ORDER DENYING DEFENDANT’S “MOTION FOR SUMMARY JUDGMENT”
On July 9, 1990, рlaintiffs John and Deborah Bryan (“the Bryans”) filed their complaint herein, seeking determination that debts of $36,620.00 in actual damages, $76,-631.00 in punitive damages, and $54,148.50 in attorney fees, which are owed to them by defendant Jim Donn Manley (“Manley”), are excepted from discharge pursuant to 11 U.S.C. § 523(a)(4). On August 8, 1990, Manley answered. On October 12, 1990, Manley filed his “Motion for Summary Judgment” and “Brief in Support ...” thereof. On October 31, 1990, the Bryans filed their “... Combined Response to [Manley’s] Motion for Summary Judgment and Motion for Summary Judgment,” a “Brief in Response to [Manley’s] Motion for Summary Judgment and in Support of [Bryans’] Motion for Summary Judgment,” and “[Bryans'] Exhibits in Support of Motion for Summary Judgment.” On November 30, 1990, Manley filed his “Objection to [Bryans’] Motion for Summary Judgment,” and an “Affidavit ... in Support ...” and “Brief in Support ...” thereof. On December 10, 1990, the Bryans filed their “... Reply to [Manley’s] Objection to Motion for Summary Judgment.”
In this order, the Court addresses Manley’s motion for summary judgment and matters pertinent thereto appearing in the above-named documents. By separate order, the Court deals with the Bryans’ motion for summary judgment.
Judgment may be entered summarily “if the pleadings ... and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law,” F.R.Civ.P. 56(c) adopted by F.R.B.P. 7056.
The parties’ attorneys have provided the Court with extensive recitations of facts which are either undisputed or admitted subject to certain qualifications. The Court takes judicial notice of certain matters appeаring of record in the above-styled bankruptcy case and in this adversary proceeding. Pursuant thereto, the Court finds, for purposes of ruling upon this motion for summary judgment, as follows.
Manley owned lh of the stock of Watkins Construction Company (“Watkins”) and was an officer and director of the corporation, complaint ¶ 6, answer If 1.
“In September of 1985, the [Bryans] entered into a contract with Watkins ... to remodel their home located at 6766 South Columbia, Tulsa, Oklahoma. The contract called for the Bryans to pay Watkins a total of $119,325.00 in monthly draws based on percentage of completion,” Bryans’ brief ¶ 1, Manley’s obj. brief p. 1.
“The Bryans made the following payments to Watkins: September, 1985 — $11,-950.00; October, 1985 — $29,850.00; November, 1985 — $29,850.00; January, 1986— $10,000.00; March, 1986 — $19,850.00; April, 1986 — $5,000.00; Total — $106,-500.00,” Bryans’ brief 112, Manley’s obj. brief p. 1.
“The total cash receipts of Watkins, from the Bryans, was $106,500.00,” Bryans’ brief II3, Manley’s obj. brief p. 2.
A sum fixed by the Bryans at $64,869.43, and estimated by Manley at “approximately $64,000.00,” was paid by Watkins to subcontractors who contributed materials or services for remodeling the Bryans’ home, complaint 1Í 8, answer 1f 2, Bryan’s brief 114, Manley’s obj. brief p. 1.
A sum fixed by the Bryans at $41,630.57, and estimated by Manley at “approximately $41,000.00,” was used by Watkins to pay “expenses of Watkins” other than payment to subcontractors who contributed materials or services for remodeling the Bryans’ home, complaint ¶ 8, answer 112, Bryan’s brief II 5, Manley’s obj. brief p. 1.
