United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 7, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
________________________
No. 02-50656
________________________
In The Matter Of: LARRY WILLIAMS;
SHANNON BRITTON WILLIAMS
Debtors
LARRY WILLIAMS
Appellant
-vs-
INTERNATIONAL BROTHERHOOD
OF ELECTRICAL WORKERS
LOCAL 520
Appellee
Appeal from the United States District Court
for the Western District of Texas
Before DeMOSS and STEWART, Circuit Judges, and LITTLE*, District Judge.
LITTLE, District Judge:
This appeal centers upon the interpretation of Section 523(a)(6) of the Bankruptcy Code.
That provision states, “A discharge under section 727 . . . of this title does not discharge an individual
debtor from any debt 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). The issues to be determined are whether this provision
*
District Judge of the Western District of Louisiana, sitting by designation.
excepts from discharge debts arising out of a knowing breach of contract and whether the actions of
the appellant, which include violating a collective bargaining agreement and an Agreed Final
Judgment and Decree, caused willful and malicious injury. The district court held that the debts
resulted from willful and malicious injury and were nondischargeable under Section 523(a)(6). For
the reasons that follow, we AFFIRM in part and REVERSE in part.
I.
This appeal arises out of the bankruptcy filing of the Appellant-Debtor Larry Williams
(“Williams”). Williams is an independent electrical contractor in Texas. He initially operated his
electrical contracting business as an “open shop” that employed non-union electricians. Apparently
because o f this practice, Williams’s business was targeted by the Appellee-Creditor, International
Brotherhood of Electrical Workers Local 520 (“the Union”). Union members applied to work for
Williams on a large commercial project, known as “the Eckerd project,” but deliberately did not
inform Williams of their affiliation with the Union. Williams hired these applicants. When work on
the Eckerd project was to commence, the electricians revealed their Union membership and requested
wage and benefit increases. Williams, who had used non-union wages in calculating the cost of the
project, was unable to grant these demanded increases. The Union workers went on strike.1
As a result of the strike, Williams was unable to begin working as scheduled on the Eckerd
project and encountered difficulty with the project’s general contractor. After an unsuccessful
attempt to hire non-union electricians, Williams entered a collective bargaining agreement (“CBA”)
1
Williams was the target of “salting” by the Union. Salting, as described in Williams’s brief, is
accomplished when Union workers conceal their Union membership, apply for non-union jobs, and then
demand union-level compensation from the employer.
2
with the Union, which had promised to provide the necessary employees for the Eckerd project.
Under Article III, Section 2 of the CBA, Williams agreed to use the Union hiring hall as “the sole and
exclusive source of referral of applicants for employment.” After having additional problems with
the Union electricians, however, Williams hired non-union electricians to complete the Eckerd
project.2 Williams hired these electricians instead of following the grievance procedures outlined in
the CBA. The Union then initiated a grievance against Williams. After a hearing before the Labor
Management Committee, Williams was found to have violated Article III, Section 2 of the CBA.
The dispute between Williams and the Union was resolved when the parties entered an Agreed
Final Judgment and Decree which was approved by the United States District Court for the Western
District of Texas on 14 December 1999. Under the Agreed Judgment, Williams was obligated to hire
electricians for commercial projects exclusively through the Union. In addition, the district court
ordered an audit of Williams’s books and records to determine past compliance with the CBA. Upon
a finding of non-compliance, Williams was ordered to pay restitution of wages and benefits to Union
members denied employment and the Union’s attorney’s fees.3
Williams planned to perform only non-commercial projects as a means of subverting the CBA,
but a decline in residential construction projects threatened to shut down Williams’s business. In
violation of the Agreed Judgment, Williams performed two commercial projects for which he hired
non-union electricians. The Union filed a complaint for monetary and injunctive relief with the district
2
The record indicates that at least one of the workers hired through the Union was discovered
sleeping at the construction site. Williams also alleges that on one occasion, Union electricians absented the
construction site and spent an afternoon at a topless bar.
