmed the lower courts' determination that the entire judgment was nondischargeable. While the court did not specifically address the propriety of holding a punitive damage award nondischargeable, it clearly recognized that the judgment included such an award inasmuch as it used it as persuasive of the fact that the elements of collateral estoppel had been met. Id. at 765; see also First Nat'l Bank v. Franklin (In re Franklin), 726 F.2d 606 (10th Cir.1984) (); Pacific Energy & Min., Ltd v. Austin (In re Austin), 93 B.R. 723 (Bankr.D.Colo.1988) (...
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