“The following liens were filed against the Bryan property:
*139 Lienholder Date Filed Amount
Architectural Interiors of Oklahoma 05/22/86 $ 1,627.23
Carpet Showroom, Inc. 06/04/86 $ 960.00
Elite Electric, Inc. — Plumbing Division 06/17/86 $ 5,048.59
Hahn Appliance Center, Inc. 05/12/86 $ 5,018.15
Shelley Martin 06/10/86 $ 2,441.00
R & R Carpet and Tile Co., Inc. 05/21/86 $ 4,733.00
Rain-Flo of Tulsa, Inc. 06/10/86 $ 1,240.00
Union Building Materials, Inc. 05/14/86 $ 943.53
Wesche Company 07/15/85 $ 354.81
W.W.P.I. 06/11/86 $ 5,814.25
Southern Millwork Company, Inc. 05/27/86 $ 916.91
Overhead Door Company of Tulsa, Inc. 06/27/86 $ 86.91
Earl Cotner 05/20/86 $ 2,433.90
Superior Insulators, Inc. 06/13/86 $ 678.56
Jerry W. Reed 05/09/86 $ 330.00
James W. Kirby 07/22/86 $11,796.00
TOTAL: $44,422.84.”
Bryans’ brief ¶ 6, Manley’s obj. brief p. 1.
“The Bryans were required to take certain steps to clear the cloud on the property tha.t was created by the outstanding unpaid liens,” Bryans’ brief 117, Manley’s obj. brief p. 1.
“The Bryans settled with the following lienholders for the following amounts:
ARCHITECTURAL INTERIORS 813.63
CARPET SHOWROOM, INC. 480.00
ELITE ELECTRIC 2,524.28
HAHN APPLIANCE CENTER 2,462.08
SHELLEY MARTIN 1,220.50
R & R CARPET & TILE 2,356.50
RAIN-PLO OF TULSA 620.00
UNION BUILDING MATERIALS 530.69
WESCHE COMPANY 177.41
WRIGHT WALLPAPER, INC. 2,907.13
SOUTHERN MILLWORK 458.46
14,550.68,”
Bryans’ brief 118, Manley’s obj. brief p. 1.
“The Bryans settled with the following creditors with lien rights for the following amounts:
ACE FENCE COMPANY 126.00
LOUISE GILLAM 45.16
SOONER WEATHERSTRIP COMPANY 67.00 BUD WYATT COMPANY 617.09
855.25,”
Bryans’ brief 119, Manley’s obj. brief p. 1.
“The Bryans posted the following bonds to discharge the following liens:
EARL COTNER 3,050.37
SUPERIOR INSULATORS 856.20
JERRY W. REED 420.50
JAMES W. KIRBY 14,753.00
19,080.07,”
Bryans’ brief 1110, Manley’s obj. brief p. 2.
“The Bryans incurred $5,902.60 in attorney fees to settle with the lienholders and creditors_ Said attorney fees were reasonable and necessary,” Bryans’ brief 1111, Manley’s obj. brief p. 1.
“One of the subcontractors, James W. Kirby, filed a case in Tulsa County District Court to enforce his lien rights against the Bryans. The Bryans have incurred [$]6,634.05 in attorney fees to defend that case,” Bryans’ brief II12, Manley’s obj. brief p. 1.
“At no time during the period of time from September, 1985 to the date of receiving the notification from the Tulsa County Clerk did [the Bryans] receive notice, written or otherwise, from any contractor, subcontractor, laborer or materialman, that any person performing labor or furnishing materials for the remodeling of the Bryan’s residence could be entitled to a lien against the property,” Manley’s brief in support p. 2.
“[The Bryans] successfully defended a mechanic’s lien foreclosure in State Court on the basis that the lien was unenforceable against [the Bryans] due to the failure *140 of the lien claimant to give proper notice,” Manley’s brief in support p. 2.
The Bryans filed Case No. CJ-86-7308 in the District Court in and for Tulsa County, State of Oklahoma, against Manley and others. This case was tried to a jury before the Honorable Judge Donald Lane, complaint Í! 12, answеr II1, Bryans’ brief II17, Manley’s obj. brief p. 1, Bryans’ exhibit C.
“On March 21, 1990, a jury verdict was rendered against Defendant Manley for $36,620.36 in actual damages and $76,-630.57 in punitive damages,” Bryans’ brief II15, Manley’s obj. brief p. 2.
“The jury had been instructed on the law and made certain findings of fact in order to render a verdict against Defendant Manley,” Bryans’ brief ¶ 16, Manley’s obj. brief p. 2.
