Intentional Torts And Bankruptcy -
An Evaluation Of Kawaauhau v. Geiger

I. Introduction

Bankruptcy law has developed around the public policy of permitting debtors a fresh start by freeing those debtors from financial debt. ¹ At the same time, however, bankruptcy law does not allow wholesale discharge of all debt. Section 523 of the Bankruptcy Code ² sets forth exceptions for discharge which "strikes at the very heart of an individual debtor's fresh start." ³ Recent attention has focused particularly on Section 523(a)(6) of the Code, which limits discharge for debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." ⁴ Simply stated, Section 523(a)(6) attempts to incorporate intentional tort principles into bankruptcy law, thereby excepting from discharge any debts the petitioner incurred as a result of their intentional wrongdoings. Because of this interplay of separate legal doctrines, Section 523(6) is also one of the most litigated exceptions in the Bankruptcy Code ⁵ and until recently, one on which the federal courts have remained neatly divided. ⁶

This article focuses on the debate to preserve the stability in both tort and bankruptcy law, and in its discussion, notes the potential for an erosion of the concept of "willful" as applied to cases of intentional torts under tort law.

II. Section 523(a)(6)

A. Section 523(a)(6) Explained

As mentioned above, Section 523(a)(6) exempts from discharge all debts "for willful and malicious injury by the debtor to another entity or to the property of another entity." ⁷ Broken down into its component elements, Section 523(a)(6) focuses on three significant points: the act subject of the discharge must be willful; the act must be malicious; and the act must be intended to result in an injury. The injury element is the most straightforward and most broad element of the three, ⁸ resulting in little need for judicial interpretation. It includes physical injury in tort as well as conversion of property. ⁹ However, the application of the willful and malicious component in Section 523 (a)(6) is not so straightforward and thus frequently subject to the scrutiny of the bankruptcy court, who acts as both judge and jury throughout the process.

Part of the difficulty in interpreting "willful" and "malicious" in bankruptcy is that these elements are not defined within the Code, and, as terms of art, are treated as separate elements to be proven. ¹⁰ Read alone, "willful" is generally taken to mean the same as "deliberate or intentional," which requires something more than "mere recklessness." ¹¹The standard for willful is whether the act was undertaken voluntarily. ¹² In contrast, the "malicious" standard requires more than willfulness but falls short of requiring personal animosity, spite, or ill will. ¹³ Although the three elements appear to be straightforward and easily understood, this is not the case, particularly when the willful and malicious elements are applied together. Until recently, bankruptcy courts have traditionally been able to rely on tort litigation interpretations of "willful and malicious," thereby creating an effective marriage of two otherwise separate legal disciplines.

B. Intentional Torts

Although the concepts inherent in tort law lack precise definition as well, ¹⁴ the concept of intent, or lack thereof, undoubtedly forms the backbone of this area of law. ¹⁵Accordingly, the concept of a tort involves action or inaction by one individual against another. This is particularly true of the concept of intentional torts, which is defined in part as a "[t]ort or wrong perpetuated by one who intends to do that which the law has declared wrong." ¹⁶ The term "intentional torts" implies an intent or purpose to injure, and involves both elements of purpose (intent) and malice. ¹⁷ Notice that in tort, malice does not have to be purposeful - malice can be shown by "indifference to the safety of others, with knowledge of their danger, or failure to use ordinary care to avoid injury after acquiring such knowledge." ¹⁸ Further, whether a negligent act amounts to a willful and malicious injury is a question of fact for trial, ¹⁹ is then decided by the jury according to the "reasonable person" standard.

In order for an act to constitute an intentional tort, the jury, acting as fact finders, must decide whether or not the act was intentional. The test for drawing such conclusion is whether or not the act was undertaken with the intention of bringing about a harmful or offensive contact or apprehension thereof to a particular person, or a third person, for the purpose of causing the contact or apprehension, or with knowledge on the part of the actor that such contact or apprehension is substantially certain to be produced ²⁰. Consequently, a petitioner's burden of proving an intentional tort is limited to establishing the wrongdoer knew their action was substantially certain to cause an injury, without regard to the wrongdoer's intent.

