United States District Court, E.D. Virginia, Richmond Division
BRIAN K. FAILON, Appellant,
COMPASS CHEMICAL INTERNATIONAL, LLC, Appellee.
A. Gibney, Jr. United States District Judge
K. Failon appeals the order of the United States Bankruptcy
Court for the Eastern District of Virginia (the
"Bankruptcy Court") holding nondischargeable a debt
that Failon owes to Compass Chemical International, LLC
("Compass"). Because the Bankruptcy Court correctly
applied the facts found in the litigation from which the debt
arose to the elements of nondischargability, the Court
AFFIRMS the decision of the Bankruptcy Court.
Court will provide only a summary of the facts in this case,
as the opinion of the Bankruptcy Court included a thorough
recitation of the facts. Compass Chems. Int'l, LLC v.
Failon (In re Failon), Adv. Pro. No. 11-03229-KLP, 2016
WL 1238912, at *1-8 (Bankr. E.D. Va. Mar. 29, 2016).
worked for Compass from 1999 through July 2009. About a month
before his departure, Compass sent Failon a new employment
agreement that reduced his base salary by thirty percent. A
few days later, Failon met with a competitor of Compass about
working with the competitor in the future. A few days after
that, Failon wiped the hard drive of a Compass-owned
computer. He also instructed that the statement from the
company doing the wiping not include the wipe of the
hard drive. A few weeks later, Failon rejected the new
employment agreement and returned the Compass-owned computer.
Failon then formed a new company and began to solicit clients
of Compass. In November 2009, Compass sued Failon and the new
company in Georgia (the "Georgia Litigation").
October 2010, Compass filed a motion for spoliation sanctions
in the Georgia Litigation based on (1) Failon having wiped
the hard drive of a Compass-owned computer prior to his
departure, and (2) his inconsistent testimony on the issue
during discovery. The district court referred the motion to a
magistrate judge who conducted a three-day evidentiary
hearing. In February 2011, the magistrate judge issued his
report and recommendation (the "Spoliation
Report"). The Spoliation Report found that Failon had
engaged in spoliation of evidence and had lied about it. The
Report recommended that the district court sanction Failon.
In reaching this decision, the magistrate judge applied a
five-factor test that included a finding that Failon had
acted in bad faith. The district court approved the
Spoliation Report and directed Failon to pay Compass $123,
835.95 (the "Spoliation Damages").
filed for bankruptcy in June 2011. In September 2011, Compass
filed a complaint against Failon in the Bankruptcy Court,
initiating an adversary proceeding. In June 2015, Compass
filed a partial motion for summary judgment in the adversary
proceeding seeking summary judgment as to the dischargability
of the Spoliation Damages. On March 29, 2016, the Bankruptcy
Court granted the partial motion, holding the Spoliation
Damages nondischargeable under 11 U.S.C. § 523(a)(6). In
so holding, the Bankruptcy Court applied the factual findings
from the Spoliation Report to the elements of §
523(a)(6). Failon appealed.
523(a)(6) excludes from discharge any debt "for willful
and malicious injury by the debtor to another entity or to
the property of another entity." Importantly, the words
"willful" and "malicious" modify the word
"injury." Kawaauhau v. Geiger, 523 U.S.
57, 61 (1998). This indicates "that nondischargability
takes a deliberate or intentional injury, not merely
a deliberate or intentional act that leads to
injury." Id. (emphasis in original). The Fourth
Circuit has phrased this inquiry as whether the debtor
intended to injure the creditor (or the creditor's
property), as opposed to engaging in an intentional act that
injured the creditor. Duncan v. Duncan (In re
Duncan), 448 F.3d 725, 729 (4th Cir. 2006).
case, Failon intended to injure Compass when he wiped the
computer. Failon acted deliberately and intentionally, and he
knowingly disregarded Compass's rights. Further, the
facts show that Failon had intent to injure Compass with
these actions. Accordingly, the Spoliation Damages awarded in
the Georgia Litigation because of these actions are not
dischargeable in bankruptcy under § 523(a)(6).
reasons stated, and for the reasons stated by the Bankruptcy
Court, Compass Chems. Int'l, LLC v. Failon (In re
Failon), Adv. Pro. No. 11-03229-KLP, 2016 WL 1238912
(Bankr. E.D. Va. Mar. 29, 2016), the Court AFFIRMS the
judgment of the Bankruptcy Court.
Court will enter an appropriate order.
Clerk send a copy of this Order to ...