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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-14939
________________________
D.C. Docket No. 3:15-cv-00131-BJD,
Bkcy No. 3:09-bkc-07291-PMG
In Re: JON PHILIP MONSON, II,
Debtor.
_____________________________________________________
JON PHILIP MONSON, II,
Plaintiff-Appellant,
versus
ALFRED GALAZ,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_______________________
(November 21, 2016)
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Before TJOFLAT and HULL, Circuit Judges, and MENDOZA, * District Judge.
PER CURIAM:
Appellant Jon Philip Monson, II, (the “Debtor Monson”) appeals from a
final order of the U.S. District Court for the Middle District of Florida which
affirmed the judgment of the Bankruptcy Court for the Middle District of Florida
(the “Bankruptcy Court”). The Bankruptcy Court determined that $117,950 of the
debt that Debtor Monson owes to Appellee Alfred Galaz (the “Claimant Galaz”) is
nondischargeable pursuant to 11 U.S.C. § 523(a)(6). After review and oral
argument, we affirm.
I. BACKGROUND
A. The Parties’ Agreement and Pre-Bankruptcy Dealings
Claimant Galaz’s son is Raul Galaz. Debtor Monson and Raul Galaz met in
federal prison in 2003. After they were released, Raul Galaz and Debtor Monson
discussed partnering for a business venture—opening an Internet café in
Hillsborough County, Florida. 1
On October 11, 2007, Debtor Monson and Creditor Segundo Suenos, LLC
(“Creditor Segundo”) entered into a Letter Agreement (the “Agreement”), which
*
Honorable Carlos Eduardo Mendoza, United States District Judge, for the Middle District of
Florida, sitting by designation.
1
During the proceedings below, the parties insisted that such cafes are legal enterprises. The
district court pointed out that the cafes typically offer games which have been characterized as
“fringe gambling” and “straddle[] the line between permissible and impermissible.”
2
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provided that Segundo would loan Monson $130,000 for the “funding, creation and
management of an internet center” (the “Center”). Claimant Galaz signed on
behalf of Segundo. 2
The Agreement between Debtor Monson and Creditor Segundo provided
that the Center would “substantially rely[] on the use of sweepstakes participation
in order to market its business.” The Agreement stated that Monson’s “intent is to
form a limited liability company, under the name ‘Internet Depot, LLC,’ in which
[Monson is] the sole member (i.e., owner).” It further provided that Monson
would personally manage “all aspects of the Center” on a full-time basis.
In consideration for the loan, Creditor Segundo would receive 40% of the
Center’s profit after Segundo recouped its loan in full. The Agreement provided
that, in the event that the Center was not profitable or the parties otherwise agreed
to terminate the business, “all material assets will be liquidated and first used to
pay back any unrecouped portion of the loan[.]” To this end, Segundo was
“entitled to file . . . any documents necessary to preserve a lien upon all equipment,
fixtures, and assets of the Center.” Debtor Monson agreed to “execute all
documents presented to [him] in order to establish a lien upon such equipment,
2
According to Raul Galaz, Segundo was a “wholly-owned entity” of Claimant Galaz. In
addition, Claimant Galaz is listed as the “managing member” of Segundo on Debtor Monson’s
bankruptcy filing.
After Debtor Monson filed for bankruptcy, Claimant Galaz purchased Segundo’s claim against
Monson. But because the underlying debt documents refer to Segundo, we refer to “Creditor
Segundo” where appropriate throughout this factual background.
3
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fixtures, and assets of the Center[.]” Additionally, the Agreement provided that
“all significant equipment or fixtures” must bear a label “reading words to the
affect [sic] of ‘Equipment owned by Segundo Suenos, LLC, on lease to Internet
Depot, LLC.’”
The Agreement gave Segundo “free access” to all of the Center’s records
and required Segundo’s approval for “[a]ny material decisions relating to the
Center,” such as the selection of vendors, the hiring of employees, and the signing
of contracts. The Agreement provided that the parties jointly agreed not to open or
be involved with “any additional sweepstakes Centers without the consent of the
other party” and that, if the parties were to open additional centers, the
Agreement’s terms would apply.