The doctrine of transferred intent is deeply rooted into the fabric of tort litigation, and further substantiates the idea that wrongdoers who intentionally cause injury to others will be responsible for all injuries arising out of their actions, despite the possible inability to foresee the actual injury. ²¹ Perhaps this concept is best exhibited by the doctrine of transferred intent. The doctrine of "transferred intent" is a legal mechanism created for the sole purpose of holding wrongdoer's liable for injuries caused to third persons when such injuries were not intended or foreseeable. ²² When a wrongdoer's actions rise to the level of intentional, the conduct is malicious; indifference to the safety of others, with knowledge of their danger, or failure to use ordinary care to avoid injury after acquiring such knowledge the wrongdoer will be responsible for injuries caused whether or not the actual injuries were intended or even foreseeable. ²³

Liability to third parties for intentional infliction of emotional distress is also evidence that tort law has traditionally held wrongdoers completely responsible for their actions. A third party victim of intentional infliction of emotional distress may recover damages against a tortfeasor, if the third party was closely related to the intended target of the abuse, or was within a reasonable proximity of the source of danger, allowing recovery without determining the subjective intent of the tortfeasor.

A thorough exploration into the requirements needed to prove an intentional tort is not complete without studying negligence theory, which continually evolves closer to intentional tort theory in holding a wrongdoer liable for injuries caused by their own behavior. Negligence is a legal mechanism often used when either the wrongdoer's behavior does not constitute an intentional act, or when the petitioner is incapable of meeting the burden of proof for an intentional tort. Negligence is often viewed as a product of intentional torts, separated only by the difference in the probability of whether or not the act of the wrongdoer will cause injury to others.

Despite the separation of the two disciplines, negligence has also remained steadfast in attempting to hold wrongdoers liable for all consequences of their actions as evidence by the "Eggshell" plaintiff doctrine, as well as the "zone of danger" test for establishing liability in negligent infliction of emotional distress cases. Perhaps the "Eggshell" plaintiff doctrine is the most obvious attempt to extend liability for negligence beyond the wrongdoer's intent, or foreseeability of a resulting injury. This doctrine, like intentional tort law, requires the wrongdoer to take the injured party as they are, and holds a negligent wrongdoer liable for all injuries caused by their actions, despite the wrongdoer's inability to predict the victim's actual injury ²⁴.

Negligence theory has also developed a mechanism for holding wrongdoer's liable to third persons in negligent infliction of emotional distress actions. A third party suffering emotional distress because of another person's negligence can hold that wrongdoer liable for damages caused by the emotional distress as long as the victim can prove they were in the "zone of danger" created by the negligent behavior ²⁵.

In summary, intentional tort law has traditionally held wrongdoer's liable for all consequences extending from their behavior without regard to the wrongdoer being able to foresee the actual injury nor exploring the wrongdoer's intentions. When the probability of a wrongdoer's behavior decreases below the "substantially certain" standard an injured party is afforded a civil remedy through negligence to hold the wrongdoer liable for the injuries extending from their actions. Deeply rooted into the fabric of tort litigation, whether the cause of action is negligence or intentional tort law, is the understanding that persons should be responsible for injuries actually and proximately caused to other persons, and to provide a method of recovery for injuries without regard to the wrongdoer's intent.

C. The Dilemma of Section 523(a)(6)

The Bankruptcy courts, however, act as judge and jury when evaluating actions for bankruptcy, including whether an exception to discharge operates to preclude a fresh start. Because lack of a jury requires the bench employ a substantial certainty test, thereby requiring a decision in accordance with the reasonable person standard, bankruptcy courts have continually been split in their pursuit to find a standard defining "willful and malicious" as required in Section 523 (a)(6). One source for the lack of a precedent, and subsequently a split in interpretations, is that until recently, there have been only guideposts at law for interpreting Section 523 (a)(6). As previously stated, the split has occurred in interpreting the combination of "willful and malicious" as provided in Section 523 (a)(6). ²⁶ This disagreement over interpretation of the "willful and malicious" standard traveled one of two paths: either "willful and malicious" was interpreted in the narrow sense which requires an actual intent to cause the actual injury; ²⁷ or, in the alternative, "willful and malicious" was given broader connotations as used in tort cases, and requires merely the intent to do the act that led to the subsequent injury. ²⁸

