3 ABR 106

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re: Case No. A92-00510-DMD	)
	)	Chapter 7
ERIC JOSEPH HOLTA,	)
Debtor.	)
____________________________	)
JOSHUA DAMESEK,	)	Bancap No. 92-3101
	)	Adversary No. A92-00510-001-DMD
Plaintiff,	)
v.	)
ERIC JOSEPH HOLTA,	)
Defendant.	)
____________________________	)

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
AND GRANTING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

     This is an action for exception to discharge for wilful and malicous injury. Jurisdiction over the controversy is based on 28 U.S.C. § 157 (b) (2) (I).

     Pending before the court are cross-motions for summary judgment filed by the plaintiff, Joshua Damesek, and the defendant, Eric Holta. After a review of the motions, memoranda, and supporting documents filed by both parties, I conclude that plaintiff's motion for summary judgment should be denied, and defendant's cross-motion for summary judgment should be granted.

Factual Background

     On May 21, 1985, Eric Holta purchased two cases of beer from Meister's Buy-Rite, Inc., in Ashland, Oregon, with a false Alaskan identification. Holta and his friends, Robert Cloutier and Lyle Perry, had just finished finals at Southern Oregon State College in Ashland. They were headed to Emigrant Lake for an afternoon of swimming and drinking. All were under Oregon's 21-year-old drinking age.

     After consuming about a case of beer in the course of an afternoon, the students started their return to Ashland around 6:00 p.m. Cloutier was driving his 1982 Datsun. Holta and Perry were passengers.

   3 ABR 107 Cloutier lost control of the car on a sharp turn. He crossed the centerline and the opposing lane before striking the Damesek vehicle. Damesek, age 13, suffered serious injuries from the accident, including a severely broken jaw. Cloutier had a blood alcohol reading of .09 within an hour of the accident.

     Cloutier plead guilty to charges of driving under the influence of intoxicating liquors and third-degree assault. Damesek subsequently filed a civil suit for damages resulting from his injuries against Cloutier, Holta, Meister's Buy-Rite, and the State of Oregon. The complaint alleged negligence against Holta for purchasing beer and allowing Cloutier to consume it. The complaint also alleged Holta's conduct was "wilful, wanton, and reckless," entitling Damesek to exemplary damages.

     A default judgment was entered against Holta in the sum of $100,186.50 in Oregon state court on April 17, 1991. The default judgment was solely for compensatory damages. The trial judge deducted $114,000.00 in settlement proceeds received by Damesek from total compensatory damages of over $210,000.00 to arrive at the judgment.

     Holta filed a chapter 7 bankruptcy in Alaska on June 22, 1992. Damesek alleges Holta caused wilful and malicious injury by "illegally, knowingly, wilfully, and wantonly supplying alcohol" to Cloutier.

Res Judicata
     The Oregon state court default judgment is not res judicata on the issue of wilful and malicious injury. The case against Holta was not "actually litigated and determined in the prior action." Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 658 (1991). In the case of a default judgment, "none of the issues is actually litigated." In re Daley, 776 F.2d 834, 838 (9th Cir. 1985), [citing Comment e to Section 27 of the Restatement (2d) of Judgments]; cert. denied, 476 U.S. 1159 (1986) .

Wilful and Malicious Injury
     11 U.S.C. § 523(a)(6) excepts a debt for "wilful and malicious injury by the debtor to another entity or to property of another entity" from discharge under 11 U.S.C. § 727. This language for wilful and

3 ABR 108 malicious injury has remained substantially unchanged since the Bankruptcy Act of 1898.

An early United States Supreme Court case, Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505 (1904), interpreted the wilful and malicious exception to discharge. In Tinker, Frederick Colwell obtained a $50,000.00 state court judgment against his wife's lover for "criminal conversation." The Supreme Court concluded that the judgment was nondischargeable as a wilful and malicious injury. Justice Peckham stated:

      There may be cases where the act has been performed without any particular malice towards the husband, but we are of [the] opinion that, within the meaning of the exception, it is not necessary that there should be this particular, and so to speak, personal malevolence toward the husband, but that the act itself necessarily implies that degree of malice which is sufficient to bring the case within the exception stated in the statute. The act is wilful, of course, in the sense that it is intentional and voluntary, and we think that it is also malicious within the meaning of the statute.

      In order to come within that meaning as a judgment for a wilful and malicious injury to person or property, it is not necessary that the cause of action be based upon special malice, so that without it the action could not be maintained.

     In Bromage v. Prosser, 4 Barn. & C. 247, which was an action of slander, Mr. Justice Bayley, among other things said:

     'Malice, in common acceptation, means ill will against a person; but in its legal sense, it means a wrongful act, done intentionally, without just cause or excuse. . .'