“On July 18, 1990, the Honorable Judge Donald Lane entered judgment and accepted the jury's findings and verdict as to all issues,” Bryans’ brief ¶ 17, Manley’s obj. brief p. 1.
“The Court awarded the [Bryans] their attorney fees in the amount of $54,148.50, pre-judgment interest from the date of filing the action to the date of the verdict at the rate provided by law and costs of the action in the amount of $1,788.75,” Bryans’ brief II18, Manley’s obj. brief p. 1.
On March 13, 1990, Manley filed his voluntary pеtition for relief under 11 U.S.C. Chapter 7 in this Court, Case No. 90-00984-W docket no. 1, Case No. 90-00985-W docket no. 1. On August 14, 1990 Manley’s discharge was entered, Case No. 90-00984-W docket no. 46.
The Court must determine whether these undisputed facts require judgment in Manley’s favor as a matter of law.
A discharge in bankruptcy is an injunction against the collection of various debts
in personam,
former Act § 14(f)(2), present Code 11 U.S.C. § 524(a)(2), issued by a Bankruptcy Court acting as a court of equity,
In re Higginbotham,
The Bryans' complaint asserts that the discharge granted to Manley does not affect the judgment dеbts for damages and costs, because such debts are excepted from discharge by 11 U.S.C. § 523(a)(4). This statute provides that “A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... for fraud or defalcation while acting in a fiduciary capacity ...” Manley argues that, given the facts recited above, the Bryans’ complaint must fail and Manley is entitled to a judgment discharging these debts as a matter of law (1) in their entirety, because Manley was not “acting in a fiduciary capacity,” or (2) at least in part, because punitive damages are dis-chargeable even if actual damages are not.
The Bryans assert that Manley’s “fiduciary capacity” arose under 42 O.S. § 152, which requires that
(1) The amount payablе under any building or remodeling contract shall, upon receipt by any contractor or subcontractor, be held as trust funds for the payment of all lienable claims due and owing or to become due and owing by such contractors or subcontractors by reason of such building or remodeling contract ...,
and 42 O.S. § 153, which provides that
(1) The trust funds created under Section 152 of this title shall be applied to the payment of said valid lienable claims and no portion thereof shall be used for any other purpose until all lienable claims due and owing or to become due and owing shall have been paid ...
It appears to be agreed that funds were paid under a remodeling contract, and were received by the contractor Watkins, that lien сlaims arose under 42 O.S. §§ 141 and/or 143, and that liens were actually perfected or validated by filing lien statements pursuant to 42 O.S. §§ 142 and/or 143. Nevertheless, Manley argues that no trust can be recognized, because no notice *141 of the possibility of liens was given to the Bryans pursuant to 42 O.S. § 142.1.
In a similar case, involving a debt owed by a contractor in bankruptcy (Turner) to a subcontractor (Discount), this Court ruled as follows:
Turner argues that Discount’s failure to give notice to the homeowner, Davis, pursuant to 42 O.S. § 142.1, renders Discount’s lien unenforceable and somehow negates Turner’s fiduciary capacity as to Discount. Failure to comply with statutory requirements as to enforceability and perfection of liens may impair the lien, Bohn v. Divine,544 P.2d 916 (Okl.App.1975), C & C Tile and Carpet Company, Inc. v. Aday,697 P.2d 175 (Okl.App.1985), In re Tefertiller,772 P.2d 396 (Okl.1989), and may reduce the priority of a materialman’s claim upon any remaining trust funds, In re Tefertiller, supra. But Turner admits that an Oklahoma court gave Discount judgment in rem in its action to foreclose its lien, notwithstanding failure to give notice pursuant to 42 O.S. ■§ 142.1 — although the reason for this does not clearly appear. In any event, such failure by the lien creditor does not excuse the contractor-trustee’s breach of his own fiduciary duty to hold trust funds so that no liens need be created at all. The duty exists from the moment the contractor receives funds, 42 O.S. § 152(1). Subsequent misadventures of the creditor in pursuit of one remedy (the lien) need not take away the creditor’s alternative remedy (available trust funds, or an award of damages for their unavailability). Whatever noncompliancе with 42 O.S. § 142.1 may have done to Discount’s lien, it does not cancel Turner’s duty, nor remove his debt. The issue now before this Court concerns dischargeability of a debt owed to the supplier, not validity of a lien on the homeowner’s building or priority of a claim against the balance of the trust,
In re Turner,
The Court further notes that 42 O.S. § 142.1 is obviously intended to protect homeowners like the Bryans. It would be perverse to construe and apply such a statute in a manner that defeats the homeowners’ rights as against a derelict contractor. See 12 O.S. § 2; 25 O.S. § 29, C & C Tile and Carpet Company, Inc. v. Aday, supra.
