Opinion
Case No. 8:21-bk-01518-CPM Adv. No. 8:21-ap-00214-CPM
2024-10-15
IN RE: Brian King ZEBROWSKI, Debtor. GFRS Equipment Leasing Fund II, LLC, Plaintiff, v. Brian King Zebrowski, Defendant.
William J. Denius, Denius Law P.A., Orlando, FL, Jacob A. Hecker, Wallace Saunders, Chartered, Overland Park, KS, for Plaintiff. Buddy D. Ford, Jonathan A. Semach, Buddy D. Ford, P.A., Tampa, FL, for Defendant.
William J. Denius, Denius Law P.A., Orlando, FL, Jacob A. Hecker, Wallace Saunders, Chartered, Overland Park, KS, for Plaintiff. Buddy D. Ford, Jonathan A. Semach, Buddy D. Ford, P.A., Tampa, FL, for Defendant. MEMORANDUM OPINION FOLLOWING BIFURCATED TRIAL ON COMPLAINT TO DETERMINE NONDISCHARGEABILITY OF DEBT Catherine Peek McEwen, United States Bankruptcy Judge
The Bankruptcy Code provides a judicially supervised process that enables debtors to "reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort." This "fresh start" policy, however, is available only to the "honest but unfortunate debtor." Thus, a corollary to obtaining a fresh start is that certain debts are not dischargeable in bankruptcy. That corollary applies here.
Beem v. Ferguson, 713 Fed. App'x 974, 977 (11th Cir. 2018) (citations omitted).
Id.
The Plaintiff asserts that the Defendant is not an "honest but unfortunate debtor." More significantly for purposes of this dischargeability proceeding, the Plaintiff alleges that debt owed by the Defendant to it should not be discharged because the debt is based on a "willful and malicious injury." Accordingly, the Plaintiff seeks entry of a judgment declaring the debt nondischargeable under § 523(a)(6) of the Bankruptcy Code. For the reasons explained more fully below, the Court finds and concludes that some, but not all, of the debt the Defendant owes the Plaintiff is nondischargeable because it resulted from a willful and malicious injury.
11 U.S.C. § 523(a) ("A discharge under section . . . § 1141 . . . does not discharge an individual debtor from any debt . . . (6) for willful and malicious injury by the debtor to another entity or to the property of another entity; . . . .").
I. Chronology of Underlying Facts
A. The Arizona Default Judgment and Domestication of that Judgment in Florida
In late November of 2018, Zebby's General Surgical Services, PA ("Zebby's"), a professional association owned and operated by Dr. Brian Zebrowski ("Zebrowski"), the Debtor-Defendant, defaulted on an equipment lease agreement (the "Lease") with GFRS Equipment Leasing Fund II, LLC ("GFRS"), an Arizona limited liability company that acquired the lessor's interest by assignment. The Lease was for certain medical equipment used in Zebby's practice (the "Equipment"). Zebrowski personally guaranteed the Lease. The following month, in early December of 2018, GFRS sent Zebrowski a demand letter threatening to accelerate all remaining payments due under the Lease if the default was not cured within ten days. The demand letter made no reference to return of the Equipment. Two weeks later, GFRS filed a complaint in Arizona state court (the "Arizona Action") against Zebby's and Zebrowski (together, the "Defendants") for breach of contract and specific performance for return of the Equipment. Zebrowski was personally handed a copy of the complaint and summons by a process server at Zebby's principal place of business in Lutz, Florida (the "Lutz Office").
Plaintiff's Ex. 1. The Lease included an addendum that, provided no default occurred, automatically extended the term of the lease for 12 months and thereafter gave Zebby's the option to purchase the equipment upon 90-days' notice.
The original lessor assigned the Lease to GFRS approximately one month after the lease was executed. Plaintiff's Ex. 2.
Plaintiff's Ex. 68.
The Lease was also guaranteed by another entity with which Zebrowski was affiliated during the relevant time period, Z MD Center for Face & Body Rejuvenation, LLC ("ZMD"). Because the current proceeding involves only Zebrowski, this opinion makes no further reference to this other entity.
Plaintiff's Ex. 20.
Plaintiff's Ex. 66.
In early February of 2019, a representative of GFRS contacted Zebrowski via email stating that a remarketing group had shown an interest in the Equipment and that selling the Equipment would lower his debt on the Lease. The email asked Zebrowski to please let GFRS know if he was interested. It did not ask Zebrowski to return the Equipment to GFRS or seek confirmation of the Equipment's whereabouts. Within two hours of receiving the email, Zebrowski responded via email saying that the Equipment was way overpriced, the lease agreement was "stupid," and that GFRS's predecessor did not deliver on its end of the agreement. He stated that he would exchange the Equipment for nothing less than "complete absolution." GFRS did not reply to Zebrowski's email. Around this same time, Zebrowski also received a phone call from a GFRS agent asking about the Equipment, and he gave basically the same response. The record is devoid of any evidence that during this call the agent asked Zebrowski to return the Equipment or asked about its location. The agent's own notes make no reference to any such inquiries.
Plaintiff's Ex. 21.
Id.
Id.