However, this division has apparently been resolved by the recent decision by the United States Supreme Court in Kawaauhau v. Geiger. ²⁹ In their resolve, the Supreme Court, for purposes of evaluating intentional tort claims for discharge in bankruptcy, ³⁰effectively endorsed the narrow interpretation, which requires an injured party to present evidence proving the alleged tortfeasor intended to cause the resulting injury. Simply stated, the Geiger court has severed the marriage between bankruptcy law and tort law in determining whether or not 523(a)(6) should be employed to except from discharge the debtor's wrongful acts.

Consequently, in defining the "willful and malicious" requirement in Section 523(a)(6), the Supreme Court has potentially eroded the standard for evaluating the "willful" prong in intentional tort litigation, which traditionally has relied on the alternative path not followed by the Supreme Court. Intentional tort law has traditionally required only a showing the wrongdoer intended to undertake the act which caused the injury ³¹.

D. Kawaauhau v. Geiger ³²

The case of Kawaauhau v. Geiger ³³ came before the Supreme Court for hearing in early 1998. Geiger originated as an action for medical malpractice, in which the Kawaauhaus succeeded in an action against Dr. Geiger for Geiger's negligent treatment of Mrs. Kawaauhau's condition of thrombophlebetis, an infection which cost Mrs. Kawaauhau her lower leg. ³⁴ Geiger, who carried no medical malpractice insurance, petitioned for bankruptcy after the Kawaauhaus began garnishing the doctor's wages to satisfy their successful tort claim. ³⁵

Upon review of some of the evidence presented at trial below, the bankruptcy court found that Dr. Geiger's treatment of Mrs. Kawaauhau was "so far below the standard of care that it can be categorized as willful and malicious conduct for dischargeability purposes." ³⁶ In reaching its decision, the court relied in part on Geiger's admission at trial that he administered oral doses of penicillin instead of intravenous doses. Specifically, Geiger recognized "in fact, that intravenous penicillin was the appropriate standard of care for this type of problem and yet he intentionally used something that was less effective for the sake of cost." ³⁷ The district court affirmed based on the suggestion of Geiger's admission that "his conduct was certain or substantially certain to cause physical harm," which the court found brought Geiger's conduct within the meaning of "malicious" as used in § 523(a)(6). ³⁸ The Eighth Circuit, sitting en banc, reversed, finding the judgment debt did not come within the § 523(a)(6) discharge exception for willful and malicious injury. ³⁹ Specifically, the court found no suggestion that Geiger

desired to cause the very serious consequences that Mrs. Kawaauhau suffered . . . If, therefore, he was an intentional tortfeasor as we have defined that term, he would have to have believed that Mrs. Kawaauhau was substantially certain to suffer harm as a result of his actions. ⁴⁰

On March 3, 1998, the Supreme Court affirmed this narrow interpretation by the Eighth Circuit in an unanimous opinion:

Because a debt arising from a medical malpractice judgment attributable to negligent or reckless conduct does not fall within the section 523(a)(6) exception, the debt is dischargeable in bankruptcy. Section 523(a)(6)'s words strongly support the Eighth Circuit's reading that only acts done with the actual intent to cause injury fall within the exception's scope. The section's word "willful" modifies the word "injury," indicating that the nondischargeability takes a deliberate or intentional injury, not merely . . . a deliberate or intentional act that leads to injury. ⁴¹

In reaching this holding, the Court has abandoned previous interpretations of intentional tort law while noting that "[i]ntentional torts generally require that the actor intend the consequence of the an act, not simply the act itself ⁴²." Simply stated, the Supreme Court has increased the burden of proof for a petitioner alleging an intentional tort. The petitioner must now prove the alleged tortfeasor intended the result of their actions; a tortfeasor can only be held liable for the damages they could substantially foresee, thereby constituting their intended result.