3
It appears from statements by Williams’s attorney in the record that this initial award of attorney’s
fees was paid.
3
court. In a Judgment dated 25 April 2000, the district court found Williams had willfully and
purposefully violated the Agreed Judgment and held him in contempt of court. Based upon the
results of the audit it had requested, the court ordered Williams to pay $155,855.39 as restitution for
his original breach of the CBA. The court ordered a second audit to determine the amount of
restitution Williams owed for ongoing non-compliance with the Agreed Judgment from 1 December
1999 through 19 April 2000. This amount totaled $106,911.43. The court also awarded the Union
attorney’s fees for prosecuting the contempt action.
A few weeks after the district court issued its judgment, Williams and his wife filed a petition
for relief under Chapter 13 of the Bankruptcy Code. In the bankruptcy proceedings, Williams
challenged the accuracy of the two audits conducted by the Union. On appeal, it was determined that
Williams was precluded from relitigating in bankruptcy the accuracy of the first audit ordered by the
district court and that Williams had forfeited his right to challenge the accuracy of the second audit
by refusing to cooperate with auditors. See Williams v. International Brotherhood of Electrical
Workers Local 520 (In re Williams), 289 F.3d 458, 460 (5th Cir. 2002). The underlying nature of
the debts for purposes of Section 523(a)(6) was not addressed in this prior proceeding. See Archer
v. Warner, U.S. , 123 S.Ct. 1462, 71 U.S.L.W. 4249, 4251 (2003) (expl aining that the
underlying nature of a debt is not intended to be determined in a proceeding in which
“nondischargeability concerns are not directly in issue and neither party has a full incentive to litigate
them.” (citation omitted)).
The Williamses converted their Chapter 13 petition to a Chapter 7 petition on 1 June 2001,
and an Order of Discharge was entered. The Union filed a complaint with the bankruptcy court
seeking to have the two debts from the CBA violations excepted from discharge under 11 U.S.C. §
4
523(a)(6). In a Judgment dated 19 February 2002, the United States Bankruptcy Court for the
Western District of Texas, Austin Division, held that the Union’s unsecured claims in the amounts
of $155,855.39, representing the restitution ordered for the first CBA violation, and $106,911.43,
representing damages for Williams’s violation of the Agreed Judgment, were excepted from
discharge. The court held these debts arose from willful and malicious injury. The bankruptcy court
further excepted from discharge the attorney’s fees awarded by the district court in its 25 April 2000
order.
On 20 May 2002, the district court affirmed the bankruptcy court’s decision in an Order and
Final Judgment. Williams timely filed notice of appeal to the United States Court of Appeals for the
Fifth Circuit on 10 June 2002. We have jurisdiction under 28 U.S.C. § 158(d).
II.
We review the bankruptcy court’s findings of fact for clear error and conclusions of law de
novo. Hickman v. Texas (In re Hickman), 260 F.3d 400, 401 (5th Cir. 2001) (citing In re Mercer,
246 F.3d 391, 402 (5th Cir. 2001)). The interpretation of Section 523(a)(6) is a question of law and
is reviewed de novo. See id. (applying the de novo standard of review to the interpretation of Section
523(a)(7)). The bankruptcy court’s findings of fact may be reversed only if the reviewing court has
“‘the definite and firm conviction that a mistake has been made.’” Cotten v. Deasy, 2002 WL
31114061 *2 (N.D. Tex. 2002) (citing Matter of Allison, 960 F.2d 481, 483 (5th Cir. 1992)).
