What constitutes a willful and malicious injury for the purpose of the exception to dischargeability in 11 U.S.C. 523(a)(6)?

(a) A discharge under section 727, 1141, 1192 ¹ 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-

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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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Section 523(a)(6) of the Bankruptcy Code provides: "(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) 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." The question presented on appeal is whether a finding of "willful and malicious injury" must be based on the debtor's subjective knowledge or intent or whether such a finding can be predicated upon an objective evaluation of the debtor's conduct. We hold that § 523(a)(6)'s willful injury requirement is met only when the debtor has a subjective motive to inflict injury or when the debtor believes that injury is substantially certain to result from his own conduct.

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A. Willfulness

In Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), the Supreme Court established that § 523(a)(6) does not apply to those debts arising from unintentionally inflicted injuries:

The word "willful" in (a)(6) modifies the word "injury," indicating that non-dischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Had Congress meant to exempt debts resulting from unintentionally inflicted injuries, it might have described instead "willful acts that cause injury." .... [T]he (a)(6) formulation triggers in the lawyer's mind the category "intentional torts," as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend "the consequences of an act", not simply "the act itself."

523 U.S. at 61-62, 118 S.Ct. 974 (citation omitted). Thus, Geiger held that debts arising out of a medical malpractice judgment were dischargeable, even though the plaintiff alleged that Dr. Geiger had intentionally rendered inadequate medical care, and that this necessarily led to her injury. Geiger concluded that "debts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6)." Id. at 64, 118 S.Ct. 974.

Both parties agree that a "deliberate or intentional injury" is required for § 523(a)(6) to render a debt non-dischargeable. The question we must decide is the state of mind that is required to satisfy § 523(a)(6)'s willful injury requirement. According to the Restatement, an action is intentional if an actor subjectively "desires to cause consequences of his act, or ... believes that the consequences are substantially certain to result from it." RESTATEMENT (SECOND) OF TORTS § 8A (1964). The Geiger Court, however, did not expressly adopt this subjective Restatement formulation,¹ and the lower courts have differed over whether to adopt a strict subjective test when applying § 523(a)(6).

The Sixth Circuit's interpretation of § 523(a)(6) exemplifies the strict subjective approach, in which a debt is nondischargeable under § 523(a)(6) only if the debtor intended to cause harm or knew that harm was a substantially certain consequence of his or her behavior. In Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999), the debt arose from a legal malpractice action against the debtor. The creditor argued that the debt was nondischargeable under § 523(a)(6)'s "willful and malicious injury" provision. While In re Markowitz acknowledged that Geiger had not expressly adopted the Restatement's subjective "substantially certain" language, it nonetheless concluded that "from the Court's language and analysis in Geiger, we now hold that unless `the actor desires to cause consequences of his act, or... believes that the consequences are substantially certain to result from it,' he has not committed a `willful and malicious injury' as defined under § 523(a)(6)." Id. at 464 (quoting RESTATEMENT (SECOND) OF TORTS § 8A (1964)).

Conversely, the Fifth Circuit's interpretation of § 523(a)(6) exemplifies the objective

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approach, in which debt is nondischargeable under § 523(a)(6) either if there is a subjective intent to cause an injury or if there is an objective substantial certainty of harm. In In re Miller, the creditor sought a determination that a state court judgment for misuse of trade secrets constituted a nondischargeable debt. While acknowledging that Geiger "certainly eliminates the possibility that `willful' encompasses negligence or recklessness," In re Miller held that "the label `intentional tort' is too elusive to sort intentional acts that lead to injury from acts intended to cause injury. Rather, either objective substantial certainty or subjective motive meets the Supreme Court's definition of `willful ... injury' in § 523(a)(6)." 156 F.3d at 603.