The Court concludes that mere failure to give notice of the possibility of liens pursuant to 42 O.S. § 142.1 does not cancel a contractor’s fiduciary duty to hold trust funds pursuant to 42 O.S. §§ 152,153. Accordingly, in this regard Manley has failed to show that he is entitled to judgment in his favor as a matter of law.
The Bryans assert that not only their actual damages but also punitive damages and attorney fees awarded them against Manley are excepted from discharge. Manley argues that, even if the аctual damages are excepted from discharge, the punitive damages are not excepted from discharge under 11 U.S.C. § 523(a)(4).
The issue is one of statutory interpretation. But 11 U.S.C. § 523(a)(4) must be read and interpreted in its historical and statutory context.
Under the Bankruptcy Act of 1898 (“the Act”), the treatment of debts and claims depended on their “provability.” Provable debts could be paid from the bankruptcy estate; but to the extent they were unsatisfied, they could also be discharged. Non-provable debts could not be paid from the bankruptcy estate; but they also could not be discharged. At first, “provability” seems to have been rather a cut-and-dried. affair reflecting bankruptcy’s commercial origins and supposedly simple distributive
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function. Tort debts were not provable, which automatically rendered most punitive damages non-provable and therefore non-dischargeable. But debts evidenced by judgments were provable, which automatically rendered those punitive damages already reduced to judgment provable and dischargeable. There was insufficient reason for such disparate treatment of unliqui-dated and liquidated damages. Accordingly, the Act of 1898 was construed by courts and amended by Congress so as to render more and more debts provable and therefore
prima facie
dischargeable — while also providing that some types of debts, even though provable, could be specially excepted from discharge, as demandеd by sound public policy and equitable good conscience. The Act’s emphasis shifted from arbitrary “provability” to (hopefully) rational and careful “dischargeability.” Act §§ 17, 57, 63; and see
Schall v. Camors,
In pertinent part, Act § 63 came to provide that
a. Debts ... may be proved ... which are founded upon (1) a fixed liability, as evidenced by a judgment ..., absolutely owing at the time of the filing of the petition ... (3) a claim for taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a pro[v]able debt ... (5) provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt’s application for a discharge ... (7) the right to recover damages in any action for negligence instituted prior to and pending at the time of the filing of the petition in bankruptcy; (8) contingent debts ...,
while Act § 17 came to provide that
a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts ... except such as ... (2) are liabilities for obtaining money or property by false pretenses or false representations, or for obtaining money or property on credit or obtaining an extension or renewal of credit in reliance upon a materially false statement in writing respecting his financial condition made or published or caused to be made or published in any manner whatsoever with intent to deceive, or for willful and malicious conversion of the property of another ... (4) were created by his fraud, embezzlement, misappropriаtion or defalcation while acting as an officer or in any fiduciary capacity ... (8) are liabilities for willful and malicious injuries to the person or property of another other than conversion as excepted under clause (2) of this subdivision.
To the extent that any punitive damages were not provable under Act § 63(a), such punitive damages were also nondischargeable. To the extent that any punitive damages were provable under Act § 63(a), such punitive damages would still be nondis-chargeable if they were “liabilities for” or “liabilities created by” the infractions specified in Act § 17(a)(2), (4) or (8).
