584 B.R. 363
Bankr. N.D. Okla2018Background
- Adrian Armstrong was severely injured when a minor driver, allegedly intoxicated after being served at the Vegas Club, ran a red light and caused a crash; Maxine Armstrong is his guardian and judgment creditor.
- State court (bench trial) entered a final judgment > $23 million against Vegas Corporation and Deborah Oslin (sole owner/manager) under Oklahoma dram-shop law and found Oslin was the Corporation's alter ego.
- Armstrong sued Oslin in bankruptcy court seeking nondischargeability of that state-court judgment under 11 U.S.C. § 523(a)(6) (willful and malicious injury) and § 523(a)(9) (intoxicated operation of a vehicle).
- Oslin moved to dismiss those § 523 claims under Fed. R. Civ. P. 12(b)(6) for failure to state a plausible claim; the state-court judgment alleged negligence/gross negligence but did not adjudicate intent.
- Armstrong argued the state judgment does not preclude relitigation of willfulness/malice under Brown and McKendry and urged alternative standards for intent; Oslin argued vicarious liability and negligence findings cannot satisfy § 523(a)(6) or (a)(9).
- The bankruptcy court granted the motion to dismiss, holding the complaint failed to plausibly allege the subjective intent or substantial-certainty mental state required by § 523(a)(6) and that § 523(a)(9) was inapplicable because Oslin did not operate a vehicle while intoxicated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the state-court judgment precludes arguing the debt arose from willful and malicious conduct | Armstrong: Brown/McKendry allow presenting extra evidence in bankruptcy to show nondischargeability despite the state judgment’s negligence focus | Oslin: Journal Entry establishes negligence only and precludes relitigating intent | Court: Brown/McKendry control; state judgment does not bar § 523 claims, but the complaint must still plead § 523 elements plausibly |
| Whether § 523(a)(6) is pleaded (willful and malicious injury by the debtor) | Armstrong: Oslin’s gross management failures and alter-ego liability show willful/malicious conduct; cites alternative (objective) standards | Oslin: She did not personally serve alcohol or intend harm; vicarious liability and negligence cannot satisfy § 523(a)(6) | Court: Dismissed — complaint fails to plead the debtor’s subjective intent or belief in substantial certainty of harm; vicarious liability insufficient |
| Whether an objective substantial-certainty test applies to § 523(a)(6) | Armstrong: urges Fifth Circuit standard (objective substantial certainty) | Oslin: Tenth Circuit follows subjective standard from Geiger | Court: Applies Tenth Circuit/Supreme Court subjective standard; rejects objective test |
| Whether § 523(a)(9) applies (death/personal injury caused by debtor’s intoxicated operation of a vehicle) | Armstrong: statute should reach bars that serve intoxicated minors who later drive | Oslin: She did not operate a vehicle while intoxicated | Court: Dismissed — § 523(a)(9) requires the debtor to have operated the vehicle while intoxicated; claim not pleaded |
Key Cases Cited
- Brown v. Felsen, 442 U.S. 127 (Sup. Ct.) (state-court judgment may not preclude creditor from introducing additional evidence in bankruptcy to prove nondischargeability)
- Kawaauhau v. Geiger, 523 U.S. 57 (Sup. Ct.) (§ 523(a)(6) requires actual intent to cause injury; negligent or reckless acts do not qualify)
- McKendry v. Hance, 40 F.3d 331 (10th Cir.) (creditor may litigate nondischargeability in bankruptcy despite a prior judgment that established debt without requiring fraud)
- Miller v. J.D. Abrams Inc., 156 F.3d 598 (5th Cir.) (adopts an objective substantial-certainty standard for willfulness under § 523(a)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct.) (pleading standard: courts ignore conclusory legal allegations and require plausible factual matter)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Sup. Ct.) (plausibility pleading standard for federal claims)