United States District Court, N.D. Alabama, Northern Division
K. KALLON UNITED STATES DISTRICT JUDGE
Carlton Nix, III appeals from the bankruptcy court's July
6, 2018 order finding that the debt he owed to PNC Bank, N.A.
is non-dischargeable under 11 U.S.C. § 523(a)(6). Doc.
1. Nix contends that the bankruptcy court erred by finding
that he caused a willful and malicious injury to PNC, and he
argues that he is entitled to a new trial because there is no
transcript of the proceedings before the bankruptcy court.
The appeal is fully briefed, docs. 5, 6, 7, as is PNC's
motion to strike Nix's reply brief for raising arguments
that Nix did not present in his initial brief, docs. 8 and 9.
For the reasons explained below, the court finds that the
bankruptcy court's order is due to be affirmed, and
PNC's motion to strike is moot.
STANDARD OF REVIEW
district court sits as an appellate court in reviewing final
decisions of a bankruptcy court. 28 U.S.C. § 158(a)(1).
Accordingly, the district court reviews the bankruptcy
court's findings of fact under the clearly erroneous
standard, while the bankruptcy court's legal conclusions
are subject to de novo review. See, e.g. Educ. Credit
Mgm't Corp. v. Mosley, 494 F.3d 1320, 1324 (11th
Cir. 2007). See also Fed. R. Bankr. P. 7052
(incorporating Fed.R.Civ.P. 52); Fed.R.Bankr.P. 8013.
“The factual findings of the bankruptcy court are not
clearly erroneous unless, in the light of all the evidence,
‘[the district court is] left with the definite and
firm conviction that a mistake has been made.'”
In re TOUSA, Inc., 680 F.3d 1298, 1310 (11th Cir.
2012) (citations omitted). In addition, because
“[a]ssessing witness credibility is uniquely the
function of the trier of fact, ” United States v.
Peters, 403 F.3d 1263, 1270 (11th Cir. 2005),
“generally [the court] will not disturb a bankruptcy
court's credibility determinations, ” In re
Kane, 755 F.3d 1285, 1288 (11th Cir. 2014) (citing
In re Englander, 95 F.3d 1028, 1039 (11th Cir.
FACTUAL AND PROCEDURAL BACKGROUND
September 14, 2006, Nix borrowed $75, 000 from First American
Bank, PNC's predecessor-in-interest, to purchase five
membership units in Crestwood Healthcare, LP
(“Crestwood”). Docs. 3-12 at 2; 3-11 at 8. The
loan required quarterly interest payments and matured on
October 14, 2016. Docs. 3-12 at 2; 3-11 at 8. To secure the
loan, Nix signed a Pledge and Security Agreement, which
pledged his interest in the membership units and any proceeds
therefrom to PNC as collateral for the loan. Docs. 3-12 at 2;
3-13 at 1, 17-18. Nix also purchased five additional
membership units with a loan from Wells Fargo. Doc. 3-12 at
tried unsuccessfully to sell the membership units back to
Crestwood in 2007. Doc. 3-12 at 4. Then, in December 2009,
Nix sold four membership units to Crestwood Hospital, LLC
(the “Hospital”). Id. at 3. Nix sold two
more membership units to Crestwood in November 2011, and sold
an additional two units to them in November 2012.
Id. Finally, Nix sold his last two membership units
to the Hospital in September 2015. Id. Nix received
a total of $185, 744 in proceeds from the sale of his ten
membership units, which he used to pay other debts.
Id. at 3-4. Nix never informed PNC about the sale of
the membership units. Id. at 4.
also did not inform Crestwood and the Hospital that he had
pledged five units to PNC. Doc. 3-12 at 4. Rather, in
connection with his 2011 and 2012 sales to Crestwood, Nix
signed documents representing that his membership units were
“free and clear of all liens, security interests and
encumbrances whatsoever . . . .” Doc. 3-11 at 12-13.
