Commercial Law World - Issue 1, 2018 - 8
by section 523(a)(6) of the Code. A divided en banc
court adhered to the panel's position, holding that
section 523(a)(6)'s exemption from discharge is confined
to debts based on what "the law for generations has
called an intentional tort."
The Eighth Circuit's interpretation of section 523(a)
(6) of the Code conflicted with previous holdings of
the Sixth and Tenth Circuit Courts of Appeals. The
United States Supreme Court granted certiorari to
resolve the conflict. In affirming the Eighth Circuit's
decision, the United States Supreme Court focused
on the requirement of an act which is substantially
certain to cause the injury itself. The Court found the
discussion of willful and malicious in Tinker "less than
crystalline," and confined the Tinker holding to the
intentional tort category, thereby establishing current
law that a negligent act, regardless of the consequences,
will not qualify as one that warrants an exception
from discharge under section 523(a)(6) of the Code.
Kawaauhau v. Geiger, 523 U.S. 57 (1998) (requiring
substantial certainty that the actor intend to cause the
The Court found the discussion
of willful and malicious in Tinker
"less than crystalline," and
confined the Tinker holding to the
intentional tort category, thereby
establishing the current law that
a negligent act, regardless of the
consequences, will not qualify as
one that warrants an exception
from discharge under section
523(a)(6) of the Code.
Physical Harm v.
Since the Supreme Court's decision in Geiger, and
as types of financial schemes have become ever more
complex, the type of injury required to be proven by
By referencing this definition of "intent," the Supreme Court
acknowledged that it is not necessary for a plaintiff seeking relief
under section 523(a)(6) to prove that the defendant intended to
cause the injury itself.
COMMERCIAL LAW WORLD
section 523(a)(6) of the Code has expanded into two
categories: physical injury and financial injury.5 While
Geiger stands for the proposition that negligence, no
matter how gross, does not constitute grounds to
prevent the discharge of the debt6 arising from the injury
because the injury must result from an intentional act,
the United States Supreme Court has not addressed acts
that are intended to cause financial injury "to another
entity or the property of another entity."7 In Geiger,
Justice Ginsburg focused on a substantial certainty
standard after looking to the Restatement of Torts, and
stated that where it is not shown that defendant acted
with specific intent to harm the plaintiff, it is enough
where the defendant's intentional act was certain, or
substantially certain to injure the plaintiff.
However, the Geiger Court noted that a suggested
broader interpretation of section 523(a)(6) of the Code
could encompass a knowing breach of contract and
would therefore result in a construction so broad [that it]
would be incompatible with settled law that exceptions
to discharge "should be confined to those plainly
In 2001, The United States Court of Appeals for
the Ninth Circuit concluded that to be excepted from
discharge under section 523(a)(6), a breach of contract
must be accompanied by some form of "tortious
conduct" that gives rise to "willful and malicious
injury."9 More recently, that court has explained that
the Supreme Court's reasoning in Geiger requires [s]
omething more than a knowing breach of contract...
before conduct comes within the ambit of § 523(a)(6),
and Jercich (cited below) defined that "something more"
as tortious conduct.10
In 2004, The United States Court of Appeals for the
Sixth Circuit suggested, in an unpublished decision, that
economic damages caused by a breach of contract
For an example of complex schemes to impose financial harm, see
In re Pearlman, 381 B. R. 903 Bankr., M.D. FL 2007) and related
decisions in that case.
This debt has often been reduced to a judgment before a Petition for
Relief is filed.
This article does not address circumstances, such as particular
Ponzi schemes, where financial harm was imposed upon a number
of people. It also does not address the potential issue of whether the
word "entity" eliminates the ability of an individual debtor or joint
individual debtors are pre-empted from bringing a claim under this
523 U.S. at 62, 118 S. Ct. 974 (quoting Gleason v. Thaw, 236 U.S.
558, 562, 35 S.Ct. 287, 59 L.Ed. 717 (1915)).
Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1206 (9th Cir. 2001).
Lockerby v. Sierra, 535 F.3d 1038, 1041 (9th Cir. 2008).
JAN /FEB /MAR 2018