Houston bankruptcy court rules that damages for defamation with malice not discharged in chapter 7 bankruptcy case

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

A Texas state district court jury found that 9 statements made by a person against another person were false, defamatory and done with malice. The jury also found that the statements were done with gross negligence, and awarded damages of over $700,000.

The defendant filed chapter 7 bankruptcy. The plaintiff came into bankruptcy court and filed an "adversary proceeding" saying that the judgment should not be discharged in bankruptcy because it was a "willful and malicious injury" under 11 USC 523(a)(6). In re Memon, Barkr. Court, SD Texas 2014.

On consideration of the Plaintiff's First Amended Motion for Summary Judgment, Judge Letitia Paul held that Section 523(a)(6) applies to acts done with the actual intent to cause injury, not intentional acts that cause injury. The court also held that according to 5th Circuit precedent, a debtor must have acted with "objective substantial certainty or subjective motive to inflict injury." The Court went on to say:

In the instant case, the jury found, and the state court awarded judgment based on, nine defamatory false statements made by Debtor with malice. This finding by the state court jury is sufficient for a determination that the damages attributable to the debtor's malicious defamatory false statements are excepted from discharge under Section 523(a) (6). However, what is not determined by the state court judgment and findings is the extent to which the award of damages is attributable solely to Debtor's gross negligence, as opposed to Debtor's malice. The court concludes that the only issue remaining for trial is the amount of the damages awarded by the state court, which is attributable to Debtor's malice.

So, if the damages arise from defamation done with malice, they are not discharged. To the extent that the defendant was negligent, even grossly negligent, damages can be discharged in chapter 7.

Note: this debtor was not eligible for chapter 13 because the judgment alone put them over the eligibility limits of chapter 13. But for a debtor that qualifies for chapter 13, damages for willful and malicious injuries can be discharged, so long as the damages are not for restitution, or have not been awarded in a civil action against the debtor that caused personal injury to an individual or the death of an individual.

So chapter 13 has a "broader discharge" as opposed to chapter 7, and someone facing this type of a defamation or similar claim may best be served to file chapter 13, if they qualify.