Heinrich v. Bagg (In re Bagg)
Heinrich v. Bagg (In re Bagg)
Opinion
DECISION AND ORDER
Brett H. Ludwig, United States Bankruptcy Judge *652Alan and Maureen Bagg are Chapter 7 debtors. On August 18, 2017, one of their longtime neighbors, Robert Heinrich, filed a proof of claim and an adversary complaint in their bankruptcy case. Heinrich's $425,324.05 claim is based on a state court judgment that he obtained against the Baggs for: (1) tortious interference with contract and (2) unlawful harvesting of timber on Heinrich's land. In the adversary proceeding, Heinrich contends these debts should be excepted from discharge under
Heinrich initially sought summary judgment in the adversary proceeding, arguing that the Baggs were collaterally estopped from disputing nondischargeability based on the state court judgment. Because the state court verdict did not necessarily answer whether the Baggs acted willfully and maliciously, the court denied summary judgment and set the proceeding for trial. On April 11 and 20, 2018, the parties presented evidence and argument and the court took the matter under advisement. Based on the evidence and matters of record, the court now issues this Decision and Order resolving the parties' dispute.
FINDINGS OF FACT
The basic facts giving rise to Heinrich's claim are largely undisputed. Heinrich and the Baggs are neighbors who own adjoining parcels of real estate in Elmwood Park, Wisconsin, a small village on the outskirts of Racine. The Baggs purchased their home and another ½-acre parcel from Heinrich in the 1980s. At that time, Heinrich retained land next to the Baggs and continued to live there.
The Baggs and Heinrich appear to have been on reasonably good terms as neighbors for the next 25 years. During this time, the Baggs made use of portions of Heinrich's property, cutting down trees and planting a garden on Heinrich's land, all apparently without any objection from Heinrich.
Neighborly relations fell apart in early 2012. During the preceding fall, Heinrich entered into an agreement to sell a 3.2-acre parcel of land directly adjoining the Baggs' property to Gatlin Development Company, Inc. Heinrich was to receive $900,000 for the parcel, which Gatlin planned to develop into a Walmart.
The Baggs were less than thrilled at the prospect of having a Walmart next door. Along with a group called the Friends of Elmwood Park, the Baggs opposed the development and took measures to try to stop it. They helped draft and send emails to municipal officials, urging them not to rezone the property, a prerequisite to the development going forward.
Because the ½-acre portion that the Baggs claimed to have adversely possessed was part of the property Heinrich had already contracted to sell to Gatlin, the lawsuit and lis pendens raised questions about Heinrich's ability to convey clean title to the entirety of the parcel he had agreed to sell. These questions led Gatlin to terminate the purchase agreement and walk from the deal.
Whether the Baggs realized it at the time or not, the death of the Walmart development was not the end of the saga between them and Heinrich. Unhappy that the lawsuit had cost him a substantial economic gain, Heinrich responded to the Baggs' complaint by denying the Baggs' adverse possession allegations and counterclaiming for unlawfully harvesting timber in violation of
In August 2015, more than three years after the Baggs filed their initial complaint, the case was finally ready for trial. On the brink of trial, the state court made a series of rulings in favor of each party. The court ruled in the Baggs' favor on a portion of their claim, concluding that they had adversely possessed that part of Heinrich's land where they had planted a garden. Based on this ruling, the state court dismissed Heinrich's slander of title counterclaim. But the court also held that the Baggs had not adversely possessed the balance of the parcel. The court then allowed the parties to present evidence and argument on Heinrich's intentional interference with contract claim to a jury, which found in favor of Heinrich and awarded him $405,000. Finally, the court determined that the Baggs had harvested timber on Heinrich's property in violation of
ANALYSIS
One of the fundamental purposes of bankruptcy is to provide debtors with a fresh start by discharging their pre-petition debts. In re Jahrling ,
Heinrich argues that the Baggs' debts to him are nondischargeable under this provision. As the party seeking to establish an exception to discharge, Heinrich bears the burden of proof by a preponderance of the evidence. Grogan v. Garner ,
1. What is a debt for "willful and malicious injury"?
At first blush, the concept of a debt for a willful or malicious injury seems straightforward. The American Heritage Dictionary of the English Language defines *654willful
If our analysis could rest solely on the plain words of the statute, things would be relatively uncomplicated. The court would simply look for evidence of an injury to the creditor or his property as the result of the debtor's intentional conduct, done maliciously. But years of judicial gloss added to these terms necessitates a more detailed discussion.
