Petition for Writ of Certiorari — Brian K. Failon, Petitioner v. Compass Chemical International, LLC

Supreme Court briefMay 14, 2018

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No. __________

In the

Supreme Court of the United States

BRIAN K. FAILON,

Petitioner,

COMPASS CHEMICAL INTERNATIONAL, LLC,

Respondent.

-----------------------------------------ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FOURTH CIRCUIT

-----------------------------------------PETITION FOR WRIT OF CERTIORARI

-----------------------------------------Richard F. Hawkins, III

Counsel of Record

The Hawkins Law Firm, PC

2222 Monument Avenue

Richmond, VA 23220

(804) 308-3040

Counsel for Petitioner

GibsonMoore Appellate Services, LLC

206 East Cary Street ♦ Richmond, VA 23219

804-249-7770 ♦ www.gibsonmoore.net

QUESTION PRESENTED

Section 523(a)(6) of the Bankruptcy Code excludes

from discharge any debt “for willful and malicious

injury by the debtor to another entity or the property

of another entity.” 11 U.S.C. § 523(a)(6). In

Kawaauhau v. Geiger, 523 U.S. 57 (1998), this Court

held that debts attributable to negligent or reckless

acts do not fall within the statutory exception. In

doing so, the Court ruled that the language of §

523(a)(6) encompassed only acts done with the actual

intent to cause injury and not merely intentional acts

that happen to cause injury.

The question presented here is:

Whether a debt arising from a spoliation sanction

issued to the debtor because he intentionally wiped

the hard drive of his employer-owned laptop computer

clean prior to leaving his then-employer -- conduct

which was judicially described as “at least negligent

and may have been deliberate” – but did not cause the

company any competitive harm and did not have any

substantive monetary relief awarded against him for

any of the eleven counts brought against him in a

subsequent civil suit that the former employer

ultimately voluntarily dismissed without prejudice

was a “malicious injury by the debtor to another”

under § 523(a)(6) of the Bankruptcy Code that could

not be discharged in bankruptcy.

PARTIES TO THE PROCEEDINGS

Petitioner is Brian K. Failon. Respondent is

Compass Chemical International, LLC (“Compass”).

iii

TABLE OF CONTENTS

Page:

QUESTION PRESENTED .......................................... i

PARTIES TO THE PROCEEDINGS .........................ii

TABLE OF CONTENTS........................................... iii

TABLE OF AUTHORITIES ....................................... v

PETITION FOR A WRIT OF CERTIORARI ............. 1

OPINIONS BELOW ................................................... 1

JURISDICTION ......................................................... 1

CONSTITUTIONAL

AND

STATUTORY

PROVISIONS INVOLVED......................................... 1

STATEMENT OF THE CASE ................................... 2

REASONS FOR GRANTING THE PETITION ......... 7

This Court Should Grant Review

Because Circuit Courts Are “All Over

The Lot” As To The Meaning Of

“Malicious” Under 11 U.S.C. § 523(a)(6)

And Decisional Law In The Fourth

Circuit Is Behind The Times ............................ 7

II. Under A Properly-Formulated PostGeiger Standard, Failon’s Spoliation

Conduct Was Not “Malicious” Under 11

U.S.C. § 523(a)(6) ............................................ 14

CONCLUSION ......................................................... 17

APPENDIX

Opinion

United States Court of Appeals for

The Fourth Circuit

entered February 12, 2018 ............................ 1a

Opinion

United States District Court for

The Eastern District of Virginia

Richmond Division

entered May 8, 2017 ...................................... 3a

Opinion and Order

United States Bankruptcy Court

Eastern District of Virginia

Richmond Division

entered March 29, 2016 ................................. 7a

TABLE OF AUTHORITIES

Page(s):

Cases:

