Derek Luebbert v. Global Control Systems, Inc. ( 2021 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 19-2751
___________________________
In re: Derek Francis Luebbert
Debtor
------------------------------
Derek Francis Luebbert
Appellant
v.
Global Control Systems, Inc.
Appellee
____________
Appeal from United States District Court
for the Western District of Missouri - Kansas City
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Submitted: September 23, 2020
Filed: February 9, 2021
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Before SMITH, Chief Judge, BENTON and KOBES, Circuit Judges.
____________
KOBES, Circuit Judge.
Derek Luebbert sought to discharge hundreds of thousands of dollars in
judgment debt in bankruptcy after a breach of contract lawsuit indebted him to his
former employer. He appeals the bankruptcy court’s 1 determination that the debt
resulted from his infliction of a willful and malicious injury on his former employer
and so was non-dischargeable under 11 U.S.C. § 523(a)(6). We conclude the facts
underlying Luebbert’s breach of contract judgment show that he caused a willful and
malicious injury and affirm.
I.
Global Control Systems hired Luebbert as an engineer in 2006. Luebbert
signed an employment contract which said if he was fired or resigned he would not
solicit business from GCS’s customers or compete with GCS within 100 miles for
three years. Luebbert’s principal responsibility was to develop software for GCS’s
client, Alliant Techsystems. Luebbert eventually became so essential to one of
Alliant’s projects that he worked exclusively with Alliant, was named to Alliant’s
project management team, and spent most of his time working at Alliant’s physical
location.
Luebbert grew frustrated with his pay. He decided to create his own company,
Atlas Industrial Solutions, and bid on Alliant’s projects while still working for GCS.
Luebbert did not tell GCS about his new business or his Alliant bids. Using
information he acquired through his ongoing employment with GCS—and using
GCS’s own bidding form—Luebbert bid on and won a contract for one of Alliant’s
projects, PO D95.
The day Luebbert got word that Alliant accepted his PO D95 bid, he sent a
letter to his GCS supervisor explaining that he was resigning because he “decided to
pursue alternate career opportunities.” App. 637. Luebbert did not tell GCS why he
was resigning or about his continuing work for Alliant. But GCS got wise to the
situation and threatened legal action. After Luebbert did more to harm GCS—
1
The Honorable Cynthia A. Norton, Chief Bankruptcy Judge, United States
Bankruptcy Court for the Western District of Missouri.
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including stealing information and wiping computer hard drives—GCS and
Luebbert settled.
The settlement agreement allowed Luebbert to continue work on Alliant’s
essential PO D95 project but required him to give GCS most of the proceeds. This
arrangement was designed to compensate the parties as if Luebbert still worked for
GCS. Luebbert and GCS then coordinated with Alliant to arrange payment: Alliant
would issue two-party checks payable to both GCS and Atlas. The checks would be
sent first to Luebbert, who would endorse them on his company’s behalf, and then
he would send them to GCS to be cashed. GCS would then send Luebbert his share.
The PO D95 project was originally expected to last six months. It was later
expanded and would ultimately take much longer, so GCS and Luebbert amended
their settlement agreement. The amended settlement (1) suspended Luebbert’s
noncompete for the remainder of the PO D95 project, permitting him to work on
Alliant projects only while the PO D95 project was ongoing; (2) provided that the
parties would evenly split all payments for any work Luebbert did for Alliant until
the PO D95 project was completed; and (3) provided that Alliant would continue to
issue two-party checks payable to both GCS and Atlas. The amended settlement
also required Luebbert to keep GCS in the loop about additional purchase orders,
work requests, invoices, or any other accounting.
This arrangement worked for over a year. But trouble brewed again when
Luebbert decided the arrangement was unfair and schemed to keep more money than
his settlement with GCS allowed. Luebbert changed his company’s invoicing
address on file with Alliant to a P.O. Box over 100 miles away from his old address
without informing GCS. 2 He started receiving purchase orders from Alliant for new
2
The new address, a P.O. Box in Westphalia, Missouri, was over 100 miles
away from both Luebbert’s old address in Kansas City and his work for Alliant in
neighboring Independence, Missouri. See App. 31, 33, 69. Luebbert’s noncompete
prohibited competing with GCS within 100 miles.
