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In In re Kantos for Cash Flow Management, Inc., 579 B.R. 846 (B.A.P. 8th. Cir. 2018), the Bankruptcy Appellate Panel evaluated whether the bankruptcy court abused its discretion in finding that the plaintiff-creditor failed to establish willfulness or maliciousness under 11 U.S.C. § 523(a)(6).

Plaintiff is a general contractor. The debtor worked for a debt collection company that prepared mechanic’s liens for clients in the construction industry. In March 2015, the debtor prepared a mechanic’s lien and recorded it against real property on behalf of a subcontractor. Plaintiff contested the mechanic’s lien in Minnesota state court arguing unauthorized practice of law, fraud, and defamation. The state court entered judgment on the unauthorized practice of law count, but not on the fraud or defamation counts. The state court did not address the issue of damages.

Plaintiff commenced an adversary proceeding to determine that the debt owed by the debtor was excepted from discharge under 11 U.S.C. § 523(a)(6), on the basis that the debtor’s conduct giving rise to the debt was “willful” and “malicious.”

The BAP followed the Supreme Court’s previous guidance that “willful” for purposes of § 523(a)(6) “requires a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury,” or, in other words, an intentional tort. The BAP also followed the Eighth Circuit’s guidance that “malice” means that the actions were “targeted at the creditor . . . at least in the sense that the conduct is certain or almost certain to cause financial harm.”

At trial, the debtor testified that he did not have firsthand knowledge related to the mechanic’s lien, but explained that he believed he had the authority to sign the mechanic’s lien based on information provided by the subcontractor. Further, the debtor testified that he only intended to preserve the subcontractor’s secured position, as he had regularly done for many years, and that he did not intend to cause injury to any party. Based on these facts, the bankruptcy court found that the plaintiff failed to carry its burden of proving willfulness and maliciousness under the statute.

The BAP found that the bankruptcy court’s determination that plaintiff failed to meet its burden was not clearly erroneous. Instead, the BAP found that the evidentiary record supported a finding that the debtor had no intent to cause an injury, particularly because upon learning that the facts stated in the mechanic’s lien were not true the debtor immediately filed a release of the lien. Finally, the BAP ruled that plaintiff failed to identify any finding that was in error and rejected plaintiff’s mysterious argument that the unadjudicated defamation claim necessarily entitled it to judgment under § 523(a)(6).