Panalis v. Moore (In Re Moore)

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
FEB 3 2004
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

In Re: LARRY PRESTON MOORE,

Debtor.

STEVE PANALIS; CATHY PANALIS,
No. 02-6279
Plaintiffs - Appellees,
v.

LARRY PRESTON MOORE,

Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. 02-CV-272-W)

Patricia D. MacGuigan (Michael Paul Kirschner with her on the briefs) The Kirschner
Law Firm, P.C., Oklahoma City, Oklahoma for Defendant - Appellant.

Stephen Jones (Alice Mulvaney Link with him on the brief) Stephen Jones & Associates,
Enid, Oklahoma for Plaintiffs - Appellees.

Before MURPHY, PORFILIO and HARTZ, Circuit Judges.

PORFILIO, Senior Circuit Judge.
 This is an appeal from a decision of the district court sitting as an appellate court

in bankruptcy. Holding a debt based on a state court judgment for intentional fraud was

not dischargeable under 11 U.S.C. § 523(a)(6), the district court reversed a bankruptcy

court’s contrary judgment. We conclude the bankruptcy court’s decision was correct and

reverse the judgment of the district court.

Steve Panalis was an independent oilfield contractor engaged by L.P. Moore, Inc.,

a Colorado corporation owned by Defendant Larry Preston Moore, to work oil wells in

Oklahoma. Mr. Panalis was severely injured in an accident that resulted from actions he

had undertaken on his own and without the knowledge or participation of Mr. Moore.

Asked to move a large storage tank by the owner of the land upon which it was stored,

Mr. Panalis and his helper, apparently in the process of doing so, allowed trapped gas to

escape and explode. The helper was killed, and Mr. Panalis sustained severe burns over a

substantial portion of his body. Later, absolving Mr. Moore of any responsibility for what

happened in the field, Mr. Panalis stated, “I never said Larry [Moore] had anything to do

with the explosion.”

Mr. Panalis and his wife filed an action to recover damages against Mr. Moore in

Colorado state court alleging fraud based upon a statement Mr. Moore made about his

insurance coverage. After trial, the Colorado jury determined: 1) Mr. Moore made a false

representation to Mr. Panalis that Mr. Moore carried insurance (the type of which is

undefined) that would cover Mr. Panalis; 2) Mr. Moore knew that representation was

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false at the time he made it; 3) the representation was made with the intent to deceive; 4)

Mr. Panalis justifiably relied on the representation, and 5) Mr. Panalis suffered damages

as a result of the false representation. (emphasis added). The jury awarded damages to

Mr. Panalis in the amount of $6,584,000 and Mrs. Panalis in the amount of $150,000.

Those amounts were increased by post-judgment interest at the time the present action

arose.

Mr. Moore later filed a petition for bankruptcy relief in the Western District of

Oklahoma. As creditors, Mr. and Mrs. Panalis filed an action to determine the

dischargeability of the debt created by the Colorado verdict.

Although the bankruptcy court ruled in favor of Mr. Moore, holding the fraud

verdict did not represent a debt for a “willful” injury under § 523(a)(6), on appeal, the

district court disagreed. Relying upon Kawaauhau v. Geiger, 523 U.S. 57, 61-62 (1998),

the district court held the intentional deliberate act required by § 523(a)(6) was “Moore’s

fraudulent statement.” Because the state jury found “Moore acted with the intent to

deceive [and] Moore made the false representation ‘with the intent’ that it be relied

upon,” the district court concluded Mr. Panalis’ reliance “caused” damage to him. The

court then reasoned, citing White v. Muniz, 999 P2d 814, 816 (Colo. 2000), because

Colorado considers fraud an intentional tort, the “state court judgment establishes that

Moore’s statement was made with intent to injure.” Finally, because the result of the

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fraud was a willful act, an intent to cause injury, the court concluded the jury verdict is

not dischargeable under § 523(a)(6). Mr. Moore has appealed that ruling.

