Stokes v. FerrisStokes v. Ferris
MEMORANDUM OPINION AND ORDER
BE IT REMEMBERED on this the 16th day of November, 1992, came on to be heard and considered the above-styled and numbered cause. This is a bankruptcy appeal in which Anthony P. Ferris appeals the decision of Bankruptcy Judge Kelly to discharge punitive damages and attorneys’ fees and costs awarded in a state court judgment against John Jay Stokes, Jr. (Stokes, Jr.).
1
Judge Kelly held that Ferris’s actual damages in the amount of $550,000 were not dischargeable under Section 523(a)(2)(A) of the Bankruptcy Code,
2
I. Background Facts
Ferris does not challenge the findings of fact made by Judge Kelly in his September 26, 1990 Memorandum Opinion in case number 87-12304 (Adv. No. 88-1018); therefore, this Court will simply summarize those findings.
On or about December 12, 1984, John J. Stokes, Jr. forged the name of his father, John J. Stokes, Sr., on a warranty deed purporting to transfer eight acres of land from Stokes, Sr. to Stokes, Jr. See Findings of Fact, 1.02, 1.06, 2.03, 2.07. On March 19, 1985, Stokes, Jr., with intent to deceive Ferris, accepted $550,000 in cash from Ferris as consideration for the transfer of the eight acres by warranty deed to Ferris, after falsely representing to Ferris that Stokes, Jr. owned the eight-acre tract. See Findings of Fact, 2.04, 2.05, 2.09. Stokes, Sr. filed suit against both Stokes, Jr. and Ferris in February, 1986, and Ferris filed a cross-claim against Stokes, Jr., alleging breach of warranty in violation of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”). Finding of Fact, 1.05. In June of 1988 a trial, at which Stokes, Jr. did not attend, was held and damages were awarded under the DTPA in the amount of $1,647,000.00 plus attorneys’ fees and post-judgment interest. Id., 1.06.
Ferris initiated an adversary proceeding in the Bankruptcy Court claiming that the entire state court judgment should not be discharged under Sections 523(a)(2)(A), (4), and (6). Id., 1.07. Amongst other things, Judge Kelly found
[t]he conduct of Defendant was deliberate or intentional and amounts to conscious disregard of the rights of others and was without just cause or excuse and Plaintiff’s compensatory damages and exemplary damages flowed from the willfulness and/or malice of Defendant.
Finding of Fact, 2.09. Judge Kelly also found
Plaintiff is entitled to recover compensatory damages in the amount of $550,000 plus interest from June 6, 1988 plus costs and attorney’s fees in the amount of $72,353.00 plus additional damages under Tex.Bus. & Com.Code Ann. section 17.-50(b)(1) in the amount of $1,097,000 ..., [which] is not discharged, pursuant to the provisions [sic] 11 U.S.C. § 523(a)(2)(A).
Findings of Fact, 2.11, 2.14.
Despite these finding, Judge Kelly found
... Defendant wilfully and intentionally converted the property of Stokes, Sr. However, Stokes, Jr. is not the Plaintiff. Plaintiff only established his claim under Code § 523(a)(2)(A).
Conclusion of Law, 3.09. And Judge Kelly further stated
[m]uch has been made of the argument by Plaintiffs that all of their damages fall under § 523(a)(6). However, all of their evidence related to fraud and their damages were computed in state court under the Texas [DTPA],... No effort was made ... to come up with any finding of “punitive damages” other than as statutorily computed under the treble damage provision of this states [sic] statute.
Conclusion of Law, 3.12. In conclusion, Judge Kelly held $550,000 of Plaintiff’s debt was not discharged, but the balance of Plaintiff’s claim, was an allowable but dis-chargeable claim. Thus, the statutorily trebled damages in excess of Ferris’s actual damages, legal fees, and post-judgment interest awarded Ferris were held dis-chargeable, presumably under Section 523(a)(2)(A) exclusively.
This Court has jurisdiction of this appeal pursuant to Section 158(a), Title 28, United States Code. Because Ferris only challenges Judge Kelly’s legal conclusions regarding discharge of statutory damages and legal fees, the standard of review is de novo.