The United States Supreme Court has established guidelines for determining whether a debt
arises from a willful and malicious injury and, therefore, is excepted from discharge under Section
523(a)(6). See Kawaauhau v. Geiger, 523 U.S. 57, 59, 118 S.Ct. 974, 975-76, 140 L. Ed. 2d 90
(1998) (holding that Section 523(a)(6) does not except from discharge debts arising from negligently
5
or recklessly inflicted injuries). In Kawaauhau, the Court examined the language of Section 523(a)(6)
and concluded the provision applies to “acts done with the actual intent to cause injury,” but excludes
intentional acts that cause injury. Id. at 61, 118 S.Ct. at 977. “Willful,” as used in the provision,
“modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury,
not merely a deliberate or intentional act that leads to injury.” Id. The Court also noted that the
language of Section 523(a)(6) mirrors the definition of an intentional tort, which requires an actor
to “intend ‘the consequences of an act,’ not simply ‘the act itself.’” Id. at 61-62, 118 S.Ct. at 977
(citing Restatement (Second) of Torts § 8A, cmt. a (1964) and adding emphasis).
Applying the Supreme Court’s pronouncement that Section 523(a)(6) requires actual intent
to cause injury, the Fifth Circuit has held that for a debt to be nondischargeable, a debtor must have
acted with “objective substantial certainty or subjective motive” to inflict injury. Miller v. J. D.
Abrams, Inc. (In re Miller), 156 F.3d 598, 603 (5th Cir. 1998). Despite similarities in the language
used to describe an injury under Section 523(a)(6) and intentional torts, Section 523(a)(6) creates a
narrower category of tortious conduct. Id. at 604 (noting, “Merely because a tort is classified as
intentional does not mean that any injury caused by the tortfeasor is willful.”).
Turning to the meaning of “malicious,” the Miller court concluded Section 523(a)(6) creates
an “implied malice standard.” Id. at 605. A debtor acts with implied malice when he acts “with the
actual intent to cause injury.” Id. at 606 (citation omitted). This definition of implied malice is
identical to the Kawaauhau Court’s explanation of a willful injury. Id. (citing Kawaauhau, 533 U.S.
at 61-62, 118 S.Ct. at 977). The test for willful and malicious injury under Section 523(a)(6), thus,
is condensed into a single inquiry of whether there exists “either an objective substantial certainty of
harm or a subjective motive to cause harm” on the part of the debtor. Id. See also Texas v. Walker,
6
142 F.3d 813, 823 (5th Cir. 1998) (stating “‘for willfulness and malice to prevent discharge under
Section 523(a)(6), the debtor must have intended the actual injury that resulted . . . . ‘Intent to injure
may be established by showing that the debtor intentionally took action that necessarily caused, or
was substantially certain to cause, the injury.’” (citing In re Delaney, 97 F.3d 800, 802 (5th Cir.
1996)).
The Kawaauhau Court rejected a broader construction of Section 523(a)(6) that would make
debts from intentional acts that cause unintended or unanticipated injuries nondischargeable in
bankruptcy. Id. at 62, 118 S.Ct. 977. Such an interpretation would be contrary to the notion that
exceptions to discharge “‘should be confined to those plainly expressed.’” Id. (citing Gleason v.
Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 289, 59 L.Ed. 717 (1915)). As an example of an intentional
act resulting in unintended or unanticipated injury, the Court cited a knowing breach of contract. Id.
With this brief mention of a knowing breach of contract, the Kawaauhau opinion seems to reject the
proposition that a debt arising from a knowing breach of contract is a willful and malicious injury
excepted from discharge.
The holdings in Kawaauhau, Miller, and Walker indicate that a debtor m ust commit an
intentional or substantially certain injury in order to be deprived of a discharge. A debt is not
excepted from discharge if the debtor has committed a willful or knowing act. The dischargeability
of Williams’s two debts to the Union, therefore, depends upon the intentional or certain nature of the
injury Williams inflicted upon the Union when he breached the CBA and defied the Agreed Judgment.
7
III.