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projects and working on them without notifying GCS. Luebbert kept GCS from
learning about his new work by directing Alliant to send invoices solely to him at
his new address and to issue those invoices in his company’s name only. When
Alliant complied but kept GCS’s name on checks made out for the new projects,
Luebbert instructed Alliant to remove any reference to GCS because of what he said
was a “name change.” 3 App. 645. He then directed Alliant to void the two-party
checks for the new projects and reissue them in Atlas’s name. Luebbert did not tell
GCS about any of this, nor did he share any of the proceeds from the new projects
or the reissued checks.
The day after Alliant promised Luebbert that it would issue all future checks
only to Atlas, Luebbert told GCS that he would no longer abide by the settlement
agreement. Rather than comply with the renewed force of his noncompete, Luebbert
continued working on Alliant projects. Alliant then issued another check to
Luebbert including GCS’s name. Luebbert struck out GCS himself, deposited the
check, and demanded further assurances from Alliant that his company would be the
only recipient of any payment moving forward. During this time, GCS tried to
communicate with Luebbert about complying with the settlement and tried to ask
him about missing accounting, but it was unable to make contact with him—in part
because he had changed his mailing address to the P.O. Box.
GCS sued Luebbert for breach of contract in Missouri state court. While the
lawsuit was pending, Luebbert told Alliant that he was working for a friend’s
company and directed Alliant to send all checks to that company instead. The
friend’s company remitted those checks to Luebbert, allowing him to retain their full
value rather than splitting them with GCS. Luebbert removed the breach of contract
case to federal court by invoking diversity jurisdiction. The case went to trial and
resulted in a jury verdict against Luebbert for $302,631.31 in damages, the money
3
Luebbert never changed his personal name or his company’s name after
referring to the “name change,” and GCS never changed its name. App. 69. As the
bankruptcy court noted, there is no evidence that GCS, Luebbert, or Atlas was
contemplating—let alone in the process of—changing names.
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he withheld from GCS. After interest and attorney’s fees, the final judgment debt
due to GCS totaled over $650,000.00.
Luebbert then filed for Chapter 7 bankruptcy, seeking to discharge the
judgment debt. GCS filed an adversary proceeding in bankruptcy court demanding
that Luebbert’s judgment debt be declared non-dischargeable under § 523(a)(6),
which exempts from discharge any debt for “willful and malicious injury by the
debtor to another entity or to the property of another entity.”
The bankruptcy court held a trial and ruled in GCS’s favor, concluding
Luebbert’s debt was non-dischargeable. The bankruptcy court first applied
collateral estoppel to the question of whether Luebbert injured GCS. The
bankruptcy court determined that Luebbert could not contest whether GCS was
injured because “[w]hen the District Court entered judgment . . . it necessarily found
that [GCS] had suffered an injury.” App. 652. The bankruptcy court then explained
that GCS’s injury was willful under our precedents because Luebbert was
substantially certain he would cause GCS harm. It reasoned that Luebbert’s
certainty could be inferred because Luebbert “knew that he was violating the
settlements” and “he intended to conceal his actions.” App. 655. The bankruptcy
court also found Luebbert’s conduct to be malicious in light of the totality of the
circumstances because Luebbert “knew about the noncompete” but still “took
calculated and clandestine steps to do business with [Alliant] in violation of his
obligations.” App. 656–57. Pointing to Missouri law on conversion and breach of
fiduciary duty, the bankruptcy court found that Luebbert’s conduct “echoes of
conversion or some other tort.” App. 654. Luebbert appealed to the district court,
which affirmed the bankruptcy court. He now appeals once more.
II.
