United States District Court, D. Idaho
In re: JOSEPH STANLEY VISSER and APRIL McGOVERN VISSER, Debtors.
JOSEPH STANLEY VISSER and APRIL McGOVERN VISSER, Defendants/Appellants. TWIN FALLS STAFFING, LLC, Plaintiff/Appellee,
B. LYNN WINMILL, Chief District Judge.
Debtors appeal the bankruptcy court's judgment and order denying their motion to alter or amend the judgment. For the reasons expressed below, this Court will affirm in part and reverse in part.
Debtor Joe Visser is a former employee of Twin Falls Staffing, LLC. He left Twin Falls in 2009 to set up a competing business. Twin Falls sued Visser in state court, claiming that he was violating a non-competition clause in his employment agreement. In April 2010, the state court granted a preliminary injunction, prohibiting Visser from competing with Twin Falls for a one-year period. The state court also scheduled trial to begin on July 19, 2011, but Visser filed a Chapter 7 bankruptcy petition before then.
Twin Falls commenced an adversary proceeding against Visser, contending that Visser's debt to Twin Falls was nondischargeable under 11 U.S.C. § 523(a)(6). After a bench trial, the bankruptcy court agreed, concluding that Visser had wilfully and maliciously injured Twin Falls, causing the company to suffer $361, 901.55 in damages. Visser appeals the bankruptcy court's judgment. He says the bankruptcy court "erred both as to law and fact" in deciding he had maliciously injured Twin Fall and in deciding the amount of damages. Opening Br., Dkt. 6, at 1. Visser also contends that the bankruptcy court erred when it denied his motion to alter or amend the judgment.
STANDARD OF REVIEW
District courts review bankruptcy court decisions in the same manner as would the Ninth Circuit. See In re George, 177 F.3d 885, 887 (9th Cir. 1999). "Whether a claim is nondischargeable presents a mixed question of fact and law and is reviewed de novo." Carillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). Nevertheless, the bankruptcy court's factual findings underlying the nondischargeability determination are reviewed for clear error. See id.; Banks v. Gill Distrib. Ctrs., Inc. (In re Banks), 263 F.3d 862, 869 (9th Cir. 2001) ("Whether an actor behaved wilfully and maliciously is ultimately a question of fact reserved for the trier of fact."); Murray v. Bammer (In re Bammer), 131 F.3d 788, 791 (9th Cir. 1997). The bankruptcy court's denial of Visser's motion to alter or amend the judgment is reviewed for an abuse of discretion. See State of Idaho Potato Comm'n v. G&T Terminal Pkg., Inc., 425 F.3d 708, 719 (9th Cir. 2005).
1. The Bankruptcy Court Did Not Err in Concluding that Visser's Debt to Twin Falls Staffing is Nondischargeable
An individual debtor may not discharge a debt "for willful and malicious injury by the debtor to another entity...." 11 U.S.C. § 523(a)(6). "Willful injury" and "malicious injury" are separate and distinct requirements. See Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). Additionally, if a creditor contends that a debt resulting from a breach of contract is nondischargeable under section 523(a)(6), the creditor must prove that the debtor's conduct was tortious. Lockerby v. Sierra, 535 F.3d 1038, 1040-41 (9th Cir. 2008). Conduct is tortious for purposes of § 523(a)(6) only if it constitutes a tort under state law. Id. at 1041. The Court will address these requirements in turn, beginning with willfulness.
Within the meaning of § 523(a)(6), willfulness 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). Twin Falls may establish willfulness by showing "either that the debtor had a subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct." Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1208 (9th Cir. 2001). Willfulness may be inferred from all of the facts and circumstances established. Nahman v. Jacks (In re Jacks), 266 B.R. 728, 742 (9th Cir. BAP 2001); see also Carrillo v. Su (In re Su), 290 F.3d 1140, 1146 n.6 (9th Cir. 2002) ("[T]he bankruptcy court may consider circumstantial evidence that tends to establish what the debtor must have actually known when taking the injury-producing action.").
The bankruptcy court did not err in finding that Visser inflicted a willful injury upon Twin Falls Staffing. The most damning evidence supporting this finding is the manner in which Visser left Twin Falls. When he resigned, Twin Falls had three key, top-level employees: (1) Joe Visser; (2) Stan Visser, Joe's father; and (3) Tom Welstad. Joe managed the store. Stan owned 25 percent of the company and served as its chief operating officer. Welstad owned 75 percent of the company and served as its chief executive officer, but he was not involved in day-to-day operations. "He was the money guy", and he trusted Joe and Stan to operate the business in the best interest of all involved. July 18, 2013 Oral Ruling ("Oral Ruling"), Bankr. Adv. Dkt. 75, at 12.