Williams seizes upon the reference to a knowing breach of contract in Kawaauhau and urges
this court to adopt a construction of Section 523(a)(6) t hat would render nondischargeable only
contractual debts accompanied by separate tortious conduct. Because the debts resulted from
breaches o f the Union contract, Williams contends the debts are not within the scope of Section
523(a)(6) and should be discharged. The Union posits that the Fifth Circuit’s application of
Kawaauhau compels a finding of nondischargeability because Williams was substantially certain that
his failure to abide by the CBA and the Agreed Judgment would cause injury.
The Fifth Circuit has acknowledged that a breach of contract may involve an intentional or
substantially certain injury. See Walker, 142 F.3d at 823 (1998); Miller, 156 F.3d at 606. In Walker,
the debtor committed the tort of conversion by keeping professional fees instead of remitting them
to his employer, the University of Texas, in violation of his employment contract. Walker, 142 F.3d
at 824. The court found that Section 523(a)(6) did not prevent discharge of the debt. The record
did not show that the debtor, who admitted his acts were intentional, understood his contractual
obligations and knowingly retained professional fees with the intent of depriving his employer of
revenue. Id. The Walker court did note, “[i]f a factfinder were to decide that [the debtor] knew of
his obligations under the . . . contract . . . then [a factfinder] might also find that [the debtor]
knowingly retained his professional fees in violation of the [contract], an act which he knew would
necessarily cause the University’s injury. This, in turn, could result in a finding of ‘willful and
malicious injury.’” Id. Maintaining the distinction between an injury under Section 523(a)(6) and
an intentional tort, the Walker opinion did not find a willful and malicious injury was inflicted by the
8
debtor’s conversion of professional fees. Rather, Walker suggests that a knowing breach of a clear
contractual obligation that is certain to cause injury may prevent discharge under Section 523(a)(6),
regardless of the existence of separate tortious conduct.
Assessing the dischargeability of another employment-related debt, the Fifth Circuit held that
a debtor who misappropriated proprietary information and misused trade secrets could be precluded
from obtaining a discharge under Section 523(a)(6) if the debtor’s “actions were at least substantially
certain to result in injury” to his employer. Miller, 156 F.3d at 601, 606. Although the debtor’s
actions constituted larceny per se and were excepted from discharge by Section 523(a)(4), the court
remanded the case for a determination of the debtor’s intent or objective certainty to cause injury.
Id. at 606. Like Walker, the Miller decision suggests that the dischargeability of contractual debts
under Section 523(a)(6) depends upon the knowledge and intent of the debtor at the time of the
breach, rather than whether conduct is classified as a tort or falls within another statutory exception
to discharge.
Accepting that Section 523(a)(6) excepts contractual debts from discharge when those debts
result from an intentional or substantially certain injury, our inquiry now focuses upon the nature of
the injury Williams inflicted upon the Union. The record reflects that when Williams hired non-union
electricians in violation of the CBA, he was motivated by a desire to complete the Eckerd project and
to save his business. Although Williams acted intentionally, he did not intend to injure the Union.
Whether Williams’s knowing breach of the CBA was substantially certain to injure the Union
is a more difficult call. At oral argument, counsel for the Union suggested that Williams was
substantially certain of three types of injury: injury to the Union electricians who were deprived of
employment, injury to the non-union electricians who were paid at a lower, non-union rate while
9
working for Williams, and injury to the Union’s prestige and its ability to enforce its contracts. The
record also indicates that Williams discontinued making payments to the Union pension and vacation
funds when he stopped using Union electricians in the fall of 1999. Of these alleged injuries, only one
was actually sustained by the Union itself. The deprivation of employment opportunities and the
failure to contribute to Union pension and vacation funds affected individual Union electricians. None
of the affected Union electricians, however, is a party to this suit. The payment of below-Union-scale
wages affected electricians without any connection to the Union; the Union cannot assert any injury
the non-union electricians sustained. The only direct injuries to the Union were to its prestige and
to its ability to uphold its contracts.