Trial Tr. vol. 1, 83:20-84:6. During earlier testimony, Zebrowski erroneously referred to this phone call has having taken place in February of 2018 (not 2019). Trial Tr. vol. 1, 81:8-12.
Trial Tr. vol. 2, 134:9-135:9.
The Defendants did not file a formal answer to the Arizona complaint. Zebrowski did, however, send a five-page letter dated March 16, 2019, to Lindsay Abramson, the superior court commissioner assigned to the Arizona Action, questioning venue and objecting to entry of a default judgment on several grounds. For example, Zebrowski stated in the letter that the Lease "has been fraught with deception and has single handly [sic] caused the demise of my medical spa." The letter alleges, among other things, that sales representatives for the original Equipment vendor told Zebrowski they would be entering into a partnership, whereby his practice would become a "model, training center," and that they would reimburse him for training and pay him commissions from product sales — all of which the vendor's marketing director promised Zebrowski she would directly support to ensure success. The letter states that after a single training session, the initial sales representatives were never seen or heard from again and Zebrowski was never able to open up communication lines with the marketing director. Further, the letter states, "I DO NOT at all cost want to allow a DEFAULT JUDGMENT." Zebrowski sent a copy of that same letter via email dated April 23, 2019, to counsel for GFRS, which email stated in part, "I entrust the court has this letter in their possession in receipt of its delivery, and if not that you can communicate this to the court."
Defendant's Ex. 7. The letter erroneously identifies the date as March 16, 2009 (not 2019).
Id.
Id.
Id.
Id. (emphasis in original).
Id.
Notwithstanding Zebrowski's response, on April 24, 2019, GFRS obtained a default judgment for monetary damages of approximately $360,000 against the Defendants, jointly and severally. The judgment did not direct turnover of the Equipment. It did, however, award GFRS "post-judgment attorney's fees and costs and all fees and costs associated with the repossession repair and storage of the [Equipment], and all fees and costs associated with plaintiff's collection efforts on this Judgment against defendants."
Plaintiff's Ex. 4.
Id.
GFRS domesticated its Arizona judgment in Florida in June of 2019 and initiated an action in Hillsborough County (the "Florida Action") to enforce the judgment. In July of 2019, Zebrowski closed his medical practice and basically shrink-wrapped and moved all of the equipment he still possessed at that time, including the Equipment, from the Lutz Office to a climate-controlled storage unit.
Trial Tr. vol. 3, 123:8-125:8.
In March of 2019, before he closed the Lutz Office, Zebrowski cooperated in replevins of other office equipment initiated by one or more other secured creditors. GFRS did not initiate a replevin action to recover its Equipment until January of 2020, more than a year after filing the Arizona Action and six months after domesticating the judgment in Florida. Before then, GFRS never showed up at the Lutz Office to peacefully repossess its Equipment, even though it was entitled to do so under the terms of the Lease. When questioned about GFRS's delay in pursuing the Equipment, GFRS corporate representative Sean Duffy explained that GFRS did not send out a team to repossess the Equipment because it would be expensive. Instead, GFRS "continued to pursue the judgment believing that [Zebrowski] who during [GFRS's] underwriting showed a very strong balance sheet and obviously has a lucrative opportunity being a doctor, we felt like we would be able to recover at least a pretty good portion of our judgment amount." B. Failure to Comply with Discovery in Aid of Execution
Trial Tr. vol. 1, 109:7-8; Trial Tr. vol. 3, 93:2-8; 93:17-94:16.
Plaintiff's Ex. 3.
Plaintiff's Ex. 1 (Article 9).
Trial Tr. vol. 2, 212:4-214:9.
Trial Tr. vol. 2, 107:17-22; Trial Tr. vol. 3, 33:25-35:2.
In the nearly two-year period between GFRS obtaining its judgment in April of 2019 and Zebrowski filing for bankruptcy relief in March of 2021, GFRS relentlessly attempted to collect on its judgment, in both Florida and Arizona. Zebrowski did not respond to numerous demands for discovery and information in aid of execution. He also violated multiple court orders compelling compliance. GFRS served court documents on Zebrowski by U.S. mail or by way of a process servicer at various addresses in Florida and Arizona. It is unclear from the record what documents he actually received by mail. He obviously received a copy of GFRS's motion for default judgment filed in the Arizona Action because he responded (by letter) to that motion. Zebrowski's testimony that he either was not getting his mail because he was traveling for work after closing the Lutz Office and/or that he was too distressed to review all of the mail he did receive — in part because he was being pursued by several creditors, including his mortgage holder, was on the brink of a divorce, and was desperately trying to earn enough money to hire an attorney — was convincing, to a point.
In any event, affidavits of service accepted into evidence show that a process server personally handed Zebrowski at least six documents on the dates and from courts in the states indicated below:
1) January 7, 2019 [Arizona]: Summons and Complaint (the "Arizona Complaint").
2) February 18, 2020 [Florida]: Second Amended Order on Plaintiff's Motion to Compel Florida Rule of Civil Procedure Form 1.977 (accompanied by a Fact Information Sheet for each of the Defendants) ("Second Amended Order Compelling Information").
