Bankruptcy Article of the Week
Tide Turning Back on Sexual Harassment Claims in Bankruptcy?
The United States Bankruptcy Appellate Panel for the Eighth Circuit ruled last month that a judgment for sexual harassment was not dischargeable in bankruptcy, upholding summary judgment in favor of the creditor-plaintiff. The bankruptcy petitioner, Michael Porter, was collaterally estopped from arguing that his conduct was not "willful and malicious," since the Panel determined that the jury's findings in the sexual harassment case had conclusively answered those questions.
It is significant that the ruling comes from the Eighth Circuit, since it was the affirmation by the U.S. Supreme Court of the Eighth Circuit's ruling in Kawaauhua v. Geiger (523 U.S. 57 [1998]) that first turned the tide toward the discharge of judgments for sexual harassment. Geiger addressed a medical malpractice claim, which might have been easily distinguishable from sexual harassment under the "willful and malicious" standard set forth in §523(a)(6).
Nonetheless, a string of cases-perhaps most notably In re Busch, decided in the Northern District of New York in 2004-reached the conclusion that sexual harassment claims were dischargeable. The Busch court specifically rejected the creditor-plaintiff's assertion of collateral estoppel, pointing out that the standards for sexual harassment did not include the "willfulness" element required by §523(a)(6), and that even punitive damages under Title VII required only a finding of "reckless indifference."
The Porter case involved a sexual harassment claim against two business partners, Porter and Huffer. It was Huffer who aggressively harassed the creditor-plaintiff Holly Sells, but her pleas to Porter for assistance were met with an ultimatum: sign a document agreeing that the "interactions" between her and Huffer had been consensual or be fired. Ultimately, after Sells obtained a significant judgment against both men in a sexual harassment case, each independently filed bankruptcy. Sells objected to discharge and received summary judgments in her favor in both cases, but Porter appealed and Huffer did not.
The Panel in Sells v. Porter agreed with the Busch court that "willful" modifies "injury" and that, as such, the willful prong of the test can be met only if the injury "was substantially certain to result from the debtor's conduct." The Porter court also acknowledged that "willful" and "malicious" were two separate, independent requirements, that both must be met in order to render a debt non-dischargeable under §523(a)(6) and that malice requires "a heightened level of culpability that goes beyond recklessness." Further, the Panel cited a 2005 ruling that stated, "In the Eighth Circuit, an injury is malicious when the debtor intended to harm the creditor at least in the sense that the debtor's tortuous conduct was certain or almost certain to cause harm." (Osborn v. Stage, 321 B.R. 486 [B.A.P. 8th Cir. 2005]).
Applying that standard, the Panel ruled that Porter was collaterally estopped from asserting that his actions were not willful and malicious; thus, summary judgment to the creditor-plaintiff was appropriate. It is telling that this ruling comes with regard to Porter, the defendant in the sexual harassment case who was not alleged to have personally touched, harassed or behaved inappropriately toward Sells except in his handling of her complaints about his partner and his retaliatory actions against her.
The Numbers Game
U.S. consumer bankruptcy filings were up nearly 23% nationwide in September from last year, according to early figures from the American Bankruptcy Institute (ABI).
Latest Bankruptcy Legislation News
In Issues Five and Nine of The Next Chapter, we detailed how U.S. Senator Dick Durbin (D-IL) was working on legislation that would amend the bankruptcy code to help families in the midst of foreclosure, and now a member of the U.S. House of Representatives is following similar suit.
Representative Brad Miller (D-NC) has authored a bill that would repeal a provision prohibiting a bankruptcy court from modifying a home's first mortgage. Miller has said that removing such a provision would allow bankruptcy courts to alter mortgages written by "predatory lenders" and possibly save 600,000 homes from foreclosure in the United States.
With some five million adjustable-rate mortgages set to reset in the next 18 months, Miller has said that modifications for such loans are still "few and far between."
Miller's legislation was introduced in the U.S. House of Representatives on September 21st. The bill was also sponsored by Representative Linda Sanchez (D-CA) and cosponsored by Barney Frank (D-MA), the chairman of the House Financial Services Committee.
Visit the SFT Blog for the latest information on Miller's legislation and other proposed bankruptcy laws.
Friendly Tips from Your SFT Team
When setting up Credit Counseling and Debtor Education courses, be sure to provide your client with the bankruptcy district in which his or her bankruptcy case will be filed. Doing so will not only help your client but will also aid the Counseling Center agent in determining the court from which to issue the client's certificate.
Furthermore, after your client files for bankruptcy, make sure that he or she knows his or her bankruptcy case # in the following format: 07-12345.
If your client types in this information outside that format, he or she will not be able to enter the course. The case # has to be entered exactly in the above format in order for the certificate to generate properly and be reported to the court accurately.
Kevin's Corner
Practice Management Tip of the Week:
"Successful practice building requires more than just being a good bankruptcy lawyer-and that knowledge is what will set you apart from the competition.
"You're probably spending most of your time meeting with clients, reviewing documents and appearing in court, and that's as it should be. But you have to remember that you can't provide great services to consumers unless you first get them in the door. The word of mouth referrals you'll get by providing great service will certainly help, but they aren't enough. Building your client base takes work.
"That means comprehensive planning, from where you place your advertising to how quickly you return a phone call from a prospective client to the attitude and information you convey over the telephone.
"Too often, knowledgeable attorneys are so focused on the facts and logistics that they forget that the potential bankruptcy client needs to be supported and made to feel like the attorney is on his side.
"Build yourself a marketing plan that accounts for everything from where you'll find prospective clients to how you'll create a connection with them right from the beginning, and remember that every step is indispensable.
"Assess which advertising sources are and are not generating business for you, and look at your own procedures for following up on inquiries over the phone, from your website, or through other sources. Make sure that your marketing dollars and your marketing efforts are focused where the prospective clients are, not simply where you've always advertised. And then remember that when a consumer notices your ad and calls your office or fills out a form on your website, that's only the first step in turning that consumer into a client. Make sure that your marketing plan accounts for every step along the way, and that you remember that each one may be the point at which you win or lose a client."
- Kevin Chern
President, Start Fresh Today
Did You Know...
that you can access Bankruptcy Law Codes and creditor bankruptcy notice addresses, and even calculate tax interest from the convenience of your Start Fresh Today account?
That's right! Simply log in to your SFT account and click on the 'Resources' button, which will take you to related links for the above function that suits your current needs best.
Click on the 'Bankruptcy Law Codes' link and be taken to a Thomas Library of Congress page where the bankruptcy law codes are displayed.
Access the 'Master Creditor Bankruptcy Notice Addresses' link and be brought to a SFT page with a list of addresses for many major creditors that can help you with sending out bankruptcy notices.
Click on the 'Tax Interest Calculator' link and be directed to a TimeValue page where you can order software or products to assist you with calculating tax interest.
Got questions? Simply call (800) 435-9138 or feel free to send an email to info@startfreshtoday.com. We're more than glad to help out in any way possible.
Getting Low on Client Inserts?
If so, simply call (800) 435-9138 or shoot us an email requesting more client inserts to info@startfreshtoday.com, and we'll send them out to you free of charge as soon as possible.
All we ask is that you include your new credit counseling and debtor education inserts in your client intake folders. Thanks again for your cooperation.