There is no indication in the record that Williams, by breaching the CBA, was substantially
certain the Union would sustain a blow to its prestige and its ability to uphold its contracts. Williams
did know Union electricians would be deprived of employment opportunities and concomitant salaries
and benefits if he hired non-union workers for the Eckerd and other commercial projects. Although
this injury was substantially certain to occur, it was not inflicted upon the Union.
To the extent that the debts to the Union were determined to be nondischargeable as
substantially certain injuries arising from violations of the CBA, we reverse the district court.
Although previous decisions by this circuit hold that injuries resulting from a knowing breach of
contract may be nondischargeable under Section 523(a)(6), those decisions also require explicit
evidence that a debtor’s breach was intended or substantially certain to cause the injury to the
creditor. There has been no showing of an intentional or substantially certain injury to the Union.
The issue of Williams’s violation of the Agreed Judgment and its treatment under Section
523(a)(6) remains.
10
IV.
Each party attempts to characterize Williams’s debts to the Union in a different manner.
Williams argues that because all of the damages were based upon violations of the CBA, both debts
should be considered contract damages. The Union, conversely, maintains that both debts should be
characterized as damages arising from the violation of the Agreed Judgment. The characterization
of the debts as resulting from breaches of the CBA or of the Agreed Judgment affects
dischargeability under Section 523(a)(6).
In its Judgment dated 25 April 2000, the district court found that Williams had purposefully
and willfully violated the Agreed Judgment of 14 December 1999. At the contempt hearing, Williams
admitted that he had notice of the Agreed Judgment and that it was clear and unambiguous, that he
had continued to use non-union electricians on commercial projects, and that he had not yet paid the
restitution for his earlier breach of the CBA. The district court found Williams in contempt and
imposed sanctions, which included attorney’s fees and additional restitution. A second audit was
performed for the period between the entry of the Agreed Judgment in December of 1999 and the
contempt hearing in April of 2000. This audit revealed Union electricians had been deprived of
$106,911.43 in wages and benefits when Williams hired non-union workers. From the record, it
appears that the attorney’s fees incurred in the contempt hearing are included in this figure.
At the discharge hearing, the bankruptcy court stated that the $106,911.43 constituted
damages from a willful and malicious injury. This amount was assessed against Williams for failing
to abide by the Agreed Judgment. The bankrupt cy court found that Williams had clearly violated
Section 523(a)(6) when he broke his promise to the district court to comply with the CBA. The fact
that this promise had been made by Williams to the district court and was sanctioned by the Agreed
11
Judgment and Decree elevated the injury to a willful and malicious level. As a sanction for contempt
of the district court’s order, the $106,911.43 was determined to be excepted from discharge.
Other bankruptcy courts have held that a contempt judgment against a debtor in bankruptcy
is immune from discharge under Section 523(a)(6). Failure to obey a court order constitutes willful
and malicious conduct, and a judgment against a defiant debtor is excepted from discharge. PRP
Wine Internat’l v. Allison (In re Allison), 176 B.R. 60, 64 (Bankr. S.D. Florida 1994) (denying
discharge to a debtor who continued to breach a non-competition clause in an employment agreement
after a state court issued a temporary injunction). Another bankruptcy court has explained:
. . . [W]hen a court of the United States . . . issues an injunction or other protective
order telling a specific individual what actions will cross the line into injury to others,
then damages resulting from an intentional violation of that order as is proven either
in the Bankruptcy Court or, so long as there was a full and fair opportunity to litigate
the questions of volition and violation, in the issuing court are ipso facto the result of
a “willful and malicious injury.”
This is because what is “just” or “unjust” conduct as between the parties has
been defined by the court . . . . An intentional violation of the order is necessarily
without “just cause or excuse” and cannot be viewed as not having the intention to
cause the very harm to the protected persons that order was designed to prevent.
Buffalo Gyn Womenservices, Inc. v. Behn (In re Behn), 242 B.R. 229, 238 (Bankr. W.D. N.Y.