Debtor Monson used the money he obtained from Creditor Segundo to buy
computers, telephones, and other equipment needed to run the Center. He also
oversaw the build-out of the Center’s premises, which took three to four months.
In February 2008, the Center opened for business.
Raul Galaz testified that Segundo obtained a valid security interest in the
equipment, as evidenced by a Florida Uniform Commercial Code Financing
Statement Form (a “UCC-1” form). The UCC-1 form is stamped “FILED” on
February 18, 2008, but does not bear any signatures.
4
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On April 21, 2008, law enforcement raided the Center and seized
substantially all of its assets, based on allegations that the Center was engaged in
illegal online gaming. During this raid, according to Debtor Monson, the
equipment was mishandled and damaged. Monson was arrested, but he was never
formally charged. In late August or early September of 2008, while the equipment
was still in the possession of law enforcement, Debtor Monson received notice that
Creditor Segundo wished to terminate its interest in the Center and was demanding
liquidation of the Center’s assets to repay the loan. 3 On September 12, 2008,
Debtor Monson entered into an agreement with law enforcement that permitted
Monson to retrieve the seized equipment. As part of this deal with law
enforcement, Monson agreed to remove all of the equipment from Hillsborough
County, Florida, and further agreed that he would not own, manage, or otherwise
be involved in “any type of gambling activities in Hillsborough County [including]
. . . computer based sweepstakes games . . . or other computer based game
promotions.”
3
In its memorandum opinion in this case, the Bankruptcy Court wrote that: “In August of 2008,
Segundo wrote a letter to [Monson] claiming that [Monson] had defaulted under the terms of the
Letter Agreement, and stating in part:
For the foregoing reasons, Segundo Suenos hereby demands that all material
assets of the Center be liquidated at this time in order to pay back the unrecouped
portion of the loan made to you, i.e., $130,000, and Segundo Suenos hereby
notifies you of its desire to immediately terminate its interest in the Center.
The Bankruptcy Court cited Plaintiff’s Trial Exhibit 35 in support of this evidence, but this
exhibit is so poorly copied as to be largely illegible. Raul Galaz, however, read this portion of
the letter into evidence at trial. Debtor Monson admitted having received this “Termination
Letter” and/or a “Termination Agreement” from Segundo on August 28, 2008.
5
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In October 2008, Debtor Monson and a partner formed a new entity,
Southern Investments of Jacksonville, LLC (“Southern Investments”) for the
purpose of carrying on the business of operating computer sweepstakes games.
Monson leased the Center’s equipment to Southern Investments, which then used
the equipment to open another internet center in Jacksonville, Florida. The lease
agreement between Monson and Southern Investments acknowledged that the
equipment formerly belonged to Internet Depot and that Segundo “has asserted a
lien interest against the subject property which is purportedly secured by a UCC
Financing Statement.” The Jacksonville internet center opened in February 2009.
Segundo alleged that Debtor Monson “absconded” with the equipment and
opened this new business without Segundo’s knowledge or consent. Further,
according to Raul Galaz, Segundo had no knowledge of the deal Monson struck
with law enforcement and had no idea what happened to the assets after they were
retrieved from law enforcement, as Monson had simply disappeared and refused to
return Galaz’s calls or emails.4
For his part, Debtor Monson testified that, once he received notice of
Segundo’s intent to terminate the Agreement, he believed the “entire agreement
was over, finished, and done with.” He did not think Segundo had a valid security
4
The parties dispute whether Raul Galaz/Segundo had knowledge that Monson had moved,
along with the Center’s equipment, to Jacksonville. At trial, Debtor Monson admitted that
Segundo never gave him permission to use the equipment to set up a new business in
Jacksonville.
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interest in the equipment because he had no knowledge of the UCC-1 until after his
arrest and he never signed any lien documents. He felt that, while Segundo had
“claims” to the equipment, both he and other creditors of Internet Depot had claims
to it as well. He believed that the equipment belonged to his business, Internet
Depot, because it was purchased by Internet Depot. While Monson acknowledged
that Segundo loaned him money, he testified that Segundo was “well aware of the
fact . . . that this was a high-risk business. We all knew going into this thing we
could get shut down. Which unfortunately, in my case, we were open 61 days and
we were shut down. They knew the risk going in.”