Toward the end of October 2009, Joe and Stan resigned, but they did not give Welstad any meaningful advance notice. Instead, they went about establishing their new business and then - just days before the new business was ready to open its doors - they drafted resignation letters. See Bankruptcy Court Findings ("Findings"), Bankr. Adv. Dkt. 58, ¶¶ 32-46, 50-51.
Joe wrote a resignation letter on Wednesday, October 28, 2009, and put it on his father's desk. Id. ¶ 51. But he knew his father would be leaving the company with him and would not notify Welstad, until the following Monday, November 2, 2009 - the same day Joe and Stan would open their new business. Stan played more or less the same game. He wrote his resignation letter on October 26 but waited until October 30 to put it in the mail, anticipating that Welstad would not receive it until the following Monday, November 2. See id. ¶ 50; Oral Ruling, at 26.
When Monday morning, November 2, 2009, dawned, Joe and Stan's new business was humming. Among other things, the new company dispatched temporary workers to Lamb Weston - formerly Twin Falls' largest, best client - for day, swing, and graveyard shifts. All of those temporary workers were former employees of Twin Falls Staffing. See Findings ¶ 35. Twin Falls Staffing's office, by contrast, was essentially closed. Stan Visser had been at the Twin Falls' building early that morning, but the doors were locked, the curtains were drawn, and the phones were being forwarded to a pager. Id. ¶ 58.
The Vissers took all these actions despite being bound by non-competition clauses with Twin Falls Staffing. Additionally, they did not arbitrarily select November 2, 2009 as the day to open their new business. This was the day Twin Falls' contract with Lamb Weston was set to expire. Id. ¶ 47.
On this record, Visser's insistence that the evidence permits just one conclusion - that he was doing nothing more than attempting to succeed in a new business venture - lacks any persuasive force. Likewise, Visser's argument that his father was the only person who may have inflicted a willful or malicious injury upon Twin Falls Staffing is not supported by the facts. Rather, on the evidence before it, the bankruptcy court correctly found that Joe Visser willfully injured Twin Falls Staffing within the meaning of § 523(a)(6).
Similarly, the bankruptcy court did not err in concluding that Visser inflicted a "malicious injury" upon Twin Falls Staffing. "A malicious' injury involves (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.'" In re Bammer, 131 F.3d at 791. "This four-part definition does not require a showing of biblical malice, i.e., personal hatred, spite, or ill-will. Nor does it require a showing of an intent to injure, but rather it requires only an intentional act which causes injury." Id.
The evidence supports the bankruptcy court's finding that Visser signed a non-competition agreement and that he was fully cognizant of the import of that agreement. Similarly, the evidence supports a finding that, despite this knowledge, Visser intentionally breached the agreement by setting up a competing business in a manner that "was carefully designed to not only injure but to cripple Twin Falls Staffing's ability to compete with his new business...." Oral Ruling, at 5.
On appeal, Visser asserts that the bankruptcy court erred in finding that he was bound by a non-competition agreement. Visser says he never signed any such agreement. But the bankruptcy court did not believe him. See id. at 13. This credibility determination is afforded great deference because the bankruptcy court, as the trier of fact, "had the opportunity to note variations in demeanor and tone of voice that bear so heavily on the listener's understanding of and belief in what is said.'" Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (quoting Anderson v. City of Bessemer, 470 U.S. 564, 575 (1985)). Moreover, Welstad testified that he personally saw Visser's original employment contract - which contained a non-competition clause - in Visser's personnel file. Findings ¶ 32; Day 1 Trial Tr., Dkt. 3-1, at 100:15-18. Welstad also testified that Twin Falls Staffing had a strict, no-exceptions policy regarding non-competition clauses. See Day 1 Trial Tr., Dkt. 3-1, at 100:5-14.
As for the document Visser signed in 2008 - a new employment agreement, without a noncompetition clause - the evidence supports the bankruptcy court's conclusion that the parties had not actually agreed to modify the terms of Visser's original employment agreement. Oral Ruling, at 15; see generally Wash. Fed. Sav. v. Van Engelen, 289 P.3d 50, 55 (Idaho 2012) ("A modification, like a contract, requires a meeting of the minds.").
In sum, the bankruptcy court did not err in finding that: (1) Visser was bound by a non-competition agreement; (2) he intentionally breached that agreement; and (3) his conduct was tortious. More broadly, the bankruptcy court did not err in finding that Visser's conduct was malicious, as the evidence easily supports a finding that ...