1999).
While the Behn opinion deals specifically with the violation of an injunction, the Agreed
Judgment entered by the district court served a similar purpose of protecting the Union from further
breaches of the CBA. See id. at 238-39. The Agreed Judgment clearly and unambiguously informed
Williams that the use of non-union electricians on commercial projects was forbidden. Williams knew
of his obligations under the CBA, yet he knowingly violated those obligations. Even if Williams did
not intend to injure the Union, the Agreed Judgment made him substantially certain that his acts
12
would inflict injury. The bankruptcy court properly found t hat Williams’s violation of the Agreed
Judgment resulted in a willful and malicious injury.
Williams’s argument advocating discharge of the damages for contempt overlooks the fact
that the $106,911.43 assessed by the district court arose from Williams’s defiance of the Agreed Final
Judgment and Decree. Williams’s breach of the CBA after the entry of the Agreed Judgment is not
simply a failure to honor a contractual obligation; this breach is also a violation of a court’s order.
Contempt may be characterized as an act resulting in intentional injury. As such, the debt incurred
from the violation of the Agreed Judgment is nondischargeable under Section 523(a)(6).
The Union takes the position on appeal that the initial debt of $155,855.39 stems from the
contempt order and also should be excepted from discharge. The bankruptcy court held otherwise.
The $155,855.39 represents damages that preceded the entry of the Agreed Judgment. The
bankruptcy court declined to find that this debt constituted damages resulting from Williams’s
violation of the district court’s order. Instead, the bankruptcy court determined that the initial debt
resulted from the violation of the CBA and that there was no evidence that Williams intended to
violate a court order at the time this debt was incurred. The conclusion of the bankruptcy court is
not clearly erroneous. We agree that the initial debt arising from the breach of the CBA does not
qualify as a willful and malicious injury under Section 523(a)(6) and is therefore dischargeable.
V.
The bankruptcy court’s factual finding that the debts of $155,855.39 and $106,911.43 stem
from two different injuries supports the conclusion that these two debts must be treated differently
under Section 523(a)(6). Because there is no indication that Williams intended or was substantially
13
certain to injure the Union when he initially violated the CBA, we hold that the first debt of
$155,855.39 does not arise from a willful and malicious injury; Section 523(a)(6) does not except this
debt from discharge. We hold, furthermore, the second debt of $106,911.43 arises from the willful
and malicious injury Williams inflicted by refusing to obey the Agreed Judgment and is excepted from
discharge under Section 523(a)(6).
Accordingly, the decision of the district court is REVERSED in part and AFFIRMED in part.
14
CARL E. STEWART, Circuit Judge, concurring in part, dissenting in part:
One of the pivotal questions before the Court is whether the debt incurred by Williams in the
amount of $155,855.39 as a result of his breach of the co llective bargaining agreement is
nondischargeable under 11 U.S.C. § 523(a)(6). The bankruptcy judge held that the debt was
nondischargeable because it resulted from willful and malicious injury. The majority reverses that
determination, finding that the debt is subject to discharge because it does not arise from a willful and
malicious injury. For the following reasons, I concur in part and dissent in part with respect to the
majority’s determination.4 Prior to determining whether Williams’s breach of the collective
bargaining agreement resulted from willful and malicious conduct, the majority was faced with the
question of whether a knowing breach of contract, unaccompanied by an independent intentional tort,
falls within the exception to discharge under § 523(a)(6). The majority held that a debt arising out
a knowing breach of contract is subject to exception to discharge under §523(a)(6) when the debt
results from an intentional or substantially certain injury. I concur in the majority’s holding, which,
in my view flows naturally from the language of § 523(a)(6) and this Court’s interpretation of the
statute.
Section 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.” In Kawaauhau v. Geiger, the Supreme
Court held that a “willful and malicious injury” results from an act done with the actual intent to cause
4
I also concur in the majority’s determination that the debt arising from Williams’s violation of the
Agreed Judgment in the amount of $106,911.43 is nondischargeable.
