In re Waag

• Decision Date: 14 October 2009
• Docket Number: Bankruptcy No. 08-32547-ELP.,BAP No. OR-08-1339-MoJuR.,Adversary No. 08-03172-ELP.
• Citation: 418 B.R. 373
• Parties: In re Matthew WAAG, Debtor. Matthew Waag, Appellant, v. DeVonna Permann and John Permann, Appellees.<SMALL><SUP>1</SUP></SMALL>
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

418 B.R. 373

In re Matthew WAAG, Debtor Matthew Waag, Appellant, v. DeVonna Permann and John

Permann, Appellees.¹

BAP No. OR-08-1339-MoJuR.

Bankruptcy No. 08-32547-ELP.

Adversary No. 08-03172-ELP.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted by Videoconference on September 23, 2009.

Filed October 14, 2009.

Todd Trierweiler, Portland, OR, for Matthew Waag.

Brian D. Lynch, Portland, OR, U.S. Trustee, Portland, OR, Trustees.

Before MONTALI, JURY, and RIMEL,² Bankruptcy Judges.

OPINION

MONTALI, Bankruptcy Judge:

This appeal presents the panel with an issue of first impression in the Ninth Circuit: Does 11 U.S.C. § 1328(a)(4),³ which excepts from discharge certain debts for "restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury," require that a judgment for damages be rendered prior to the petition date? Concluding that section 1328(a)(4) does not require the existence of a prepetition judgment, the bankruptcy court denied the debtor's motion to dismiss a nondischargeability adversary proceeding against him. We AFFIRM.

I. FACTS

The relevant facts are undisputed. In 2006, DeVonna and John Permann ("Plaintiffs"), individually and as representatives of the estate of David J. Permann, filed a wrongful death action against Matthew Aaron Waag ("Debtor") and others in Montana state court. Before any trial in the state court action and before entry of any judgment, Debtor filed his chapter 13 case (on May 30, 2008) in Oregon.

On August 28, 2008, Plaintiffs filed a complaint alleging that their claim against Debtor was excepted from discharge pursuant to section 523(a)(6), averring that Debtor, acting in concert with others, engaged in a course of conduct (including assault and battery) resulting in the death of David J. Permann. On September 22, 2008, Plaintiffs filed a second amended complaint alleging that their claim was excepted from discharge under both section 523(a)(6) and section 1328(a)(4).⁴

In a motion to dismiss the nondischargeability adversary proceeding, Debtor argued that the language of section 1328(a)(4) excepting debts for damages "awarded in a civil action" required the existence of a prepetition judgment. Citing Parsons v. Byrd (In re Byrd), 388 B.R. 875 (Bankr.C.D.Ill.2007), Debtor contended that Plaintiffs could not, as a matter of law, assert a claim for relief under section 1328(a)(4) because the Montana wrongful death action was not adjudicated or otherwise reduced to judgment prior to the petition date.

Plaintiffs opposed the motion to dismiss, citing Buckley v. Taylor (In re Taylor), 388 B.R. 115 (Bankr.M.D.Pa.2008), for the proposition that Congress' use of "awarded" in section 1328(a)(4) does not require the plaintiff to obtain a judgment before the petition date.⁵ At a hearing on the motion to dismiss, the bankruptcy court followed the Taylor decision, concluding that the plain language of section 1328(a)(4) does not require entry of a prepetition judgment.

On December 10, 2008, the bankruptcy court entered its order denying the motion to dismiss. On December 23, 2008, Debtor filed its notice of appeal and a motion for leave to appeal. On January 7, 2009, we issued a notice of deficient appeal indicating that the notice of appeal appeared untimely. In response to a subsequent Clerk's Order Re Prosecution of Appeal, Debtor filed a response that the bankruptcy clerk's office was inaccessible due to inclement weather on the last day of the 10-period for filing the notice of appeal. See Fed. R. Bankr.P. 8002(a) and Fed. R. Bankr.P. 9006(a). After confirming that the bankruptcy court was closed on that date, we issued an order on April 8, 2009, that the notice of appeal was timely filed on December 23, 2008.

In our April 8 order, we also granted Debtor's motion for leave to appeal, holding that leave to appeal the interlocutory order was appropriate under Lompa v. Price (In re Price), 79 B.R. 888, 889 (9th Cir. BAP 1987), aff'd, 871 F.2d 97 (9th Cir.1989).

II. ISSUE

Is a prepetition judgment a required predicate for the application of the exception to discharge under section 1328(a)(4)?

III. STANDARD OF REVIEW

The issue presented in this appeal is purely one of law and statutory construction; no factual dispute exists. We review issues of statutory construction and conclusions of law, including interpretation of provisions of the Bankruptcy Code, de novo. Einstein/Noah Bagel Corp. v. Smith (In re BCE W., L.P.), 319 F.3d 1166, 1170 (9th Cir.2003); Mendez v. Salven (In re Mendez), 367 B.R. 109, 113 (9th Cir. BAP 2007).

