Legal Malpractice

Legal Mapractice Judgment Not Dischargeable in Legal Malpractice

By (Andrew Lavoott Bluestone)

In re MICHAEL ROY BRESSLER, Defendant. WILLIAM FORREST and SHAWN STEIBEL, Plaintiffs, v. MICHAEL ROY BRESSLER, Defendant. STEVEN STRUM, Plaintiff, v. MICHAEL ROY BRESSLER

Here is a long SDNY Bankruptcy case discussing a series of legal malpractice proceedings, malicious behavior and non-discharageablity. 

"Strum objects to granting Bressler a discharge under section 523(a)(6) of the Bankruptcy Code. Although Forrest and Steibel also seek a denial of discharge under sections 523(a)(4) and 523(a)(6) in their adversary complaint, those plaintiffs have not pursued that avenue of the relief with the Court because of the Court's prior rulings that their state court malpractice claim should conclude before the Court addresses their section 523 causes of action regarding any debt that may arise from that proceeding. The Court lifted the automatic stay to allow that action to proceed.

Section 523(a)(6) provides an exception to discharge for debts arising from "willful and malicious injury by the debtor to another." See Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006). Neither "willful" nor "malicious" is defined in the Code. See Strauss v. Strauss (In re Strauss), Bankr. No. 05-24910, Adv. No. 06-8229, 2006 WL 2583645 (Bankr. S.D.N.Y. 2006). [*11] The terms, however, are distinct and should not be joined together into one "'amorphous standard.'" See Yash Raj Films (USA), Inc. v. Akhtar (In re Akhtar), 368 B.R. 120, 127 (Bankr. E.D.N.Y. 2007) (quoting Barclays American/Business Credit v. Long (In re Long), 774 F.2d 875, 881 (8th Cir. 1985)). "

"In [*16] Ball, a 2006, decision, the Second Circuit applied collateral estoppel to preclude a debtor-attorney from contesting his debt that arose from a prior proceeding's sanctions award against him as one for willful and malicious injury under section 523. There, the debtor-attorney, Ball filed suit in a Louisiana federal court on behalf of certain plaintiffs against creditor A.O. Smith Corporation ("A.O. Smith"). In that proceeding, A.O. Smith prevailed at summary judgment and won an award of sanctions against Ball for bringing the suit. The Louisiana district court ordered Ball to pay the cost of A.O. Smith's defense, an order affirmed by the Fifth Circuit.

Ball then filed for bankruptcy protection in the bankruptcy court of the Northern District of New York. Both that bankruptcy court and the district court for the Northern District of New York held that the debt was non-dischargeable under section 523(a)(6). The Second Circuit affirmed, finding that collateral estoppel applies to the facts found by the Louisiana district court because those facts were "fully litigated" and "necessary" to that court's decision to impose sanctions, and that those findings "satisfy the Bankruptcy Code's malice [*17] requirement." 451 F.3d at 69-70. One of the findings was that Ball should have known his plaintiffs' claims were "obviously barred." Id. at 70.

In In re Jones, the debtor appealed the Bankruptcy Court's determination that the Massachusetts Commission Against Discrimination's ("MCAD") finding of willful and malicious conduct was a sufficient basis to deny dischargeability under section 523(a)(6). The Bankruptcy Appellate Panel of the First Circuit (the "BAP") affirmed that decision, finding that "there was sufficient evidence [in the MCAD's findings] to find that the Appellant's actions were deliberate or intentional and that he did intend to harm or injure the Appellee." 300 B.R. at 140. The BAP found that despite the lack of a malice requirement in the state's sexual harassment statute, the MCAD's finding of sexual harassment "constitutes the requisite injury and is equivalent to a finding of malicious and willful injury under § 523(a)(6)." Id. at 141. "

Full post as published by New York Attorney Malpractice Blog on May 19, 2008 (boomark / email).