     We cite the case as [a] good definition of the legal meaning of the word malice.

Tinker v. Colwell, 193 U.S. at 485-86.
Tinker was the foundation of a number of cases applying a less strict standard for wilful and malicious injury. Wilfulness could be established through "reckless disregard of duty" and constructive malice was enough to satisfy the malice requirement. An annotation found in 13 A.L.R. 2d 168 contains a good description of these cases.

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The legislative history of the Bankruptcy Reform Act of 1978 contains language indicating Tinker v. Colwell was being overruled. In describing the exception to discharge for wilful and malicious injury, the legislative history states:

Under this paragraph, "wilful" means deliberate or intentional. To the extent that Tinker v. Colwell [citation omitted] held that a less strict standard is intended, and to the extent that other cases have relied on Tinker to apply a "reckless disregard" standard, they are overruled.

S. Rep. No. 989, 95th Cong., 2d Sess. 79 (1978); H. Rep. 595, 95th Cong., 1st Sess. 365 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6320. The legislative history has not ended ongoing controversies as to the proper definition of a wilful and malicious injury. Recent decisions of the Ninth Circuit have added some fuel to the fire.

In In re Adams, 761 F.2d 1422 (9th Cir. 1985), the Ninth Circuit found that a debt incurred as a result of a drunk driving accident was a wilful and malicious injury even if the driver did not intend to injure anyone. The court conceded that the issue was a "close question," but found that the question was resolved when Congress enacted § 523(a)(9) in July of 1984. This provision excepted debts incurred from driving while intoxicated from discharge. As Congress intended to clarify rather than change existing law, the court concluded that the judgment was nondischargeable even without a specific intent to injure.

In In re Cecchini, 780 F.2d 1440 (9th Cir. 1986), the court found that a partnership's conversion of hotel deposits constituted a wilful and malicious injury by the individual partners. The court adopted a looser standard for proof of wilful and malicious injury.

When a wrongful act such as conversion, done intentionally, necessarily produces harm or is without just cause or excuse, it is "wilful and malicious" even absent proof of a specific intent to injure.

In re Cecchini, 780 F.2d at 1443. The court imputed the wilful and malicious conversion of hotel deposits by the partnership to partners who had not participated in the actual conversion.

   3 ABR 110
     In re Littleton, 942 F.2d 551 (9th Cir. 1991), addressed the issue of wilful and malicious injury in the context of a corporate default on a security agreement. Jacob's, a corporation in which Littleton was an officer, owed Transamerica $70,000.00 for inventory it had sold prior to filing a chapter 11 bankruptcy. Littleton and other officers knew that Transamerica had a first lien on inventory and sold its collateral to pay other creditors. The Ninth Circuit found that the officers' conduct was wilful but not malicious. The finding of lack of malice was based on the bankruptcy court's ruling that the defendants had "sincerely hoped to keep their business going on." The circuit court concluded that the actions of the defendants did not "necessarily produce harm" because the actions were not certain or almost certain to cause such harm.

     Finally, in In re Britton, 950 F.2d 602 (9th Cir. 1991), the Ninth Circuit again addressed the standard for wilful and malicious injury. Britton posed as a physician and induced Mary Price to undergo a lipectomy for removal of abdominal fat. The procedure was negligently performed by a Dr. Cavanaugh, Britton's employer. He left a tube in her abdomen. The area around the abdomen became infected and Price had to undergo corrective surgery. Price obtained a state court judgment for malpractice for $50,000.00 against Cavanaugh, as well as $25,000.00 for fraud and $275,000.00 in punitive damages against Cavanaugh and Britton. Britton filed a chapter 7 bankruptcy and Price sought to except her claim from discharge on grounds of fraud and wilful and malicious injury. The Ninth Circuit found the debt was excepted from discharge for both fraud and wilful and malicious injury. Britton claimed his actions in inducing Price to undergo surgery did not "necessarily produce" harm. The court rejected his argument.

We reject Britton's very narrow reading of the "necessarily produces" language of Cecchini. Here, although Britton did not anticipate that Dr. Cavanaugh might perform the operation negligently, it was foreseeable that injury to Price would result from Britton's intentional misrepresentation. Britton attempts to abstract his conduct from its context, cutting it off from any but the most obvious potential consequences. We would draw too fine a line if we concluded that harm was not substantially certain to result from Britton's misrepresentation and inducement.