Similarly, while denial of a motion to dismiss an adversary proceeding for failure to state a claim is generally interlocutory and thus rarely reviewed by us, any review of such a denial is de novo. Meek v. County of Riverside, 183 F.3d 962, 965 (9th Cir.1999) (an appellate court's review of a denial of a motion under FRCP 12(b)(6) is reviewed de novo); see also Jensen v. City of Oxnard, 145 F.3d 1078, 1082 (9th Cir.1998) (same).

IV. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. § 157(b)(2)(I) and § 1334. We have jurisdiction under 28 U.S.C. § 158(a)(3), as we have granted leave to Debtor to appeal the interlocutory order denying his motion to dismiss the adversary proceeding.

V. DISCUSSION

A. BAPCPA Revisions to Section 1328(a)

Prior to BAPCPA, a chapter 13 debtor could discharge many of the debts which would have been nondischargeable in chapter 7 or chapter 11. Specifically, before BAPCPA, section 1328(a)(2) excepted from a chapter 13 discharge those debts specified in section 523(a)(5), (8), or (9). See 11 U.S.C. § 1328(a)(2) (2000). In 2005, acting to restrict the "superdischarge" of chapter 13, Congress expanded the list of nondischargeable debts in section 1328(a)(2) to include, inter alia, those described in section 523(a)(2), (a)(3), or (a)(4).⁶

In addition to incorporating many of section 523's exceptions to discharge into section 1328(a)(2), Congress added another exception to a chapter 13 discharge: section 1328(a)(4), which excepts from the chapter 13 discharge a debt "for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual." This subsection is similar to section 523(a)(6), which Congress chose not to incorporate into subsection 1328(a)(2). Section 523(a)(6) excepts from discharge a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity[.]" See 11 U.S.C. § 523(a)(6).

Section 1328(a)(4) differs from section 523(a)(6) in three significant ways: (1) it applies to "willful or malicious" injuries instead of to "willful and malicious" injuries; (2) it applies to personal injuries or death and not to injuries to property; and (3) it applies to restitution and damages "awarded in a civil action against the debtor" as a result of such injuries.

B. The Conflicting Interpretations of Section 1328(a)(4)

As noted previously, only two published cases, Byrd and Taylor, directly address the issue presented here, with diametrically opposed holdings. The court in Byrd, 388 B.R. at 877, held that a chapter 13 debtor can discharge a debt for willful or malicious personal injury or death if damages or restitution were not awarded on such a claim prior to the petition date. In contrast, the Taylor court held that a prepetition judgment is not a prerequisite to prevailing on a section 1328(a)(4) nondischargeability claim. Taylor, 388 B.R. at 118-121. In denying Debtor's motion to dismiss, the bankruptcy court here followed the holding of Taylor. We also find the reasoning of Taylor to be more persuasive, for the reasons set forth below.

1. Grammatical Construction

The courts in Byrd and Taylor disagreed about the grammatical role of "awarded" in section 1328(a)(4), with the Byrd court treating it as a past tense verb and the Taylor court treating it as a past participle modifying "restitution" and "damages." In Byrd, the court held that the "new section 1328(a)(4) is worded in the past tense ... Thus, a pre-petition award of restitution or damages for willful or malicious injury is a prerequisite to a finding of non-dischargeability under § 1328(a)(4)." Byrd, 388 B.R. at 877 (emphasis added), citing 8 Collier on Bankruptcy ¶ 1328.02[3][k] (Alan N. Resnick & Henry J. Sommer, eds., 15th ed. rev. 2006);⁷ and Keith M. Lundin, Chapter 13 Bankruptcy (3rd ed. 2000 & Supp.2006). The Byrd court also observed:

Section 1328(a)(4) is clearly worded differently than 11 U.S.C. § 523(a)(6), and, had Congress intended a different meaning, it could easily have worded § 1328(a)(4) to include restitution or damages as being non-dischargeable regardless of the entry of a judgment in a civil proceeding prior to the filing of a Chapter 13 bankruptcy petition. Given the plain meaning of § 1328(a)(4), the Court must find that the debt of the Plaintiff in the instant case is simply a contingent, unliquidated debt that is allowable in the Debtor's Chapter 13 bankruptcy, and not subject to exception from discharge.

Byrd, 388 B.R. at 877.⁸

The Taylor court rejected the analysis of the Byrd and Nuttall courts:

Whether Congress intended to distinguish between claims for personal injury that had been reduced to judgment before a petition is filed and claims that are disputed on the date of filing must be considered within the context of § 1328(a) as well as within the Bankruptcy Code as a whole. After analyzing this provision in the context of exceptions to discharge listed in § 1328(a) and the Code as a whole, I must disagree with the interpretation of § 1328(a)(4) that the Nuttall and Byrd courts find to be plain. Nuttall and Byrd hold that because Congress used the word "awarded," it must have intended to provide one treatment for a judgment entered before a petition is...