Ball v. A.O. Smith Corp.,

451 F.3d 66 (2d Cir. 2006) ..................................... 8

Compass Chemical Int’l, LLC v. True North

Products, LLC et al.,

No. 1:09cv03491-MHC

(N.D. Ga., Dec. 11, 2009) ...................................... 2, 3

Duncan v. Duncan (In Re Duncan),

448 F.3d 715 (4th Cir. 2006) ........................... 13, 14

Fischer v. Scarborough,

171 F.3d 638 (8th Cir. 1999) ................................... 9

Gleason v. Thaw,

236 U.S. 558 (1915) .............................................. 14

GMAC, Inc. v. Coley (In re Coley),

433 B.R. 477 (Bankr. E.D. 2010) ......................... 13

Hope v. Walker,

48 F.3d 1161 (11th Cir. 1995) .............................. 10

In re Bammer,

131 F.3d 788 (9th Cir. 1997) ................................ 10

In re Blankfort,

217 B.R. 138 (Bankr. S.D.N.Y. 1998) .................. 12

In re Hambley,

329 B.R. 382 (Bankr. E.D.N.Y. 2005) .................. 12

In re Horldt,

86 B.R. 823 (Bankr. E.D. Pa. 1988) ..................... 13

In re Logue,

294 B.R. 59 (B.A.P. 8th Cir. 2003) ....................... 12

In re Long,

774 F.2d 875 (8th Cir. 1985) ................................ 11

In re Mulder,

306 B.R. 265 (Bankr. N.D. Iowa 2004) ................ 15

In re Pineau,

149 B.R. 239 (D. Me. 1993) ............................ 13, 16

In re Powers,

227 B.R. 73 (Bankr. E.D. Va. 1998) ............... 13, 14

In re Richardson,

2007 Bankr. LEXIS 2831, 2007 WL 2381990

(Bankr. N.D. Ala. Aug. 17, 2007)......................... 12

In re Stanley,

66 F.3d 664 (4th Cir. 1995) .................................. 13

In re Thirtyacre,

36 F.3d 697 (7th Cir. 1994) .................................... 9

In re Weiser,

2007 WL 4868319

(Bankr. N.D. Ind. Apr. 4, 2007) ........................... 12

vii

In re Wooten,

423 B.R. 108 (Bankr. E.D. Va. 2010) ................... 13

Jendusa-Nicolai v. Larsen,

677 F.3d 320 (7th Cir. 2012) ............................ 8, 15

Johnson v. Davis (In re Davis),

262 B.R. 663 (Bankr. E.D. Va. 2001) .................... 16

Johnson v. Miera,

926 F.2d 741 (8th Cir. 1991) .................................. 9

Kawaauhau v. Geiger,

523 U.S. 57 (1998) ........................................ passim

Keefe Law Firm. v. Days (In re Days),

540 B.R. 423 (Bankr. E.D. Mo. 2015) ............ 15, 16

Markowitz v. Campbell,

190 F.3d 455 (6th Cir. 1999) .................................. 9

Maxfield v. Jennings,

670 F.3d 1329 (11th Cir. 2012) ............................. 9

Miller v. J.D. Abrams Inc,

156 F.3d 598 (5th Cir. 1998) ................................... 8

Mitsubishi Motors Credit of America, Inc. v.

Longley,

235 B.R. 651 (10th Cir. BAP 1999) ...................... 10

Navistar Financial Corp. v. Stelluti,

94 F.3d 84 (2d Cir. 1996) ....................................... 8

viii

Nunnery v. Nunnery (In re Rountree),

478 F.3d 215 (4th Cir. 2007) ................................ 14

Panalis v. Moore,

357 F.3d 1125 (10th Cir. 2004) ............................ 10

Petralia v. Jercich,

238 F.3d 1202 (9th Cir. 2001) .............................. 10

Steier v. Best,

109 Fed. Appx. 1, 2004 U.S. App.

LEXIS 13773 (6th Cir. June 30, 2004) ................ 15

Wheeler v. Laudani,

783 F.2d 610 (6th Cir. 1986) ............................. 8, 9

Williams v. International Brotherhood of

Electrical Workers Local 520,

337 F.3d 504 (July 7, 2003) ................................... 8

Statutes:

11 U.S.C. § 523(a)(6) ......................................... passim

28 U.S.C. § 1254(1) ..................................................... 1

Other Authorities:

Restatement (Second) of Torts § 8A (1965) ............. 10

PETITION FOR A WRIT OF CERTIORARI

Petitioner Brian K. Failon respectfully petitions

this Court for a writ of certiorari to review the

judgment of the United States Court of Appeals for

the Fourth Circuit in this case.