When a bankruptcy court’s decision is appealed to the district court and then
appealed again, we review only the underlying bankruptcy court decision. Caldwell
v. DeWoskin, 831 F.3d 1005, 1008 (8th Cir. 2016). We review a bankruptcy court’s
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legal conclusions de novo and its factual determinations for clear error. In re Porter,
539 F.3d 889, 893 (8th Cir. 2008).
A nondischargeability action under § 523(a)(6) has three elements: (1) the
debtor caused an injury to the creditor; (2) the injury must have been willfully
inflicted—that is, the debtor must have desired the injury or must have been
substantially certain that his conduct would result in the injury; and (3) the debtor’s
actions must have been malicious. See In re Patch, 526 F.3d 1176, 1180–81 (8th
Cir. 2008). The party seeking to prevent discharge bears the burden of showing each
element by a preponderance of the evidence. Id. at 1180. “Whether a debtor acted
willfully and maliciously involves a finding of intent—a question of fact.” In re
Thoms, 505 F. App’x 603, 605 (8th Cir. 2013) (citing In re Waugh, 95 F.3d 706, 711
(8th Cir. 1996)).
Luebbert makes two arguments: (1) the bankruptcy court erred when it
applied collateral estoppel to the issue of whether he injured GCS; and (2) the
bankruptcy court erred when it failed to narrowly construe the Bankruptcy Code’s
exceptions to discharge and found that he inflicted a willful and malicious injury.
III.
The purpose of the collateral estoppel doctrine is to “protect[] litigants from
the burden of relitigating an identical issue with the same party . . . and [to] promot[e]
judicial economy by preventing needless litigation.” Parklane Hosiery Co. v. Shore,
439 U.S. 322, 326 (1979). Judgment creditors who file adversary actions in
bankruptcy court to except debt from discharge can invoke collateral estoppel.
Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991). Actually-litigated elements of
the prior claim that are identical to the elements required for discharge can be given
“collateral estoppel effect” in nondischargeability proceedings. Id. at 284.
The bankruptcy court applied collateral estoppel to the question of whether
Luebbert’s breach of contract was an “injury” as that term is used in § 523(a)(6).
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The bankruptcy court was careful to explain that it was not applying collateral
estoppel to determine whether that injury was willful or malicious.
Luebbert says that the operative issue in his bankruptcy case is not the same
as the issue in the breach of contract action because the elements of a contract case4
are distinct from the elements of a nondischargeability action. As this is the
threshold point upon which the remainder of Luebbert’s argument about collateral
estoppel turns, we need answer only whether successfully showing the elements of
a breach of contract is the same as proving an injury occurred within the meaning of
§ 523(a)(6).
Our caselaw analyzing § 523(a)(6) explains that a willful injury is a
“deliberate or intentional invasion of the legal rights of another, because the word
‘injury’ usually connotes legal injury.” In re Geiger, 113 F.3d 848, 852 (8th Cir.
1997) (en banc) (emphasis added), aff’d by Kawaauhau v. Geiger, 523 U.S. 57(1998). So, for the bankruptcy court’s application of collateral estoppel to be valid,
Luebbert must have actually previously litigated the issue of whether he invaded
GCS’s legal rights.
We have little trouble concluding that Luebbert did so. A breach of contract
case necessarily involves the question of whether the plaintiff’s legal rights were
violated, and the law provides a remedy for any such violation in the form of
monetary damages. The principle that a breach of contract constitutes a legal injury
is foundational to common law jurisprudence. We have understood for well over a
century that “no act or omission of a person causes legal injury” unless it is “a breach
4
A breach of contract has four elements under Missouri law: “(1) the
existence of an enforceable contract; (2) the presence of mutual obligations under
the contract; (3) the failure to perform an obligation specified in the contract; and
(4) damages.” Sch. Dist. of Kansas City v. Bd. of Fund Comm’rs, 384 S.W.3d 238,
259 (Mo. Ct. App. 2012).
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of contract with, or of a duty to, him.” Whitwell v. Cont’l Tobacco Co., 125 F. 454,
463 (8th Cir. 1903).
Missouri does not depart from this ancient common law maxim. Missouri law
maintains that “for every actionable injury there is a corresponding right to damages,
and such injury arises whenever a legal right of plaintiff is violated.” Rusk Farms,
Inc. v. Ralston Purina Co., 689 S.W.2d 671, 681 (Mo. Ct. App. 1985). Missouri
courts have sustained breach of contract actions even in the absence of actual
damages, awarding nominal damages instead. Emerald Pointe, L.L.C. v. Jonak, 202
S.W.3d 652, 664 (Mo. Ct. App. 2006) (“If a party fails to prove actual damages,”
then “proof of the existence of a contract and its breach will give rise to nominal
damages”). This provides further support for the proposition that a breach of
contract—even without actual damages—is a legal injury under Missouri law. So
the breach of contract action against Luebbert necessarily involved the question of
whether he violated GCS’s legal rights. The jury verdict and judgment against
Luebbert provide all the evidence necessary to conclude that he injured GCS, and
the bankruptcy court’s application of collateral estoppel was proper.
