Posta, In re

• Decision Date: 26 January 1989
• Docket Number: No. 87-1477,87-1477
• Citation: 866 F.2d 364
• Parties: 20 Collier Bankr.Cas.2d 937, 19 Bankr.Ct.Dec. 35, Bankr. L. Rep. P 72,649 In re Gregory Alyan POSTA and Mary Jones Posta, C.I.T. FINANCIAL SERVICES, INC., Plaintiff-Appellant, v. Gregory Alyan POSTA, Mary Jones Posta, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 364

866 F.2d 364

20 Collier Bankr.Cas.2d 937, 19 Bankr.Ct.Dec. 35,

Bankr. L. Rep. P 72,649

In re Gregory Alyan POSTA and Mary Jones Posta,

C.I.T. FINANCIAL SERVICES, INC., Plaintiff-Appellant, v. Gregory Alyan POSTA, Mary Jones Posta, Defendants-Appellees.

No. 87-1477.

United States Court of Appeals, Tenth Circuit.

Jan. 26, 1989.

Robert M. Duitch of Duitch & Johnson, P.C., Colorado Springs, Colo., for plaintiff-appellant.

Andrew J. Slee of Overholser & Slee, P.C., Montrose, Colo., for defendants-appellees.

Before LOGAN, LEAVY, ^* and BRORBY, Circuit Judges.

PER CURIAM.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir. R. 34.1.8. The cause is therefore ordered submitted without oral argument.

C.I.T. Financial Services, Inc. appeals the dismissal of its complaint objecting to the discharge in bankruptcy of a debt of Gregory Alyan Posta and Mary Jones Posta. CIT argues that the Postas' debt to CIT secured by a mobile travel trailer, is nondischargeable under Sec. 523(a)(6) of the Bankruptcy Code, because the Postas sold the trailer in violation of the terms of CIT's security agreement. In dismissing CIT's complaint, the bankruptcy court found that the Postas had not willfully disregarded CIT's rights by selling the trailer and that their debt to CIT was properly dischargeable. On appeal, the district court affirmed. We likewise affirm.

In 1983, the Postas purchased a mobile travel trailer from Washburn Enterprises in Lakewood, Colorado, financing $23,631 of the purchase price through CIT. The Postas executed a security agreement with CIT, granting CIT a security interest in the trailer. The agreement provided that the Postas could not sell, rent, or transfer the trailer, or move it from their home address unless CIT agreed in writing. The bankruptcy court found that neither Mr. nor Mrs. Posta read the security agreement before signing it.

Within a year after this purchase, payments on the trailer began to strain the Postas' finances. The couple determined that they would be unable to meet their other financial obligations and continue to make the payments on the trailer. Consequently, they moved the trailer from their home in Ridgeway, Colorado, to a dealership in Denver, attempting to lease it through the dealer. They also advertised the trailer for sale in Denver newspapers.

On October 7, 1984, the Postas were contacted by Mr. Ronald Swartz, who indicated that he was interested in buying the trailer. Mr. Swartz met with the Postas that day and, after some negotiation, agreed to purchase the trailer. That evening, the parties signed a sales agreement prepared by Mr. Swartz. As provided in the agreement, Mr. Swartz delivered $962.65 in cash to the Postas (representing their equity in the trailer plus the next monthly payment) and a promissory note for $22,245.00 (the remaining balance on their loan from CIT). To secure the note, Mr. Swartz executed a second deed of trust on certain condominium property located in Grand County, Colorado. He also purchased an insurance policy on the trailer, naming the Postas as additional insureds.

Mr. Swartz left that evening with the trailer. He returned the following morning to deliver a copy of the sales agreement and two football tickets which he had promised to Mr. Posta. After that morning, however, neither he nor the trailer were ever seen again. Mr. Swartz defaulted on his payments on the promissory note, and the Postas discovered that Mr. Swartz did not hold record interest in the property subject to the deed of trust securing the note. Despite their efforts, the couple was unable to locate Mr. Swartz at any of the addresses he had given them. They reported the incident to the appropriate authorities and to CIT, and unsuccessfully attempted to recover on the insurance policy covering the trailer. The Postas were then forced to default on their loan payments to CIT, and shortly thereafter they filed for bankruptcy.

