Placer U.S., Inc. v. Dahlstrom (In Re Dahlstrom)Placer U.S., Inc. v. Dahlstrom (In Re Dahlstrom)
MEMORANDUM OPINION AND ORDER
The matter presently before the court is a motion filed by the plaintiff, Placer U.S., Inc. (“Placer”), for summary judgment of the above-captioned adversary proceeding seeking a determination as to the dis-chargeability of the debtor’s debt to it un
DISCUSSION '
Section 523(a)(6) states, in relevant part, that “[a] discharge under section 727 ... of this title does not discharge an individual debtor from
any debt
— (6) for willful and malicious injury by the debtor to another entity or to the property of another entity[.]” (Emphasis added). “Debt” is defined in § 101(12) as “liability on a claim.” Thus, as was explained recently by the United States Supreme Court in
Johnson v. Home State Bank,
— U.S. -, - n. 5,
Although the pre-1978 Bankruptcy Act contained no single definition of ‘claim,’ the Act did define ‘claim’ as ‘including allclaims of whatever character against a debtor or its property’ for the purposes of Chapter X corporate reorganizations. See 11 U.S.C. § 506(1)(1976 ed.)(emphasis added)[ 4 ].... S.Rep. No. 1916, 75th Cong., 3d Sess., 25 (1938); H.R.Rep. No. 1409, 75th Cong., 1st Sess., 39 (1937)_ In fashioning a single, definition of ‘claim’ for the 1978 Bankruptcy Code, Congress intended to ‘adopt an even broader definition of claim than [was] found in the [pre-1978 Act’s] debtor rehabilitation chapters.’ H.R.Rep. No., 95-595, [95th Cong., 1st Sess.,] at 309 [ (1977) ] (emphasis added); accord, S.Rep. No. 95-989, [95th Cong., 2d Sess.,] pp. 21-22 (1978)....
(Emphasis added.) The expansive nature of the term “claim” and, therefore, “debt” was also noted in
Davenport,
As is apparent, Congress chose expansive language in both definitions [of ‘claim’ and ‘debt’].... For example, to the extent the phrase ‘right to payment’ is modified in the statute, the modifying language (‘whether or not such right is ...’) reflects Congress’ broad rather than restrictive view of the class of obligations that qualify as a ‘claim’ giving rise to a ‘debt.’ See also H.R.Rep. No. 95-595, supra, at 309, U.S.Code & Admin.News 1978, p. 6266 (describing definition of ‘claim’ as ‘broadest possible’ and noting that Code ‘contemplates that all legal obligations of the debtor ... will be able to be dealt with in the bankruptcy case’); accord S.Rep. No. 95-989, supra, at 22, U.S.Code & Admin.News 1978, p. 5808.
Given the plain language of § 523(a)(6), which must be read in conjunction with § 101(5) & (12) as those subsections have been interpreted by the Supreme Court in
Johnson
and
Davenport,
the court is compelled to conclude that “debts” held to be nondischargeable under that subsection include punitive damage awards.
See also Commercial Factors of Salt Lake City, Inc. v. Jensen (In re Jensen),
In addition to the plain language of § 523(a)(6), § 726(A)(4) indicates that Congress considers punitive damages to be debts under the Code. That section, which deals with the distribution of property of a Chapter 7 estate, provides for fourth priority to:
payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim....
(Emphasis added.)
The court also points out that the Supreme Court and the Tenth Circuit have indicated that, if confronted with the issue, they would conclude that punitive damage judgments may be held to be nondischargeable under § 523. In
Grogan v. Garner,
— U.S. -,
[C]onsider the question whether § 523(a)(2)(A) excepts from discharge that part of a judgment in excess of the actual value of money or property received by a debtor by virtue of fraud. See In re Rubin, 875 F.2d 755, 758, n. 1 (CA9 1989). Arguably, fraud judgments in cases in which the defendant did not obtain money, property, or services from the plaintiffs and those judgments that include punitive damages awards are more appropriately governed by § 523(a)(6). See 11 U.S.C. § 523(a)(6) (excepting from discharge debts ‘for willful and malicious injury by the debtor to another entity or to the property of another entity.’); In re Rubin,875 F.2d, at 758, n. 1 . 6
Id.
In
Klemens v. Wallace (In re Wallace),
Finally, the court’s position is bolstered by the fact that the majority of courts that have specifically addressed the issue of the dischargeability of punitive damage awards have held that they may be held to be nondischargeable.
See Johnson v. Miera (In re Miera),
There are four arguments in favor of holding punitive damages to be dischargea-ble in every proceeding. The first is 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. By limiting the creditor to the amount of its actual damages, it has been alleged that the intent of the Code is fulfilled inasmuch as the creditor is made whole.
Ellwanger,
First, the language of § 523(a)(6) overrides the fresh start policy. As the Eighth Circuit stated in
Miera,
Also, in
Grogan,
In addition to the fresh start policy, it has been argued that punitive damages are dischargeable under § 523(a)(6) because they do not represent a debt for willful and malicious injury inasmuch as they are awarded as an example to others or to punish the debtor for a certain type of conduct.
Sullair Rocky Mt., Inc. v. Van Loan (In re Van Loan),
Section 523(a)(6) except [sic] from discharge a debt for willful and malicious injury by the debtor to another entity or to the property of another entity. It is the character of the debtor’s act which must be willful and malicious; to the extent such act causes injury to the creditor, the debt is non-dischargeable. Punitive damages are not compensation for injury. Rather they are imposed to punish the wrongdoer and deter othersfrom committing like offenses in the future.... Thus, punitive damages are not a debt for injury caused by a debtor’ willful and malicious acts.
