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In re Kantos

United States Court of Appeals, Eighth Circuit

January 9, 2018

In re: Daniel Thomas Kantos, As surety for Cash Flow Management, Inc. Debtor
Daniel Thomas Kantos Defendant-Appellee Dering Pierson Group, LLC Plaintiff- Appellant

          Submitted: November 28, 2017

         Appeal from United States Bankruptcy Court for the District of Minnesota - St. Paul.

          Before NAIL, SCHERMER and DOW, Bankruptcy Judges.


         In the bankruptcy case of Daniel Thomas Kantos ("Debtor"), Dering Pierson Group, LLC ("DPG") filed suit seeking a determination that its claim against Debtor is nondischargeable. The Bankruptcy Court[1] held that DPG had not sustained its burden of proving that Debtor had willfully or maliciously caused an injury to DPG under § 523(a)(6). It also concluded that collateral estoppel did not apply because the state court did not litigate these issues, did not deal with DPG's other claims of defamation and fraud, and had not entered a final judgment. It therefore concluded the claim was not nondischargeable pursuant to 11 U.S.C. § 523(a)(6). DPG appeals. For the reasons that follow, we AFFIRM.


         Debtor is the president of Cash Flow Management, a licensed debt collector which prepared mechanic's liens for businesses in the construction industry and others. DPG is a general contracting and construction management company that contracted with Bass Lake Hills Townhomes Limited Partnership, LLP, to furnish labor and material for its project. Thereafter, DPG subcontracted with Minnesota Valley Concrete ("MVC") to provide labor and material for the project. MVC subsequently assigned the work to Rockstar Design LLC, which DPG claimed put MVC in default because Rockstar was performing work without written approval. In March 2015, Rockstar retained Debtor to prepare a mechanic's lien to be served on the property and filed at the county recorder's office. A representative of Rockstar provided Debtor with the necessary information to complete the mechanic's lien. The statement contains a sworn affidavit by Debtor that he "had knowledge of the facts herein and [was] competent to testify." Debtor later testified that he did not have first-hand knowledge of the facts stated in the mechanic's lien statement, but he believed he had the authority to sign it based on the information he was given by Rockstar. He also testified his intent in filing was to ensure Rockstar had a secured position, not to cause injury to anyone, that he had signed more than ten mechanic's lien statements and that his actions were done in the ordinary course of his business and consistent with what he had been doing for many years. He assumed the facts were true and did not know there was any incorrect information provided.

         On March 11, 2015, DPG contested the validity of the Rockstar mechanic's lien and demanded Debtor release the lien. Debtor testified that once he became aware the facts were not accurate that he immediately signed a release on March 18, 2015. On April 7, 2015, DPG filed a state court lawsuit against Debtor regarding the mechanic's lien filed by Debtor alleging unauthorized practice of law and other counts including fraud and defamation. The state court granted DPG judgment on the count alleging unauthorized practice of law but did not issue any ruling on DPG's claims of fraud and defamation, nor did it establish damages. DPG amended the complaint and the matter was pending when Debtor filed bankruptcy.

         DPG filed an adversary action in Debtor's bankruptcy case seeking denial of a discharge of its claim against Debtor pursuant to §523(a)(6). The Bankruptcy court found that DPG did not establish that Debtor willfully caused an injury to DPG, or that Debtor maliciously caused an injury to DPG pursuant to §523(a)(6). The Bankruptcy Court also found that collateral estoppel did not apply but that issue is not on appeal[2].


         We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. In re Bullard, 449 B.R. 379 (B.A.P. 8th Cir. 2011). "The bankruptcy court's determination of whether a party acted willfully and maliciously inherently involves inquiry into and finding of intent, which is a question of fact." Waugh v. Eldridge (In re Waugh), 95 F.3d 706, 710 (8th Cir.1996) (citation omitted). "A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quoting U.S. v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). We give due regard to the bankruptcy court's opportunity to judge the credibility of witnesses. Fed.R.Bankr.P. 8013.

         We note that DPG contends that the issues on appeal constitute mixed findings of law and fact, although it notes that to the extent the bankruptcy court's determinations were based on factual findings they are reviewed for clear error and to the extent they were based on an interpretation of §523(a)(6) they are subject to de novo review. DPG does not cite any legal authority for the proposition that mixed findings and conclusions are involved, nor does it clearly address the implications for the standard of review in this case. Appellant does not argue that the bankruptcy court interpreted §523(a)(6) incorrectly and applied the incorrect law; therefore, the issue must be the lower court's fact finding and the appropriate standard of review is necessarily one of clear error. See Ford Motor Credit Co. v. Owens, 807 F.2d 1556 (11th Cir. 1987)(applying the clearly erroneous standard when reviewing lower court's ruling on evidence as to willful and malicious injury under §523(a)(6)).


         11 U.S.C. § 523(a)(6) reads in pertinent part "A discharge... does not discharge an individual debtor from any debt...for willful and malicious injury by the debtor to another entity or the property of another entity." In the Eighth Circuit, the terms "willful" and "malicious" are two distinct elements, each of which must be shown to establish an exception to discharge. ...

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