While this difference between the objective approach taken by the Fifth Circuit and the subjective approach taken by the Sixth Circuit is evident from In re Miller and In re Markowitz, this difference has been overlooked by courts in the Ninth Circuit when evaluating § 523(a)(6) claims. For example, in Baldwin v. Kilpatrick (In re Baldwin), 245 B.R. 131 (9th Cir.2000), aff'd, 249 F.3d 912 (9th Cir.2001), a creditor who had obtained a state court judgment against the debtor for assault and battery brought an adversary proceeding to except that judgment debt from discharge under § 523(a)(6). Because the debtor "was an active participant in the violent striking" of the creditor, the BAP easily found that the assault and battery judgment stemmed from a "willful and malicious injury" to creditor's person and, therefore, was nondischargeable. Id. at 137. In so holding, however, the BAP declared: "The Fifth Circuit [in In re Miller] held that ... `either objective substantial certainty or subjective motive meets the Supreme Court's definition of `willful ... injury' in § 523(a)(6).' The Sixth Circuit [in In re Markowitz] has also adopted this approach. We similarly adopt this standard." Id. at 136 (citations omitted).²

This court too committed a similar oversight when it examined, for the first time, the question of intent in the context of § 523(a)(6)'s willful injury requirement. In In re Jercich, a creditor who had obtained a state court judgment for unpaid wages against his former employer, a Chapter 7 debtor, sought to except that judgment debt from discharge pursuant to § 523(a)(6). Focusing on the subjective intent of the employer, this court held "that under Geiger, the willful injury requirement of § 523(a)(6) is met when it is shown either that the debtor had a subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct." 238 F.3d at 1208. Given that the employer in In re Jercich knew both that he owed wages to his employee and that his failure to pay those wages would, with substantial certainty, harm his employee, this court concluded that the debt owed the employee was nondischargeable under § 523(a)(6). Id. at 1208-09.

The holding in In re Jercich is clear: § 523(a)(6) renders debt nondischargeable when there is either a subjective intent to harm, or a subjective belief that harm is substantially certain. Unfortunately,

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however, the opinion also states that the subjective inquiry it endorsed is "consistent with the approaches taken by the Fifth and Sixth Circuits," in In re Miller and In re Markowitz. Id. We believe that this claim of consistency is not completely accurate.³ Nonetheless, Carrillo seizes on this misstatement to rationalize the bankruptcy court's heavy reliance on In re Miller. Carrillo's argument fails, however, because the holding of In re Jercich, which sets out the scope of § 523(a)(6)'s willful injury requirement, expressly articulates only a subjective dimension. Because the bankruptcy court focused exclusively on the objective substantial certainty of harm stemming from Su's driving, but did not consider Su's subjective intent to cause harm or knowledge that harm was substantially certain, we agree with the BAP that the bankruptcy court applied the incorrect legal standard. Thus, this proceeding must be remanded to the bankruptcy court for consideration of Carrillo's nondischargeability claim under the subjective framework articulated in In re Jercich.

We believe, further, that failure to adhere strictly to the limitation expressly laid down by In re Jercich will expand the scope of nondischargeable debt under § 523(a)(6) far beyond what Congress intended. By its very terms, the objective standard disregards the particular debtor's state of mind and considers whether an objective, reasonable person would have known that the actions in question were substantially certain to injure the creditor. In its application, this standard looks very much like the "reckless disregard" standard used in negligence.⁴ That the Bankruptcy

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Code's legislative history makes it clear that Congress did not intend § 523(a)(6)'s willful injury requirement to be applied so as to render nondischargeable any debt incurred by reckless behavior,⁵ reinforces application of the subjective standard. The subjective standard correctly focuses on the debtor's state of mind and precludes application of § 523(a)(6)'s nondischargeability provision short of the debtor's actual knowledge that harm to the creditor was substantially certain.⁶

The BAP correctly observed that in In re Jercich, we treated the "malicious" injury requirement of § 523(a)(6) as separate from the "willful" requirement. According to In re Jercich: "A `malicious' injury involves `(1) a wrongful act, (2) done

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intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.'" 238 F.3d at 1209 (quoting In re Bammer, 131 F.3d at 791); see also id. at 1209 n. 36 (emphasizing that the "maliciousness standard — and in particular our `just cause and excuse' prong — survived Geiger" and distinguishing In re Miller, where "the `just cause or excuse' standard has been displaced by Geiger and ... [where] the `willful' and `malicious' prongs [have been collapsed] into a single inquiry").

The bankruptcy court, however, made no findings regarding malice. In fact, it conflated the "willful" and "malicious" prongs in its § 523(a)(6) analysis. While Carrillo contends that the four factors can be ascertained by examining the record, we decline to make the independent malice inquiry required by In re Jercich in the first instance. Therefore, on remand, the bankruptcy court should also make appropriate findings on the issue of malice.

