In re Sweeney
| Decision Date | 11 June 2001 |
| Docket Number | Bankruptcy No. 00-33531(2)7. Adversary No. 00-3136. |
| Citation | 264 BR 866 |
| Parties | In re Kevin O'Neal SWEENEY, Debtor. Call Federal Credit Union, Plaintiff, v. Kevin O'Neal Sweeney, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Kentucky |
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Susan Anderson Crull, Louisville, KY, for Debtor.
John Wilson, Louisville, KY, trustee.
This matter is before the Court for a determination on the merits of Plaintiff's complaint objecting to discharge pursuant to 11 U.S.C. § 523(a)(6). Plaintiff, a formerly secured Creditor, alleges that Defendant willfully and maliciously injured it by converting the insurance proceeds he received to his own use after the collateral was destroyed in an accident. The trial of this matter was remanded after the parties agreed to stipulate the facts and submit the case for a decision. For the reasons stated below, this Court finds that $2,684.55, the balance due on the motorcycle loan at time of filing, is a non-dischargeable debt pursuant to 11 U.S.C. § 523(a)(6). Further, this Court shall enter a Judgment against Defendant for this amount plus interest at the federal judgment rate.
On or about April 22, 1998, Defendant purchased a 1990 Honda CBR 1000 motorcycle. This purchase was financed through a closed-end simple interest note ("Motorcycle Loan") with Philip Morris Employees Federal Credit Union, now known as Call Federal Credit Union (Plaintiff). Under the note, Defendant gave Plaintiff a security interest in the motorcycle and in any substitutions, replacements to parts and any proceeds. Defendant also agreed to keep the vehicle fully insured, and to make any insurance payments payable to Plaintiff in an amount equal to the lesser of the value of the collateral or the unpaid balance of the loan. The balance due on this loan, at the time of the bankruptcy filing, was $2,684.55.
On December 8, 1998, Defendant obtained another loan ("Second Loan") from Plaintiff. The amount due on this loan, at the time of the bankruptcy filing, was $5,520.81. The security agreement for the motorcycle loan provided that the security (the motorcycle) would also secure all other present and future debts.
On July 5, 1999, the motorcycle was destroyed in an accident. Defendant filed a claim with his insurance company, which issued a two-party check for $3,235.35 on July 22, 1999. The check was made out jointly to Kevin O. Sweeney and to the Philip Morris Credit Union. The check appears to have been endorsed by both Plaintiff (by a stamp) and by Defendant. It is unclear from the record who received the check first, but apparently Defendant was able to cash the check. Defendant used the insurance money to purchase a new motorcycle, rather than turning the proceeds over to Plaintiff.
The parties stipulated that the motorcycle had a reasonable fair market value of $4,235.00 at the time of the accident.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and 157(b). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(1). The Plaintiff has the burden of proving by a preponderance of the evidence that the debt at issue should not be discharged. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Whether the underlying claim amounts to conversion is determined under state law, but whether the debt is excepted from discharge is a matter of federal bankruptcy law. Grogan, 498 U.S. at 284, 111 S.Ct. 654, citing Brown v. Felsen, 442 U.S. 127, 129-30, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).
In Kentucky, the tort of conversion is defined as the wrongful exercise of dominion and control over the property of another. Peoples Nat'l Bank v. Guier, 284 Ky. 702, 145 S.W.2d 1042 (1940); Illinois Cent. R. Co. v. Fontaine, 217 Ky. 211, 289 S.W. 263 (1926). Motive, intent and good faith are immaterial. Urban v. Lansing's Adm'r, 239 Ky. 218, 39 S.W.2d 219 (1931). The measure of damages is the value of the property at the time of conversion. Nolin Prod. Credit Ass'n v. Canmer Deposit Bank, 726 S.W.2d 693, 704 (Ky.App. 1986). See also State Auto. Mut. Ins. Co. v. Chrysler Credit Corp., 792 S.W.2d 626 (Ky.App.1990). Defendant's act of assuming control over the insurance proceeds, which clearly belonged to Plaintiff under the security agreement, amounted to conversion of Plaintiff's property under state law.
This Court must now determine whether the damages resulting from this conversion should be discharged in bankruptcy. 11 U.S.C. § 523(a)(6) excepts from discharge any debt "for willful and malicious injury by the Debtor to another entity or to the property of another entity."