15
injury.5 523 U.S. 57, 61 (1998). In Texas v. Walker, we stated that an “intent to injure may be
established by a showing that the debtor intentionally took action that necessarily caused, or was
substantially certain to cause, the injury.” 142 F.3d 813, 823 (5th Cir. 1998) (quoting In re Delaney,
97 F.3d 800, 802 (5th Cir. 1996)). Thus, if a debtor acts with an actual intent to cause injury, the
debt is nondischargeable under § 523(a)(6), notwithstanding that the underlying indebtedness may
have derived from a contractual relationship between the parties.
I agree wit h the majority that the inquiry for determining whether a debt is excepted from
discharge should focus on the nature of the conduct – whether the debt arose out a willful and
malicious injury - and not on whether the conduct is accompanied by an independent tort. 6 This
Court’s decision in Walker supports this view. In Walker, the State of Texas brought suit against a
university professor for conversion and breach of contract alleging that he improperly retained
professional fees in violation of his contract with the university. Although the defendant admitted that
5
In Geiger, the Supreme Court, in determining the scope of the willful and malicious injury
exception, noted that the § 523(a)(6) “formulation triggers in the lawyer’s mind the category ‘intentional
torts,’ as distinguished from reckless torts.” 523 U.S. at 61. The Supreme Court further noted that ‘intentional
torts generally require that the actor intend ‘the consequences of an act,’ not simply ‘the act itself.’” Id. at 61-
62. The Supreme Court rejected the petitioner’s encompassing interpretation of § 523(a)(6) that would make
debts from intentional acts that cause unintended or unanticipated injuries nondischargeable in bankruptcy.
Id. The Supreme Court cited “a knowing breach of contract” as an example of conduct that would fall within
this category. Thus, section 523(a)(6) has been interpreted as generally applying to intentional torts and not
to contracts.
6
I should note that this conclusion has been rejected by the Ninth Circuit. In In re Riso, a pre-Geiger
decision, the Ninth Circuit h eld that “a simple breach of contract is not the type of injury addressed by §
523(a)(6)” and that “an intentional breach of contract is excepted from discharge under § 523(a)(6) only when
it is accompanied by malicious and willful tortious conduct.” 978 F.2d 1151, 1154 (9th Cir. 1992) (emphasis
added). In In re Jerich, a post-Geiger decision, the Ninth Circuit again held that “although § 523(a)(6)
generally applies to torts rather than to contracts and an intentional breach of contract generally will not give
rise to a nondischargeable debt, where an intentional breach of contract is accompanied by tortious conduct
which results in willful and malicious injury, the resulting debt is excepted from discharge under § 523(a)(6).”
238 F.3d 1202, 1205 (9th Cir. 2001) (emphasis added). In In re Colcazier, the Bankruptcy Court for the
Western District of Oklahoma also held that that § 523(a)(6) exempts from discharge only damages from
tortious breaches of contract. 134 B.R. 29, 33 (Bankr. W.D.Okl. 1991) (emphasis added).
16
he acted intentionally when he kept the professional fees, the district court determined that the fees
were dischargeable under § 523(a)(6) because it found that “Walker’s retention of his professional
fees was an innocent and technical act, rather than a willful and malicious injury.” 142 F.3d at 824.
This Court reversed the district court’s determination because it found that an “issue of fact exists
regarding whether Walker was aware of his obligations under the contract and nonetheless knowingly
kept his professional fees with the intent of depriving the University of money owed to it.” Id. The
Court remanded the case with the following instruction: “If a fact finder were to decide that Walker
knew of his obligations under the [] contract and its by-laws, either at the time he signed the contract
or received the November 1990 memorandum, then it might also find that Walker retained his
professional fees in violation of the [contract], an act he knew would cause the University injury.”