This order directed the Defendants to answer the attached Fact Information Sheets within 14 days of service of the order, directed payment to GFRS of $300 in attorney's fees and costs, and stated that if the Defendants failed to comply within 14 days, they must appear at a hearing on March 4, 2020, and show cause why the court should not find them in contempt and impose appropriate sanctions. Further, the order stated that failure to appear at the show cause hearing "MAY RESULT IN THE COURT ISSUING A WRIT OF BODILY ATTACHMENT FOR THE DEFENDANT(S) ARREST." The order further explained that "IF ARRESTED, [THE DEFENDANTS] MAY BE HELD IN JAIL UP TO 48 HOURS BEFORE A HEARING IS HELD." The Fact Information Sheets accompanying the order asked for information about employment, income, marital status, real estate, automobiles, and bank accounts, among other things.
3) June 3, 2020 [Arizona]: Plaintiff's First Request for Production of Documents for Judgment Debtor/Defendants ("Request for Production").
This document directed the Defendants to produce, among other things, information about their income, financial accounts, and any other tangible and non-tangible assets in which they had an interest.
4) June 3, 2020 [Arizona]: Order for Judgment Debtors to Appear for Debtors' Exam[s] and to Produce Documents.
This order directed the Defendants to appear in court on April 15, 2020, and bring all requested documents and tangible things as set forth in the First Production request.
5) June 3, 2020 [Arizona]: Order Continuing Debtors Exam(s) and Setting New Date for Debtors' Exam(s) and to Produce Documents.
This order directed the Defendants to appear in court on July 1, 2020, and bring all requested documents and
tangible things as set forth in the First Production request.
6) July 13, 2020 [Arizona]: Minute Entry Setting Show Cause Hearing.
This Minute Entry noted the Defendants' failure to appear for the continued July 1, 2020, examination and scheduled a telephonic Show Cause Hearing for August 25, 2020, and directed the Defendants to appear and show cause why Defendants failed to appear at the July 1 hearing. The Minute Entry also advised that "failure to appear may result in the issuance of sanctions, including the possibility of being held in civil contempt of court."
Plaintiff's Ex. 20 and 66.
Plaintiff's Ex. 34 and 35 (emphasis in original).
Plaintiff's Ex. 39 and 47.
Plaintiff's Ex. 42 and 47.
Plaintiff's Ex. 45 and 47.
Zebrowski's examination was continued due to COVID. Trial Tr. vol.1, 136:22-137:4.
Plaintiff's Ex. 10 and 11.
Zebrowski did appear telephonically for the August 25, 2020, show-cause hearing. During that hearing, the court ordered Zebrowski to both contact GFRS's counsel later that same day to arrange a continued examination and to submit the required information within one week, and the court set a continued show cause hearing for September 22, 2020. Notwithstanding these court directives, Zebrowski did not contact opposing counsel after the hearing or submit the required information, nor did he appear at the continued show-cause hearing.
Trial Tr. vol. 1, 30:3-5; 31:18-20 (during the trial, this Court noted as a factual finding Zebrowski's admission that he attended the August 25, 2020, show cause hearing and was ordered to contact GFRS's counsel). See also, Minute Entry from hearing on September 22, 2020. Plaintiff's Exhibit 13.
In the Arizona Action, Zebrowski's failure to comply with court orders compelling discovery responses and compelling him to appear before the court eventually culminated in the issuance of a civil arrest warrant in September of 2020. Further, his conduct (or rather lack thereof), together with GFRS's right under its judgment to recover "all fees and costs associated with the plaintiff's collection efforts on this Judgment," resulted in an award of attorney's fees in favor of GFRS for $21,980. This amount represents fees incurred by GFRS between February 19, 2020 (the day after Zebrowski was personally served with the Second Amended Order Compelling Information) and September 22, 2020.
Plaintiff's Ex. 13 and 54. Sean Duffy testified during trial that the sheriffs were not executing arrest warrants at that time because of COVID. Trial Tr. vol. 2, 93:14-94:2.
Plaintiff's Ex. 4.
Plaintiff's Ex. 56.
See Application for Post-Judgment Award of Attorney's Fees. Plaintiff's Ex. 55.
Meanwhile, in the Florida Action, Zebrowski's failure to comply with court orders compelling discovery responses and compelling him to appear before that court resulted in the issuance of Writ of Bodily Attachment in August of 2020. This writ directed Florida Sheriffs to take Zebrowski into custody and deliver him to the Hillsborough County Sheriff until the conditions of the writ were satisfied.
Plaintiff's Ex. 7 or 36. Again, due to COVID, the sheriffs did not execute the arrest warrant. See supra note 37.
Zebrowski filed for chapter 11 bankruptcy relief in March of 2021, having never responded to GFRS's discovery requests in aid of execution made in both the Arizona and Florida cases. C. Failure to Return Equipment
Zebrowski's case was dismissed. However, the Court granted his motion to retain jurisdiction to render a decision herein. See Order Denying Confirmation and Dismissing Chapter 11 Case (Doc. No. 346, filed December 12, 2023, in In re Zebrowski, 8:21-bk-01518-CPM).
