In re Russell
| Decision Date | 30 March 2001 |
| Docket Number | Bankruptcy No. 99-40101. Adversary No. 99-4013. |
| Parties | In re Richard C. RUSSELL, Karen M. Russell, Debtors. ABF, Inc., Plaintiff, v. Richard C. Russell and Karen M. Russell, Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
Jay Kennedy, Indianapolis, IN.
David Rosenthal, Lafayette, IN.
This matter is before the court following trial of the issues raised by Plaintiff's complaint to determine the dischargeability of the debtors' obligation to it. Plaintiff contends that the debt is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6). Although both debtors were originally named as defendants, at trial Plaintiff voluntarily dismissed its claim against Karen Russell. Accordingly, only the claim against Richard Russell remains.
Mr. Russell operated a medium sized feeder pig operation and farmed several plots of land, growing both soybeans and corn. On April 23, 1998, the debtor executed a promissory note in favor of ABF evidencing a loan of two hundred fifty-five thousand dollars. (Pl's.Ex. 1.) To secure this debt, he granted ABF a security interest in "all of the debtor's crops, growing and to be grown, and other farm products . . . and all of the debtor's accounts, accounts receivable, equipment, vehicles, livestock and inventory, wherever located, now owned or hereafter acquired. . . ." (Pl's.Ex. 2.) The debtor also provided ABF with a list of grain elevators or storage facilities where he would sell or store his crops, see I.C. XX-X-X-XXX(1)(c), and agreed that he would only sell, market, or store his crops at those facilities. This list contained the name of only one such facility, Excel Co-Op in Reynolds, Indiana. (Pl's.Ex. 5.) In addition to limiting the potential buyers of debtor's crops, the security agreement also placed other restrictions upon their use; they were not to be used as feed for any livestock. (Pl's.Ex. 2.)
ABF's complaint arises out of the debtor's disposition of the crops securing its loan. The complaint is best characterized as one based upon the debtor's "conversion" of collateral, specifically the debtor's 1998 soybean and corn crops. Where the soybean crop is concerned, the debtor sold it to Cargill, an undisclosed buyer, and thus avoided having the buyer issue a joint check payable to both the debtor and ABF. See, I.C. XX-X-X-XXX(1)(d). He then used the proceeds of this sale for purposes other than repaying the Plaintiff, such as paying other creditors and funding his ordinary living and business expenses. Where the corn crop is concerned, the debtor fed it to his pigs during the later part of 1998.1 Plaintiff claims, among other things, that these actions constitute a willful and malicious injury, rendering its claim against the debtor non-dischargeable pursuant to § 523(a)(6).
The parties have agreed that the total value of the crops in question is $129,500. Furthermore, the debtor is entitled to various credits against the amount due so that the current balance due Plaintiff is less than the value of the crops. Consequently, the only real question before the court involves whether the debtor's obligation should be excepted from discharge.
ABF bears the burden of proving, by a preponderance of the evidence, that its debt should be excepted from the debtor's discharge. See, Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Since the primary focus of ABF's complaint is that the debtor converted its collateral, the court begins its analysis with an examination of § 523(a)(6). This portion of the Bankruptcy Code excepts from discharge debts "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). Historically, issues concerning dischargeability as a result of a debtor's conversion of collateral have been litigated under this section. Indeed, all courts accept the proposition that "a debt for willful and malicious conversion is nondischargeable under § 523(a)(6)." In re Kimzey, 761 F.2d 421, 424 (7th Cir.1985)(abrogated on other grounds by Grogan, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). See also, Davis v. Aetna Acceptance Co., 293 U.S. 328, 332, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934). The problem lies in identifying just what such a conversion may be.
The Supreme Court recently examined § 523(a)(6) in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). There the creditor argued that the debtor had "intentionally rendered inadequate medical care . . . that necessarily led to her injury." Geiger, 523 U.S. at 61, 118 S.Ct. at 976. As framed by the Supreme Court, the issue presented was: "Does 523(a)(6)'s compass cover acts, done intentionally, that cause injury . . . or only acts done with the actual intent to cause injury . . .?" Id. The Court examined the language of the statute, first noting that the word willful is defined as "voluntary" or "intentional," Geiger, 523 U.S. at 61 n. 3, 118 S.Ct. at 977 n. 3, and then concluded that "the word `willful' . . . modifies the word `injury,' indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to an injury." Geiger, 523 U.S. at 61, 118 S.Ct. at 977(emphasis added). It then explained that "the (a)(6) formulation triggers in the lawyer's mind the category `intentional torts,' as distinguished from negligent or reckless torts" and "intentional torts generally require that the actor intend `the consequences of an act,' not simply, `the act itself'." Geiger, 523 U.S. 57, 61-2, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 ().