IV.
Luebbert next says that the bankruptcy court improperly interpreted
§ 523(a)(6)’s exception to discharge by construing it broadly enough to cover what
the bankruptcy court described as conduct that “echoes of conversion or some other
tort.” App. 654. This is an issue of law we review de novo. In re Porter, 539 F.3d
at 893.
Section 523(a)(6) exempts from discharge debts “for willful and malicious
injury by the debtor to another entity or to the property of another entity.” “Congress
tells us in § 523(a)(6) that malice and willfulness are two different characteristics”
and they “should not be lumped together to create an amorphous standard to prevent
discharge for any conduct that may be judicially considered to be deplorable.” In re
Long, 774 F.2d 875, 881 (8th Cir. 1985). Courts considering the applicability of the
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§ 523(a)(6) exception to discharge must “first determine exactly what injury the debt
is for, and then determine whether the debtor both willfully and maliciously caused
that injury.” In re Patch, 526 F.3d at 1181 (cleaned up). Willfulness and
maliciousness must each be shown by a preponderance of the evidence. Id. at 1180.
Evaluating willfulness requires an inquiry into the debtor’s subjective intent
to cause injury. 5 To meet the willfulness requirement, there must be “proof that the
debtor desired to bring about the injury or was, in fact, substantially certain that his
conduct would result in the injury that occurred.” Id. at 1180–81 (citation omitted).
This means that there must have been a “deliberate or intentional invasion of the
legal rights of another.” In re Roussel, 829 F.3d 1043, 1047 (8th Cir. 2016) (citation
omitted).
Malice requires “conduct targeted at the creditor at least in the sense that the
conduct is certain or almost certain to cause harm.” In re Waugh, 95 F.3d at 711(citation omitted). Malice is only implicated by “conduct more culpable than that
which is in reckless disregard of creditors’ economic interests and expectancies.” In
re Long, 774 F.2d at 880. “[K]nowledge that legal rights are being violated is
insufficient to establish malice, absent some additional aggravated circumstances.”
Id. at 881 (citation omitted). “While intentional harm may be very difficult to
establish, the likelihood of harm in an objective sense may be considered in
evaluating intent.” Id. A robust collection of bankruptcy court and circuit court
authority suggests that the point of the malice inquiry is to determine whether the
debtor’s conduct was “aggravated” or “socially reprehensible” such that an
imputation of malice is justified. In re Blankfort, 217 B.R. 138, 143–44 (Bankr.
S.D.N.Y. 1998) (collecting cases); see also In re Khafaga, 419 B.R. 539, 550 (Bankr.
E.D.N.Y. 2009).
5
The bankruptcy court’s determination of Luebbert’s intent is a factual issue
we review for clear error. In re Waugh, 95 F.3d at 711. Luebbert does not point us
to any evidence undermining the bankruptcy court’s factual determinations about his
intent. In fact, he concedes that “his actions may have been in bad faith.” Luebbert
Br. 38.
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We note that while breach of contract is an injury, we cannot exempt debt for
a mere knowing breach of contract from discharge. Geiger, 523 U.S. at 62. We
have been cautioned that interpreting the Bankruptcy Code that way would be
incompatible with the well-settled policy of bankruptcy law that exceptions to
discharge should be narrowly construed. Id. Refusing to exempt from discharge
debt due to a mere knowing breach of contract is also consistent with the structure
of the Bankruptcy Code: 11 U.S.C. § 365(a) allows exactly that kind of breach by
permitting bankruptcy trustees to reject—that is, breach—executory contracts that
do not financially benefit the estate. Bankruptcy law is plainly not designed to
prevent or discourage efficient breach, nor should it have that effect.6 When a party
breaches a contract solely for its own pecuniary gain and without knowledge that
harm will result to its contractual partner plus “aggravated circumstances,” debt
arising from that breach is usually dischargeable because it is not malicious. In re
Long, 774 F.2d at 881. “[R]eckless disregard of creditors’ economic interests” is
insufficient to establish malice. Id. at 880.
