Bankruptcy: An Examination of the Dischargeability of Debts Regarding Property Damage-Malice

     In a previous blog I began a multi-issue review of cases that address the dischargeability of debts regarding property damage-malice. The relevant bankruptcy code provision is §523(a)(6). I briefly established the standard used by courts to determine dischargeability of debts involving property damage. The standard is very fact specific so reviewing cases will shed light on how the standard is applied.
     In Appalachian Equipment & Supply Co. v. McDaniel, the United States Bankruptcy Court at Harrisonburg, Virginia, determined that the creditor/plaintiff, a rental company, had satisfied all of the elements necessary to prove its case under Bankruptcy Code §523(a)(6), and thus, its claim for damages from the improper use of the forklift was declared exempt from discharge.
     The Court in McDaniel ruled that the physical evidence was the most reliable evidence offered. That evidence showed that the forklift was delivered to the debtor in normal operable condition. It also showed that when the creditor picked up the forklift, it was damaged and displayed light blue paint on the bottom of the carriage. The debtor's evidence showed that one of the vehicles which was placed on the tractor trailer was a light-blue car. To the Court, it appeared more likely than not that the bottom portion of the carriage of the forklift was used in conjunction with attempting to crush the light-blue car such that paint flecks from the car attached themselves to the underside of the carriage. The Court indicated that it was satisfied that the expert testimony of the witness for the creditor established that more likely than not that the carriage of the forklift was used to apply hydraulic pressure in a downward direction with such force that the carriage boon and forks of the forklift were damaged. In conclusion, the Court found that the debtor used the carriage to accomplish his intent to crush cars, such use was inconsistent with the normal usage of the forklift, and such usage led to the damage of the forklift. The Court further found that the creditor proved by a preponderance of the evidence that the debtor's actions in using the forklift were intentional.
     The Court in McDaniel found that the debtor knew that a forklift should not be used to crush cars. The physical evidence and the expert evidence offered by the creditor were more persuasive than the debtor's attempts to deflect blame to another person. It showed that the debtor applied the boon portion of the forklift to employ downward hydraulic pressure to the crush the cars. The Court ruled that it was satisfied that the debtor used the forklift in an improper manner to crush the cars in order to load them onto his flatbed trailer. The Court found that the debtor was an experienced forklift operator. He brought equipment to the site which could have been used to safely crush the cars. He used the forklift in a manner inconsistent with the generally accepted practice for the usage of this type of forklift. In light of these surrounding circumstances, the Court ruled that the debtor knew, or should have known, that his acts would cause damage to the forklift and resulting harm to the creditor. Thus, the Court ruled that the debtor's actions fit the definition of malice as set forth in the case of St. Paul Fire & Marine Ins. Co. v. Vaughn, the standard for denial of discharge.
     In a future blog I will apply the standard used by courts to determine dischargeability of debts involving property damage to a case involving withheld payments.

Bankruptcy: An Examination of the Dischargeability of Debts Regarding Property Damage-Malice

     In a past blog I announced that we would begin a multi-issue review of cases that address the dischargeability of debts regarding property damage-malice. The relevant bankruptcy code provision is §523(a)(6).
     Several cases illustrate well the dischargeability of debts involving property damage. In all cases, the trial and appellate courts are required to adhere to Bankruptcy Code §523(a)(6), which states that a debt causing willful and malicious injury to another entity is not exempt from discharge.
     The standard established by the courts to prove willful and malicious injury is described by the court in St. Paul Fire & Marine Ins. Co. v. Vaughn. In Vaughn, the Court of Appeals for the Fourth Circuit stated that the debtor must show, by contradicted and unimpeached evidence, to have committed a willful and malicious injury to the creditor’s property. There is no requirement of specific malice on the part of the debtor, however. The court held that “willful and malicious” injury means injury that is wrongful and without cause or excuse, but the debtor does not necessarily need to have ill will.
     However, this is a very general definition. Courts have applied this standard to many different situations and it is clear that this standard is very fact specific.  A future blog will apply and expand this standard in a case involving rented property.

Bankruptcy: Dischargeability of Debts Regarding Property Damage-Malice

     In a future blog, we will begin a multi-issue review of cases that address the dischargeability of debts regarding property damage-malice.
     Several cases illustrate well the dischargeability of debts involving property damage. In all cases, the trial and appellate courts are required to adhere to Bankruptcy Code §523(a)(6) which states that a debt causing willful and malicious injury to another entity is not exempt from discharge.
     If you have cases involving property damage that may fall within this code section, please let me know.

Foreclosure: Foreclosure Sale Deficiency Actions

     Frequently there will be a deficiency balance after the sale is completed and the accounting is done. The account of sale will set forth the distribution of the sale proceeds and also establish any amounts remaining due on the indebtedness following application of the net proceeds from the foreclosure sale. This deficiency amount is usually recovered by a personal judgment against the maker of the promissory note or other obligors on the indebtedness that was secured by the deed of trust. An action to recover the deficiency balance remaining after a foreclosure sale need not be brought on the chancery side of the court, and may properly be brought as an action at law. A plaintiff’s action to recover on an assumed promissory note may be maintained as an action at law even though the plaintiff is not named in the deed of trust.

Real Estate: Homeowner Association - Easements

     Cases involving HOA powers are frequently fact specific and governing document specific. Recently, the Frederick County Circuit Court decided a case in which a homeowners association was held in violation of the homeowners association’s restrictive covenants and liable for compensatory damages and attorneys’ fees because it removed a wall on a homeowner’s property. The homeowner spent a considerable amount of time and effort improving a portion of a shared roadway that was on his property. He cleared the land, widened the pathway, and built an eight foot retention wall along the pathway. The HOA notified the homeowner that the wall was encroaching on the right of way and told the homeowner that it must be removed at the homeowner’s expense. There was no board of directors hearing or meeting before the decision was made. Without further notice, the wall was removed but the homeowner refused to pay. In addition to tearing down the wall, the HOA installed drainage culverts in the right of way which resulted in silt flowing into the property’s septic system. The HOA filed suit and obtained a General District Court judgment for the expense of removing the wall. The homeowner then appealed the judgment to the Frederick County Circuit Court and filed a complaint against the HOA. The homeowner claimed that the HOA acted outside its authority under the restrictive covenants, which constituted trespass. The HOA filed a counterclaim, alleging breach of contract and violation of the Property Owners’ Association Act (Va. Code Section 55-508). The court held in favor of the homeowner and found that the HOA exceeded its authority under the restrictive covenants. The HOA did not have authority to remove the wall or to install the drainage culverts. In addition, the HOA did not have the ability to charge the homeowner for either the removal of the wall or the installment of the drainage culverts. The court awarded the homeowner compensatory damages of $28,500 (the value of the wall and cost of returning the property to its prior condition) and attorneys’ fees of $48,844.
     It is important to ensure that HOA covenants provide for the powers necessary to take self-help to effect repairs and remove violations. It is also important for HOAs to work through the proper channels and act within its authority granted by restrictive covenants. Failing to do so can be costly for an HOA. The law firm of Lafayette, Ayers & Whitlock, PLC has experience in drafting, reviewing, and amending HOA documents, as well as, representing HOAs in court.