Sexual Harassment Civil Judgments in Bankruptcy
BB&K Attorneys Cathy Ta and Alexander Brand Write in Riverside Lawyer Magazine
By Cathy Ta and Alexander Brand
With the rise of the #TimesUp and #MeToo movements, sexual harassment in the work place, whether in the public or private sector, has been thrust into the spotlight. With these ongoing movements, sexual harassment claims and civil actions are likely to rise, and as they do, so do liability, recovery, and insolvency issues relative to these claims. A concern for both plaintiffs and defendants is whether sexual harassment civil judgments are dischargeable in bankruptcy. There is no hard and fast rule if they are dischargeable in bankruptcy; whether they are dischargeable such that the judgment debtor may avoid paying a judgment will depend on the facts of the case.1
While most debts can generally be discharged by filing a bankruptcy case, certain debts are excepted from discharge. Sexual harassment judgments may be excepted from discharge pursuant to 11 U.S.C. §523(a)(6), which excepts debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.”
In order for a civil judgment to be excepted from discharge, the creditor must demonstrate that the conduct supporting the judgment was both willful and malicious.2 Over the years, courts have varied over their interpretation and application of section 523(a)(6) to sexual harassment judgments. In recent years, courts have been relatively settled on definitions of willfulness and maliciousness if not their application.
Willfulness Under § 523(a)(6)
For a sexual harassment civil judgment to be deemed non-dischargeable in bankruptcy, the creditor must demonstrate that the debtor’s conduct was willful. Prior to 1998, this standard was treated rather leniently by courts. However, in Kawaauhau v. Geiger, the U.S. Supreme Court addressed the willfulness element of section 523(a) (6) and made clear that it is a strict analysis, concluding that for a judgement to be non-dischargeable, the underlying conduct must be intentional and made with the intent to cause harm.3 Subsequently, courts added that an act is willful “when the debtor [state court defendant] has a subjective motive to inflict injury or when the debtor believes that injury is substantially certain to result from his own conduct.”4
In the context of sexual harassment claims, courts are split over whether the conduct alleged and proven in a sexual harassment case can be deemed willful for purposes of section 5235 because intent to cause harm is not an element in a sexual harassment case.6 A creditor must be able to establish that the underlying conduct was willful in order to have a bankruptcy court determine that the judgment is not dischargeable. Therefore, it is important that either in the civil case or through other means, that the creditor have evidence of the debtor’s subjective intent when engaging in the harassing conduct. Absent evidence of the debtor’s subjective intent, it is likely that the judgment will be deemed dischargeable.
Maliciousness Under § 523(a)(6)
Additionally, the creditor must demonstrate that the conduct was malicious in order for the sexual harassment civil judgment to be non-dischargeable. To demonstrate that the underlying conduct was malicious, the creditor must show: “(a) that the debtor committed a wrongful act; (b) the act necessarily produced harm; and (c) the act was without justification or excuse.”7 In the Ninth Circuit, courts have stated further that “necessarily produce harm” means that the wrongful act must be aimed at the creditor, so that it is “certain or nearly certain” to cause harm.8 Moreover, the facts of the case must demonstrate that it was reasonably foreseeable to the debtor that the debtor’s conduct would harm the creditor.9
In the sexual harassment context, conduct that sup-ports a judgment for sexual harassment will likely be deemed malicious. Sexual harassment infringes on a person’s right to be free from harassment.10 Additionally, conduct that is found to be sexually harassing should at least be reasonably foreseeable to the harasser that their conduct is or could cause harm to the victim.11 While these general rules will not apply to every case, it is likely that most cases of sexual harassment will be deemed malicious for purposes of section 523(a)(6).
Handling Sexual Harassment Claims Going Forward
Going forward lawyers must be aware that the law on this issue is not settled and there are no hard and fast rules on whether a sexual harassment civil judgment will be dischargeable in bankruptcy. Whether a civil judgment for sexual harassment is dischargeable will come down to the facts of each case. To preserve and protect sexual harassment claims, attorneys must be aware of the universe of facts for their clients’ cases and conduct the necessary discovery in state court so that in the event of a bankruptcy filing, the attorney and their client are well-positioned to prove that the harassing conduct was willful and malicious and the sexual harassment civil judgment is not dischargeable in bankruptcy.
1 The scope of this article is limited to whether a debt is dischargeable by an individual judgment-debtor.
2 Hughes v. Arnold, 393 B.R. 712, 718 (Bankr. E.D.Cal. 2008)
3 Kawaauhau v. Geiger, 523 U.S. 57, 61-62 (1998).
4 Hughes, supra, 393 B.R. at 718.
5 In re Smith, 270 B.R. 544, 550 (Bankr. D. Mass. 2001) (holding that conduct supporting sexual harassment judgment was non-dischargeable); Sanger v. Busch, 311 B.R. 657, 670 (Bankr. N.D.N.Y. 2004) (holding that conduct supporting sexual harassment judgment was not willful).
6 In re Barry, 138 Fed.Appx. 898, 899 (9th Cir. 2005).
7 In re Gee, 173 B.R. 189, 192 (B.A.P. 9th Cir. 1994).
8 In re Littleton, 942 F.2d 551, 555 (9th Cir. 1991).
9 In re Britton, 950 F.2d 602, 605 (9th Cir. 1991).
10 In re Gee, supra, 173 B.R. at 192-93.
This article originally appeared in the May 2018 edition of Riverside Lawyer magazine, a publication of the Riverside County Bar Association. Reprinted with permission.
Cathy Ta is no longer with BB&K. If you have questions about this issue please contact Caroline Djang at firstname.lastname@example.org.