   3 ABR 111
In re Britton, 950 F.2d at 605.

Analysis
      My reading of the Ninth Circuit cases arising under § 523(a)(6) differs from that of the plaintiff. Adams never reached the critical issues faced here due to the adoption of § 523(a)(9). The court conceded that absent § 523(a)(9), a "close question" was presented as to whether driving under the influence of liquor necessarily constituted a wilful and malicious injury. Cecchini was a conversion case. The facts were far removed from a DWI or beer-purchase-by-minor scenario. Cecchini found that a wrongful act done intentionally which necessarily produced harm or was without just cause or excuse was wilful and malicious. Cecchini's standard can be so broadly construed that it encompasses virtually any kind of tortious activity.

      The Ninth Circuit remedied this overly broad interpretation in Littleton. The debtor's conduct must necessarily produce harm. The actions must be certain or almost certain to cause harm.

      Britton retreats from the Littleton standard. A close reading of the case, however, particularly its discussion of wilful and malicious injury, leads me to conclude that the court mixed exceptions to discharge for fraud under § 523(a)(2) with wilful and malicious injury in making its determination. The court was so outraged by Britton's actions in pretending to be a physician, it departed from Littleton and adopted a broad reading of the "necessarily produced" language.

     These cases are strongly driven by their unique facts. The legal principles applied are elastic in nature. As noted by Epstein, Nichols, and White:

The cases under 523(a)(6) demonstrate the importance of the peculiar factual underpinnings of those cases and of the moral outrage that attaches to certain kinds of debtors compared with others. Here we see the courts bending the intent requirement quite out of shape in order to hold two physicians to their malpractice liability and beating it yet more to make negligent liability for driving a car into an intentional and malicious act. (Footnotes omitted.)

2 Epstein, Nichols, White, Bankruptcy, § 7-30 at 387-88 (lst ed. 1992).

3 ABR 112
While Tinker v. Colwell was overruled at least in part by the Bankruptcy Reform Act, it appears to live on through imposition of nondischargeability in cases of gross or egregious negligence. Surprisingly, Tinker contained interesting language with regard to negligence involving automobile accidents. Justice Peckham stated:

It is not necessary in the construction we give to the language of the exception in the statute to hold that every wilful act which is wrong implies malice. One who negligently drives through a crowded thoroughfare and negligently runs over an individual would not, as we suppose, be within the exception. True, he drives negligently, and that is a wrongful act, but he does not intentionally drive over the individual. If he intentionally did drive over him, it would certainly be malicious.

Tinker v. Colwell, 193 U.S. at 489.

      In Prater v. King, 37 S.E.2d 155, 73 Ga. App. 393 (Ga. App. 1946), an intoxicated adult, King, allowed an intoxicated minor, Beasley, to drive his car. Beasley struck Prater's car after losing control of the King vehicle. Prater alleged that King was wanton, wilful, and malicious for allowing a minor to operate his car when both he and the minor were intoxicated. The Georgia Court of Appeals rejected Prater's argument. Citing Tinker v. Colwell and other authorities, the court found that wilful and malicious meant something more than injuries which chanced to happen by reason of an intentional unlawful act. The debt was discharged.

     In In re Austin, 36 B.R. 306 (Bankr. M.D. Tenn. 1984), a rock concert promoter organized an outdoor concert which provided free beer. A minor attending the concert became drunk and, while driving away from the concert, struck and killed a pedestrian. The pedestrian's parents filed an adversary proceeding against the promoter after he filed a chapter 7 petition contending his failure to prevent the minor from drinking beer constituted a wilful and malicious injury under § 523(a)(6). The court found the tort claim to be dischargeable.

     Eric Holta's wilful act of purchasing beer and providing it to his college friends was a wilful act that was wrong. Every wilful act that is wrong does not imply malice, however. Different facts could dictate a different result. Had Holta been an adult selling the beer for

   3 ABR 113 profit to minors or had he known that Cloutier habitually drove while intoxicated, the malice could be implied. The plaintiff has not presented any such aggravating facts, however. While the purchase and dissemination of the beer were intentional acts, under Littleton they were not malicious. The act of sharing beer in and of itself was not certain or almost certain to produce harm. A myriad of possible scenarios could have occurred that afternoon, most of which were dependent solely on the actions of the driver, Robert Cloutier. Many of those would not necessarily produce harm. I am unwilling to stretch the phrase "wilful and malicious injury" to find a nondischargeable debt under these circumstances.

Order

     There are no material facts in dispute. In accordance with Rule 7056, Fed. R. Bankr. P., IT IS HEREBY ORDERED that plaintiff's motion for summary judgment is denied, and defendant's cross-motion for summary judgment is granted. Plaintiff's complaint shall be dismissed with prejudice, with each party to pay his own fees and costs. Judgment shall be entered accordingly.

          DATED: April 19, 1993.

	BY THE COURT
	DONALD MacDONALD IV
	United States Bankruptcy Judge