The Supreme Court has twice interpreted the phrase "willful and malicious" injury for purposes of nondischargeability in bankruptcy. In Kawaauhau v. Geiger ,
Nearly a full century earlier, in Tinker v. Colwell ,
The Seventh Circuit addressed the willful and malicious exception to discharge at length in Jendusa-Nicolai v. Larsen ,
In First Weber Grp., Inc. v. Horsfall ,
In Horsfall , the Seventh Circuit identified three elements to a section 523(a)(6) claim: (1) an injury to the creditor or his property caused by the debtor; (2) willfully; and (3) maliciously. The court of appeals stated that in proving a "malicious" injury the creditor did not need to prove "ill-will or specific intent to do harm."
Semantics aside, the plain language of the Bankruptcy Code and the holdings of the cases make certain requirements clear. A creditor invoking section 523(a)(6) must show that the debt at issue arises from an injury to the creditor's person or property, intentionally caused by the debtor, with some level of malice, wickedness, or a specific intent to inflict injury. See Horsfall ,
2. Are the Baggs' debts to Heinrich for "willful and malicious injury"?
Heinrich's claim arises from two separate injuries. First, Heinrich suffered $405,000 in damages plus interest and costs as a result of the Baggs' tortious interference with Heinrich's contract to sell his land to Gatlin. Second, he sustained $2,400 in damages plus interest and costs as a result of the Baggs' unlawful harvesting of timber from his land. Because these debts arise from different conduct, section 523(a)(6) requires that they be separately analyzed.
A. Heinrich has not proved that the Baggs' debt for tortiously interfering with the Gatlin contract is nondischargeable.
The record establishes that Heinrich has suffered an injury as a result of the Baggs' tortious interference with the Gatlin contract. The Baggs' lawsuit resulted in Gatlin terminating a contract to buy Heinrich's property for $900,000, when the property was appraised for only $495,000, resulting in a $405,000 financial injury to Heinrich.
The evidence also establishes the Baggs' conduct leading to Heinrich's injury was intentional. The filing of a lawsuit and the related lis pendens are both intentional, purposeful acts. Indeed, the Baggs plainly filed the lawsuit and lis pendens with the *657intent both to vindicate their adverse possession rights and to try to prevent the Walmart development.
The Baggs do not appear to contest either of these initial points and, even if they had, they would be precluded from re-litigating these issues, as this court previously explained in its March 28, 2018 oral summary judgment ruling. See Horsfall ,
This leaves only the issue of whether the Baggs had a specific intent to injure or harm Heinrich (whether as part of proving "maliciousness" or proving "willfulness"). Heinrich concedes that the jury did not make a specific finding on this point. (Plaintiff's Proposed Findings of Fact ¶ 28 and Proposed Conclusions of Law ¶ 12, filed April 6, 2018).
The court is not persuaded that the Baggs acted with a sufficient intent to inflict injury (or with sufficient malice) to render their debts to Heinrich nondischargeable under section 523(a)(6). The Baggs testified credibly that they did not act to harm Heinrich. They filed their adverse possession lawsuit and lis pendens in good faith. They explained that while they wanted to prevent the Walmart development, they also wanted to protect the residential character of their neighborhood. They insisted that they had no animus against Heinrich personally or against his property.
It is significant to the court that the Baggs' lawsuit and lis pendens were not frivolous. The state court ruled that the Baggs had indeed adversely possessed a portion of Heinrich's land, the portion they used for a garden. On this basis, the state court dismissed Heinrich's slander of title claim as a matter of law. The Baggs were thus plainly within their rights - indeed their claims were partially vindicated - in suing for adverse possession and filing a lis pendens on the property. This undercuts Heinrich's argument that the injury was willful and malicious.
The mere partial success of their adverse possession claim is not dispositive. It is possible that a party in the Baggs' position could have acted with an intent to injure (maliciously) even with a valid adverse possession claim. For example, if Heinrich had proved that the Baggs knew that they had no basis to claim adverse possession over more than just the garden area, but filed their claim more broadly in order to scuttle Heinrich's deal with Gatlin, then he would have shown a willful and malicious injury within the meaning of section 523(a)(6). But Heinrich offered no evidence the Baggs' claim was intentionally inflated to kill the Walmart deal and cause him harm. The best he could muster was an argument that the jury must have found that the Baggs overreached in filing their lawsuit given the resulting jury verdict. But nothing in the verdict stands out as requiring the jury to have necessarily reached such a conclusion. Certainly the jury instructions, particularly those relating to whether the Baggs' conduct was "privileged," allowed the jury to consider a variety of factors touching on the Baggs' motivations, but that does not mean the jury actually made such findings. Nor did Heinrich present any credible evidence in this adversary proceeding that would allow the court to make such a finding. It was incumbent on Heinrich, as the party with the burden of proof, to offer such evidence, if it existed.