Id. In Walker, this Court focused on the willful and malicious nature of the university professor’s
conduct in breaching his contract with the university. Thus, in line with Walker and the plain
language of the statute, I concur in the majority’s holding that § 523(a)(6) excepts contractual debts
from discharge when those debts result from an intentional or substantially certain injury.
I respectfully dissent, however, from the majority’s conclusion that Williams’s intentional
breach of the collective bargaining agreement was not substantially certain to cause injury to the
Union. The bankruptcy judge found that by breaching the collective bargaining agreement, Williams
was substantially certain that he would deprive union electricians of employment opportunities and
concomitant benefits. Specifically, the bankruptcy judge stated that “it’s clear through his testimony,
Mr. Williams took the action in the fall of ‘98 of simply deciding to ignore the contract and not calling
the Union hall any more and to use non-Union workers to finish the Union jobs in violation of his
contract . . . and he did so at a time in which he knew that doing so would deprive Union workers
17
of jobs and benefits and that he knew that would be an injury.” It should be noted that neither party
contests the bankruptcy judge’s factual findings. In fact, Williams’s counsel specifically conceded
during oral argument that he did not disagree with the bankruptcy judge’s factual findings regarding
the injury to the Union. Moreover, Williams’s testimony is proof that he was substantially certain that
injury would result from his breach of the collective bargaining agreement:
Q. . . .by not contacting the Union hall, you knew that electricians would,
therefore, not have the opportunity - - - electricians from the Union
Hall would not have the opportunity to work for you.
A. True.
Q. Now, when you ceased - - when you decided to cease following the
Union contract, you also ceased paying the Union scale. Isn’t that
true?
A. Yes.
Q. And you unilaterally set a lower wage scale for most of your hands.
Correct?
A. Yes, back to the open shop scale.
Q. All right. And approximately, on the average, how much lower was
the wage scale that you began paying when you ceased using the
Union contract?
A. Maybe 10 to 12 an hour.
Q. All right. And the Union - - under the Union contract, the wage scale
for a journeyman was around 20 an hour, wasn’t it?
A. Yes, sir.
Q. And so the electricians that worked for you after you ceased honoring
the Union contract were being paid by you 10 to $12 an hour instead
of approximately $20 an hour as is called for in the Union contract.
A. Yes . . .
Q. Okay. So I want to understand your question. When you stopped
following the Union contract you also ceased contributing to the
Union pension fund, didn’t you?
A. I had paid everything in as per the agreement while I was using the
Union workers.
Q. All right.
A. After that it all ceased, yes.
Q. You ceased paying - - all right. And so you knew that - - when you
ceased using the Union contract and you ceased paying into the Union
pension plan you knew that the workers who were working for you
18
would not be accruing any pension benefits under the Union pension
plan. You knew that, didn’t you?
A. Yes.
Q. You also ceased contributing to the Union vacation fund. Correct?
A. Yes.
Q. And you knew that the workers would therefore no longer be accruing
any benefits under that.
A. Yes.
In my view, the bankruptcy judge’s factual findings determine the resolution of this issue. The
majority’s attempt to find error in the bankruptcy judge’s factual findings by separating the harm
suffered by the union-workers from the Union is completely unpersuasive. In this case, Williams
breached the collective bargaining agreement that he entered into with the Union; and, by doing so,
he was subst antially certain that the Union and its members would be injured. As the bankruptcy
judge stated “[Williams] took actions that he knew were wrong, and he knew that there was a
substantial certainty that the actions would result in harm to the Union, since he just admitted to the
Court that the same thing he had done before that time had [] that effect.” Because I conclude that
the Union was injured when its members were deprived of employment opportunities and
concomitant benefits by Williams hiring of nonunion labor, I would affirm the bankruptcy court’s
determination that the $155,855.39 was nondischargeable.
19
Williams v. IBEW Local 520
Combined Opinion