See Richmond Leasing Co. v. Capital Bank, N.A.,
III. Analysis
A. Does Section 523(a)(6) apply to Ferris’s damages?
There is no dispute Section 523(a)(2)(A) applies in this case, causing Ferris’s actual damages to be nondis-chargeable.
See
11 U.S.C. § 523(a)(2)(A);
Findings of Fact,
2.04-2.07, 2.14;
Conclusions of Law,
3.01-3.04 (citations omitted). However, not all damages are nondis-chargeable under Section 523(a)(2)(A), but rather only that part of a debt “to the extent obtained by” fraud is nondischargeable. Courts have uniformly held that punitive damages are not nondischargeable under this provision.
See e.g., In re Levy,
Section 523(a)(6) of the Bankruptcy Code states
section 727 ... 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;
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11 U.S.C. § 523(a)(6) (emphasis added). “Willful” has been defined as “deliberate or intentional,” and “malicious” as “in conscious disregard of one’s duties, or without just cause or excuse, and does not require ill will or specific intent to do harm.”
In re Dean,
The Court, therefore, finds Judge Kelly’s findings of fact compel the legal conclusion that Section 523(a)(6) applies as Ferris’s injuries were a result of Stokes, Jr.’s willful and malicious conduct.
B. Are Ferris’s statutory damages and attorneys’ fees and costs non-dischargeable under Section 523(a)(6)?
Having concluded that Section 523(a)(6) applies, as a matter of law, given Judge Kelly’s findings of fact, the Court now queries whether Judge Kelly’s statement that the state court made no attempt to “come up with any finding of ‘punitive damages’ other than as statutorily computed under the treble damage provision of this states statute ...,” is justification for concluding that Ferris’s damages above $550,000, which include treble damages under the DTPA and legal fees, are dis-chargeable. Again, the Court finds from reading the words of the statute and applicable case law, Section 523(a)(6) makes no distinction between “punitive” damages and “statutory” damages, and, therefore, all of Ferris’s damages are nondischargeable.
Section 523(a)(6) states that a debtor will not be discharged from
“any
debt” for “willful and malicious injury.” 11 U.S.C. § 523(a)(6). A “debt” is merely a “liability on a claim.”
Id.
§ 101(12);
see also In re Dahlstrom,
Courts, discussing the nondis-chargeability of punitive damages under Section 523(a)(6), support the above conclusion. Many have emphasized that it is the nature of the debtor’s conduct and
not
the nature of the liability which is determinative under Section 523(a)(6).
See e.g., In re Miera,
IV. Conclusion
In light of Judge Kelly’s factual findings and case law clearly indicating that Section 523(a)(2)(A) and 523(a)(6) may apply simultaneously, this Court is compelled to find Section 523(a)(6) applicable in this case. All debts, including statutorily computed punitive damages, legal fees, and interest, are nondischargeable under Section 523(a)(6). Therefore,, the Court enters the following order:
, IT IS ORDERED that Judge Kelly’s Order Sustaining in Part ánd Denying in Part Plaintiff’s (Complaint, to Determine Dis-chargeability of Debt is REVERSED IN PART and that Plaintiff’s ENTIRE CLAIM OF $1,647,000.00, plus attorneys’ fees and post-judgment interest, is NONDIS-CHARGEABLE pursuant to 11 U.S.C. § 523(a)(6).
Judgment will be entered accordingly.
Notes
. Despite the style of the case, John Jay Stokes, Jr. dismissed his appeal so only Ferris’s appeal is before the Court.
. Unless otherwise indicated, all references to sections are to the Bankruptcy Reform Act of 1987 ("Bankruptcy Code”), as amended, 11 U.S.C. § 101, et seq. (1992).
. Although the Court usually refers to Ferris's trebled damages under the DTPA as “statutory" damages, they are, in fact, nothing more than "punitive” damages set by the Texas legislature.
See Pace v. State,
. See Footnote 3, supra.
. See Footnote 3, supra.