OPINIONS BELOW

The opinion of the Fourth Circuit is unpublished

and is reproduced in the Appendix (“App”) at 1a-2a.

The opinion of the District Court for the Eastern

District of Virginia (the “District Court”) also is

unpublished and is reproduced at App. 3a-6a.

Finally, the opinion of the United States Bankruptcy

Court for the Eastern District of Virginia (the

“Bankruptcy Court”) is unpublished and is

reproduced at App. 7a-36a.

JURISDICTION

The Fourth Circuit entered its judgment on

February 12, 2018. App. 1a. This Petition is timely

filed within ninety days thereafter, and Petitioner

invokes this Court’s jurisdiction under 28 U.S.C. §

1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Section 523(a)(6) of the Bankruptcy Code provides:

“(a) A discharge under Section 727,

1141, 1228(a), 1228(b), or 1328(b) of this

title does not discharge an individual

debtor from any debt.....

“(6) for willful and malicious injury by

the debtor to another entity or to the

property of another entity.”

11 U.S.C. § 523(a)(6).

STATEMENT OF THE CASE

1. Factual Background. Failon worked for

Compass from 1999 through July 2009. About a

month before he left the company, Compass sent

Failon a new employment agreement that reduced his

base salary by thirty percent. A few days later, Failon

met with a competitor of Compass about working with

the competitor in the future. A few days after that,

Failon reformatted his Compass-owned desktop

computer and wiped the hard drive of a Compassowned laptop. He also instructed that the statement

from the company doing the wiping not include the

wipe of the hard drive. A few weeks later, Failon

rejected the new employment agreement and

returned the Compass-owned laptop. Failon then

formed a new company and began to solicit clients of

Compass.

In November 2009, Compass sued Failon and the

new company in Georgia (the “Georgia Litigation”).

The complaint asserted eleven (11) different counts,

including (i) breach of contract, (ii) conversion, (iii)

breach of fiduciary duty, and (iv) misappropriation of

trade secrets. Compass Chemical Int’l, LLC v. True

North Products, LLC et al., 1:09cv03491-MHC (N.D.

Ga.), Dkt. Entry No. 1, Document 1-1, December 11,

2009 https://ecf.gand.uscourts.gov/doc1/05513893059.

Compass sought both compensatory and punitive

damages. Id.

In October 2010, Compass filed a motion for

spoliation sanctions in the Georgia Litigation based

on (1) Failon having wiped the hard drive of a

Compass-owned laptop and reformatted his Compassowned desktop computer prior to his departure, and

(2) his inconsistent testimony on the issue during

discovery. The district court referred the motion to a

magistrate judge who conducted a three-day

evidentiary hearing.

In February 2011, the magistrate judge issued his

report and recommendation (the “Spoliation Report”).

Compass Chemical Int’l, LLC v. True North Products,

LLC et al., 1:09cv03491-MHC (N.D. Ga.), Dkt. Entry

No.

219,

February

15,

2011,

https://ecf.gand.uscourts.gov/doc1/05514785585. The

Spoliation Report found that even though Failon had

no duty under Georgia state law to preserve evidence

(such as the information on his desktop and laptop

computers), he did have such a duty under federal

law, and that federal law, not state law, governed the

matter. Id. at 56-61. The Report then found that

Failon had engaged in spoliation of evidence as to his

laptop computer (but not as to the reformatting of his

desktop computer) and had lied about it.

The Spoliation Report also found, however:

•

that “Mr. Failon’s actions in destroying

evidence, viewed objectively are at least

negligent and may have been deliberate”

(JA149 1) (emphasis added);

1 “JA” refers to the Joint Appendix filed in the Fourth Circuit.

Failon v. Compass Chemical Int’l, LLC, Record No. 17-1709,

Dkt. Entry No. 21, filed on August 30, 2017.