B. The Texas State Court Action
On February 18, 2009, Creditor Segundo filed a complaint against Debtor
Monson in Texas state court, alleging breach of the Agreement and other state-law
claims. On June 16, 2009, Debtor Monson and Creditor Segundo entered into a
“Rule 11 Agreement” in the Texas state court case whereby Monson agreed to
produce the equipment by July 30, 2009. The last item of that agreement read,
“Remedy for Failure: Judgment for full amount of the claim: $130,000.” The
terms of this agreement were formally entered as an order in the Texas proceeding
on August 19, 2009. On February 4, 2010, the Texas court entered an “Order
Granting Seizure and Turnover of the Equipment,” directing Monson to turn over
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certain listed equipment to Segundo by February 16, 2010.5 The Texas state court
action was removed to federal court and then transferred to the Florida Bankruptcy
Court shortly thereafter.
On August 11, 2010, the Bankruptcy Court granted Monson’s motion to turn
over the equipment to Segundo, and the equipment was shipped to Segundo later
that month. 6 According to an appraisal obtained by Monson, the value of the
equipment as of August 1, 2009, was $12,050.
C. The Bankruptcy Action
On August 31, 2009, Debtor Monson filed for Chapter 7 bankruptcy. On
December 4, 2009, Creditor Segundo filed an adversary proceeding in Monson’s
bankruptcy case.
In April 2011, Claimant Galaz purchased Segundo’s claim against Monson.
On June 2, 2011, the Bankruptcy Court substituted Claimant Galaz and Raul Galaz
(the “Galaz Plaintiffs”) for Creditor Segundo as plaintiffs in the adversary
proceeding.
In July 2011, Claimant Galaz and Raul Galaz, as successors-in-interest to
Creditor Segundo, filed a Second Amended Complaint against Debtor Monson.
5
While Segundo claims that the Texas court issued an opinion from the bench on August 21,
2009, directing judgment against Monson, there is no transcript from this hearing and the court’s
formal order was not entered until February 4, 2010.
6
According to the trial evidence, a bankruptcy court in Texas immediately seized these assets
and sold them to a buyer: Monson.
8
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The complaint raised three counts. First, the Galaz Plaintiffs alleged that Monson
obtained moneys and properties from Segundo by false pretenses, false
representation and/or fraud and, thus, these debts were nondischargeable under 11
U.S.C. § 523(a)(2) (Count I). Second, the Galaz Plaintiffs alleged that:
(1) Monson’s actions constituted “fraud or defalcation while acting in a fiduciary
capacity” (the “fiduciary claim”); and (2) Monson embezzled the Center’s assets
after the Texas court ordered their return to Segundo and, thus, these debts were
nondischargeable under 11 U.S.C. § 523(a)(4) (Count II). Finally, the Galaz
Plaintiffs alleged that Monson maliciously and willfully injured Segundo by
“converting the Internet Center Assets for his own personal advantage” and, thus,
these debts were nondischargeable under 11 U.S.C. § 523(a)(6) (Count III).
Monson answered, denying the operative allegations in the complaint and
asserting eight affirmative defenses.
In July 2012, the Bankruptcy Court dropped Raul Galaz as a named party in
the adversary proceeding based on its finding that Raul Galaz no longer had a
personal stake in the outcome of the proceeding. The Bankruptcy Court allowed
Claimant Galaz to continue as a named party.
Both Debtor Monson and Claimant Galaz filed motions for summary
judgment, which the Bankruptcy Court granted in Monson’s favor as to the
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fiduciary claim but denied in all other respects. On October 23, 2014, the
Bankruptcy Court held a one-day bench trial.
On January 9, 2015, the Bankruptcy Court entered its Memorandum
Opinion. The Bankruptcy Court explained that, while Creditor Segundo filed the
complaint in 2009 to determine the dischargeability of the debt owed by Debtor
Monson under the Agreement, the Galaz Plaintiffs were “substituted for Segundo
as the plaintiffs” in June 2011, and, as of July 2012, Claimant Galaz was the sole
named plaintiff in the action.