In January of 2020, GFRS filed a replevin action in Florida to recover the Equipment. No evidence was offered to show that Zebrowski was served a copy of the writ of replevin. He did, however, learn that a law enforcement officer came to his Florida home on September 29, 2020, although Zebrowski was not home at the time. His wife at that time, Amy Zebrowski, told him about this event on or about the date it took place. In a prior deposition, Ms. Zebrowski testified that she understood the purpose of the officer's visit was to recover the Equipment. And a permissible inference of both her testimony and that of Zebrowski is that he learned at that time that a legal process for recovery of the Equipment was in play. Yet, not all of the Equipment was returned to GFRS until late August of 2021, nearly five months after Zebrowski filed for bankruptcy relief.
Plaintiff's Ex. 24.
The Court may rely on reasonable inferences to reach its findings and conclusions of law. See, e.g., Familienstiftung v. U.S., 643 F. Supp. 139, 147 (S.D. Fla. 1986). "The standard for determining whether an inference is allowable is generally whether it is reasonable or whether it is one that reasonable and fair-minded men in the exercise of impartial judgment might draw from the evidence." Id.
Trial Tr. vol. 2, 176:15-177:20. Trial Tr. vol. 1, 110:17-111:25.
Most of the Equipment was recovered by GFRS in July of 2021. However, two missing hand pieces necessary to operate the Equipment were not turned over by Zebrowski until August 24, 2024. Trial Tr. vol. 2, 78:20-25.
II. Legal Analysis
A. Overview
The parties generally do not dispute the events described above. Instead, they dispute whether Zebrowski caused GFRS a "willful and malicious injury," meaning that: 1) he engaged in intentional conduct that was meant to, or was substantially certain to, cause injury to GFRS, and 2) his conduct was wrongful and without just cause or it was excessive, even in the absence of any personal hatred, spite, or ill-will against GFRS. If Zebrowski caused GFRS any injury that meets both criteria, the resulting debt is nondischargeable under 11 U.S.C. § 523(a)(6).
Maxfield v. Jennings (In re Jennings), 670 F.3d 1329, 1334 (11th Cir. 2012) (citations omitted). Injuries inflected negligently or even recklessly fall short of this standard. Id. At least one court within the Eleventh Circuit has taken the position that the Supreme Court's 1998 decision in Kawaauhau v. Geiger requires "a proven intent to injure." McClung v. McClung (In re McClung), 335 B.R. 466, 474 (Bankr. M.D. Fla. 2005) (citing Kawaauhau v. Geiger, 523 U.S. 57, 64, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). This Court, however, follows the Eleventh Circuit's interpretation of willfulness, which requires only that the debtor took deliberate action that was substantially certain to cause injury.
This Court has jurisdiction to hear and enter final judgment in this core proceeding arising under title 11. 28 U.S.C. § 157(b)(1), (b)(2)(I).
When an individual debtor is an officer or in control of a corporation and actively participates in wrongful conduct of the corporation, the individual debtor becomes personally liable for a willful and malicious injury caused by the corporation. In this case, it is undisputed that Zebrowski controlled Zebby's regarding its conduct relevant to this proceeding.
Champion Home Builders Co. v. Tarrant (In re Tarrant), 84 B.R. 831, 833 (Bankr. M.D. Fla. 1988) (citing Ford Motor Co. v. Owens, 807 F.2d 1556 (11th Cir. 1987)). See also Tampa Title Investments, LLC v. Halimi (In re Halimi), 2021 WL 1784072 (Bankr. M.D. Fla. March 19, 2021).
GFRS offered no persuasive evidence of misconduct by Zebrowski prior to entry of its default judgment against him. Thus, this opinion focuses on Zebrowski's post-judgment conduct and whether GFRS proved by a preponderance of the evidence that such conduct caused it to suffer a willful and malicious injury. Possible injury to GFRS may come in two, perhaps even three, different forms. First, GFRS has alleged that it incurred substantial attorney's fees and costs in collection efforts necessitated by Zebrowski's failure for more than two years to respond to requests for discovery in aid of execution. Second, GFRS asserts that it suffered significant loss of the value of its Equipment due to its depreciation from the time Zebrowski should have turned it over to GFRS and the date GFRS ultimately recovered it. In addition, GFRS claims that Zebrowski's failure to turn over the Equipment in a timely manner caused it to lose revenue because it was unable to lease the Equipment out to another entity. Prior to trial, the Court entered an order granting the parties' agreed motion to bifurcate the trial into two separate trials, one on the nature of the debt as dischargeable vel non and the other on damages. At a subsequent trial on damages, GFRS will have the opportunity to liquidate all three kinds of financial losses in order to support a money judgment.
Kane v. Stewart Tilghman Fox Bianchi P.A. (In re Kane), 755 F.3d 1285, 1293 (11th Cir. 2014) (citation omitted).
Order Granting Agreed Motion to Bifurcate Trial (Doc. No. 114). Bankruptcy courts have jurisdiction to enter a money judgment in dischargeability litigation. See The St. Paul Fire & Marine Ins. Co. v. Vinecki (In re Vinecki), 247 B.R. 327, 329 (Bankr. M.D. Fla. 2000) (and cases cited therein).