Mr. Moore takes issue with the district court’s interpretation of Geiger and argues

although he made a fraudulent statement about his insurance coverage, “he did not intend

to physically injure Panalis.” He contends, therefore, Mr. Panalis’ injury was a result of

the explosion, not Mr. Moore’s statement about his insurance coverage.1

Mr. Panalis, however, reprises the district court’s analysis, contending because

fraud is an intentional tort under Colorado law and requires that a tortfeasor intend some

“harm or offense,” the debt created by the Colorado jury verdict must be the functional

equivalent of a “willful and malicious injury” within the meaning of 11 U.S.C.

§ 523(a)(6). Therefore, that debt cannot be discharged.

We analyze this appeal upon the same basis employed by the district court. We

subject the bankruptcy court’s legal decision to de novo review and its factual findings to

a clearly erroneous test. Lampe v. Williamson, 331 F.3d 750, 753 (10th Cir. 2003);

Miniscribe Corp. v. Harris Trust Co. of Cal., 309 F.3d 1234, 1240 (10th Cir. 2002).

Proper analysis of this case must begin with the language of § 523(a)(6) which

states:

Conceivably, Mr. Moore could have argued Mr. Panalis’ physical injury was the
1

consequence of his own negligence, but he did not.

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 [A] discharge [in bankruptcy] 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) (emphasis added). Consequently, the question before us is whether

the Colorado verdict awarding damages for fraudulent misrepresentation constitutes a

debt for a “willful and malicious injury” to Mr. and Mrs. Panalis. Put another way, did

the “damages [suffered] as a result of the false representation” include the physical injury

sustained by Mr. Panalis? We think not.

We initially recognize analysis of this case is made difficult by two circumstances.

First, there is no doubt Mr. Panalis has been horribly injured, and he wants Mr. Moore

held accountable for that injury. Second, a state jury has found the fraud committed by

Mr. Moore resulted in damages in excess of $6 million. Although there is an apparent

disconnection between the act of fraud and the physical injury to Mr. Panalis brought

about by his own hands, the Colorado verdict cannot be ignored. It created a debt which

Mr. Moore seeks to discharge in bankruptcy. Also compounding resolution of the case is

the natural sympathy that arises from Mr. Panalis’ gruesome injuries. Although that

sympathy seemingly favors compensation, the limits of the law preclude it.

The essence of this case arises from basic tort law. It is a fundamental principle

that a person who commits an intentional tort is liable for the consequences of his acts.

However, it does not follow that everything that happens to the victim following the

commission of the tort was intended by the tortfeasor. As noted by the Court in Geiger,

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“[i]ntentional torts generally require that the actor intend ‘the consequences of an act,’ not

simply ‘the act itself.’” Id. at 61-62 (quoting Restatement (Second) of Torts § 8A,

Comment a, p. 15 (1964)) (emphasis in original).

As the Court pointed out, if a tortfeasor was liable for unintended injuries,

[e]very traffic accident stemming from an initial intentional act - - for
example, intentionally rotating the wheel of an automobile to make a left-
hand turn without first checking oncoming traffic - - could fit the
description. A “knowing breach of contract” could also qualify. A
construction so broad would be incompatible with the “well-known” guide
that exceptions to discharge “should be confined to those plainly
expressed.”

Id. at 62 (internal citations omitted). Moreover, § 523(a)(6) pertains to “only acts done

with the actual intent to cause injury,” and “non-dischargeability takes a deliberate or

intentional injury not merely . . . a deliberate or intentional act that leads to injury.” Id. at

61 (emphasis in original).

Here, the jury was seemingly motivated to award damages because it determined

one of the consequences of Mr. Moore’s intentional fraud was an injury sustained by Mr.

and Mrs. Panalis. However, that injury had to have been the loss they suffered because

Mr. Moore had no insurance available to compensate them. Yet, the jury did not

specifically find that loss included the physical injuries suffered by Mr. Panalis or that

Mr. Moore intended those injuries. Nothing in the record before us justifies such a

conclusion. Although the verdict manifests a finding Mr. Moore “made the [false]

representation with the intent that [Mr. Panalis] act or decide not to act, in reliance on the

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representation,”2 that is not a finding that the false representation was made with the

intent that Mr. Panalis mishandle an oil storage tank causing the explosion that injured

him.