Turning to the issue of nondischargeability, the Bankruptcy Court noted that,
while the “fundamental purpose of the Bankruptcy Code is to afford financial relief
to honest but unfortunate debtors,” the exceptions to discharge contained in
Section 523(a) of the Code “prevent a debtor from avoiding the consequences of
his wrongful conduct by filing a bankruptcy case.” The Bankruptcy Court further
explained that a creditor objecting to the dischargeability of the debt under
§ 523(a) bears the burden of proof.
As to Count I, the Bankruptcy Court explained that, to establish a claim
under § 523(a)(2)(A), a creditor must show that, at the time the promise was made,
the debtor knew that he could not fulfill the promise or had no intention of
fulfilling the promise. The Bankruptcy Court determined that the evidence here
did not establish “that the Debtor [Monson] intended to deceive Segundo at the
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time that he signed the Letter Agreement and obtained the loan.” The Bankruptcy
Court pointed out that Monson performed “a number of his obligations” under the
Agreement, including overseeing the construction and management of the Center,
and that the Center opened for business four months after the Agreement was
signed. The Bankruptcy Court held, however, that the evidence did not establish
that Monson withheld the Center’s financial information from Segundo, that he
took unauthorized draws from the loan proceeds, or that he refused to sign the
documents necessary to perfect Segundo’s interest in the equipment. Therefore,
the Bankruptcy Court held, the evidence did not establish that the debt owed to
Claimant Galaz, as successor-in-interest to Creditor Segundo, was
nondischargeable as a debt for fraud under § 523(a)(2).
As to Count II, the Bankruptcy Court explained that, to establish a claim
under § 523(a)(4) for embezzlement, Claimant Galaz, as successor-in-interest to
Creditor Segundo, must show that Segundo owned the property that was taken and
that Monson took it with fraudulent intent. The Bankruptcy Court determined that
the evidence did not establish embezzlement for two reasons. First, the evidence
demonstrated that Monson believed that Internet Depot owned the equipment and
that no valid security agreement was ever signed, the financing statement was
deficient, and Segundo’s security interest was therefore invalid. Second, the
evidence did not establish that Segundo was the owner of the Center’s equipment
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or that Monson ever believed that Segundo held a valid security interest in the
equipment after it was retrieved from law enforcement. Thus, the Bankruptcy
Court held that the evidence did not establish that the debt owed to Claimant
Galaz, as successor-in-interest to Creditor Segundo, was nondischargeable under
§ 523(a)(4).
As to Count III, dealing with nondischargeability under § 523(a)(6) for
“willful and malicious injury,” the Bankruptcy Court first wrote that “a debtor
must commit some type of intentional tort directed against the claimant or his
property” for a debt to be nondischargeable. Further, the injury must be both
“willful, meaning that the injury itself was intended, and malicious, meaning that
the debtor was conscious of his wrongdoing.” The Bankruptcy Court determined
that the evidence showed that Debtor Monson “knew that he damaged Segundo’s
right to recover its loan when he removed the Center’s assets from Hillsborough
County to Jacksonville, Florida, and used the assets in a new business created with
a new business partner.”
In reaching this conclusion, the Bankruptcy Court relied on specific record
facts, which it summarized as follows:
(1) [Monson] received a $130,000.00 personal loan from Segundo to
open the Center; (2) [Monson] agreed to liquidate the Center’s assets
to repay Segundo if the Center was not profitable; (3) [Monson] knew
that Segundo intended to enforce its right to repayment of the loan
from the Center’s assets; (4) within two months after Segundo
asserted its right to repayment from the Center’s assets, [Monson]
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entered into an agreement with a new partner to open an internet
center in a different location using the Center’s assets; and
(5) [Monson] actually opened the new business without notifying
Segundo that the Center’s equipment had been relocated.
