Law on Rice

A state court found Ormsby liable to his old employer for $732,075.16 after he copied real estate title records to start his own title agency.  In response, Ormsby filed a chapter 7 bankruptcy case.  Undaunted, the creditor, FATCO, filed an adversary alleging that its claim was nondischargeable under either 523(a)(4) or (6).  FATCO won at the bankruptcy court, the district court, and now wins again in the Ninth Circuit.

Section 523(a)(4) says that a debtor cannot discharge a debt incurred under “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” Larceny was at issue in this case, and it’s defined generally as a “felonious taking of another’s personal property with intent to convert it or deprive the owner of the same.”  Even though the Nevada state conversion law does not include an element of fraudulent  intent, this Court satisfied itself that Ormsby did act with a fraudulent intent.

Section 523(a)(6) is also an exception to the broad discharge granted by the Code.  It says that a debtor cannot discharge a debt incurred by “willful and malicious injury by the debtor to another entity or to the property of another entity.”  Even though the state court did not enter a finding of willfulness, this Court decided that the misappopriation and conversion was willful.

A malicious injury requires the debtor to commit (1) a wrongful act, (2) intentionally, (3) which necessarily caused injury, and (4) was done without just cause or excuse.  Because this former employee knew his conversion would injure FATCO and because he knew a legal way to obtain the information, the Court was satisfied that section 523(a)(6) was met as well.

The Court concluded that the debt was nondischargeable under either theory.

Opinion of Judge Roth, sitting by designation from the Third Circuit.  Helga A. White, Esquire, Auburn, California, for the appellant; James A. Tiemstra, Esquire, Law Offices of James A. Tiemstra, California, for the appellee.

I just gave the recently published Ransom v. MBNA America (In re Ransom) a quick read (available here until I get it published on BLR). In short, Ransom continues a circuit split by holding that in the Ninth Circuit a debtor can only deduct “ownership costs” from a chapter 13 plan for a car if he or she is making payments (i.e., lease or purchase money payments) on the car. Consistently, when a debtor owns the car free and clear the debtor cannot deduct the payments.The Court said that maintenance fees or high mileage old cars can be accounted for in other ways.

The Court engaged in the statutory interpretation gymnastics that I see in many bankruptcy cases. It concludes with this passage:

The “correct” answer to the question before us, which the courts have been struggling with for years—at the unnecessary cost of thousands of hours of valuable judicial time—depends ultimately not upon our interpretation of the statute, but upon what Congress wants the answer to be. We would hope, in this regard, that we the judiciary would be relieved of this Sisyphean adventure by legislation clearly answering a straightforward policy question: shall an above-median income debtor in chapter 13 be allowed to shelter from unsecured creditors a standardized vehicle ownership cost for a vehicle owned free and clear, or not? Because resolution of this issue rests with Congress, we have taken the unusual step of directing the Clerk of the Court to forward a copy of this opinion to the Senate and House Judiciary Committees.

Take that, Congress!

UPDATE: I noticed that Prof. Shaun Martin the University of San Diego School of Law picked up on this paragaph as well. He has some interesting thoughts on Judge Trott’s complaint. Read it here.

The Ninth Circuit just released it’s opinion in Warren v. Wirum (In re Warren), a bankruptcy decision. The following is just a brief abstract of the facts.

Prior to filing his bankruptcy petition, California moved against Mr. Warren’s bank account because of unpaid child support payments. A few weeks later, Mr. Warren filed a Chapter 7 petition to avoid the seizure. In his petition, he include a list of creditors, but he did not include other financial information required by section 521(a)(1) of the Code.

The day after he filed, the bankruptcy court notified him that he need to file the additional 521(a)(1) information within fifteen days, which he failed to do. The bankruptcy court scheduled a hearing to show cause as to why sanctions should not be imposed, but a few days before the hearing the trustee asked for time to investigate.

About five months after he filed the petition, Mr. Warren moved for dismissal, citing his lack of compliance. The district court refused to dismiss. I’ll let you read the full case on Bankruptcy Law Reports to find out why at Warren v. Wirum (In re Warren).