(Emphasis added.) The effect of this interpretation is to read the definition of willful and malicious injury into “debt” thereby disregarding its specific definition in § 101(12). This court believes that the better interpretation is to ascertain whether a debt exists under § 101(12) and then to determine whether the debtor’s actions are such as to make the debt nondischargeable under § 523(a). Following this analysis, the court concludes that punitive damages are clearly “debts” within the meaning of § 101(12).
See
discussion
supra
at pp. 241-43. Having made that determination, the relevant question under § 523(a)(6) becomes whether the act that gave rise to the debt was “willful and malicious.”
Adams,
It has also been maintained that when § 523(a)(7), which provides for the nondis-chargeability of a debt owed to a governmental unit for a fine, penalty, or forfeiture that is not compensation for actual damages, is read in conjunction with the other subsections of § 523(a), it “compel[s] the conclusion that Congress intended non-compensatory damages to be excepted from discharge only where they are owed to a governmental agency....”
Suter,
The fourth, and final, argument advanced by the minority is that § 523(a)(2) limits the amount of a debt that may be held to be nondischargeable “to the extent obtained by” false pretenses, a false representation, actual fraud, or a materially false writing respecting the debtor’s or an insider’s financial condition.
See Ellwanger,
The court realizes that until today it followed the minority rule holding that punitive damages are dischargeable.
See Tracy v. Cowart (In re Cowart),
No. C81-0929J, slip op. at 2 (D.Utah Sept. 20, 1982);
Sutherland v. Brown (In re Brown),
Turning to the case at hand, the court notes that it has already determined that the debtor is collaterally estopped from relitigating the issue of whether the punitive damages awarded to Placer in the Nevada district court arose from its willful and malicious injury to Placer or its property. Accordingly, it is HEREBY ORDERED that the Nevada district court judgment awarding Placer $1,000,000.00 in punitive damages is deemed NOT DISCHARGED.
Notes
. Unless otherwise noted, all future statutory references are to Title 11 of the United States Code.
. Although prior decisions of the United States Supreme Court had suggested that collateral es-toppel principles apply in proceedings pursuant to 11 U.S.C. § 523(a);
Brown v. Felsen,
.The court recognizes that the Criminal Victims Protection Act, Pub.L. 101-581, § 3, 104 Stat. 2865 (1990), substantially overruled the Supreme Court’s holding in
Pennsylvania Dept. of Public Welfare v. Davenport,
— U.S. -,
. Chapter X, § 106(1) of the Bankruptcy Act, which is codified at 11 U.S.C. § 506(1) (1976), states in full that "‘claims’ shall include all claims of whatever character against a debtor or its property, except stock, whether or not such claims are provable under section 63 of this Act and whether secured or unsecured, liquidated or unliquidated, fixed or contingently.]” Similar language was found in Chapter VIII of the Act at § 77(b) ¶ 3, Chapter XI at § 307(2), Chapter XII at § 406(2), and Chapter XIII at § 606(1).
. Recently, Congress added several subsections to 11 U.S.C. § 101, thereby causing it to be renumbered. See Crime Control Act, Pub.L. 101-647, § 2522(e), 104 Stat. 4789 (1990). Accordingly, what is now § 101(12) was, prior to the amendments, § 101(11). Similarly, prior to the amendments, § 101(5) was found at § 101(4). The amendment has not substantively changed those subsections.
. The Supreme Court’s reference to
In re Rubin,
One might question whether a § 523(a)(6) (1982) instead of § 523(a)(2)(A) should govern this case. The paradigmatic case for § 523(a)(2)(A) seems to arise when a debtor lies to a creditor to obtain a loan and the creditor seeks repayment of the loan in bankruptcy. ... The paradigmatic case for § 523(a)(6), by contrast, seems to arise when a debtor intentionally injures a creditor and the creditor seeks to make nondischargeable a judgment that he has won in a state court tort action....
The [creditors], in this suit, do not seek merely the return of equity in their home (approximately $13,000), but instead want to enforce a settlement agreement for [, $125,-000,] a much greater sum that they obtained in a suit for the intentional tort of fraud. Some courts have held that § 523(a)(2)(A) does not permit recovery in excess of actual value of the money or property obtained by fraudulent representations. See Check Central, Inc. v. Barr (In re Barr),54 B.R. 922 , 924 (Bankr.D.Or.1984); Record Co. v. Bummbusiness, Inc. (In re Record Co.),8 B.R. 57 , 60 (Bankr.S.D.Ind.1981). But see Rasnick v. Carpenter (In re Carpenter),17 B.R. 563 , 564 (Bankr.E.D.Tenn.1982) (making punitive damages nondischargeable, but not discussing the issue). These courts might require the [creditors] to show the culpability required by § 523(a)(6) to make the entire $125,000 judgment nondischargeable; they would have to show, in particular, that the judgment resulted from a 'willful and malicious’ injury. We decline to decide the question, however, because [the debtor] has not raised the issue and because the settlement makes no distinction between actual and special damages.
(Emphasis added.) In light of the absence of an objection, the court went on to hold the entire amount of the settlement nondischargeable.
. In
Brill v. Dvorak (In re Dvorak),
. To the extent that dicta in
Commercial Factors of Salt Lake City, Inc.
v.
Jensen (In re Jensen),