Bankruptcy courts have jurisdiction to enter a money judgment in dischargeability litigation. See The St. Paul Fire & Marine Ins. Co. v. Vinecki (In re Vinecki), 247 B.R. 327, 329 (Bankr. M.D. Fla. 2000) (and cases cited therein).
Based on the evidence at trial and the nature of potential damages just described, the Court finds it is appropriate to make separate determinations of willful and malicious injury in connection with (i) Zebrowski's failure to comply with requests and court orders relating to discovery in aid of execution and (ii) his failure to return the Equipment or notify GFRS of its location once he was required to do so. With respect to both issues, the Court has carefully considered the undisputed facts, the credibility of the witnesses who testified at trial, and documents admitted into evidence in ascertaining Zebrowski's motivations, his awareness of what was taking place in both the Arizona and Florida state courts, and his knowledge of the financial losses his conduct was causing GFRS. B. Failure to Comply with Requests and Court Orders Related to Discovery in Aid of Execution
Zebrowski's prolonged failure to comply with requests for discovery in aid of execution and to comply with court orders compelling compliance led to findings of contempt and issuance of arrest warrants in both Arizona and Florida. A court order finding contempt standing alone, however, is insufficient to establish nondischargeability under § 523(a)(6). "Whether contempt sanctions are nondischargeable depends not on whether they are labeled as 'contempt,' but on whether the conduct leading to them was 'willful and malicious.' " Relevant case law is fact-driven, and many decisions determining debts resulting from contempt are nondischargeable involve both "egregious and affirmative misconduct by debtors in contravention of court orders or injunctions."
Carlos v. Howard (In re Howard), 653 B.R. 693, 710 (Bankr. S.D. Fla. 2023) ("the Contempt Order does not include the necessary elements for finding that the Contempt Debt constitutes a non-dischargeable debt because [the order] does not make any findings regarding maliciousness . . . . Thus, the Plaintiff was required to prove [the debtor] acted maliciously such that the Contempt Debt is non-dischargeable.").
Liddell v. Peckham (In re Peckham), 442 B.R. 62, 85 (Bankr. D. Mass. 2010) (citations omitted).
Id. at 84 (citations omitted).
For example, in a decision out of the bankruptcy court for the Southern District of Florida, the court concluded that injury caused by the debtor's continued violation of a non-compete agreement and violation of a temporary injunction expressly prohibiting the debtor from engaging in certain conduct (including using or possessing plaintiff's trade secrets and contacting the plaintiff's customers), resulting in a contempt judgment, was willful and malicious and, therefore, nondischargeable. Similarly, a district court in that same district determined that damages awarded following a debtor's violation of a preliminary injunction prohibiting him from continuing to use for his personal gain properties in which he had no legal right was willful and malicious for purposes of § 523(a)(6) even in the absence of a contempt judgment.
PRP Wine Int'l, Inc. v. Allison (In re Allison), 176 B.R. 60 (Bankr. S.D. Fla. 1994).
McDowell v. Stein, 415 B.R. 584 (S.D. Fla. 2009). See also Bundy American Corp. v. Blankfort (In re Blankfort), 217 B.R. 138 (Bankr. S.D. N.Y. 1998) (debtor's continued violation of franchise agreement and continued trademark infringement, both in violation of court orders enjoining such conduct, triggered application of § 523(a)(6)).
However, at least a few bankruptcy courts have found a debt nondischargeable under § 523(a)(6) based solely on failure to obey court orders compelling discovery. One such case, from the bankruptcy court for the Eastern District of Pennsylvania, dealt with an underlying breach of contract action where, as here, the debtor had personally guaranteed payment. The court ruled that although debt arising from the simple contract breach was dischargeable, debt attributable to attorney's fees and costs incurred in seeking discovery from the debtor was not. In the state court breach of contract action, the debtor was informed at a pre-trial conference of his obligation to produce relevant documents. After the debtor failed to comply for more than a year, he was directed to produce the documents at an upcoming sanctions hearing. He then induced the plaintiff into giving him three continuances by representing that he could get the documents if given more time. When the documents were still not produced five months later, the state court lost patience and entered a default judgment as a sanction, awarding the plaintiff attorney's fees under a state court rule authorizing fee-shifting for discovery misconduct. The judgment awarded the plaintiff over $25,000 in attorney's fees, more than $17,000 of which were incurred pursuing discovery. The bankruptcy court noted that the debtor knew of his court-imposed obligations to produce documents and had to know that failing to comply would cause harm by running up the plaintiff's legal fees. Further, the court determined that the debtor's conduct was wrongful and without just cause or excuse. The bankruptcy court concluded that the portion of the attorney's fee award incurred after the pre-trial conference was nondischargeable under § 523(a)(6).
Vision West, Inc. v. Catalan (In re Catalan), 590 B.R. 678, 687-88 (Bankr. E.D. Penn. 2018).
Id. at 685 (citing Rule 4019, Pa. R. Civ. P.).
Id. at 688.