E. Geiger Evaluated

While the Supreme Court's observation is not inaccurate, it comprises a limited perspective on the standard for intentional torts. In other words, while the standard set forth by the Supreme Court in Geiger is not wrong, it only tells half the story. As noted in a leading treatise on Tort law,

the distinction between intent and negligence obviously is a matter of degree. Apparently the line has been drawn by the courts at the point where the known danger ceases to be only a foreseeable risk which a reasonably man would avoid, and becomes a substantial certainty. ⁴³

This approach is further explained in the Restatement of Torts:

Intent is not . . . limited to consequences which are desired. If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to produce the result. As the probability that the consequences will follow decreases, and becomes less than substantial certainty, the actor's conduct loses the character of intent and becomes mere recklessness. ⁴⁴

In Geiger, the Supreme Court did not include the concept of substantial certainty in its evaluation of "intent" despite the fact the Court relied on the very same provision of the Restatement in defining "intent" with relation to "willful." ⁴⁵

Without going the distance to embrace tort law concepts in full, the Supreme Court in Geiger may have inadvertently diluted the concept of "willful injury" as it applies in tort. If we follow the suggestion of the Court, an act will be judged to be "willful" only if the tortfeasor intended to produce the harm that results. Few acts will meet this high standard. Thus, the core concept of tort law, to compensate those who have been harmed according to the degree of that harm, will inevitably be diluted due to the inevitable transfer of this new concept into tort litigation.

Expanding the ability of a debtor to gain a fresh start by increasing the debtor's ability to discharge debts previously excepted from discharge, the Supreme Court most likely did not intend to abrogate the rights of the those injured in tort in favor of those who have substantially caused the injury. Despite the intentions of the Supreme Court, the ramifications which surely will flow from Geiger are real, and will result in diminishing the liability of many alleged tortfeasors who should be held liable for the consequences which flow from their actions.

As stated earlier, tort law has traditionally emphasized that intentional wrongdoers should be responsible for all damages which arise as a result of their ill behavior, as best evidenced by the doctrine of transferred intent, which extends liability to injured third party persons. ⁴⁶ To charge a third party victim with the burden of proving an alleged wrongdoer intended to harm a person other than the intended victim is an almost insurmountable task, thereby allowing intentional wrongdoers to escape any liability to third persons despite violating a writ of trespass ⁴⁷.

F.Punitive Damages

Perhaps the most concern arising out of Geiger is whether bankruptcy courts will uphold punitive damages awarded against the debtor, or will punitive damages be nullified for failing to pass the malicious standard as provided in Geiger. Because punitive damages were never awarded by the district court adjudicating Kawaauhaus' tortuous injury, the Geiger court failed to consider whether or not the increased malicious standard would absolve a wrongdoer's liability for punitive damages. While Geiger has instructed bankruptcy courts to abandon traditional tort mechanisms in assessing the presence of "willfull and malicious", the inconsistency of the two doctrines should not permeate to punitive damages awards. In order to preserve the punishing and rehabilitative goal of exemplary damage awards, ⁴⁸ and to promote judicial economy ⁴⁹ bankruptcy courts must be afforded the opportunity to ignore Geiger's interpretation of 523(a)(6).

The concern as to whether Geiger will diminish punitive damage awards is well-founded. Punitive damages awards are inextricably intertwined with intentional torts. If the jury impaneled in the tort action determines the wrongdoer's behavior was malicious, substantially certain to cause injury, then the wrongdoer's behavior is considered intentional. ⁵⁰ Punitive damages are awarded when the wrongdoer acted with severe recklessness, malice, or deceit. ⁵¹ Punitive damages are specifically intended to punish, thereby deterring blameworthy conduct. Because malicious behavior is a requirement in proving the presence of an intentional tort, as well as a justification for awarding punitive damages, it necessarily follows that "blameworthy" is in the least malicious conduct. It necessarily follows, that when a wrongdoer acts maliciously the wrongdoer will be held liable for an intentional tort, and subsequent punitive damages.