And, in connection with his sales of membership units to the
Hospital in 2009 and 2015, Nix signed “Letters of
Transmittal” in which he represented that he had
“not conveyed, assigned, transferred or pledged any
direct or indirect interest [in the units] to any other
person or entity.” Docs. 3-11 at 11; 3- 12 at 4, 14. A
representative from the Hospital testified that the Hospital
would have informed PNC about the sale of the units if Nix
had disclosed PNC's security interest. Doc. 3-12 at 7.
2014, a PNC representative called Nix to inquire about the
location of the stock certificates for the five membership
units he purchased with the PNC loan. Docs. 3-11 at 15; 3-12
at 7. Nix did not inform the representative that he had sold
most of his units and only still owned two units.
Id. Instead, Nix told the representative that he was
not sure about the certificates' whereabouts and would
“check with his wife who handles his finances and
either go to [the] branch with statements, etc. or get back
to [the representative] with what he has.” Doc. 3-11 at
15. Nix never called PNC back to provide the requested
information. See id.
made quarterly interests payments to PNC under the terms of
the loan until July 25, 2016. Doc. 3-12 at 3. In total, Nix
paid PNC $51, 493 in interest and $10, 397.21 in principal on
the loan, leaving a principal balance of $64, 602.79.
Id. After the loan matured in October 2016, PNC sent
Nix a letter, informing him of an “Event of
Default” based on non-payment and securitization.
subsequently filed for relief under Chapter 7 of the
Bankruptcy Code, and listed PNC as an unsecured creditor.
Doc. 3-12 at 3. PNC in turn filed an adversary proceeding,
seeking a declaration that the debt Nix owed to it is
non-dischargeable under 11 U.S.C. § 523(a). Doc. 3-2.
Due to a technical error, a transcript for the May 15, 2008
trial of the adversary proceeding is unavailable. Docs. 3-4;
3-10 at 3; 5 at 7 n.1. The bankruptcy court subsequently
entered a judgment in favor of PNC, finding that the debt is
non-dischargeable under 11 U.S.C. § 523(a)(6), and that
Nix's “actions constitute a willful and malicious
injury for purposes of § 523(a)(6).” Doc. 3-12 at
16. Nix challenges this finding. Docs. 1, 5.
Chapter 7 debtor is generally entitled to a discharge of all
debts that arose prior to the filing of the bankruptcy
petition.'” In re Kane, 755 F.3d 1285,
1292 (11th Cir. 2014) (quoting In re Mitchell, 633
F.3d 1319, 1326 (11th Cir. 2011)). But, the Bankruptcy Act
“limits the opportunity for a completely unencumbered
new beginning to the ‘honest but unfortunate
debtor.'” Grogan v. Garner, 498 U.S. 279,
286-87 (1991) (quoting Local Loan Co. v. Hunt, 292
U.S. 234, 244 (1934)). Thus, some debts cannot be discharged,
including, as relevant here, a debt “for willful and
malicious injury by the debtor to another entity or to the
property of another entity . . . .” 11 U.S.C. §
523(a)(6). A creditor bears the burden of proving a debt is
non-dischargeable by a preponderance of the evidence,
Grogan v. Garner, 498 U.S. 279, 291(1991), and
courts narrowly construe the exceptions to discharge, In
re Miller, 39 F.3d 301, 304 (11th Cir. 1994).
purposes of § 523(a)(6)'s exception to discharge, a
willful injury occurs when a debtor “‘commits an
intentional act the purpose of which is to cause injury or
which is substantially certain to cause injury.'”
In re Kane, 755 F.3d at 1293 (quoting In re
Jennings, 670 F.3d 1329, 1334 (11th Cir. 2012)). In
other words, a willful injury means “a deliberate or
intentional injury, not merely a deliberate or
intentional act that leads to injury.”
Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998)
(emphasis in original). “‘Malicious' means
without just cause or excessive even in the absence of
personal hatred, spite or ill will.” In re
Jennings, 670 F.3d at 1334. “A bankruptcy