Even though recklessness is sufficient for a finding of willful copyright infringement, the Supreme Court has clearly held that injuries resulting from recklessness are not sufficient to be considered willful injuries under § 523(a)(6) of the Bankruptcy Code and are therefore insufficient to merit an exemption to dischargeability. Geiger, 523 U.S. at 60-61, 118 S.Ct. 974. In Geiger, the Supreme Court specifically limited "willful" injuries under § 523(a)(6) to "deliberate or intentional" injuries. Id. at 61, 118 S.Ct. 974. Therefore, if a finding of "willful" copyright infringement is based merely on reckless behavior, the resulting statutory award would not fit within the § 523(a)(6) exemption.

In re Su established that the malicious injury requirement of § 523(a)(6) must be determined separately from the willful injury requirement. In re Su, 290 F.3d at 1146-47. In re Su emphasized the necessity of completing a separate analysis on the "malicious" prong of § 523(a)(6) by declining to make a "malicious" finding and remanding to the bankruptcy court for further analysis, even though the four "malicious" factors might have been ascertained by examining the record. Id. at 1147; see also In re Sicroff, 401 F.3d at 1105 ("We analyze the willful and malicious prongs of the dischargeability test separately.").

i. Reversible Error by the Bankruptcy Court

The Bankruptcy Court in this case made no rulings as to the "malicious" prong of § 523(a)(6). Appellee briefed the malicious prong in its First Summary Judgment Motion in the Bankruptcy Action. At the hearing on the First Summary Judgment Motion the Bankruptcy Judge stated "I could not grant summary judgment as to [intent]. I think you've got virtually everything else lined up." However, there is no discussion on the record of what "everything else" refers to. The Bankruptcy Court apparently considered the issue of whether Albarran actually copied the tapes resolved by the District Court Action. However, we do not know whether that issue was all the Bankruptcy Court was referring to when it stated "everything else [was] lined up." A proposed order on the First Summary Judgment Motion was submitted to the Bankruptcy Judge that would have found "that all the elements of § 523(a)(6) have been established for the purposes of the Trial of this matter except for the single element of `Intent.'" However, this proposed order was specifically rejected by the Bankruptcy Court, and an alternative order was adopted which only held in relevant part that: "The findings of the jury and the judgment in the Federal Court action ... bind this Court and the parties, and shall not be re-litigated in this adversary proceeding." Because the District Court Action did not address the "malicious" prong of § 523(a)(6), and the jury made no findings in this regard, we cannot discover any separate findings of uncontroverted fact of maliciousness by the Bankruptcy Court.

ii. Reversible Error by the BAP

Relying on Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420, 434 (9th Cir.BAP 2002), the BAP, perhaps in an attempt to remedy the Bankruptcy Court's lack of discussion and findings concerning the "malicious" prong, found that malice could be implied from willfulness. Although there may be some overlap between the test for "willfulness" and the test for "malice," see Transamerica Commercial Finance Corp. v. Littleton (In re Littleton), 942 F.2d 551, 554 (9th Cir.1991) (per curiam) ("[M]alice may be inferred from the nature of the wrongful act."), the overlap does not mean that the Bankruptcy Court can ignore entirely the malice inquiry. We require a separate analysis for each of the "willful" and "malicious" prongs. See In re Sicroff, 401 F.3d at

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1105 ("We analyze the willful and malicious prongs of the dischargeability test separately."); In re Su, 290 F.3d at 1146-47 (9th Cir.2002) (rejecting an attempt to conflate the two prongs and requiring a separate analysis as to each); In re Jercich, 238 F.3d at 1207-09 (treating the willful and malicious prongs with separate analyses); In re Littleton, 942 F.2d at 554 (analyzing willfulness and maliciousness separately). The BAP's conclusion that the Appellants' actions were malicious under § 523(a)(6) rested entirely on its conclusion that the Appellants' actions were willful under § 523(a)(6). Because we have concluded that there is a genuine issue of material fact as to willfulness, we similarly reverse the Bankruptcy Court's judgment with respect to maliciousness. On remand, the Bankruptcy Court should conduct a separate inquiry concerning malice. See In re Sicroff, 401 F.3d at 1105 In re Su, 290 F.3d at 1146-47; In re Jercich, 238 F.3d at 1207-09; In re Littleton, 942 F.2d at 554.