An exception to discharge under § 523(a)(6) is permissible when an “act
constitute[s] an intentional injury to property of another.” Geiger, 523 U.S. at 63.
Such an act may be “depriv[ing] another of his property forever by deliberately
disposing of it without semblance of authority”—but that act must be done with
knowledge of its consequences or intent to bring those consequences about. Id.(quoting McIntyre v. Kavanaugh, 242 U.S. 138, 141 (1916)) (alteration added). In
short, “debts arising from recklessly or negligently inflicted injuries do not fall
within the compass of § 523(a)(6).” Id. at 64. While the Supreme Court noted that
the language of § 523(a)(6) “triggers in the lawyer’s mind the category [of]
intentional torts,” the Court did not say that a judgment for an intentional tort was
necessary to exempt judgment debt from discharge. Id. at 61 (citation omitted).
6
See Lockerby v. Sierra, 535 F.3d 1038, 1042 (9th Cir. 2008) (noting that the
“concept of ‘efficient breach’ is built into our system of contracts, with the
understanding that people will sometimes intentionally break their contracts for no
other reason than that it benefits them financially.”).
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A circuit split and much confusion have developed in Geiger’s wake. The
Ninth Circuit determined that “to be excepted from discharge under § 523(a)(6), a
breach of contract must be accompanied by some form of tortious conduct that gives
rise to willful and malicious injury.” In re Jercich, 238 F.3d 1202, 1206 (9th Cir.
2001) (citation omitted). This was because determining whether conduct
accompanying a breach of contract is tortious involves reference to state law and
California law understands certain kinds of breach of contract to be tortious conduct.
Id. at 1206 n.17. But the Ninth Circuit expressly rejected “a requirement that the
conduct at issue be tortious [under state law] even if a contract between the parties
did not exist.” Id. at 1206. The Ninth Circuit later clarified that conduct is “tortious
if it constitutes a tort under state law” and explicitly refused to allow judgment debt
for intentional breach of contract to be excepted from discharge under § 523(a)(6)
unless it was “accompanied by conduct that would give rise to a tort action under
state law.” Lockerby, 535 F.3d at 1041, 1043.
The Fifth Circuit came to a different conclusion. In In re Williams, the Fifth
Circuit held that “for a debt to be nondischargeable, a debtor must have acted with
objective substantial certainty or subjective motive to inflict injury”—but expressly
rejected a separate tortious conduct requirement. 337 F.3d 504, 510–11 (5th Cir.
2003) (citation omitted). The Fifth Circuit explained that “a knowing breach of a
clear contractual obligation that is certain to cause injury may prevent discharge
under Section 523(a)(6), regardless of the existence of separate tortious conduct.”
Id. The “injury” the Fifth Circuit considered in that case was not just the breach of
contract itself, though. The court analyzed the consequences of that breach, namely
“substantially certain injuries arising from violations of the [contract]” like the
“blow to [the creditor’s] prestige and its ability to uphold its contracts.” Id. at 511.
In the Fifth Circuit, “the dischargeability of contractual debts under Section
523(a)(6) depends upon the knowledge and intent of the debtor at the time of the
breach, rather than whether conduct is classified as a tort or falls within another
statutory exception to discharge.” Id. In sum, the Fifth Circuit “require[s] explicit
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evidence that a debtor’s breach was intended or substantially certain to cause the
[additional] injury to the creditor” to exempt the resulting debt from discharge. Id.Because our circuit has not clearly defined the minimum requirements to
exempt judgment debt from discharge under § 523(a)(6), several competing
standards have been applied by our bankruptcy courts. 7 We have previously
explained in cases dealing with judgments based in tort law that the tort at issue must
meet the standards of willfulness and malice. For example, we allowed judgment
debt for what we understood as a tort arising out of gross and reckless indifference
to be discharged because the tort could not meet the standard for willfulness. See In
re Patch, 526 F.3d at 1183. But In re Patch did not deal with a breach of contract,
nor does it hold that judgment debt must arise out of a tort action to be
nondischargeable. See id.Analyzing the willfulness element in In re Geiger, we held that “for a
judgment debt to be nondischargeable under [§ 523(a)(6)], it is necessary that it be
based on the commission of an intentional tort.” 113 F.3d at 853 (emphasis added).
