National Homes Corporation v. Lester Industries, Inc., Civ. A. No. 66-C-20-D.
Decision Date | 26 January 1972 |
Docket Number | Civ. A. No. 66-C-20-D. |
Parties | NATIONAL HOMES CORPORATION, Plaintiff, v. LESTER INDUSTRIES, INC., et al., Defendants. |
Court | U.S. District Court — Western District of Virginia |
Edwin B. Meade, Danville, Va., for plaintiff.
John W. Carter, Danville, Va., for defendants.
On July 23, 1969, a judgment was entered in favor of National Homes Corporation against Lester Industries, Inc., and Lawson L. Lester, Jr., in this court at Danville. The judgment read, in part, as follows:
The Fourth Circuit affirmed in 425 F.2d 1210 (1970). The award of punitive damages was not pursued on appeal.
The defendant, Lawson L. Lester, Jr., was adjudged bankrupt in an involuntary proceeding on October 20, 1969.
On July 20, 1971, the defendant, Lawson L. Lester, Jr., filed a motion to quash a writ of fieri facias which had issued as a result of the July 23, 1969 judgment. The defendant Lester contends that both the punitive and the compensatory damages recovered in the judgment are dischargeable in bankruptcy.
The issue to be decided in this case is whether the punitive damages in the amount of $25,000.00 awarded in the July 23, 1969 judgment were discharged by the bankruptcy proceeding. The court finds that they were not.
11 U.S.C. § 35(a) (2)1 provides, in pertinent part, that: "A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as . . . are liabilities for . . . willful and malicious injuries to the person or property of another . . ."
In determining whether a judgment claimed to be for willful and malicious injuries is dischargeable in bankruptcy, resort may be had to the entire record. Greenfield v. Tuccillo, 129 F.2d 854 (2nd Cir. 1942). See McIntyre v. Kavanaugh, 242 U.S. 138, 37 S.Ct. 38, 61 L.Ed. 205 (1916), in which the Supreme Court looked at the findings of the trial court to determine if a debt were dischargeable as willful and malicious. Neither the form of the judgment nor the theory of the recovery, whether in tort or contract, controls. Rivera v. Moore-McCormick Lines, Inc., 238 F. Supp. 233 (S.D.N.Y., 1965).
The opinion of the district judge (sitting by assignment), which is contained in the record, reflects that the punitive damages against the individual defendant were awarded for willful and malicious injuries to the property of the plaintiff in this action. The following language from the opinion of the trial judge reflects his findings and conclusions on the issue of punitive damages:
The district judge had at hand as a part of the record the findings of the first district judge to hear the merits of the case, which are reported in 293 F. Supp. 1025 (W.D.Va.1968), which findings are all to the effect that the acts complained of were conscious and deliberate, as contrasted to inadvertent and done in good faith. The opinion of the first district trial judge, in 293 F.Supp. 1025, was affirmed in the Fourth Circuit in 404 F.2d 225 (1968), except that the relief granted by the district judge was expanded by the Court of Appeals.
In determining whether such a judgment is dischargeable in bankruptcy under 11 U.S.C. § 35(a) (2), it is proper to consider the law of the state under which the judgment was entered, to determine whether or not a judgment under the state law would be permitted which includes the necessary willful and malicious elements set out in 11 U.S.C. § 35(a) (2). An examination of Virginia law makes it clear that a judgment such as the one here in question is permitted although the suit may sound principally in contract. The Virginia law may be stated as follows:
Citations omitted Wright v. Everett, 197 Va. 608, 615, 90 S.E.2d 855, 860 (1956). Emphasis added
"Exemplary damages are allowable only where there is misconduct or malice, or such recklessness or negligence as evidences a conscious disregard of the rights of others." Wood v. American Nat. Bank, 100 Va. 306, 316, 40 S.E. 931, 934 (1902); Wright v. Everett, 197 Va. 608, 615, 90 S.E.2d 855, 859 (1959). Cited in Kaufman v. Abramson, 363 F. 2d 865 (4th Cir.1966).
The principal defense relied upon here is that 11 U.S.C. § 35(a) (2) relates only to torts and not to breaches of contract. The defendant cites 9 Am.Jur. Bankruptcy, § 786, and Sales Finance Corporation v. Dimock, 340 Mass. 310, 164 N.E.2d 133 (Mass.1960). See also Collier on Bankruptcy, 14th Ed. § 17.17.
In the opinion of the court, such a construction of the Bankruptcy Act is far too narrow and should not be followed here. In the first place, the words of the statute are plain: a debt is not dischargeable if it is "for willful and malicious injuries to the person or property of another." The statute does not attempt to distinguish whether such debt arose on account of contract or tort theory. The question to be determined is not whether it was on account of contract or tort, but simply whether on account of a willful or malicious injury to person or property. The court considers the proper reasoning to have been expressed in Rivera where it is said that ". . . the theory of recovery—tort or contract—is immaterial." 238 F. Supp. 233, 234. A similar contention, that conversion was not within the willful and malicious provision of the Bankruptcy Act as amended in 1903, which was in like language to the provision here considered, was...
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