In
Coen v. Zick,
We note that in Barbachano the dis-chargeability of each amount was treated separately because each was based upon a separate finding with a separate award of damages as to each injury. In the case before us, however, there is only one claimed cause of action consisting of a number of different acts and one claim of damages consisting of both compensatory and punitive elements for the same acts. If we follow the reasoning in Bar-bachano here, both punitive and compen *143 satory damages flow from one and the same course of conduct. If the acts were intentional and malicious they would support a right in the plaintiff to be compensated for loss or damage and they would also justify a recovery of punitive damages. But the legal basis for each is the same. That is what the appellant argues, and with that argument we agree.
The statutory exception which measures non-dischargeability is “... for liabilities ... for willful or malicious injuries to the person or property of another....” The exception is measured by the nature of the act, i.e., whether it was one which caused willful and malicious injuries. All liabilities resulting therefrom are non-dischargeable. One liability is limited to actual compensation, presumаbly out of pocket expense, loss of profits, and other provable damages. But for this type of conduct, yet another liability may be incurred if the jury under proper instructions sees fit to award it. That is for punitive damages. Both types of liability are within the statute as “liabilities” for “willful or malicious injuries to the person or property of another.”
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We think it is clear from the record in this trial court that compensatory damages were awarded for willful and malicious acts. Therefore, that award is not dischargeable in bankruptcy.
Our decision on this question of necessity is also conclusive of the cross appeal of appellees to set aside the order of the referee denying discharge of the judgment for $1,000 for punitive damages. The cross appeal is denied,
Coen v. Zick,
458 F.2d pp. 329-330. This rule was followed in
National Homes Corporation v. Lester Industries, Inc.,
All of the cases just cited dealt with Act § 17(a)(2), (8), which spoke of “liabilities for ...” obtaining money, property or credit on false pretenses or wilful and malicious injury to person or property. This Court knows of no case dealing with punitive damages under Act § 17(a)(4), which spoke of “liabilities ... created by ... fraud, embezzlement, misappropriation or defalcation while acting ... in any fiduciary capacity.” It might be argued that the words “created by” indicate actual damages only. If so, then punitive damages imposed for “arms-length” fraud would be nondis-chargeable under Act § 17(a)(2), while punitive damages imposed for fraud in a fiduciary capacity would be dischargeable under Act § 17(a)(4). It is difficult to imagine why Congress would have wanted “arms-length” frauds under § 17(a)(2) treated more severely than frauds in a fiduciary capacity under § 17(a)(4). It is more likely that, if punitive damages could be nondis-chargeable under § 17(a)(2), (8), they could likewise be nondischargeable under § 17(a)(4); and the distinction between “liabilities for” and “liabilities ... created by” should be treated as a distinction without a difference.
The Bankruptcy Code of 1978 (“the Code”) abandoned “provability.” All claims which were valid, enforceable, and reducible to money judgment were allowed; and all allowable сlaims could be discharged, with exceptions set forth in Act § 17’s successor, 11 U.S.C. § 523. 11 U.S.C. §§ 101(5), (12), 501, 502(a), (b), 523(a), 524(a), 727(b), 944(b), 1141(d), 1228, 1328; and see 2 Collier on Bankruptcy (15th ed. 1991) ¶¶ 101.05, 101.12, 3 Collier on Bankruptcy (15th ed. 1991) ¶¶ 502.-01[1], 502.02, 523.02, 523.03, 523.04. The new Code’s § 523 provides in pertinent part that
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this *144 title does not discharge an individual debtor from any debt—
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(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
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(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
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(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;
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The deviant wording “created by” in Act § 17(a)(4) has been removed. § 523(a)(2), (4) and (6) all use the same language, excepting from discharge “any debt ... for ...” The word “debt” is elsewhere defined as “liability on a claim,” 11 U.S.C. § 101(12). “Claim” is itself defined as a
... right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured,
11 U.S.C. § 101(5)(A). Therefore the Code excepts from discharge any “liability on a right to payment for” the matters specified in § 523(a)(2), (4) and (6). This language is reminiscent of the Act’s formula “liabilities for ...”