Geiger seems to have created almost as much consternation as it set out to resolve. In part, this is because the Court never said what "willful" is; only what it is not — it is not negligence, recklessness or a breach of contract. Geiger, 523 U.S. at 61-62, 118 S.Ct. at 977. Although the Court observed that the language of § 523(a)(6) "triggers in the lawyer's mind the category `intentional torts,'" Geiger, 523 U.S. at 61, 118 S.Ct. at 977, this recognition of a logical association is not the same as saying the two are one and the same. In re Miller, 156 F.3d 598, 604 (5th Cir.1998). Furthermore, while Geiger clearly requires a "deliberate or intentional injury," Geiger, 523 U.S. at 61, 118 S.Ct. at 977, the Court never explained what is necessary to satisfy this requirement. In re Baldwin, 245 B.R. 131, 135 (9th Cir. BAP 2000).
Compounding the fact that Geiger did not clarify the meaning of § 523(a)(6) as precisely as one might wish, is the fact that, in some respects, it also appears to establish a largely subjective standard — requiring an actual intent to cause injury. A debtor, however, will almost always be able to come forward with innocent explanations for its actions, testifying that "I did not intend to. . . ." This is particularly true in cases involving the conversion of collateral because a debtor's actions with respect to a creditor's collateral are rarely motivated by a desire to injure either the creditor or its collateral. See, In re Kidd, 219 B.R. 278, 284 (Bankr.D.Mont.1998). Instead, the wrongful use of a creditor's collateral often represents a last ditch effort to save failing business or personal finances and is motivated by the debtor's genuine, but unrealistic, belief that a change in fortune will permit the payment of all its debts, including the debt to the secured creditor. The case law is replete with examples of this behavior. E.g., In re Gagle, 230 B.R. 174 (Bankr.D.Utah 1999); (In re Wikel, 229 B.R. 6 (Bankr.N.D.Ohio 1998); In re Powers, 227 B.R. 73 (Bankr. E.D.Va.1998).
Trying to resolve Geiger's ambiguities has lead to largely unnecessary inquiries into such things as whether the debtor's actions "necessarily caused" or were "substantially certain to cause" injury and the extent to which the debtor "knew" or "believed" that this was so. See e.g., Miller, 156 F.3d at 604, 606(substantial certainty of harm or subjective motive to do harm); State of Texas ex rel Board of Regents v. Walker, 142 F.3d at 813, 823-24(5th Cir. 1998)(act necessarily caused or was substantially certain to cause harm or done with subjective motive to do harm); In re Markowitz, 190 F.3d 455, 464 (6th Cir.1999)(debtor desires to cause the consequences or believes they are substantially certain to result); Baldwin, 245 B.R. at 136(same); In re Kaczmarski, 245 B.R. 555, 561 (Bankr.N.D.Ill.2000)(debtor acts with the subjective intent to injure or knowledge that injury is substantially certain); In re Sintobin, 253 B.R. 826, 829 (Bankr.N.D.Ohio 2000)(debtor intends to cause injury or is substantially certain that injury will occur). These formulations suffer because they are at once too rigorous and, yet, may not be rigorous enough. To the extent they focus on the debtor's knowledge or belief that its actions would cause (or have a substantial certainty to cause) harm, they tend to overemphasize the debtor's subjective motivation. At the same time, however, by allowing the construction of a causal chain which links the debtor's actions to the creditor's injury, it is far too easy to slide backwards from an intentional injury or one that is substantially certain, through one that necessarily causes harm, see, Miller, 156 F.3d at 604; Walker, 142 F.3d at 823, 824, into the intentional act that causes injury which Geiger clearly excludes.
In addressing the meaning of "willful" for the purposes of § 523(a)(6), the Supreme Court did not require a subjective inquiry to determine whether a debtor intentionally injured a creditor. Although a subjective intent to harm will certainly fulfill the requirements of the statute, Geiger does not need to be and should not be read as requiring proof of a subjective...
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