We expressed “no view . . . on the question whether it is sufficient for
nondischargeability that the judgment be for an intentional tort.” Id. at 853–54
(emphasis added). We now take this opportunity to clarify our jurisprudence about
exceptions to discharge under § 523(a)(6) and conclude that a judgment for an
intentional tort is not necessary to find judgment debt for a breach of contract
nondischargeable. The willfulness requirement is met when the bankruptcy court
finds facts showing that the debtor’s conduct accompanying the breach of contract
7
Compare In re Iberg, 395 B.R. 83, 89–90 (Bankr. E.D. Ark. 2008)
(explaining that an “intentional breach of contract is excepted from discharge under
§ 523(a)(6) only when it is accompanied by malicious and willful tortious conduct”),
with In re West, No. 16-40358-can7, 2017 Bankr. LEXIS 527, at *94 (Bankr. W.D.
Mo. 2017) (holding that “the injury must be an intentional tort”), and In re Logue,
294 B.R. 59, 62–64 (B.A.P. 8th Cir. 2003) (explaining that “a willful breach is not
enough to establish malice,” but leaving open the possibility that malice can be
inferred from conduct not amounting to a tort under state law).
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amounted to an intentional tort against the creditor. We perceive that this aligns with
the core of the analyses performed by the Ninth and Fifth Circuits.
We now consider whether Luebbert’s conduct amounted to an intentional tort
under Missouri law. In Missouri, conversion has three elements: (1) the plaintiff
owned or was entitled to possess the property; (2) the defendant took possession of
the property with the intent to exercise some control over it; and (3) the defendant
thereby deprived the plaintiff of the right to possession. See Herron v. Barnard, 390
S.W.3d 901, 908–09 (Mo. Ct. App. 2013). Although conversion does not apply to
the wrongful taking of money in Missouri, actions for conversion of “[n]otes, bills,
checks, and other representatives of value can be maintained where there is evidence
of the specific value of the items.” Kingfisher Hosp., Inc. v. Behmani, 335 S.W.3d
486, 500 (Mo. Ct. App. 2011) (citation omitted) (alteration in original).
Luebbert argues that Missouri law does not support a finding of conversion
on the facts of his case because “the funds were not GCS’[s] personal property” but
were instead “derived from earnings [he] received from [Alliant] that he agreed to
turn over to GCS under the Settlement Agreement and Amendment.” Luebbert Br.
39. Luebbert fails to understand that the two-party checks he wrongfully retained
and deposited were every bit as much GCS’s property as his own—the parties’
agreement was to split the proceeds from work done for Alliant evenly and each
party had an equal right to possess the checks. In fact, the amended settlement
agreement compelled Luebbert to endorse and then turn over the checks to GCS. A
breach of contract and conversion both occurred when Luebbert refused to surrender
the checks and instead surreptitiously deposited them for himself.
Luebbert also misunderstands conversion in Missouri. Luebbert argues that
because he took money, no tort occurred because Missouri law does not authorize a
conversion action when the property at issue is cash. But Luebbert converted checks,
and checks are chattel under Missouri law. Behmani, 335 S.W.3d at 500. Actions
for conversion of negotiable instruments are possible where there is evidence of the
checks’ specific value. Id. There was evidence of specific value here: The jury
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found that Luebbert deprived GCS of $302,631.31 in checks. Missouri courts have
previously allowed conversion actions in several cases where checks were withheld
in violation of an agreement. See, e.g., Moore Equip. Co. v. Callen Constr. Co., 299
S.W.3d 678, 681 (Mo. Ct. App. 2009).
Because Luebbert’s conduct accompanying his breach of contract satisfied the
elements of conversion under Missouri law, he inflicted a willful injury on GCS.
The facts similarly show that Luebbert knowingly and surreptitiously retained the
full value of negotiable instruments he was obligated to share with GCS. By doing
so, he engaged in “conduct more culpable than that which is in reckless disregard of
creditors’ economic interests and expectancies,” and so he inflicted a malicious
injury on GCS. See In re Long, 774 F.2d at 880. His judgment debt was therefore
nondischargeable under § 523(a)(6).