•

that Compass, as part of the spoliation

proceeding in Georgia, did not identify

“any probative evidence corroborating

what it alleges might have been found on

the laptop.” JA152;

•

that “despite knowledge of the competitors

Mr. Failon solicited, [Compass] [did not

identify]

any

specific

confidential

information that has been disclosed to a

third party, or any third party who is

alleged to have received any confidential

information.” JA152-53;

•

that Compass gave “no indication that

it could establish any damages caused

by any unauthorized use or disclosure of

confidential

information.”

JA153

(emphasis added);

•

that the evidence that was recovered in

the case – evidence from Failon’s former

desktop and his thumb drive – was “just as

consistent with Mr. Failon’s assertion that

he did not take or disclose any confidential

information as it is with plaintiff’s claims.”

JA153;

•

that Compass failed to “present extrinsic

evidence tending to show that the

destroyed evidence would have been

favorable to its case.” JA153; and

•

that as a result of the above-findings,

terminating sanctions – such as a default

judgment – were not appropriate. JA153.

The Report recommended that the district court

sanction Failon. In reaching this decision, the

magistrate judge applied a five-factor test that

included a finding that Failon had acted in “bad faith.”

The “bad faith” factor, however, did not require a

showing that Failon acted with malice -- indeed, the

Report made no such finding – only that he was

culpable. JA148-149. The Report concluded that a

monetary sanction was appropriate but it declined to

recommend either an adverse inference instruction or

the grant of default judgment. JA156 (“The spoliation

was not so egregious as to justify the harshest

inference instructions.”) (emphasis added).

The district court approved the Spoliation Report

and directed Failon to pay Compass $123,835.95 (the

“Spoliation Damages”), which represented payment

for part of Compass’s attorney’s fees associated with

its spoliation motion. No trial, however, was ever held

on Compass’s substantive claims against Failon.

Instead, on March 27, 2015, Compass asked the

district court to dismiss the case without prejudice,

which the court did on April 14, 2015.

2. Bankruptcy proceedings. Failon filed for

bankruptcy in June 2011. In September 2011,

Compass filed a complaint against Failon in the

Bankruptcy Court, initiating an adversary proceeding.

In June 2015, Compass filed a partial motion for

summary judgment in the adversary proceeding

seeking summary judgment as to the dischargability of

the Spoliation Damages. On March 29, 2016, the

Bankruptcy Court granted the partial motion, holding

the Spoliation Damages nondischargeable under 11

U.S.C. § 523(a)(6). In so holding, the Bankruptcy Court

applied the factual findings from the Spoliation Report

to the elements of § 523(a)(6).

3. District Court proceedings. Failon appealed the

Bankruptcy Court’s summary judgment decision to

the District Court. In doing so, Failon contended the

Bankruptcy Court erred when it ruled as a matter of

law that the Spoliation Damages were nondischargeable under § 523(a)(6). Importantly, Failon

emphasized that the fact that the Report expressly

rejected Compass’s request for a terminating sanction

or a mandatory adverse inference was significant

proof in favor of his position that he did not act

maliciously -- as that word is understood and defined

under § 523(a)(6) – when he wiped his laptop

computer. See, e.g., JA246-251; 256-258.

The District Court disagreed and held that the

Bankruptcy Court did not err. App. 3a-6a. In an

opinion that contained only one paragraph as to the

substantive question before it, the District Court

summarily said:

In this case, Failon intended to injure

Compass when he wiped his computer. Failon

acted deliberately and intentionally, and he

knowingly disregarded Compass’s rights.

Further, the facts show that Failon had intent

to injure Compass with these actions.

Accordingly,

the

Spoliation

Damages

awarded in the Georgia Litigation because of

these actions are not dischargeable in

bankruptcy under § 523(a)(6).

App. 6a.