In sum, the Bankruptcy Court found that Debtor Monson’s conduct constituted a
willful and malicious injury to Creditor Segundo within the meaning of § 523(a)(6)
because Monson injured Segundo’s right to recover its loan, the injury was
intended, and Monson was conscious of his wrongdoing. Thus, the debt was
nondischargeable under § 523(a)(6).
The Bankruptcy Court then proceeded to calculate the amount of the
nondischargeable debt as the original loan amount of $130,000, less the value of
the equipment that was returned to Segundo in 2010, yielding a total figure of
$117,950. The Bankruptcy Court wrote that it reached this conclusion for two
reasons. First, it was consistent with the purpose of § 523(a), which is to prevent
debtors from avoiding the consequences of their wrongful conduct. In such
situations, the Bankruptcy Court determined, it was appropriate for all debts arising
from the willful or malicious act to be nondischargeable and that “excepting
punitive damages from discharge under § 523(a)(6) is not inconsistent with the
Bankruptcy Code’s ‘fresh start’ policy[.]” Second, the Bankruptcy Court
determined that Monson had “stipulated in a separate state court action that the
amount of the damages for his failure to return the equipment to Segundo was
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$130,000.” In support, the Bankruptcy Court pointed to the June 16, 2009 Rule 11
Agreement that the parties signed in the Texas state court action.
Thus, in its Final Judgment, the Bankruptcy Court entered judgment in favor
of Debtor Monson on Counts I and II, concluding that “the debt owed by the
Debtor [Monson] to Alfred Galaz is not nondischargeable pursuant to § 523(a)(2)
or § 523(a)(4) of the Bankruptcy Code.” As to Count III of the complaint, the
Bankruptcy Court entered judgment “in favor of the Plaintiff, Alfred Galaz, and
against the Debtor [Monson],” and directed that $117,950 of the debt was
nondischargeable under § 523(a)(6) of the Bankruptcy Code.
D. District Court Proceedings
Debtor Monson appealed the Bankruptcy Court’s order to the district court,
arguing that the Bankruptcy Court erred in deciding that he committed a willful
and malicious injury under § 523(a)(6). Claimant Galaz, as successor-in-interest to
Creditor Segundo, cross-appealed, arguing that Monson did in fact commit fraud
and embezzlement, as defined in 11 U.S.C. § 523(a)(2) and (a)(4), and that the
Bankruptcy Court erred in ruling that Monson did not.
The district court held that the Bankruptcy Court’s factual findings as to the
§ 523(a)(2) and (a)(4) counts were not clearly erroneous. Turning to the
§ 523(a)(6) count, the district court pointed out that Monson did not challenge the
Bankruptcy Court’s enunciated factual findings with respect to § 523(a), and it
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concluded that these findings were “well-supported” by the record. Thus, the
district court did not revisit these factual findings, but limited its review to whether
“the pertinent willful and malicious acts are the type contemplated by § 523(a)(6)
to render a debt nondischargeable.”
The district court held that, while the Bankruptcy Court erred in finding that
tortious conduct is a necessary prerequisite for a finding of nondischargeability
under the section, such conduct is “certainly one avenue available to a bankruptcy
court in establishing nondischargeability.” And while the Bankruptcy Court did
not enunciate which tort it relied on in reaching its conclusion, the district court
held that, in any event, “Monson’s actions injured Segundo because those actions
deprived Segundo of access to the collateral, and such injury was substantially
likely to occur.”7
The district court rejected Monson’s argument that his actions were an
“efficient breach of the contract” under 11 U.S.C. § 365(a) because § 365(a)
requires court approval, which Monson did not show here. The district court also
approved of the damages amount calculated by the Bankruptcy Court, writing that
case law supported a punitive damages award and that the Bankruptcy Court
7
In support, the district court cited In re Garcia, 442 B.R. 848 (Bankr. M.D. Fla. 2011), and In re
Giffen, 195 B.R. 951 (Bankr. M.D. Fla. 1996), which stand for the proposition that the sale of
“collateral” without notice to the “lienholder” gives rise to an exception to discharge under
§ 523(a)(6). The district court wrote that it was “aware” of the Bankruptcy Court’s finding that
Monson believed Segundo’s security interest was not valid, but that the validity of the interest
did not change its analysis.
