558 B.R. 9
Bankr. D. Mass.2016Background
- Kirwan was president and sole shareholder of Galway Bay Décor, which performed public painting contracts from 2007–2010 and paid five plaintiff-painters far below prevailing wage and no overtime. Plaintiffs sued Galway Bay Décor and Kirwan in state court and obtained jury judgments (aggregate awards including treble damages and fees).
- After judgment, plaintiffs attempted collection; they recovered only a prejudgment attachment. Plaintiffs allege Galway Bay Décor transferred business/assets (and later assets to other entities) to Galway Bay Painting to frustrate collection.
- Galway Bay Décor filed Chapter 7; Kirwan filed Chapter 11 and listed plaintiffs’ judgment claims as secured by liens. Plaintiffs filed this adversary complaint seeking nondischargeability under 11 U.S.C. § 523(a)(6) (willful and malicious injury). Counts I–II challenge failure to pay wages/overtime; Count III alleges fraudulent transfers intended to hinder collection made Kirwan’s conduct willful and malicious under § 523(a)(6).
- Kirwan moved to dismiss Count III. Court treated the motion as one for judgment on the pleadings under Fed. R. Civ. P. 12(c), accepting well-pled facts as true but requiring sufficient factual allegations to state a § 523(a)(6) claim.
- The court assumed (without deciding) alter-ego liability so transfers by Galway Bay Décor could be attributed to Kirwan, but held Count III fails because the alleged fraudulent-transfer injury occurred after the debt arose and plaintiffs lack a cognizable property interest in the transferred assets.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-judgment fraudulent transfers can render the preexisting judgment debt nondischargeable under § 523(a)(6) | Transfers to Galway Bay Painting were made with intent to hinder/delay collection, so the resulting injury was willful and malicious and makes the judgment nondischargeable. | Injury from transfers occurred after judgments and thus did not give rise to the debt; cannot make the existing judgment nondischargeable under § 523(a)(6). | Held for Kirwan: post-judgment transfers did not give rise to the judgment debt, so § 523(a)(6) exception is not established. |
| Whether plaintiffs pleaded an injury to their property or property interest under § 523(a)(6) | Plaintiffs assert the transfers deprived them of property/collection rights. | Plaintiffs lack a security interest or a fraudulent-transfer judgment against the transferred assets; no property interest was alleged. | Held for Kirwan: complaint fails to allege plaintiffs had a property interest (lien or judgment setting aside transfers) in the transferred assets. |
| Whether fraudulent transfer theory can independently create nondischargeable debt under § 523(a)(6) | Plaintiffs rely on authorities where a fraudulent-transfer judgment against the transferee supported nondischargeability. | Here there is no fraudulent-transfer judgment and Kirwan was transferor, not transferee. | Held for Kirwan: absent a fraudulent-transfer judgment or other property right, plaintiffs have not pleaded a § 523(a)(6) claim. |
| Procedural sufficiency under Rule 12(c) | Complaint’s allegations suffice to raise nondischargeability for Count III. | Complaint fails to plead facts showing the required causal nexus or property injury for § 523(a)(6). | Held for Kirwan: on the pleadings Count III fails to state a claim; judgment on the pleadings granted. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must raise right to relief above speculative level)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§ 523(a)(6) requires willful and malicious injury)
- In re Levasseur, 737 F.3d 814 (1st Cir. 2013) (willfulness and maliciousness standards under § 523(a)(6))
- Printy v. Dean Witter Reynolds, Inc., 110 F.3d 853 (1st Cir. 1997) (malicious defined as wrongful and without just cause)
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000) (fraudulent transfer can, in some circumstances, support a § 523(a)(6) claim)
- In re Saylor, 108 F.3d 219 (9th Cir. 1997) (interest in fraudulent-transfer claim not always ‘property’ for § 523(a)(6) purposes)