4. Court of Appeals. Failon appealed to the Fourth

Circuit. In his appeal, Failon, as he did in the District

Court, principally relied on the fact that (i) a showing

of “malice” was not required for the award of

sanctions in the Spoliation Report, (ii) the Report

made no such showing, and (iii) it expressly declined

to recommend terminating sanctions or a mandatory

adverse inference. Failon also highlighted the fact

that Circuits are split as to what qualifies as

“malicious” conduct under § 523(a)(6) and that the

Fourth Circuit needed to provide clear guidance as to

the meaning of such conduct. Failon v. Compass

Chemical Int’l, LLC, Record No. 17-1709, Dkt. Entry

No. 28, filed on October 16, 2017.

The Court of Appeals, however, affirmed the

District Court’s order. App. 1a-2a. In a two-page

unpublished per curiam opinion that neither

substantively addressed any of Failon’s arguments

nor made any mention of Failon’s concerns about the

lack of Circuit-level uniformity as to the standard for

“malicious” conduct under § 523(a)(6). Instead, the

Fourth Circuit simply noted that it had reviewed the

parties’ briefs and the record below and was affirming

the ruling below “for the reasons stated by the district

court.” App. 2a.

5. This Petition followed.

REASONS FOR GRANTING THE PETITION

I. This Court Should Grant Review Because

Circuit Courts Are “All Over The Lot” As

To The Meaning Of “Malicious” Under 11

U.S.C. § 523(a)(6) And Decisional Law In

The Fourth Circuit Is Behind The Times

This Court should grant review of this case

because Circuit Courts are split as to the meaning of

“malicious” conduct under 11 U.S.C. § 523(a)(6) in the

wake of Kawaauhau v. Geiger, 523 U.S. 57 (1998). In

Geiger, this Court held that debts attributable to

negligent or reckless acts do not fall within the

statutory exception. 523 U.S. at 61. In doing so, the

Court concluded that the language of § 523(a)(6)

encompassed only acts done with the actual intent to

cause injury and not merely intentional acts that

happen to cause injury. Id.

Since then, however, Circuits have diverged

widely as to proper post-Geiger standard for

“malicious” conduct. As Judge Posner observed in

addressing what qualifies as “malicious” conduct

under § 523(a)(6): “to our surprise . . . courts are all

over the lot in defining this phrase in section

523(a)(6).” Jendusa-Nicolai v. Larsen, 677 F.3d 320,

322 (7th Cir. 2012). He then detailed many of the

differing Circuit-level definitions and even noted how

at least of them rested on pre-Kawaauhau v. Geiger

jurisprudence:

The Second Circuit defines “malicious” as

“wrongful and without just cause or excuse,

even in the absence of personal hatred, spite,

or ill-will.” Ball v. A.O. Smith Corp., 451 F.3d

66, 69 (2d Cir. 2006), quoting Navistar

Financial Corp. v. Stelluti, 94 F.3d 84, 87 (2d

Cir. 1996). The Fifth Circuit equates “willful

and malicious injury” to “either an objective

substantial certainty of harm or a subjective

motive to cause harm.” Williams v.

International Brotherhood of Electrical

Workers Local 520, supra, 337 F.3d 504, 509

(July 7, 2003), quoting Miller v. J.D. Abrams,

Inc., supra, 156 F.3d 598, 606 (5th Cir. 1998).

The Sixth Circuit, in Wheeler v. Laudani,

supra, 783 F.2d 610, 615 (6th Cir. 1986),

defined

“willful”

“deliberate

and

intentional,” and “malicious” as “in conscious

disregard of one's duties or without just cause

or excuse; it does not require ill will or specific

intent to do harm.” After the Supreme Court's

decision in Kawaauhau v. Geiger, the Sixth

Circuit, without questioning the definition in

Wheeler, said that the debtor “must will or

desire harm, or believe injury is substantially

certain to occur as a result of his behavior.”

Markowitz v. Campbell, 190 F.3d 455, 465 n.

10 (6th Cir. 1999). Yet the Eleventh Circuit

continues to use a formula almost identical to

that in the Sixth Circuit's Wheeler opinion:

“‘Malicious’ means wrongful and without just

cause or excessive even in the absence of

personal hatred, spite or ill-will. To establish

malice, a showing of specific intent to harm

another is not necessary.” Maxfield v.