Id. See also Mortgage Capital Advisors, Inc. v. Hawkins (In re Hawkins), 2001 WL 1820324 (Bankr. D. Del. March 1, 2001) (where order imposing sanctions for discovery violations made no express finding of willful and malicious conduct, issue of material fact existed as to whether debtors' conduct rose to that level and that any resulting debt should, therefore, be excepted from discharge under § 523(a)(6)).
An example of a case going the other way, from the bankruptcy court in Massachusetts, also considered the application of § 523(a)(6) based solely on discovery violations. Following entry of a state court default judgment — based on breach of contract, conversion, and related causes of action — the plaintiff sent the debtor interrogatories, together with a warning that if he failed to respond, the plaintiff would seek a court order compelling a response and awarding attorney fees incurred in its collection efforts. Some months later, the debtor failed to appear at a hearing on the plaintiff's motion to compel discovery in aid of execution and for attorney's fees. The state court thereafter entered an order awarding attorney's fees to the plaintiff and scheduling a hearing on the plaintiff's motion for a show-cause hearing, at which hearing the debtor was directed to appear and show cause why he should not be sanctioned for contempt. A further court order on the motion to show cause was entered imposing additional attorney's fees and assessing $75 per diem, beginning ten days from entry of the order, until the debtor fully complied with the plaintiff's discovery requests. The state court also issued an order for the debtor's arrest if he failed to file an affidavit of payment of the outstanding attorney's fees, which were then about $2,000, plus any applicable per diem. Several more months later, after the debtor failed to respond, he was arrested, brought before the court, and ordered to jail. The following day the debtor filed for chapter 7 relief. In considering if the debtor's discovery-related misconduct was willful and malicious, the bankruptcy court ultimately concluded that the plaintiff failed to prove the debtor acted with the requisite malice based on the debtor's then-existing financial problems, lack of income, and severe depression.
In re Peckham, 442 B.R. at 85 (although other misconduct by the debtor resulted in a determination of nondischargeability of the judgment debt under § 523(a)(2), plaintiff's request for relief under § 523(a)(6) related solely to the debtor's post-judgment failure to provide discovery in aid of execution).
Id.
The diverse outcomes in these two cases — with the Pennsylvania bankruptcy court concluding that all fees incurred after the first request for discovery were nondischargeable and the Massachusetts bankruptcy court concluding that all of the fees incurred seeking discovery in aid of execution were dischargeable — rests heavily upon the respective courts' determinations regarding the nature of the debtor's conduct as either excusable or inexcusable for purposes of establishing malice. In the Pennsylvania decision, as noted above, the court concluded that the debtor's discovery violations "were without just cause or excuse, and wrongful." Thus, the court determined that such violations demonstrated malice because they were not only wrongful, but inexcusable. The Massachusetts court, on the other hand, found, in effect, that the debtor's conduct was excusable because he was dealing with "collection efforts with respect to a debt he had no ability to pay and the stress caused by his inability to pay his mortgage." The Massachusetts bankruptcy court noted that the cases it reviewed "reflect the unsettled area of law with respect to the interpretation of malice" and that cases holding a debtor acted with malice "often are the result of both egregious and affirmative misconduct by debtors . . . rather than the virtual paralysis exhibited by [the debtor] in the instant case."
In re Catalan, 590 B.R. at 688.
In re Peckham, 442 B.R. at 84.
Id. Compare id. at 85-86 ("[The debtor's] conduct violated the dignity of the court, but there was no evidence that he intended to harm [the plaintiff] in not appearing in [court] or obeying [the court's] orders.") with In re Kane, 755 F.3d at 1293 (11th Cir. 2014) (debtors acted willfully for purposes of § 523(a)(6) because they "intentionally committed acts that they knew were substantially certain to injure [the law firms]." The Massachusetts bankruptcy court also noted that there was little guidance on the issue from the First Circuit Court of Appeals. In re Peckham, 442 B.R. at 84.
Although the Massachusetts bankruptcy court also concluded that the debtor's conduct was not willful, in so ruling the court stated that the plaintiff failed to prove that the debtor acted with the requisite intent to injure. Thus, the court did not apply the same test for willfulness as would apply in the Eleventh Circuit, where willfulness can be shown in the absence of intent to cause injury if a debtor engages in an intentional act that is substantially certain to cause injury.
Id. at 85.
See supra note 47.
In the current proceeding, the evidence presented at trial leads this Court to conclude that some of Zebrowski's conduct in failing to respond to discovery in aid of execution, even though wrongful, was initially excusable. Zebrowski testified credibly that during the two-year period that GFRS pursued him to collect on its judgment, he (i) was largely unemployed July through October of 2019, after closing the Lutz Office in June of 2019, (ii) worked and lived in several different locations thereafter, (iii) was deterred from flying back to Florida at times due to COVID and related quarantine requirements, (iv) had multiple creditors (in addition to GFRS) pursuing him, (v) fell three months behind on his mortgage, (vi) suffered marital problems and was on the verge of divorce, and (vii) lacked sufficient funds to hire an attorney. The Court also finds that other evidence — including Zebrowski's prompt response to GFRS's email dated February 12, 2019, and his response, albeit informal, dated March 16, 2019, to the motion for default judgment in the Arizona Action addressed to the presiding court commissioner and copied to GFRS's counsel on April 23, 2019 — support his contention that, at least early on, he hoped to negotiate an exchange of the Equipment for relief from liability under the Lease and was trying to earn enough money to engage an attorney to broker a favorable deal on his behalf.
