Marmic Fire & Safety Co., Inc. v. ETG Fire, LLC, 670 B.R. 884

Plaintiffs Marmic Fire & Safety Co., Inc. and APS FireCo, LLC sued ETG Fire, LLC (a competitor) in an adversary proceeding in ETG Fire’s Subchapter V Chapter 11 bankruptcy, alleging misappropriation of trade secrets and other misconduct.
The complaint seeks to establish both the amount of debt ETG Fire allegedly owes to Plaintiffs and to declare such debts nondischargeable under 11 U.S.C. § 523(a)(6) (willful and malicious injury).
ETG Fire moved to dismiss under Rule 12(b)(6), arguing that (1) § 523(a) does not apply to corporate debtors in Subchapter V cases; (2) the alleged misconduct is attributable only to individuals, not ETG Fire; and (3) the claims should be resolved through the claims allowance process, not adversary proceedings.
The Plaintiffs asserted the scheme involved high-level ETG officers and employees intentionally raiding staff, misusing confidential information, and poaching business, meeting the standards for willful and malicious injury.
The Court considered whether § 523(a)(6) exceptions to discharge for willful and malicious injury apply to non-individual (corporate) debtors under Subchapter V and whether Plaintiffs sufficiently pled ETG Fire's intent.
The Court denied ETG Fire’s motion, finding Plaintiffs stated a plausible § 523(a)(6) claim and that such claims can be brought against corporate debtors in nonconsensual Subchapter V plans.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does § 523(a)(6) apply to corporate debtors in Subchapter V cases?	Yes, plain language and current appellate authority apply § 523(a) exceptions to all debtors	No, § 523(a) only applies to individual debtors per its preamble	§ 523(a) applies to both individual & corporate debtors under Subchapter V based on prevailing circuit authority
Have Plaintiffs pled facts sufficient for willful and malicious injury?	Yes, the complaint alleges intentional misconduct by ETG Fire’s officers/agents	Plaintiffs only allege misconduct by individuals, not the corporate debtor itself	Alleged acts/intent of ETG’s authorized officers/employees are imputable to ETG Fire; pleading is sufficient
Is the adversary proceeding improper under the claims process?	Nondischargeability claims must be brought as adversary proceedings; both components relevant	Dischargeability should be raised only after claim objections are resolved in the bankruptcy claims process	Adversary proceeding is proper for § 523(a) action; claims process dispute is not grounds for dismissal
Can intent of individuals be imputed to the corporation for § 523(a)(6)?	Yes, corporations act through agents, so intent of senior personnel is imputable	No, § 523(a)(6) requires personal debtor intent, so only individual wrongdoers' conduct matters	Corporate debtor’s intent is derived from agents’ intent; thus, sufficient allegations support § 523(a)(6) claim

Kawaauhau v. Geiger, 523 U.S. 57 (1998) (defining 'willful injury' in the § 523(a)(6) context as requiring intent to cause injury, not just the act itself)
Grogan v. Garner, 498 U.S. 279 (1991) (preponderance standard for proving nondischargeability)
Moore (In re Moore), 357 F.3d 1125 (10th Cir. 2004) (both willful and malicious injury required under § 523(a)(6))
Cleary Packaging, LLC (In re Cleary Packaging, LLC), 36 F.4th 509 (4th Cir. 2022) (holding § 523(a) exemptions apply to corporate Subchapter V debtors)
Avion Funding v. GFS Indus., LLC (In re GFS Indus., LLC), 99 F.4th 223 (5th Cir. 2024) (corroborating Cleary Packaging on scope of nondischargeable corporate Subchapter V debt)