Even if a judgment debt is for breach of contract, bankruptcy courts are not
required to blind themselves to a willful and malicious injury inflicted on the
judgment creditor. An action under Missouri state law “might contain elements of
both breach of contract and conversion and be decided on either theory.” Price v.
Ford Motor Credit Co., 530 S.W.2d 249, 255 (Mo. Ct. App. 1975). The mere fact
that recovery for wrongful conduct was based in contract and not in tort—despite
being possible in both under the same set of facts—does not prevent the resulting
judgment debt from being exempt from discharge under § 523(a)(6). To do
otherwise would fail to recognize that “[a] bankruptcy court is a court of equity” and
“is guided by equitable doctrines and principles.” SEC v. United States Realty &
Improvement Co., 310 U.S. 434, 455 (1940). These principles are aimed at “securing
complete justice,” Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946), and
bankruptcy courts have “the power to sift the circumstances surrounding any claim
to see that injustice or unfairness is not done,” Pepper v. Litton, 308 U.S. 295, 308
(1939). We will not circumscribe that power by requiring the judgment to sound in
tort. It is enough to show that conduct amounting to an intentional tort accompanied
the breach of contract for a creditor to meet the willful injury requirement of
§ 523(a)(6).
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V.
Luebbert’s fallback argument is that conversion “is not recognized under
Missouri law as the type of tortious conduct that can arise from a contractual
relationship.” Luebbert Br. 40. But a brief survey of Missouri law reveals myriad
cases that analyze breach of contract and conversion of property between contractual
partners in tandem. See, e.g., Troxell v. Welch, 687 S.W.2d 902 (Mo. Ct. App. 1985);
see also Aughenbaugh v. Williams, 569 S.W.3d 514 (Mo. Ct. App. 2018). Nothing
in Missouri law indicates that a party to a contract cannot convert property belonging
to another simply because there is a contract between them. To the extent that
Luebbert means to argue that breach of contract is not itself tortious under Missouri
law unless it is accompanied by a breach of fiduciary duty, we have already clarified
that the breach of contract need not be a tort itself for § 523(a)(6) to apply.
VI.
Luebbert finally asserts that, as a debtor in bankruptcy, he is a beneficiary of
the debtor rehabilitation policy of bankruptcy law and so exceptions to discharge
should be narrowly construed in order to favor his interest in a fresh start. Although
“the underlying policy of the Bankruptcy Code is to give honest debtors a fresh start,
we do not believe that we need strictly construe the provisions of the Code in favor
of dishonest debtors.” In re Ophaug, 827 F.2d 340, 343 (8th Cir. 1987). We
explained in In re Ophaug that the debtor was “no longer entitled to the benefit of
debtor rehabilitation policy considerations” once the bankruptcy court found facts
sufficient to conclude the creditor met his burden to show that the debt fell within
an exception to discharge. Id. (citation omitted). Having decided that Luebbert’s
conduct fell within § 523(a)(6)’s exception to discharge, we think the rationale in In
re Ophaug applies here. The bankruptcy court found facts sufficient to conclude
that Luebbert inflicted a willful and malicious injury in the course of committing his
breach of contract. Because those factual determinations were challenged only
insofar as they were based on a misapplication of the law—and we have determined
the bankruptcy court did not misapprehend the law—Luebbert cannot point to any
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reason why he should be able to claim the protection of the debtor rehabilitation
policy of bankruptcy law.
The motivating policy of bankruptcy law is to protect the “honest but
unfortunate debtor.” Marrama v. Citizens Bank, 549 U.S. 365, 367 (2007) (citation
omitted). Nothing in this case suggests that Luebbert is the kind of honest debtor
who needs to be relieved of “the weight of oppressive indebtedness” and thereby
permitted “to start afresh free from the obligations and responsibilities consequent
upon business misfortunes.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)
(citation omitted). Luebbert is not a hapless victim of fate. His judgment debt is
due to a willful and malicious injury he inflicted upon GCS and is therefore
exempted from discharge under § 523(a)(6).
VII.
The judgment of the bankruptcy court is affirmed.
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