CIT instituted the instant action in bankruptcy court on November 20, 1985, objecting to the discharge of the Postas' debt secured by the trailer. CIT alleged that, under Sec. 523(a)(6) of the Bankruptcy Code, 11 U.S.C. Sec. 523(a)(6) (1982), the debt was not dischargeable because the Postas had willfully and maliciously converted the travel trailer. The Postas responded by moving to dismiss the complaint, on the grounds that CIT had failed to allege that they had the requisite malicious intent. CIT then amended its complaint, and the Postas again moved for dismissal. After a hearing on the matter, the bankruptcy court ruled that the Postas' sale of the trailer was merely a technical conversion. It found no evidence that the Postas' actions were taken in conscious disregard of the rights of CIT and held that the conversion was not malicious. The district court affirmed on appeal, relying on this court's decision in In re Compos, 768 F.2d 1155 (10th Cir.1985).

In reviewing an order of the bankruptcy court, we apply the same standard of review as the district court. Findings of fact by the bankruptcy court are not set aside unless clearly erroneous; conclusions of law are subject to de novo review. In re Mullet, 817 F.2d 677, 678-79 (10th Cir.1987). In this case, the facts are relatively undisputed. The only issue before us is whether the bankruptcy court properly construed the term "malicious" under Sec. 523(a)(6) of the Bankruptcy Code. CIT argues that the Postas' intentional sale of the trailer in violation of the terms of the security agreement was, by its nature, malicious. We disagree.

We begin by examining the relevant provision of the Bankruptcy Code. Section 523(a)(6) of the Code excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." Such injury includes the conversion of property subject to a creditor's security interest. In re Pommerer, 10 B.R. 935, 940 (Bankr.D.Minn.1981). For a debt to be nondischargeable under this section, however, the debtor's conversion of property must be both "willful" and "malicious." The creditor objecting to the discharge has the burden of proving both of these elements, In re McGinnis, 586 F.2d 162, 163 (10th Cir.1978), by clear and convincing evidence, In re Auto Outlet, Inc., 71 B.R. 674, 677 (Bankr.D.Utah 1987).

The "willful" element is straightforward. It simply addresses whether the debtor intentionally performed the basic act complained of. In re Egan, 52 B.R. 501, 506 (Bankr.D.Minn.1985). "Willful" conduct is conduct that is volitional and deliberate and over which the debtor exercises meaningful control, as opposed to unintentional or accidental conduct. In re Clayburn, 67 B.R. 522, 525 (Bankr.N.D.Ohio 1986); In re Nelson, 67 B.R. 491, 497 (Bankr.D.Minn.1985). Thus, acts caused by the debtor's negligence or recklessness are not encompassed by this exception. In re Compos, 768 F.2d at 1158; In re Egan, 52 B.R. at 506.

In this case, there seems to be little question but that the Postas voluntarily and intentionally sold the trailer; so their conduct was "willful." The issue is, instead, whether in doing so, they acted maliciously. CIT asserts that when a debtor intends to do an act which results in harm to his creditor, such conduct is "malicious." Consequently, because the Postas intentionally sold the trailer, and because the sale was in violation of the security agreement and ultimately harmed CIT, CIT contends that the "malicious" element is satisfied. We disagree.

Were we to accept CIT's argument, nearly any intentional conduct would fall within this exception to discharge, and the word "malicious" in this section would be rendered meaningless. Statutes should be construed to give effect to every word Congress has used. Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331, 60 L.Ed.2d 931 (1979). Although we agree that conduct which violates the rights of a creditor is wrongful, we refuse to infer that it is, by its very nature, "malicious." Instead, the focus...