Trial Tr. vol. 3, 128:9-20.
Trial Tr. vol. 3, 102:16-25; 129:15-19; 131:22-132:14; 141:2-142:11. See also Defendant's Ex. 13 (multiple receipts for hotels at which Zebrowski stayed on and off between January 31, 2019, and November 23, 2020).
Trial Tr. vol. 3, 175:15-22.
Trial Tr. vol. 1, 84:6-8.
Trial Tr. vol. 3, 90:3-12.
Trial Tr. vol. 2, 187:12-19.
Trial Tr. vol. 1, 149:15-17; vol. 3, 120:14-20.
Plaintiff's Ex. 21.
Defendant's Ex. 7.
As time went on, however, and Zebrowski continued to receive copies of court papers from both the Arizona and Florida courts related to GFRS's efforts to obtain information to aid in collecting its judgment, including court orders awarding GFRS attorney's fees in connection with its efforts and threatening findings of contempt and even bodily arrest, Zebrowski's conduct passed beyond excusable. Not only was his noncompliance always wrongful, but also it crossed the line to become malicious when his conduct became inexcusable.
With respect to the willful nature of his conduct, over time Zebrowski had to know that continuing to evade discovery would, or was at least substantially certain to, cause GFRS financial harm in the form of attorney's fees and costs. Zebrowski's testimony about why he continued for so long to ignore discovery requests and disregard orders compelling compliance — and about his lack of appreciation of the gravity of the circumstances — was at times contradictory and often non-responsive and, frankly, not believable. For example, when asked if information about leases requested in the Request for Production would have included the Lease, Zebrowski testified he thought he was buying the equipment "and it wasn't a lease." He thought he would own the equipment when all the payments were made. Yet, when questioned about the meaning of his February 2019 email seeking "complete absolution" from liability in exchange for the Equipment, he testified that wanted to ensure that if he returned the leased Equipment, he would no longer need to make payments on it, comparing this scenario to returning a leased car and having no further obligation to make payments on it. Further, the Court granted at least eight ore tenus motions to strike Zebrowski's testimony as non-responsive. One such motion was raised during a line of questioning related to Zebrowski's turnover of the Equipment to GFRS's repossession agent in July of 2021. After agreeing that hand pieces were part of the Equipment, when asked if he turned those over to GFRS's agent — a simple "yes" or "no" question — Zebrowski refused multiple times to answer the question. Instead, he deflected the question by repeating over and over that he turned over all of the equipment that the agent requested. And when questioned specifically about his recollection of what occurred during the August 25, 2020, show-cause hearing in the Arizona Action (which hearing Zebrowski attended telephonically) with respect to the court rescheduling that hearing to a later date, he testified as follows: "There was going to be plenty of follow up, but I don't recall exactly what the follow up was. Obviously, this was not going to just go away." It is not credible that Zebrowski, who came across as obviously highly intelligent, does not recall that a state court wanted him back for a follow-up hearing to ascertain if Zebrowski had finally complied. Consequently, the Court finds and concludes that at some point in time Zebrowski's conduct in connection with GFRS's efforts to collect on its judgment became both "malicious" — because it was wrongful and inexcusable — and "willful" — because he knew it was substantially certain to cause harm. Thus, damages incurred by GFRS in its collection efforts after that time are nondischargeable under § 523(a)(6).
Trial Tr. vol. 1, 133:2-5.
Trial Tr. vol. 3, 107:19-22.
Trial Tr. vol. 1, 89:14-90:10.
Trial Tr. vol. 1, 93:25-94:1 (during questioning about the nature of the Lease as a true lease or lease financing agreement); 105:23-106:5 (responding to questions about his return of the equipment in 2021); 124:23-24 (when asked about his failure to complete the Fact Information Sheets); 149:18-20 (in response to questions about what happened at the August 25, 2020, show cause hearing); 150:5-6 (in response to more questions about that same show cause hearing); 163:8-9 (discussing his understanding about depreciation of the Equipment). Trial Tr. vol. 3, 108:5-11 (when asked about signing the Lease); 117:23-25 (in response to a question about a certain date).
Trial Tr. vol. 1, 171:20-177:24.
Id.
Trial Tr. vol. 1, 150:24-152:4. Zebrowski testified that he did not intend to cause GFRS harm. Trial Tr. vol. 3, 146:17-20. Such testimony is irrelevant, however, under applicable Eleventh Circuit precedent. See supra note 47. See also Crockett v. Saks (In re Saks), 2022 WL 18273866 (Bankr. M.D. Fla. Dec. 30, 2022) ("The Eleventh Circuit has not stated whether the "substantially certain to cause injury" inquiry should be evaluated under the more stringent subjective standard (requiring proof that the debtor actually knew that the act was substantially certain to injury the creditor) or under an objective standard (requiring the creditor to show only that the debtor's act was substantially certain to cause injury.") (citation omitted). This distinction is also irrelevant because GFRS has met its burden of proof as to this element, even applying the more stringent subjective standard.
