Willful and malicious injury?

Wells Fargo v. Maryam Nawroz; 11-01183-BFK; 12/22/2011

This suit was brought by Wells Fargo against Chapter 7 debtor, Maryam Nawroz, to determine the dischargeability of a debt owed by the debtor to Wells Fargo.

The debt arose out of a mistake by Wells Fargo when the debtor transferred money out CD’s held by Wells Fargo into a retirement account.  Wells Fargo mistakenly credited the Debtors retirement account twice.  Before Wells Fargo realized the mistake, the Debtor transferred the money out of her retirement account into a checking account with Union Bank.  The Debtor then wrote a check on the amount. This check would not have cleared but for the mistaken transfer by Wells Fargo.

The Debtor testified that she was severely depressed at the time of the transfers, she was not keeping close tabs of her finances of business affairs.  The Debtor testified that she did not know about the mistaken transfer and used the money for a family emergency.

In this action to determine nondischargeability of debt, Wells Fargo has the burden of proof.  Section 523(a)(6) excepts from a debtor’s discharge debts that are the result of “willful and malicious injury by the debtor to another entity of the property of another entity.”  Judge Kenny recognized that the Supreme Court held that “willfulness” requires more than just a negligent, or even reckless, injury; rather, the term “willful” requires a deliberate or intentional act that leads to injury.”  Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998).  An injury is only willful and malicious “if the actor purposefully inflicted the injury or acted with substantial certainty that injury would result,” however, “a debtor may be assumed to intend the natural and consequence of his acts.”

The Court decided that the Debtor’s use of the funds was both deliberate and intentional because the debtor intended to deprive Wells Fargo of the rightful use of its funds, which was the natural consequences of her acts.  This satisfies the willful element.

The Fourth Circuit has held that a debtor may act with malice even though he or she bears no subjective ill will toward, and does not specifically intend to injure, his or her creditor.  Further elaborating, the Fourth Circuit stated that the Debtor’s subjective state of mind is relevant . . .and that a particular debtor’s knowledge may be proved by circumstantial evidence:  Implied malice may be shown by the acts and conduct of the debtor in the context of the surrounding circumstances.

A Debtor’s injurious act done deliberately and intentionally in knowing disregard of the rights of another is sufficiently willful and malicious and will prevent discharge of the debt.  Here the Debtor made a conscious choice to use the funds rather than alert Wells Fargo of the mistake.  Because the Fourth Circuit has stated that the proper focus is not on the Debtor’s good intentions, but simply on her exercise of dominion and control over funds that she knew belonged to another, Judge Kenney felt constrained to find the actions were malicious and that the debt was non-dischargeable.

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