Jennings, supra, 670 F.3d 1329, 1334 (11th

Cir. 2012) (internal quotations and citations

omitted). We too had quoted Wheeler's formula

approvingly, in In re Thirtyacre, 36 F.3d 697,

700 (7th Cir. 1994), but we have not revisited

the issue since Kawaauhau v. Geiger.

The Eighth Circuit says that conduct is

“malicious” only if it is “certain or almost

certain ... to cause harm.” Fischer v.

Scarborough, supra, 171 F.3d 638, 643 (8th

Cir. 1999), quoting Johnson v. Miera, 926

F.2d 741, 743–44 (8th Cir. 1991). The Ninth

Circuit requires, for willfulness, a showing

“either that the debtor had a subjective

motive to inflict the injury or that the debtor

believed that injury was substantially certain

to occur as a result of his conduct,” while “a

‘malicious’ injury involves ‘(1) a wrongful act,

(2) done intentionally, (3) which necessarily

causes injury, and (4) is done without just

cause or excuse.’” Petralia v. Jercich, 238 F.3d

1202, 1208–09 (9th Cir. 2001) (emphasis in

original), quoting In re Bammer, 131 F.3d

788, 791 (9th Cir. 1997) (en banc). The Tenth

Circuit in Panalis v. Moore, 357 F.3d 1125,

1129 (10th Cir. 2004), fused “willful” and

“malicious,” saying that “willful” means “the

debtor must ‘desire ... [to cause] the

consequences of his act or ... believe [that] the

consequences are substantially certain to

result from it’ ” (quoting Mitsubishi Motors

Credit of America, Inc. v. Longley, 235 B.R.

651, 657 (10th Cir. BAP 1999), quoting in turn

Restatement (Second) of Torts § 8A (1965)),

while “malicious” requires “proof ‘that the

debtor either intend the resulting injury or

intentionally take action that is substantially

certain to cause the injury’ ” (quoting Hope v.

Walker, 48 F.3d 1161, 1164 (11th Cir. 1995)).

Id. at 323.

Judge Posner collected the key language from

these varying standards and struggled to find

uniformity:

Notice the redundancies — “deliberate

and intentional,” “objective ... certainty”

(“subjective certainty” is an oxymoron;

the proper term is “certitude”—

confidence, often misplaced, in the

correctness of one's belief), “subjective

motive,” “will or desire,” “wrongful act ...

done without just cause or excuse.”

Notice the ambiguity of a phrase like

“specific intent to do harm”— how does

that differ from “intent to do harm,” the

latter being required by Kawaauhau v.

Geiger? And what does “necessarily

causes injury” mean? And is “objective

substantial certainty of harm” really

intended to substitute for intent to

harm, or is the point rather that if harm

is certain we disbelieve that it was

inflicted accidentally? Notice that the

Eighth Circuit, in defining “malicious”

as “certain or almost certain ... to cause

harm,” confused a state of mind (malice)

with the consequence of an act (harm).

Id. at 323-324.

Judge Posner thus concluded that “each circuit

seems content to go its own way, without attempting

to reconcile its verbal formulas with those of the other

circuits.” Id. at 324.

Likewise, a bankruptcy court in Pennsylvania

made similar observations and highlighted in detail

the differing approaches to “malicious” conduct in the

context of § 523(a)(6):

Courts also have invoked different standards

for determining whether an intentional tort

involved “malice” within the meaning of §

523(a)(6). For example, in In re Long, 774 F.2d

875, 881 (8th Cir. 1985), the court reasoned

that, for the debt for any injury arising from

an intentional tort to be nondischargeable

under § 523(a)(6), the debtor’s conduct must

be "more culpable than that which is in

reckless disregard of creditors’ economic

interests and expectancies.” Further, in

assessing the debtor's culpability, “knowledge

that legal rights are being violated is

insufficient to establish malice, absent some

additional 'aggravated circumstances’. . . .” Id.