Section 523(a)(6) excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). A plaintiff asserting a § 523(a)(6) cause must demonstrate that the injury was both malicious and willful. See Ormsby v. First Am. Title Co. of Nev. (In re Ormsby ), 591 F.3d 1199, 1206 (9th Cir. 2010); see also Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 711 (9th Cir. 2008). The elements are analyzed separately. See, e.g., In re Barboza, 545 F.3d at 706. And both must be proven. See In re Ormsby, 591 F.3d at 1206.

The word "willful" in (a)(6) modifies the word "injury," indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. ... [T]he (a)(6) formulation triggers in the lawyer's mind the category intentional torts, as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend the consequences of an act, not simply the act itself.

Kawaauhau v. Geiger, 523 U.S. 57, 61–62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) (emphasis in original). An injury is willful if the debtor "acted with either the desire to injure or a belief that injury was substantially certain to occur." Ditto v. McCurdy, 510 F.3d 1070, 1078 (9th Cir. 2007). "A malicious injury involves (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse." In re Ormsby, 591 F.3d at 1207 (quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001) ).

Moreover, "tortious conduct is a required element for a § 523(a)(6) nondischargeability finding." In re Rodriguez, 568 B.R. 328, 339 (Bankr. S.D. Cal. 2017) (citing Lockerby v. Sierra, 535 F.3d 1038, 1040 (9th Cir. 2008)); see also In re Jercich, 238 F.3d at 1205. And conduct "is only tortious if it constitutes a tort under state law." Lockerby, 535 F.3d at 1041 (citing In re Jercich, 238 F.3d at 1206 ). A criminal violation or tort-like statutory violation may also suffice, however. See

[628 B.R. 691]

In re Riley, BAP No. CC-15-1379-TaLKi, 2016 WL 3351397, at *3 n.6 (B.A.P. 9th Cir. June 8, 2016).

B. Section 523(a)(6)

Section 523(a)(6) prevents discharge "for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). The Supreme Court in Kawaauhau v. Geiger (In re Geiger), 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), made clear that for section 523(a)(6) to apply, the actor must intend the consequences of the act, not simply the act itself. Id. at 60, 118 S.Ct. 974. Both willfulness and maliciousness must be proven to block discharge under section 523(a)(6).

i. Willful Injury

In this Circuit, "§ 523(a)(6)'s willful injury requirement is met only when the debtor has a subjective motive to inflict injury or when the debtor believes that injury is substantially certain to result from his own conduct." Carrillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir.2002). The Debtor is charged with the knowledge of the natural consequences of his actions. Cablevision Sys. Corp. v. Cohen (In re Cohen), 121 B.R. 267, 271 (Bankr.E.D.N.Y. 1990); see Su, 290 F.3d at 1146 ("In addition to what a debtor may admit to knowing, the bankruptcy court may consider circumstantial evidence that tends to establish what the debtor must have actually known when taking the injury-producing action.").

Ormsby contends section 523(a)(6) does not apply because the state court did not adopt a finding that Ormsby had the

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subjective intent to injure FATCO or that he believed that FATCO's injury was substantially certain to occur as a result of his conduct. Ormsby must have known that FATCO's injury was substantially certain to occur as a result of his conduct. Because Ormsby paid for access to the title plants for 2000 until present, he was necessarily aware that his use of FATCO's title plants and other materials without paying for them had an economic value. The state court explicitly found that FATCO's suffered injury by granting $141,500 in compensatory damages based on the measure of a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret. Ormsby therefore inflicted willful injury on FATCO.

ii. Malicious Injury

"A malicious injury involves (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse." Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir.2001) (internal citations omitted). Malice may be inferred based on the nature of the wrongful act. See Transamerica Commercial Fin. Corp. v. Littleton (In re Littleton), 942 F.2d 551, 554(9th Cir.1991).⁷ To infer malice, however, it must first be established that the conversion was willful. See Thiara, 285 B.R. at 434.