Indeed, by its own terms, the verdict established only that Mr. Moore intended to

deceive Mr. Panalis. That intent to deceive is far from an intent to willfully and

maliciously physically injure Mr. Panalis. It is unquestionable that the physical injuries

were at best only incidental to Mr. Moore’s fraud. The incidental nature of those injuries

is underscored by the fact that they were clearly caused by the negligence of Mr. Panalis.

Thus, any analysis of whether the jury verdict resulted in a nondischargeable debt

must distinguish between the injuries that resulted from fraud and those, if any, which

were caused by a willful and malicious injury to the person of Mr. Panalis. Only the latter

will sustain a judgment of nondischargeability under § 523(a)(6).

As the court instructed in Geiger,

The word “willful” in (a)(6) modifies the word “injury,” indicating that
nondischargeability takes a deliberate or intentional injury not merely a
deliberate or intentional act that leads to injury. Had Congress meant to
exempt debts resulting from unintentionally inflicted injuries, it might have
described instead “willful acts that cause injury.”

Id. (emphasis in original).

The district court overlooked the criticality of the terms “willful” act and

“malicious injury” in § 523(a)(6). Without proof of both, an objection to discharge under

2
Jury instruction 14, Stipulated supplemental record.

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that section must fail. For example, in Mitsubishi Motors Credit of America, Inc. v.

Longley (In re Longley), 235 B.R. 651, 657 (B.A.P. 10th Cir. 1999), the court held, to

constitute a willful act under § 523(a)(6), the debtor must “desire . . . [to cause] the

consequences of his act or . . . believe [that] the consequences are substantially certain to

result from it.” Id. at 657 (quoting Restatement (Second) of Torts, § 8A (1965)). Also, in

Hope v. Walker (In re Walker), 48 F.3d 1161, 1164 (11th Cir. 1995), the court concluded

the term “malicious” requires proof “that the debtor either intend the resulting injury or

intentionally take action that is substantially certain to cause the injury.” See also

Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 462-63 (6th Cir. 1999)

(nondischargability under § 523(a)(6) requires proof of an intent to do harm, not just an

intentional act).3

Upon this predicate, we conclude the district court’s analysis was incomplete.

Although recognizing the nature of the verdict and the Colorado law of fraud, it did not

3
Mr. Moore additionally makes the telling argument that in relying upon the
Colorado verdict, the district court failed to make a complete analysis of its full
implications. If there be any question of whether that jury found Mr. Moore intended the
physical injury of Mr. Panalis, it is reasonable to assume it would have returned a verdict
for punitive damages. Indeed, it was instructed if it found Mr. Moore acted in a
“malicious” and “willful” manner it could award punitive damages. Having failed to do
so, it must be concluded the jury found an absence of malice or willfulness in Mr.
Moore’s conduct. Mr. Panalis argues the presumption is erroneous because the jury was
instructed it “may award” punitive damages. That argument is not persuasive. Read in
context, the word “may” was used by the trial court to avoid any implication it believed
the requirements of malice and willfulness had been met or that the court favored the
return of punitive damages. Thus, the argument has scant logic.

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correctly apply that recognition to the Bankruptcy Code. The Code must govern the

outcome here.

In the context of this case, the Code makes inescapable the principle that unless a

debt is the result of a willful and malicious act intended to do injury to a person, the debt

is discharged. Having failed to prove, either in the Colorado court or in the Bankruptcy

court, that Mr. Moore willfully and maliciously intended to cause his physical injury, Mr.

Panalis was not entitled to an exception from discharge.

The motion to dismiss for lack of jurisdiction is DENIED. See Clough v. Rush,

959 F.2d 182, 185-86 (10th Cir. 1992). The Stipulation of the Parties Supplementing the

Record is RECEIVED. The Appellant’s motion to file an additional supplemental record

is DENIED. The judgment of the district court is REVERSED and REMANDED

WITH INSTRUCTIONS to enter judgment in accordance with this opinion.

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