Southeast Pennsylvania Synod of the Evangelical Lutheran Church v. Gotwald (In re Gotwald), 488 B.R. 854

In 2007 the Synod placed Redeemer under involuntary synodical administration and appointed a Board of Trustees to run Redeemer.
In January 2009 Redeemer transferred its Church Property to a new entity (New Redeemer) and secured a $275,000 mortgage loan against that property.
Proceeds from the loan were deposited into a bank account controlled by the Debtor and another officer.
In September 2009 the state court issued an injunction requiring Redeemer and the Debtor to turn over all assets to the Synod.
The Debtor filed for bankruptcy on June 8, 2010; the Synod subsequently filed an adversary proceeding alleging nondischargeability under 11 U.S.C. §523(a)(2)(A) and §523(a)(6).
Trial occurred in February 2012; the court ultimately held that the debt related to the Mortgage Loan is dischargeable, but the debt arising from failure to comply with the Injunction and concealment/dissipation of loan proceeds is nondischargeable under §523(a)(6).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Mortgage Loan debt is nondischargeable under §523(a)(6).	Synod contends Debtor acted with willful/malicious intent to injure Synod’s property.	Debtor argues lack of substantial certainty of harm and reliance on counsel; she acted with reasonable basis.	Dischargeable; no willful/malicious injury shown for the Mortgage Loan.
Whether the Debtor’s failure to comply with the Injunction and concealment of loan proceeds is nondischargeable under §523(a)(6).	Synod asserts willful/malicious injury by withholding assets post-Injunction.	Debtor claims lack of scienter; reliance on counsel; she followed lawful process.	Nondischargeable; conduct after Injunction constitutes willful/malicious injury.
Whether the Debtor’s reliance on legal advice defeats the §523(a)(6) claim.	Advise-of-counsel defense negates intent.	Debtor relied on attorney’s advice to not turnover funds.	Not convincing; advice defense does not defeat the willful/malicious standard given the circumstances.
Whether the Debtor’s actions related to the Mortgage Loan could be construed as taking place with substantial certainty of injury given the ISA.	Actions violated ISA and damaged Synod’s property rights.	Redeemer/Debtor reasonably believed litigation would vindicate ISA authority.	Court did not find substantial certainty; Mortgage Loan debt discharged.

In re Cohn, 54 F.3d 1108 (3d Cir.1995) (dischargeability standards and burden of proof in §523(a) cases)
In re Conte, 33 F.3d 303 (3d Cir.1994) (discusses subjective vs. objective standard for willful/malicious inquiries)
In re Wooten, 423 B.R. 108 (Bankr. E.D. Va.2010) (defines malice and its application in §523(a)(6))
In re August, 448 B.R. 331 (Bankr. E.D. Pa.2011) (explains standard for willful/malicious injury under §523(a)(6))
In re Wehri, 212 B.R. 963 (Bankr. D. N. D. 1997) (advisory defense to reliance on counsel in §523(a)(6))