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properly considered the parties’ stipulated damages amount of $130,000.
Therefore, the district court affirmed the Bankruptcy Court’s Opinion and Final
Judgment.
Monson, alone, has appealed the district court’s determination to this Court.
II. STANDARD OF REVIEW
We review a bankruptcy court’s findings of fact for clear error. In re Kane,
755 F.3d 1285, 1288 (11th Cir. 2014). Where the district court has affirmed the
bankruptcy court’s findings, we apply this clearly erroneous standard with
“particular rigor.” Id. We review conclusions of law, whether from the
bankruptcy court or the district court, de novo. In re Jennings, 670 F.3d 1329,
1332 (11th Cir. 2012). Because a bankruptcy court’s determination that an injury
was “willful and malicious” is a factual finding, “on appeal, we review de novo
any legal interpretation of the terms ‘willful’ and ‘malicious,’ but we review only
for clear error the bankruptcy court’s finding that a creditor showed a willful and
malicious injury by a preponderance of the evidence.” Kane, 755 F.3d at 1293.
III. DISCUSSION
A. Section 523(a)(6)
“A Chapter 7 debtor is generally entitled to a discharge of all debts that
arose prior to the filing of the bankruptcy petition. But this ‘fresh start’ policy is
only available to the ‘honest but unfortunate debtor.’” Kane, 755 F.3d at 1292
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(citation omitted). To this end, Congress enacted several exceptions to the general
rule of discharge. Id. One of those exceptions is contained in § 523(a)(6), which
excepts from discharge 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).
This Court has explained that a debtor commits a “willful” injury when “he
or she commits an intentional act the purpose of which is to cause injury or which
is substantially certain to cause injury.” Kane, 755 F.3d at 1293 (quoting Jennings,
670 F.3d at 1334); see also Kawaauhau v. Geiger, 523 U.S. 57, 61–62, 118 S. Ct.
974, 977 (1998) (holding that § 523(a)(6) requires the actor to intend the injury,
not just the act that leads to the injury). We have determined that “malicious”
means “wrongful and without just cause or excessive even in the absence of
personal hatred, spite or ill-will.” Jennings, 670 F.3d at 1334 (quotation marks and
citation omitted). For the purposes of § 523(a)(6), “malice can be implied.” Kane,
755 F.3d at 1294 (internal brackets, quotation marks, and citation omitted).
“Constructive or implied malice can be found if the nature of the act itself implies
a sufficient degree of malice.” In re Ikner, 883 F.2d 986, 991 (11th Cir. 1989).
Here, the Bankruptcy Court’s factual determinations are well supported by
the record evidence. The Bankruptcy Court did not err in finding that Claimant
Galaz, as successor-in-interest to Creditor Segundo, showed, by a preponderance
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of the evidence, that Monson committed a willful and malicious injury within the
meaning of § 523(a)(6). See Kane, 755 F.3d at 1293.
B. Willful Injury
Monson committed a willful injury because his action of absconding with
the Center’s equipment and using it to open a new internet center was an
“intentional act the purpose of which [was] to cause injury or which [was]
substantially certain to cause injury.” Kane, 755 F.3d at 1293.
Monson argues that applying this tort-like standard to breaches of contract
would “dramatically expand the number of nondischargeable debts and diminish
the scope of the bankruptcy discharge” and advocates that “tort or tort like actions”
are required for nondischargeability under § 523(a)(6). We have previously
considered and rejected this argument. See id. at 1295-96 (rejecting the debtor’s
argument that § 523(a)(6) requires an independent and additional showing of an
“intentional, tortious act” because (1) the statute contains no language calling for
an independent showing of tortious conduct, and (2) neither this Court nor the
Supreme Court has ever “introduced any such requirement”). In doing so, we cited
a case from the Fifth Circuit holding 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 separate tortious conduct.” Id. at 1295-96 (citing In re
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Williams, 337 F.3d 504, 510 (5th Cir. 2003)).8 The Fifth Circuit in Williams
explained 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[.]” 337 F.3d at 510.
