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93A Judgment Not Subject to Discharge in Bankruptcy

gavel.jpgA recent decision by the U.S. Bankruptcy Court held that a 93A judgment was not subject to a bankruptcy discharge pursuant to 11 U.S.C. §523(a)(6) even though the 93A judgment included a finding that the debtor's conduct was willful. In its holding, the Court noted that M.G.L. c. 93A and 11 U.S.C. §523(a)(6) have different standards for willfulness.

The plaintiff had previously filed a lawsuit against the defendant in the U.S. District Court alleging the defendant committed fraud and breach of contract. The plaintiff contracted with defendant to provide reinsurance in connection with an employer's liability insurance program. As part of this agreement, the defendant agreed to a contract in which another one of his companies would assume a percentage of the risk however this agreement was not in writing. The plaintiff prevailed in a bench trial and the court found that a contract did in fact exist. Further, the District Court found the defendant's misconduct was willful and thus awarded double damages along with attorneys' fees and expenses.

The defendant subsequently filed bankruptcy and sought to discharge the judgment. The plaintiff then sought a declaration that their injury was not dischargeable under §523(a)(6). Chapter 523 (a) (6) provides an exception to discharge in cases for willful and malicious injury by the debtor to another entity or the property of another entity. Under this section, willful requires the actor to intend the injury, not just the act that leads to the injury. Therefore, judgments from recklessness or negligence are not subject to the exception under 523(a)(6).

In the bankruptcy action, the debtor argued that plaintiff's conduct met the willful and malicious conduct standard required of §523(a)(6). The bankruptcy court disagreed and held that 523(a)(6) requires an intentional tort. An award of damages under M.G.L. c. 93A for a breach of contract action, even one involving bad faith, does not involve an intentional tort. While an award for multiple damages under 93A may stem from intentional conduct, the exception under 523(a)(6) requires a deliberate intent to injure. A deliberate act that leads to an injury will not suffice. To protect against such a result moving forward, parties would be well advised to seek the trial court to make specific findings that the conduct by a defendant specifically sought to harm the plaintiff.

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