245 F. Supp. 3d 973
M.D. Tenn.2017Background
- Donald Berge and son David were MarketGraphics licensees from 1997–2012; they left and opened a competing business in 2012 using similar services and client relationships.
- MarketGraphics sued the Berges in district court alleging copyright, trademark, unfair competition, breach of contract, consumer-protection and related claims.
- The district court entered judgment against David Berge (jointly and severally) for $332,314.94, finding he willfully violated the Tennessee Consumer Protection Act and willfully infringed copyrights.
- David Berge filed Chapter 7 bankruptcy and MarketGraphics brought an adversary action under 11 U.S.C. § 523(a)(6) seeking nondischargeability for a willful and malicious injury.
- The Bankruptcy Court held a trial, found Berge credible, concluded MarketGraphics did not prove the requisite malice, and dismissed the adversary proceeding (debt dischargeable).
- The district court reviews the Bankruptcy Court’s legal conclusions de novo and factual findings for clear error; it affirms the no-malice factual finding but remands the collateral-estoppel/issue-preclusion determination to the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Berge’s debt is nondischargeable under § 523(a)(6) as a "willful and malicious" injury | MarketGraphics: district-court findings of willfulness establish malice; bankruptcy court applied wrong malice standard and should be entered judgment for creditor | Berge: bankruptcy court correctly found no malicious intent; testimony shows he followed his father and lacked intent to harm | Court: Affirms bankruptcy court’s factual finding that Berge did not act with the intent or belief that injury was substantially certain (no willful & malicious injury); remands to Bankruptcy Court to decide issue-preclusion/collateral estoppel matters |
| Proper legal standard for "willful and malicious" under § 523(a)(6) | MarketGraphics: bankruptcy court used incorrect (older) definition of malice | Berge: applies prevailing Sixth Circuit test requiring intent or substantial-certainty belief | Court: Adopts Sixth Circuit’s post-Geiger standard (unitary concept)—debt nondischargeability requires actual intent to cause injury or belief injury was substantially certain; applies Markowitz framework |
| Whether preclusive effect of district-court judgment covers the § 523(a)(6) elements | MarketGraphics: district-court judgment should collaterally estop Berge on elements decided | Berge: bankrupt court previously concluded malice was not decided; preclusion not established | Court: Vacates bankruptcy court’s collateral-estoppel ruling and remands for first-instance determination of which elements, if any, are precluded by the district judgment |
| Standard of review applicable to Bankruptcy Court findings | MarketGraphics: N/A on review standard | Berge: N/A | Court: Legal conclusions reviewed de novo; factual findings reviewed for clear error; burden on creditor is preponderance of evidence and exceptions to discharge construed narrowly |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (Supreme Court defines the scope of "willful and malicious injury" to require actual intent to cause injury)
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999) (adopts standard that debtor must desire harm or believe injury is substantially certain)
- Kennedy (In re Kennedy), 249 F.3d 576 (6th Cir. 2001) (recognizes Geiger’s effect on prior Sixth Circuit precedent)
- Perkins v. Scharffe, 817 F.2d 392 (6th Cir. 1987) (earlier Sixth Circuit definition of "willful" as intentional act causing injury)
- Wheeler v. Laudani, 783 F.2d 610 (6th Cir. 1986) (earlier Sixth Circuit definition of "malicious" as conscious disregard or without just cause)
- In re Miller, 156 F.3d 598 (5th Cir. 1998) (treats "willful and malicious" as unitary concept—acts done with actual intent to cause injury)