Here, Monson received a Termination Letter and/or a Termination
Agreement from Segundo in late August or early September of 2008 that notified
him of Segundo’s intention to terminate the Agreement and demanded that he
return the Center’s assets or immediate liquidate them in order to repay the
$130,000 loan. Yet within just a few months, Monson used the Center’s
equipment to open a new internet center with a different partner in another part of
Florida. While there is conflicting evidence about whether Monson kept Segundo
informed of his new venture in Jacksonville, it is undisputed that Monson knew
Segundo was asserting its right to repayment of the loan and that Segundo never
sanctioned the new internet center in Jacksonville.
Further, although the parties hotly contest whether Segundo ever perfected
its security interest in the equipment and/or whether Monson was aware of such an
interest at the time the Center launched, Monson admits that he became aware of at
least a “purported” security interest after his arrest in April 2008. The evidence is
8
Further, as did the district court, we readily reject Monson’s argument that our reading of
§ 523(a)(6) conflicts with 11 U.S.C. § 365(a), which allows a trustee to assume or reject a
debtor’s executory contract “subject to the court’s approval,” because there was no such approval
here. See 11 U.S.C. § 365(a).
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also undisputed that, knowing of Segundo’s purported security interest, Monson
nevertheless retrieved the equipment, relocated it to a different part of the state,
and used it to open a new business, all without notice to, or permission from,
Segundo. Bankruptcy courts within this Circuit have held that, whether or not a
lienholder’s security interest is properly perfected or recorded, where the debtor
has knowledge of the lienholder’s claim and subsequently sells or disposes of the
property at issue without notice to the lienholder, that act constitutes a willful and
malicious injury under § 523(a)(6). See In re Garcia, 442 B.R. 848, 851-52
(Bankr. M.D. Fla. 2011); In re Giffen, 195 B.R. 951, 953-54 (Bankr. M.D. Fla.
1996).
Thus, Monson knew that his actions were at least substantially certain to
cause injury to Segundo’s ability to seek repayment of its loan.9
9
As we recently noted, our sister Circuits are split as to whether the “substantially certain” prong
of the standard requires a subjective or objective standard. Kane, 755 F.3d at 1293. However, as
in Kane, we need not address this issue here because even under the more stringent subjective
standard, the evidence supports the Bankruptcy Court’s finding that Monson intentionally
committed an act that he knew was substantially certain to injure Segundo. See id.
Moreover, in light of Kane, the Bankruptcy Court was incorrect that an “intentional tort” is
required for nondischargeability under § 523(a)(6). See id. Rather, all that is required is that
Monson’s behavior was “willful” and “malicious,” which the Bankruptcy Court found. Thus, the
Bankruptcy Court actually imposed a higher standard than what our case law requires, and it still
determined that his actions met that standard.
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C. Malicious Injury
Monson also committed a malicious injury because the injury was wrongful,
without just cause, and excessive. See Jennings, 670 F.3d at 1334. The very
nature of Monson’s actions implies a malefic intent. See Ikner, 883 F.2d at 991.
First, the Bankruptcy Court was free to imply malice because a
preponderance of the evidence suggests that Monson’s acts were “wrongful and
without just cause.” Kane, 755 F.3d at 1294-95. Monson consented in October
2007 to the provision in the Agreement that entitled Segundo to repayment of its
loan from a liquidation of the Center’s assets, he knew that Segundo was
attempting to terminate that Agreement and recoup the loan, and he nevertheless
relocated the equipment to another county and used it in a newly-formed business
without Segundo’s permission. While Monson stated at trial that he thought
Internet Depot was the rightful owner of the equipment, and that Segundo’s claims
were “questionable,” he admitted that he knew that the loan to Segundo was
outstanding and he appropriated the equipment anyway.