Plaintiff's Exhibit 13.
So, the Court having determined that eventually Zebrowski came to know that his wrongful conduct was substantially certain to cause harm, the question becomes: when? The Court finds that Zebrowski's receipt of the Second Amended Order Compelling Information in the Florida Action represents the turning point. After that, Zebrowski could no longer excuse away his both failing to respond to requests for information and disregarding court enforcement orders. As set forth above, this order, which he received more than a year after receipt of the Arizona Complaint, directed him to complete the Fact Information Sheet within 14 days, imposed $300 in attorney's fees and costs, and threatened both contempt and bodily arrest including up to at least 48 hours of jail time. Zebrowski received this order on February 18, 2020. Consequently, the Court finds and concludes that fees and costs incurred by GFRS in its efforts to obtain discovery in aid of execution on and after February 19, 2020, the day after he received the Second Amended Order Compelling Information, to March 20, 2021, the date he filed for bankruptcy relief, are nondischargeable. C. Failure to Return Equipment or Notify GFRS of its Location
The order entered in the Arizona Action awarding GFRS $21,980 in attorney's fees, awarded fees for GFRS's collection efforts beginning February 19, 2020. Plaintiff's Ex. 4. Thus, this amount will be included in the total damages awarded GFRS following the separate trial the Court will conduct on damages.
The Lease, which by its terms is governed by Arizona law, gave GFRS the right to repossess the Equipment from Zebby's without court order if Zebby's defaulted. Under Arizona law, an action for conversion arises when there is "an intentional exercise of dominion or control over [personal property] which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the [property]." Though not alleged in GFRS's complaint, Zebrowski's interference with GFRS's right to exercise control over the Equipment at some point in time amounted to conversion of GFRS's property. Conversion alone, however (like contempt alone), though wrongful, is insufficient to find that a resulting debt is willful and malicious for purposes of § 523(a)(6). Again, the Court must look to the underlying conduct.
Plaintiff's Ex. 1 (Article 9).
See, e.g., Dent v. Dent, 2010 WL 3928637 (Ariz. Ct. App. Sept. 30, 2010) (citation omitted).
Wolfson v. Equine Capital Corp. (In re Wolfson), 56 F.3d 52, 54 (11th Cir. 1995) (willful and malicious injury "does not follow as of course from every act of conversion, without reference to the circumstances") (citation omitted).
Id. See also Krohn v. Tracton (In re Tracton), 73 B.R. 627, 629 (Bankr. S.D. Fla. 1987) ("If the injury committed by the debtor is a conversion of the creditor's property, the debt is nondischargeable in bankruptcy if the conversion was willful and malicious.") (emphasis added) (internal quotation omitted).
For the same reasons the Court found Zebrowski's testimony credible as to his initial failure to respond to demands for discovery in aid of execution and court orders related thereto, the Court finds credible his testimony regarding his initial failure to turn over the Equipment: his difficulty finding employment, work-related travel, pursuit by other creditors falling behind on his mortgage, marital problems, and insufficient income to hire an attorney to help negotiate a deal with GFRS on his behalf. Further, despite the Arizona Complaint's count for recovery of the Equipment, the default judgment GFRS obtained did not require its return. As noted above, GFRS made a business decision not to seek recovery of the Equipment early on, relying instead on its expectation of recovering from Zebrowski substantial monetary damages. Thus, the Court finds and concludes that Zebrowski's failure to turn over the Equipment was initially excusable.
See supra notes 69-75.
However, after a law enforcement officer came to his Tampa home on September 29, 2020, attempting to execute a writ of replevin to recover the Equipment, Zebrowski's conduct became inexcusable. At that point, Zebby's, which was unquestionably controlled by Zebrowski, had no reasonable basis to believe that it could contest GFRS's entitlement to possession of the Equipment. After that date, Zebrowski's failure to turn over the equipment escalated from conversion to active concealment. Further, after that date, Zebrowski had to know that his failure to turn over the Equipment was causing, or was substantially certain to cause, GFRS financial harm. Such harm resulted not only because GFRS was incurring legal fees to recover the Equipment, but also because Zebrowski understood that the Equipment was depreciating in value. When this subject was raised at trial, Zebrowski conceded that he understands the concept of depreciation.
Trial Tr. vol. 1, 164: 2-3.
Based on the foregoing, the Court finds and concludes that, with respect to turnover of the Equipment, Zebrowski's conduct after the attempted replevin was both malicious — because it was wrongful and inexcusable — and willful — because he understood that it was causing GFRS financial harm. Thus, any debt for attorney's fees and costs, depreciation damages, and lost revenue for the inability to release the Equipment incurred by GFRS in connection with recovery of the Equipment on or after September 29, 2020, the date of attempted replevin, to the petition date of March 20, 2021, is nondischargeable under § 523(a)(6).
III. Conclusion
GFRS has proved by a preponderance of the evidence that it holds debts due to different willful and malicious injuries, which debts are nondischargeable under § 523(a)(6). Yet to be determined is the amount of such nondischargeable debts. The Court will enter an order scheduling a status conference to discuss trial dates for the damages phase of this proceeding.
ORDERED.