In closing argument, Heinrich insisted that the Baggs acted willfully and maliciously because their conduct in filing the lawsuit was "substantially certain" to result *658in harm to Heinrich and his property. With a nod to language in Horsfall and Thirtyacre , Heinrich argued that because the Baggs were aware that filing their lawsuit would kill the Walmart development, they acted with sufficient willfulness to satisfy section 523(a)(6).
Heinrich misconstrues the language used in the case law. While a person is certainly held to have intended all consequences that are substantially certain to result from his actions, this is not the same thing as having an intent to inflict injury, as required to sustain a nondischargeability complaint under section 523(a)(6). An intentional breach of contract might be substantially certain to result in damages to the counterparty, but that does not mean that a claim based on such a breach creates a non-dischargeable debt within the meaning of section 523(a)(6). Heinrich's construction would water down the requirements of section 523(a)(6), causing the exception to swallow the general rule that debtors are entitled to a discharge. See Horsfall ,
Indeed, Heinrich admitted that the Baggs' conduct in filing the lawsuit was not in fact certain to result in harm to Heinrich. In closing argument, Heinrich identified three potential outcomes from the lawsuit. First, the Baggs might prevail and have their adverse possession rights vindicated. While this would deprive Heinrich of the proceeds from the proposed sale to Gatlin, he would not have been harmed in the legal sense; an inability to complete the sale of land one does not rightfully own is not a legal injury. Second, Heinrich might prevail in the lawsuit and then proceed with the Walmart deal. In this instance, he would recover the sale price and suffer no injury (other than perhaps for some delay, assuming the delay had financial consequences). Third, Heinrich might prevail in the lawsuit, but only after the deal fell through (as actually happened). In this circumstance, the Baggs' lawsuit would have resulted in injury. Based on these admissions, if the first or second outcome had transpired, Heinrich would not have been wrongfully injured. The court thus does not find that it was substantially certain that Heinrich would suffer an injury sufficient to make the Baggs' conduct willful and malicious for purposes of 523(a)(6).
B. Heinrich has also failed to establish that his debt for unlawful harvesting of timber is nondischargeable.
Given the much smaller amount at issue, it is unsurprising that the parties spent much less time in terms of evidence and argument related to the unlawful timber harvesting debt. The record establishes, however, that Heinrich was awarded $2,400 in damages by the state court after it determined that the Baggs violated
The judgment itself establishes that the Baggs cut timber on Heinrich's land and that Heinrich suffered injury as a result. From this alone, Heinrich has carried his burden on two of the three required statutory elements.
But the paucity of evidence requires the court to conclude that Heinrich failed to carry his burden of showing a willful and malicious injury on this debt too. None of the witnesses testified about the Baggs' intentions with respect to the timber, other than that they burned some of it in their fireplace. There was nothing from which the court could conclude that the unlawful *659timber harvesting was done willfully and maliciously for purposes of section 523(a)(6). The court therefore finds this debt is dischargeable too.
CONCLUSION AND ORDER
Heinrich has not carried his burden of establishing that the Baggs' debts to him were for willful and malicious injury under section 523(a)(6). The debts are therefore dischargeable and the adversary complaint is dismissed.
The court has jurisdiction over the adversary proceeding by virtue of
Many provisions in the Code use the term willful. E.g. ,
Apparently, criminal conversation is not entirely an anachronism. It remains an actionable tort in at least five jurisdictions. See H. Hunter Bruton, The Questionable Constitutionality of Curtailing Cuckolding: Alienation-of-Affection and Criminal-Conversation Torts ,
This is an example of the "sematic confusion" the Seventh Circuit itself complained of in Jendusa-Nicolai .
Reference
- Full Case Name
- IN RE Alan R. BAGG and Maureen E. Bagg, Debtors. Robert Heinrich v. Alan R. Bagg and Maureen E. Bagg
- Cited By
- 7 cases
- Status
- Published