Other courts, too, have stated that the

existence of “aggravating circumstances” and

a conscious disregard of one's societal duties

to others are essential aspects of the malice

requirement under § 523(a)(6). See, e.g., In re

Logue, 294 B.R. 59, 63 (B.A.P. 8th Cir. 2003);

In re Richardson, 2007 Bankr. LEXIS 2831,

2007 WL 2381990, at *6-7 (Bankr. N.D. Ala.

Aug. 17, 2007); In re Weiser, 2007 WL

4868319, at *2 (Bankr. N.D. Ind. Apr. 4,

2007); In re Hambley, 329 B.R. 382, 402

(Bankr. E.D.N.Y. 2005); In re Blankfort, 217

B.R. 138, 143-45 (Bankr. S.D.N.Y. 1998).

In this unsettled area of the law, one court has

summarized the differing standards for

malice as follows:

One standard requires proof from the

creditor that the debtor acted with the

specific intent to injure the creditor. A

second view is that the creditor need

only prove that the debtor acted

without just cause or excuse. A third

approach requires that the debtor's

conduct target the creditor, at least in

the sense that the conduct was certain

or almost certain to cause financial

harm. A fourth approach, which has

been characterized as a “totality of the

circumstances” approach, adopts the

position that an injury is malicious if

the debtor fails to act in subjective good

faith.

In re Pineau, 149 B.R. 239, 242 (D. Me. 1993)

(emphasis added) (citing In re Horldt, 86 B.R.

823 (Bankr. E.D. Pa. 1988)).

GMAC, Inc. v. Coley (In re Coley), 433 B.R. 477, 499500 (Bankr. E.D. 2010).

For its part, the Fourth Circuit has not spoken

definitively or authoritatively as to the proper

meaning of “malicious” under § 523(a)(6). Instead,

simply parroting language from Geiger, it has

collapsed the “willful” and “malicious” inquiries into

one unitary question: whether the injury was a

deliberate or intentional injury” or “merely a

deliberate or intentional act that leads to injury.”

Duncan v. Duncan (In Re Duncan) 448 F.3d 715, 729

(4th Cir. 2006). This articulation, however, is nothing

more than a statement of the guiding principle behind

Geiger and is not an actual statement of what is – or

is not – required to show “malicious” conduct for

purposes of § 523(a)(6).

Indeed, in the absence of a controlling statement

of law by the Fourth Circuit, the lower courts in the

Circuit have relied – inappropriately – on pre-Geiger

authority to address the question. Specifically, in its

own lower court briefing, Compass highlighted the

case of In re Wooten, 423 B.R. 108, 130 (Bankr. E.D.

Va. 2010) to assert that “malice” is defined as “an act

causing injury without just cause or excuse.”

However, digging deeper into the citations from In re

Wooten, it is clear that Wooten cited the case of In re

Powers, 227 B.R. 73, 76 (Bankr. E.D. Va. 1998), which

articulated the malice standard from the Fourth

Circuit’s pre-Geiger decision in In re Stanley, 66 F.3d

664, 667 (4th Cir. 1995). This lineage is important

because the standard in In re Stanley was expressly

abrogated three years later by Geiger. As explained

in In re Powers, Geiger “eliminated foreseeability from

the definition of intent” and essentially confined §

523(a)(6) to an “intentional tort standard” where a

key requirement was subjective intent to cause harm.

277 B.R. at 76. In other words, as with courts in other

Circuits, lower courts in the Fourth Circuit have

resorted to looking at pre-Geiger authority to help

articulate the meaning of “malicious” under §

523(a)(6).

This hodge-podge of irreconcilable Circuit-level

and lower-level standards for what constitutes

“malicious” conduct under § 523(a)(6) needs

substantial clarity from this Court and counsels in

favor of granting a write.

II. Under A Properly-Formulated PostGeiger Standard, Failon’s Spoliation

Conduct Was Not “Malicious” Under 11

U.S.C. § 523(a)(6)

The standard for what is nondischargable under

Geiger has been rightfully called a “stringent

requirement.” Duncan, 448 F.3d at 727. This is

especially true because in order to promote the

general goal of the Bankruptcy Code -- providing

bankrupt debtors with a fresh start -- any “exceptions

to discharge ‘should be confined to those plainly

expressed,’” Geiger, 523 U.S. at 62 (quoting Gleason v.