Legislative history in the form of committee reports does not address the precise issue, H.Rep.No. 95-595 (1977) pp. 361-363, S.Rep.No. 95-989 (1978) pp. 77-80, Cong. Rec. (Sept. 28, 1978) pp. H-11095, -11096. There is, at least, no indication of any Congressional intent to change the substance of prior law in this regard.
Most courts interpreting § 523(a)(2), (4) and (6) have held that both actual and punitive damages are excepted from discharge under those statutes. An extensive listing of cases appears in
In re Dahlstrom,
These arguments are discussed in In re Dahlstrom, supra. But this Court has some further comments regarding these arguments and their treatment in In re Dahlstrom.
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It is sometimes said that § 523(a)(2), unlike former § 17(a)(2), expressly limits non-dischargeable debts to actual damages, i.e. “any debt ...
to the extent obtained by ...
false pretenses, a false representation, or actual fraud ...” This argument supposes that the statutory phrase “to the 'extent obtained by” modifies and limits the word “debt.” See
In re Dahlstrom,
129 B.R. pp. 242-243 and n. 6, 246-247; and
In re Levy,
... [TJhere is no reason to conclude that the 1984 amendments were anything but technical and cosmetic. We have found no legislative history reflecting that Congress intended to significantly alter the rights and obligations of creditors and debtors governed by this section,
In re Gerlach,
It is argued “that exceptions to discharge should be read narrowly so that they will not unduly interfere with the Bankruptcy Code’s policy of providing the debtor with a fresh start,”
In re Dahlstrom,
129 B.R. p. 245. The
Dahlstrom
court “believes that holding punitive damages to be nondischargeable is in conflict with the fresh start policy,”
id.,
but felt constrained by the language of § 523(a)(6) and by the U.S. Supreme Court’s recent decision in
Grogan v. Garner,
supra. A closely related argument is that “By limiting the creditor to the amount of its actual damages ... the intent of the Code is fulfilled inasmuch as the creditor is made whole,”
In re Dahlstrom,
129 B.R. p. 245. This assumes that “the intent of thе Code” is merely “to make creditors whole” regardless of all other considerations. This assumption is made explicit in cases such as
In re Alwan Brothers Co., Inc.,
The Bankruptcy Court is not a forum for deterring misconduct ... there is no punishment for punishment’s sake in bankruptcy,
id.
p. 892.
In re Alwan Brothers Co., Inc.
cites no authority for these propositions, except one case of doubtful relevance concerning the Warsaw Convention which has since been reversed by the U.S. Supreme Court, see
Eastern Airlines, Inc. v. Floyd,
— U.S. —,
It is sometimes said that equity courts should not stoop to aid vindictive plaintiffs seeking awards of punitive damages.
If the ... plaintiffs ... had sustained an injury to their legal rights, the courts of law were open to them for redress, and in those courts they might ... have claimed not compensation merely, but vengeance ... But before a[n equity] tribunal which refuses to listen even to *146 any, save those whose acts and motives are perfectly fair and liberal, they cannot be permitted to contravene the highest and most benignant principle of the being and constitution of that tribunal,
Livingston v. Woodworth,
Punitive damages may be sought by plaintiffs for reasons of vengeance or greed. But they may be allowed by the State for reasons of policy, 22 AM.JUR.2d (1988) “Damages” §§ 733, 734 pp. 785-788,
Pacific Mutual Life Insurance Company v. Haslip,
499 U.S. —, —, —-—, —-—, —, (majority opinion), —-—(Justice Scalia, concurring),—(Justice O’Connor, dissenting),
Where рunitive damages are not lightly imposed, they should not be lightly taken away. Precisely because punitive damages are noncompensatory and quasi-criminal in nature, courts should treat them with respect; for to interfere with the enforcement of such punitive damages is to interfere with the State’s own (indirect) attempts to discipline unruly citizens and to deter outrageous misbehavior. A Bankruptcy Court which categorically discharges such punitive damages declares, in effect, that equity will come to the rescue of those who clearly intend evil; and that the U.S. Congress intends its bankruptcy courts to act against the benefit of society, to free transgressors from restraint, and to encourage future wrongdoing!
