I recently read a bankruptcy court decision concerning a very serious matter: nondischargeability of a debt. While serious, there was also a bit of humor in it. The facts of this case were just too good not to share.

The Plaintiffs were homeowners who wanted to have a swimming pool. They lived in Texas, which I hear can get quite warm. The Plaintiffs presumably considered a number of pools before resting on what we can probably infer was the swimming pool of their dreams: “an in-ground swimming pool (with water fall and cave area), space, spa therapy chair, fire pit, covered patio, and outdoor kitchen.” It sounds sweet! In addition to the “drainage and irrigation work” they also wanted to install a rock façade on their home. In November of 2004, they hired the (soon to be) debtor for an agreed price of $100,000, and gave him a $250 deposit.

Apparently, the Plaintiffs were impressed with the (then soon to be) debtor because he “seemed serious about directly managing the project, with on-site supervision, until all work by the subcontractors was completed.” Work on the project began in January of 2005 and shortly after the excavation work, the plaintiff gave the (then soon to be) debtor a check for $40,000. About a week later, the Plaintiffs paid another $40,000 towards the contract price.

Plaintiffs were starting to get concerned about things and they drove out to the (soon to be) debtor’s shop. There, they were told he was not in the office. They were told he was on the lake “with his new boat.” They were told he purchased the boat within three weeks of receiving the $40,000 check. This news was followed by weeks and months of phone calls not being returned.

The pool man then became a debtor in bankruptcy. Plaintiffs’ brought an adversary proceeding claiming that the debt was nondischargeable and it eventually went to trial.

Continue reading "The Case of The Dream Pool" »

Posted by Bill McLeod at 5:25 PM | Permalink | Comments (0) | TrackBacks (0)

The US Bankruptcy Court in Worcester was recently called upon to answer this question: may a landlord who discriminated against a prospective tenant because of the tenant’s Section 8 status discharge the judgment in bankruptcy? In a February 11, 2008 decision, the answer was a resounding “no.”

The landlord was sued in the Worcester County Housing Court for violations of Massachusetts Anti-Housing Discrimination laws. Under Massachusetts Law, a landlord may not discriminate against a prospective tenant on the basis that the tenant receives federal, state or local housing subsidies. The court found that the landlord violated the law, and awarded $1.00 in compensatory damages, and $5,000 in punitive damages in addition to attorneys fees and costs. Rather than simply pay the judgment for violating the tenant’s civil rights, the debtor filed bankruptcy.

The tenant brought an Adversary Proceeding claiming that the judgment was not dischargeable under Section 523(a)(6) of the Bankruptcy Code, which precludes dischargeability of debts that arise from a willful or malicious injury.

The debtor-landlord contended that the verdict slip did not reference the compensatory damages (which were a buck), that punitive damages were not allowed under Massachusetts law, and that the tenant was represented by Legal Assistance Corp. of Central Massachusetts, which did not charge the tenant for services. For reasons that were not clear from the decision, the landlord never appealed the decision of the housing court. Since the failure to appeal gives finality to the Housing Court judgment, the Bankruptcy Court was bound by the Housing Court’s judgment of punitive damages.

The Bankruptcy Court then turned to the issue of whether the discrimination itself was a willful or malicious injury as contemplated by Section 523(a)(6). The court pointed out that “a willful injury is one that is inflicted ‘either with the intent to cause the harm complained of, or in circumstances in which the harm was certain or almost certain to result from the debtor’s act. Non-dischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Since discrimination itself contemplates a discriminatory intent, motive or state of mind under Massachusetts law, that was sufficient to constitute the willfulness component of 523(a)(6). “The discrimination per se constituted an intent to injure because the conduct could serve no other purpose.”

A malicious act is one that is committed “without just cause or excuse [and] in conscious disregard of one’s duty.” Punitive damages are justifiable in cases where the conduct is “outrageous because of the defendant’s evil motives or his reckless indifference to the rights of others.” Finding that the awarding of punitive damages sufficient for a finding of maliciousness, the debt was deemed nondischargeable.

The landlord-debtor’s final arguments that the attorney’s fees award were dischargeable was, in a word, wrong. The Anti-Housing Discrimination laws provide for attorneys fees to successful claimants, and if the underlying judgment is non-dischargeable, the attorneys fees incurred in obtaining that judgment is similarly non-dischargeable. The discriminating landlord will have to pay.

Posted by Bill McLeod at 6:31 PM | Permalink | Comments (0) | TrackBacks (0)