Thaw, 236 U.S. 558, 562 (1915)), and otherwise

construed narrowly. Nunnery v. Nunnery (In re

Rountree), 478 F.3d 215 (4th Cir. 2007))

Here, under a properly formulated post-Geiger

standard, Failon’s conduct is not “malicious” under §

523(a)(6) and the Fourth Circuit, the District Court,

and the Bankruptcy Court all erred in concluding that

it was, especially as a matter of law. As Failon has

repeatedly explained, the Spoliation Report’s

findings, at most, show that he acted with reckless

disregard to Compass’s rights vis-à-vis his laptop.

Under a properly applied standard for “malicious,”

this is legally insufficient to establish malicious

conduct:

The conduct must “be more culpable than

that which is in reckless disregard of

creditors’ economic interests and expectancies,

as distinguished from mere legal rights.

Moreover, knowledge that legal rights are

being violated is insufficient to establish

malice, absent some additional 'aggravated

circumstances’....” In re Mulder, 306 B.R. 265,

270 (Bankr. N.D. Iowa 2004) (citation

omitted).

Keefe Law Firm v. Days (In re Days), 540 B.R. 423,

429-430 (Bankr. E.D. Mo. 2015) (emphasis added). It

was therefore error for the Bankruptcy Court, the

District Court, and the Fourth Circuit to hold that

Failon’s conduct was malicious.

Indeed, to hold otherwise is to return to pre-Geiger

standards and to punish Failon for simply intending

the act – the wiping of the computer – that could have

caused (but did not) possible financial harm to

Compass, rather than intending to actually cause

financial harm to Compass. Defamation this is not.

See Steier v. Best (In re Best), 109 Fed. Appx. 1, 2004

U.S. App. LEXIS 13773 at **11 (6th Cir. June 30,

2004). Nor is it intentional infliction of emotional

distress. Id. Or assault. Jendusa-Nicolai v. Larsen,

677 F.3d 320 (7th Cir. 2012). Or any other kind of

comparable conduct where the debtor acted with

“knowing disregard for the plaintiff’s [creditor’s]

rights.” Johnson v. Davis (In re Davis), 262 B.R. 663,

670-71 (Bankr. E.D. Va. 2001) (emphasis added).

Again, as noted above, in the context of

determining “maliciousness,” knowing disregard does

not mean knowing disregard of a creditor’s economic

interests or expectancies. Keefe Law Firm. v. Days (In

re Days), 540 B.R. 423, 439-30 (Bankr. E.D. Mo. 2015).

Rather, it means that the debtor targeted the creditor

in a way that was “certain or almost certain to cause

financial harm.” In re Pineau, 149 B.R. 239, 242 (D.

Me. 1993) (emphasis added). And again, the record

from the underlying Georgia litigation failed to show

– especially as a matter of law – that Failon targeted

Compass in a way that was certain or almost certain

to cause it financial harm. To the contrary, the

record showed just the opposite, as Compass failed to

show (i) that the destroyed evidence would have been

favorable to it – i.e., that it would have made any

difference; (ii) that Failon revealed any confidential

information to any third-parties; or (iii) that it could

show any damages resulting from the spoliation

conduct. See JA152-53. These findings simply negate

any conclusion that Failon acted maliciously in

wiping his laptop.

And as a final matter, it should be noted that

neither the District Court nor the Fourth Circuit even

attempted to address, much less addressed, whether

Failon intended to cause actual financial harm to

Compass. Nor did they address the key distinction

between acting with reckless disregard for a creditor’s

rights versus acting with knowing disregard for a

creditor’s rights. In essence, the courts broadly

concluded that Failon’s intentional conduct in wiping

the hard drive of his laptop computer necessarily

translated into malicious conduct. These conclusions

were and are erroneous.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Dated: May 14, 2018

/s/ Richard F. Hawkins, III

Richard F. Hawkins, III