K.C. v. Grosso (In re Grosso), 512 B.R. 768

Minors K.C. and N.W. sued Hands of Our Future LLC and its principals (Colleen Grosso and Teresa Perez) for injuries allegedly caused by daycare employees.
Plaintiffs filed the state-court tort complaint on November 9, 2012 asserting battery, assault, false imprisonment, IIED, negligence, breach of contract/warranties, and premises liability.
Debtors Grosso and Perez filed Chapter 13 petitions on February 19, 2013.
Plaintiffs commenced adversary proceedings in bankruptcy seeking a determination that any debt arising from the tort claims is non-dischargeable under 11 U.S.C. § 1328(a)(4).
Debtors moved to dismiss under Fed. R. Civ. P. 12(b)(6) arguing § 1328(a)(4) requires a prepetition judgment (i.e., a prior award of restitution or damages) for non-dischargeability.
The bankruptcy court denied the motion, holding § 1328(a)(4) can apply to prepetition claims not yet reduced to judgment and that dismissal was inappropriate.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether § 1328(a)(4) requires a prepetition judgment for a debt to be excepted from discharge	§1328(a)(4) covers debts arising from willful/malicious personal injury even if not yet reduced to judgment; non-dischargeability should attach to the underlying liability	§1328(a)(4) requires that restitution or damages be "awarded" before the bankruptcy petition; absent a prepetition judgment the debt is dischargeable	The court held §1328(a)(4) does not require a prepetition judgment; a claim can be excepted from discharge even if not reduced to judgment before the petition

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: plausibility required)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (two-step pleading analysis for legal conclusions vs. factual allegations)
Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009) (applies Twombly/Iqbal framework in Third Circuit)
Parsons v. Byrd (In re Byrd), 388 B.R. 875 (Bankr. C.D. Ill. 2007) (held prepetition judgment required for §1328(a)(4) non-dischargeability)
Buckley v. Taylor (In re Taylor), 388 B.R. 115 (Bankr. M.D. Pa. 2008) (held prepetition judgment not required; statutory text interpreted to cover pending claims)
Waag v. Permann (In re Waag), 418 B.R. 373 (B.A.P. 9th Cir. 2009) (endorsed Taylor, warned against a race-to-file incentive)
Grogan v. Garner, 498 U.S. 279 (1991) (statutory interpretation principles; reconcile text with congressional purpose)
In re Hudson, 859 F.2d 1418 (9th Cir. 1988) (addressed whether a judgment must exist prepetition for §523(a)(9)-type exceptions)