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No discharge for ‘willful and malicious injury’

Where a jury previously found that debtors discriminated against a former employee on the basis of sex, gender and pregnancy, and retaliated against her and wrongfully terminated her employment in violation of public policy, the resulting judgment was for conduct that was inherently willful and thus non-dischargeable.

Background

Trina Bengtsson brings this action asserting that the debt owed to her by Bingtuan Yin and Xiangling Kong is not dischargeable under 11 U.S.C. § 523(a)(6) of the Bankruptcy Code. Section 523(a)(6) excepts from a debtor’s discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.”

The plaintiff maintains that the elements of § 523(a)(6) have been proven in litigation already concluded in the Superior Court of Washington for King County, and that the doctrine of collateral estoppel requires this court to find the plaintiff’s damages non-dischargeable.

Analysis

When determining whether a state court judgment may collaterally estop litigation in a bankruptcy court, the collateral estoppel law of the state issuing the judgment will apply. In this case, the underlying judgments were rendered by a Washington court.

Under Washington law, a party is entitled to issue preclusion by demonstrating the following elements: (1) identical issues; (2) a final judgment on the merits; (3) the party against whom the plea is asserted must have been a party to or in privity with a party to the prior adjudication and (4) application of the doctrine must not work an injustice on the party against whom the doctrine is to be applied.

The second and third elements are satisfied here because the judgment order and supplemental orders are final on the merits and the parties in dispute are the same as in the prior litigation. The fourth element is met because it is clear from the record that the defendants had a full and fair opportunity to defend against the allegations made in the complaint in the Washington courts.

The remaining question is whether the issues previously decided are identical to the issues before this court. To successfully prevail on an objection to dischargeability under § 523(a)(6), a creditor must prove three elements: “(1) the debtor caused an injury; (2) the debtor’s actions were willful; and (3) . . . the debtor’s actions were malicious.”

The Washington jury determined that when the defendants fired Ms. Bengtsson, the debtors discriminated against the plaintiff on the basis of sex/gender/pregnancy, and that they retaliated against the plaintiff and wrongfully terminated her employment in violation of public policy. Judgments for discrimination have been found to be inherently willful as required by § 523(a)(6).

By finding in favor of the plaintiff, the Washington court jury necessarily rejected all of the defendants’ proffered excuses for terminating Ms. Bengtsson. It found that the debtors accused Ms. Bengtsson of embezzlement despite having no basis to believe she had embezzled funds and continually shifted their defenses. The appeals court found no challenged evidentiary ruling was prejudicial to the finding of liability and that the debtors’ contentions on appeal were meritless.

The Fairfax court found the debtors’ conduct in violation of court orders so egregious that it ordered the debtors’ arrest. In short, each part of the plaintiff’s claim arises from the debtors’ willful acts, intended to cause harm to the plaintiff and satisfies the “willful” and “malicious” prongs of § 523(a)(6).

Accordingly, after reviewing the full record this court finds that the elements of § 523(a)(6) have been proven in litigation already concluded in the Washington court and the Fairfax court and that the doctrine of collateral estoppel requires this court to find the plaintiff’s damages and all related expenses non-dischargeable.

Bengtsson v. Yin, No. 21-01043, Aug. 5, 2022. EDVA Bankr. at Alexandria (Kindred). VLW No. 022-4-018. 14 pp.

VLW 022-4-018

Virginia Lawyers Weekly