Determination Of Dischargeability

Determination Of Dischargeability Under 11 U.S.C. §523(a)(6)

We successfully represented a major construction equipment lender in a Chapter 7 adversary proceeding to determine a debt non-dischargeable on the basis of conversion of certain collateral under 11 U.S.C. 523(a)(6). In the adversary complaint, we alleged that the debtor’s conversion caused willful and malicious injury to our client. The debtor filed a Motion To Dismiss Complaint which was denied by the Court, and portions of the Court’s ruling in our client’s favor are incorporated herein.

The Court acknowledged that to state a claim under Section 523(a)(6), a plaintiff must demonstrate that the injury was both malicious and willful. In re Ormsby, 591 F.3d 1199, 1206 (9th Cir. 2010);In re Barboza, 545 F.3d 702, 711 (9th Cir. 2008). The willful injury requirement of Section 523(a)(6) is met when the debtor has a subjective motive to inflict injury or when the debtor believes that injury is substantially certain to result from his own conduct.” In re Ormsby, supra. Malice may be inferred based on the nature of the wrongful act. Id. In California, conversion has three elements: ownership or right to possession of property, wrongful disposition of the property right and damages.” G.S. Rasmussen & Associates, Inc. v. Kalitta Flying Service, Inc., 958 F.2d 896, 906 (9th Cir. 1992). In the nondischargeability context, “the injury is the deliberate disposition of another’s property without authority.” Thiara v. Spycher Brothers (In re Thiara), 285 B.R. 420, 432 (B.A.P. 9th Cir. 2002).

Willful Injury

An injury is willful if the debtor “acted with either the desire to injure or a belief that injury was substantially certain to occur.” Ditto v. McCurdy, 510 F.3d 1070, 1078 (9th Cir. 2007). A debtor’s intent may be “proven by circumstantial evidence or by inferences drawn from [his] conduct.” In re Retz, 606 F.3d 1189, 1199 (9th Cir. 2010). Thus, an adversary complaint states a claim for conversion by asserting that plaintiff had an ownership interest in the collateral pursuant to an agreement, debtor wrongfully disposed of the collateral by failing to return it, and that plaintiff suffered damage from its inability to enforce its security interest. In this case, the Court held that intent may be inferred from our allegations of the misconduct of debtor in his attempts to conceal, remove or transfer the collateral, his failure to provide accurate information regarding the location or condition of the collateral, and his usage of the collateral for hazardous purposes.

Malicious Injury

“A malicious injury involves (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.” In re Ormsby, 591 F.3d at 1207 (quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001)). In the case of conversion, to infer malice, it must first be established that the conversion was willful. Id. The Court determined that our conversion claim satisfied the maliciousness element because it adequately pled conversion, an act necessarily without just cause or excuse, and the debtor’s intent to harm. Further, we alleged that the debtor knew of his obligation to return the collateral and that our client was substantially certain to be harmed if the debtor filed for bankruptcy and our client could not enforce its security interest.

Thus, the Court denied the debtor’s Motion To Dismiss as to our conversion claim on the basis that we sufficiently stated a claim for nondischargeability under 11 U.S.C. §523(a)(6) pursuant to the requirements set forth above. We subsequently secured the voluntary surrender of the collateral by the debtor, and thereafter dismissed the adversary proceeding.