The "malicious" requirement in establishing both intentional torts and punitive damage awards in the same action, as previously discussed, leaves punitive damage awards, in the minimum, dependent on establishing the wrongdoer's behavior was intentional. Therefore, we are naturally led to the epicenter of anxiety caused by Geiger. Because intentional torts and punitive damage awards, in a tort action, are based on the wrongdoer's malicious conduct, it follows that in a bankruptcy action Geiger's increased standard of malicious behavior will require punitive damages based on the wrongdoer's malicious conduct to be dismissed with actual damages based on the debtor's intentional wrongdoing. ⁵²

Section 523(a)(6)'s exception for discharge is based on malicious or wilful wrongdoings. ⁵³ Geiger's inconsistency with district courts denies bankruptcy courts the ability to apply the jury's tort action finding of an intentional tort and a punitive damages award based on malicious conduct. The same malicious element which fuses the doctrine of intentional wrongdoings together with punitive damages separates the marriage between tort actions and bankruptcy litigation. Therefore, if the malicious element is the ground for the intentional wrongdoing in the tort action, but the intentional wrongdoing is dismissed, as provided in 523(a)(6) for failing Geiger's malicious standard, punitive damages must also be dismissed. ⁵⁴

Obviously, the Supreme Court, in Geiger, did not intend to sacrifice punitive damage awards to increase the likelihood debtor's will be afforded a fresh start. ⁵⁵ However, the increased standard of proving the malicious element required in punitive damages will deny many punitive damage awards awarded in previous similarly situated tort actions. In order to avoid undermining the punitive and rehabilitative benefits enjoyed through punitive damages, bankruptcy courts must limit Geiger to discharging debtor's actual damages.

The bankruptcy court's ability to ignore Geiger when determining whether or not to discharge punitive damages as opposed to excepting the debt from discharge, as provided in 523(a)(6), is not without merits. Firmly rooted legal theories such as judicial economy, and the inherent goal of punitive damages justify ignoring Geiger. Failing to ignore Geiger will allow wrongdoer's to escape the liability created through their own actions, thereby contradicting both tort ⁵⁶ and bankruptcy law. ⁵⁷

Bankruptcy courts, as a matter of judicial economy, will be just in failing to discharge punitive damages incurred as a result of malicious behavior even after actual damages from the same wrongdoing have been discharged. Courts continually attempt to decrease excess litigation. Legal rules such as res judicata and collateral estoppel are only two of the countless attempts at reaching a finality of a decision, and thereby not overburdening the judicial system. ⁵⁸ Of particular interest here, issue preclusion is also a long-standing rule available in bankruptcy actions. ⁵⁹

Failure to assert issue preclusion will only burden the bankruptcy courts by expanding their traditionally equitable nature into fact finders. Bankruptcy courts can accept the jury's determination in the tort action as to whether or not the wrongdoer's behavior was malicious, and justified punitive damages. However, failing to ignore Geiger when assessing the dischargeability of the debtor's punitive liabilities results in the court being forced into re-litigating previously decided factual decisions. Because "malicious" in tort actions is a much lower standard than the bankruptcy courts have been ordered to apply, bankruptcy courts must independently prove whether or not the debtor's behavior constituted "malicious," as provided in Geiger. ⁶⁰ In order to escape this burden, bankruptcy courts must employ the readily available issue preclusion doctrines previously discussed.

Simply stated, Bankruptcy Courts should avoid dismissing punitive damages. Punitive damages serve a vital function in our judicial system; acting as a method of punishing malicious wrongdoers as well as deterring similar future acts. No doubt, if bankruptcy courts employ the same increased malicious standard to punitive damages as Geiger applied to actual damages, wrongdoer's attempts to enter bankruptcy for the sole purpose of escaping the consequences of their malicious behavior will increase. This unfortunate and obviously unintended result of Geiger would change the fabric of tort litigation, as well as the charitable nature of bankruptcy law to afford innocent debtors a fresh start. ⁶¹