In this case, Ormsby knew that FATCO's injury was substantially certain to occur as a result of his conduct. Ormsby additionally knew the legal way to obtain access to the title plants was to purchase rights. The state court found FATCO suffered an injury as a result of this use, and Ormsby has offered no just cause or excuse for his conduct.⁸ Moreover, in granting attorney's fees, the state court found the misappropriation was willful and malicious.

Based on these facts found by the state court, Ormsby's conduct meets both the willful and malicious prongs of section 523(a)(6); accordingly, we affirm the nondischargeability of the judgment.

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IV.

For the foregoing reasons, we affirm the District Court's judgment that Ormsby's debt is nondischargeable under either section 523(a)(4) and (a)(6). Additionally, we affirm the District Court's grant of FATCO's motion to withdraw the reference in regard to its motion for attorney's fees.

The bankruptcy court concluded that the facts fell short of proving that Sicroff's acts were either willful or malicious. However, because Sicroff explicitly conceded that his behavior was "willful and intentional" for purposes of the dischargeability hearing, there is no reason to dwell on the "willful" prong. Sicroff offered no evidence that could counterbalance the weight of his concession and the bankruptcy court's contrary determination was clearly erroneous.

2

An injury is "malicious," as that term is used in Section 523(a)(6), when it is: "(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse." In re Jercich, 238 F.3d at 1209. Within the plain meaning of this definition, it is the wrongful act that must be committed intentionally rather than the injury itself. See Murray v. Bammer (In re Bammer), 131 F.3d 788, 791 (9th Cir.1997) ("This four-part definition does not require a showing of .... an intent to injure, but rather it requires only an intentional act which causes injury.").

Because we are persuaded that at least some of Sicroff's statements were libelous, we also conclude that the first two criteria of "malicious injury" are met. A libelous act, by its nature, is self-evidently wrongful and is committed by an intentional act of publication — in this case, by Sicroff's dissemination of his letter. The third criterion — that the action necessarily cause injury — is also met because Sicroff's statements were directed at Jett's professional reputation and, therefore, will necessarily harm him in his occupation. Having satisfied the first three elements of "malicious injury," to prevail, Jett must demonstrate by a preponderance of the evidence that Sicroff published his statements "without just cause and excuse." It was this final criterion that the bankruptcy court found lacking.

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The "just cause and excuse" element of "malicious injury" presents a mixed question of law and fact, which we review de novo. Id. at 791-92.

The bankruptcy court found that Sicroff had "just cause and excuse" to defame plaintiff despite acknowledging that it could find "no cases ... that defined that phrase." We have, however, interpreted that phrase in at least one prior case. In In re Bammer, an en banc panel of this court reversed a Bankruptcy Appellate Panel decision that intentional fraud could be undertaken with "just cause and excuse" when the debtor acted "out of compassion for his mother" and no benefit inured to himself. Id. at 791. Explaining our reversal, we declared that "[w]e can think of no reason consistent with section 523 ... to permit a standardless, unmeasurable, emotional, and nonlegal concept such as compassion to negate an identifiably and legally wrongful act." Id. at 793(emphasis in original).

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In the case before us, we similarly must conclude that Sicroff's goal of protesting the Geography Department's closure did not provide just cause or excuse to calumniate Jett's professional reputation.⁴ Not only were his libelous statements legally wrongful, but Sicroff went well beyond the scope of his legitimate goal to attack Jett by name. When the California Aggie first printed his letter on April 22, 1993, it prudently excised the personalized attacks against Jett and Bahre. In response to this edit, Sicroff sent a second letter, which the newspaper reprinted on April 26, 1993, complaining that "[t]he edited version of my letter that you printed April 22 about the geography department ... did not at all represent the main point of the letter" and inviting "readers [who] would like the full text of the letter [to] please drop me a note at the geography department." This action demonstrates a specific intent to injure Jett over and above otherwise legitimate protest. For these reasons, the bankruptcy court erred in its interpretation of the phrase "just cause and excuse" and in its conclusion that Sicroff's defamation was not malicious by virtue of its connection to a larger, legitimate purpose. We hold instead that Sicroff's libelous statements were not made with just cause and excuse and that, as a result, they were malicious.