The United States Supreme Court recently articulated the standard for determining such an injury in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). The Court held that to except a debt from discharge under § 523(a)(6), the Debtor must have engaged in a "deliberate and intentional injury." Id. at 61, 118 S.Ct. 974. "Only acts done with the intent to cause injury — and not merely acts done intentionally — can cause willful and malicious injury." Markowitz v. Campbell (In re Markowitz), 190 F.3d at 455, 463 (6th Cir.1999); Geiger, 523 U.S. at 61, 118 S.Ct. 974; Abbo v. Rossi, McCreery & Assocs., Inc. (In re Abbo), 168 F.3d 930 (6th Cir.1999); Salem Bend Condo. Ass'n v. Bullock-Williams (In re Bullock-Williams), 220 B.R. 345 (6th Cir. BAP 1998). The Debtor must have intended the consequences of the act, not merely the act itself. Geiger, 523 U.S. at 61, 118 S.Ct. 974.
Since Geiger, courts have split over whether willful and malicious injury is established solely by proving intentional injury, or whether "willful" requires a finding of intentional injury and "malicious" requires that the act be without just cause or excuse. See Mitsubishi Motors Credit of America, Inc. v. Longley (In re Longley), 235 B.R. 651, 656 n. 5 (10th Cir. BAP 1999) and cases cited therein. A number of courts have adopted an integrated test, holding that an injury is willful and malicious if the Debtor intended to cause harm or if there is an objective substantial certainty that his or her actions will lead to injury. Miller v. J.D. Abrams, Inc. (In re Miller), 156 F.3d 598, 606 (5th Cir.1998); Harry Ritchie's Jewelers, Inc. v. Chlebowski (In re Chlebowski), 246 B.R. 639, 645 (Bankr.D.Or.2000). Other courts have adopted the Miller or Markowitz test to prove "willful," but require a separate test for the "malicious" prong. See Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1208-09 (9th Cir.2001) ().
The Sixth Circuit has adopted an integrated test, but a more subjective one than the Fifth Circuit did in Miller. Markowitz, 190 F.3d at 464. In this Circuit, under Markowitz, the Creditor must demonstrate that the Debtor either (1) intended to cause injury to the Creditor or to the Creditor's property, or (2) engaged in an intentional act from which the Debtor believed injury would be substantially certain to result. 190 F.3d at 464. The Sixth Circuit recently reasserted the Markowitz test in affirming a decision by this Court excepting a debt from discharge under § 523(a)(6). Kennedy v. Mustaine (In re Kennedy), 249 F.3d 576 (6th Cir.2001). See also Avco Fin. Serv. v. Kidd (In re Kidd), 219 B.R. 278, 285 (Bankr.D.Mont. 1998) ().
In support of its position, Plaintiff has cited a number of pre-Geiger § 523(a)(6) cases in which the Debtor had disposed of or converted a Creditor's collateral. See Vulcan Coals, Inc. v. Howard, 946 F.2d 1226 (6th Cir.1991); Thorp Fin. Serv. v. Thomas (In re Thomas), 36 B.R. 851 (Bankr.W.D.Ky.1984); Sunamerica Fin. Corp. v. Stephens (In re Stephens), 26 B.R. 389 (Bankr.W.D.Ky.1983). Plaintiff asserts that Geiger and Markowitz may not apply, as the facts in those cases are different from the present case.
This position is incorrect. Geiger and Markowitz apply to all cases under § 523(a)(6) in the Sixth Circuit. Although Geiger addressed § 523(a)(6) in the context of a medical malpractice case, and held only that debts arising from recklessly and negligently inflicted injuries are not willful and malicious, the Supreme Court cited with approval two of its previous decisions that did address the conversion of a Creditor's property. 523 U.S. at 63-64, 118 S.Ct. 974, citing McIntyre v. Kavanaugh, 242 U.S. 138, 37 S.Ct. 38, 61 L.Ed. 205 (1916) and Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934). The Court made clear in referencing these cases that to find a conversion non-dischargeable, there must be an intentional injury. Further, citing Davis, the Court stated that 523 U.S. at 63-64, 118 S.Ct. 974.
In addition, many courts have determined, post Geiger, that the conversion of a secured Creditor's collateral is willful and malicious when the facts establish that the Debtor had the requisite intent (whether objective or subjective) to injure the Creditor. See, e.g., Chlebowski, 246 B.R. at 639 (); Fidelity Fin. Serv. v. Cox (In re Cox), 243 B.R. 713 (Bankr.N.D.Ill. 2000) (); First Am. Title Ins Co. v. Lett (In re Lett), 238 B.R. 167 (Bankr.W.D.Mo.1999), aff'd, 242 F.3d 375, 1 Fed.Appx. 599 (8th Cir. 2001) (); First Liberty Bank v. LaGrone (In re LaGrone), 230 B.R. 900 (Bankr.S.D.Ga.1999) (...
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