Grogan v. Garner
does not revisе the proper, traditional fresh-start doctrine in any way. The U.S. Supreme Court’s formulation of the fresh-start doctrine has limited its benefits to “honest but unfortunate” debtors for more than a hundred years — see
Neal v. Clark (Neal v. Scruggs),
It follows that there is no conflict between the “fresh start” policy and the punishment of some debtors. Punitive damages are usually imposed only on defendants who are culpable in the extreme, not on those who are merely “honest but unfortunate.” When punitive damages are inflicted only on those who deserve them, and discharges are granted only to those who deserve them, there is no conflict between the two.
In this Court’s view, the Bankruptcy Court is not a forum for excusing misconduct. And there is no discharge for discharge’s sake in bankruptcy. Discharge is a means to achieve the legitimate purpose of providing honest debtors with a deserved “fresh start.” This is no reason to provide dishonest and vicious debtors with a ready escape from their deserved punishment.
Likewise the habit of strict construction of nondischargeability statutes has been overdone. No doubt there are occasions when a narrow reading of an exception to dischаrge is appropriate. This Court has pointed out that some portions of § 523 might well be even more narrowly construed than they are at present,
In re Turner,
supra at 659. But the supposed general rule, that all exceptions to discharge should always be read in the narrowest sense that can be forced on them by a hostile judiciary, is of very doubtful validity. The nearest the U.S. Supreme Court ever came to endorsing such a rule was in
Gleason v. Thaw,
It is argued that § 523(a)(7), which excepts from discharge a “debt ... for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and [which] is not compensation for actual pecuniary loss,” by negative implication “compel[s] the conclusion that Congress intended non-compensatory damages to be excepted from discharge only where they are owed to a governmental agency,”
In re Suter,
Debts owing to the United States or any State or subdivision thereof as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by the act, transaction or procеeding out of which the penalty or forfeiture arose ...
This was held to make such non-allowable debts also non-provable and therefore non-dischargeable, 1A
Collier on Bankruptcy
(14th ed. 1978) ¶ 17.05 p. 1587, 3
Collier on Bankruptcy
(14th ed. 1977) ¶ 57.22, 3A
Collier on Bankruptcy
(14th ed. 1975) II 63.12. The Code did away with “provability” and permitted allowance of governmental claims. This would have rendered all such governmental claims automatically
dischargeable,
unless a specific exception to discharge were provided. § 523(a)(7) provides that exception. It sees to it that the same result which obtained under the
*149
Act continues to obtain under the Code— i.e., -that “fines, penalties or forfeitures” owed to governmental units remain nondis-chargeable, despite changes in the law regarding “allowability” and “provability” of such claims. Like Act § 57(j), Code § 523(a)(7) has nothing at all to do with non-governmental plaintiffs or with punitive damages owed to any litigant (governmental unit or otherwise) in ordinary civil litigation. For purposes of dischargeability of punitive damages under § 523(a)(2), (4) or (6), § 523(a)(7) is a red herring. Accord,
In re Dahlstrom,
129 B.R. p. 246 and n. 7;
In re Levy,
supra;
In re Britton,
In sum, punitive damages were excepted from discharge under the former Bankruptcy Act, as indicated by both statutory language and caselaw; there is no indication of Congressional intent to change this rule, in either the language or legislative history of the present Bankruptcy Code; punitive damages are excepted from discharge under the present Bankruptcy Code, as indicated by both the language of the Code and by a majority of cases; this rule comports with State policy, the usages of equity, and basic bankruptcy policy. The minority of cases to the contrary are based on nothing more than a strained or erroneous reading of statutory language, and on a distortion of the “fresh start” doctrine which would seek discharge for discharge’s sake regardless of other considerations and would pervert equity into the defender and abettor of fraud, oppression and grievous fault.
The Court concludes that punitive damages, which are properly assessed against a malefactor, may be excepted from discharge under 11 U.S.C. § 523(a)(4). Accordingly, in this regard Manley has failed to show that he is entitled to judgment in his favor as a matter of law.
IT IS THEREFORE ORDERED that Manley’s “Motion for Summary Judgment” be, and the same is hereby, denied.