Monson makes various excuses for his behavior, including: (1) Segundo
knew what they were entering into a high-risk venture, and so once their business
got closed down by law enforcement, the Agreement between them became null
and void; (2) other creditors had claims or potential claims against the equipment;
(3) Segundo never owned or had a valid security interest in the equipment;
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(4) Segundo did not assist Monson in retrieving the equipment from law
enforcement; and (5) Segundo did not adequately protect its collateral.10 But these
excuses do not make Monson’s own conduct any less willful or malicious. The
collapse of the business did not relieve Monson of the contractual obligations
which he entered into or give him carte blanche to make off with equipment he
bought with someone else’s money. Demonstrably, Monson knew his actions
were wrongful and without just cause.
Further, Monson’s behavior falls outside of the sort of reckless or
unfortunate but non-malicious acts that this Court have previously held do not rise
to the standard of a willful and malicious injury under § 523(a)(6). See In re
Walker, 48 F.3d 1161, 1163-65 (11th Cir. 1995) (holding that the debtor’s
knowing act of failing to obtain workers’ compensation insurance, so that the
employer owed an employee a debt after the employee suffered a workplace injury,
was not the sort of “willful and malicious injury” required for nondischargeability
10
Monson’s reliance on our decision in In re Wolfson, 56 F.3d 52 (11th Cir. 1995) (holding that
a secured creditor’s failure to take reasonable steps to protect its collateral prevented application
of § 523(a)(6)’s exception to discharge), is misplaced. In Wolfson, two brothers ran a horse farm
(the “Farm”) and pledged various interests in horses as collateral on loans. 56 F.3d at 53. Five
of those loans went into foreclosure, but during this time, the Farm routinely deposited its
income, including proceeds from the sale of collateralized horses, into its general business
account and it paid the lender whatever it could on the loans on a monthly basis. Id. The lender
not only was aware of and failed to object to this practice, it continued to extend credit to the
Farm. Id. at 54-55. This Court concluded that the lender had failed to assert its rights as to the
disposition of the collateral and, thus, had waived its right to assert that its claim was
nondischargeable under § 523(a)(6). Id. at 55. This case is distinguishable because Segundo
never acquiesced in Monson’s use of the assets to open another business and the record contains
at least some evidence that, after the seizure, Segundo took steps to protect its interests by
notifying law enforcement of its interest in the property.
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under § 523(a)(6) because “it cannot not be said that [the employer] intended for
[the employee] to suffer a fall or that there was an unbroken chain of events
leading from [the employer’s] intentional act to [the employee’s] physical injury”);
Ikner, 883 F.2d at 987-91 (affirming the bankruptcy court’s determination that a
judgment in favor of plaintiffs, resulting from an automobile accident, was
dischargeable in bankruptcy because “the appellants did not prove by inference or
innuendo that [the defendant] intended to cause the accident or resulting injury”);
see also Kawaauhau, 523 U.S. at 61-64, 118 S. Ct. at 977 (holding that a debt
arising from a medical malpractice judgment, which was attributable to a doctor’s
negligent or reckless conduct, did not fall within the “willful and malicious injury”
exception to discharge).
Finally, a preponderance of the evidence suggests that Monson’s acts were
“excessive” because it is undisputed that he retrieved all of the seized equipment
from law enforcement and that he used at least “some” of it to open the new
internet center in Jacksonville.11 Thus, we conclude that Monson’s actions
11
Monson argues, for the first time on appeal, that his possession of the equipment was not
malicious within the meaning of the statute given the “totality of the circumstances,” including
his “[l]egal excuse and mitigating circumstances.” Generally, we will not address issues that
were not raised before the bankruptcy court. See In re Worldwide Web Sys., Inc., 328 F.3d
1291, 1300 (11th Cir. 2003). Furthermore, none of the “changed business and contract
circumstances” cited by Monson in his brief change our analysis.
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constituted a willful and malicious injury and, thus, the debt is nondischargeable
under § 523(a)(6).12
IV. CONCLUSION
For the foregoing reasons, we affirm the district court’s order affirming the
Bankruptcy Court’s determination that $117,950 of the debt Monson owes to
Claimant Galaz is nondischargeable under § 523(a)(6).
AFFIRMED.
12
As for Monson’s affirmative defenses, he has pointed us to no evidence to support these
defenses. Finally, we conclude Monson has shown no reversible error in the district court’s
award of $117,950 in damages.
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