Guerra & Moore Ltd., L.L.P. v. Marco Cantu

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Guerra & Moore Ltd., L.L.P. v. Marco Cantu

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Case: 09-41084

Document: 00511193919

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Date Filed: 08/04/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
August 4, 2010 N o . 09-41084 S u m m a r y Calendar Lyle W. Cayce Clerk

I n the Matter of: MARCO A. CANTU, Debtor ----------------------------------------------------------------------G U E R R A & MOORE LTD, LLP, Appellant v. M A R C O A. CANTU, Appellee

Appeal from the United States District Court fo r the Southern District of Texas U .S .D .C . 7:08-CV-379

B e fo r e KING, DAVIS, and CLEMENT, Circuit Judges. P E R CURIAM:* G u e r r a & Moore, LTD, LLP, appeals the district court's judgment, which a ffir m e d the bankruptcy court's judgment permitting the discharge of Guerra &

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

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Date Filed: 08/04/2010

No. 09-41084 M o o r e 's state court judgment against Marco A. Cantu. Guerra & Moore argues t h a t the state court's judgment--that Cantu tortiously interfered with its c o n t r a c t-- e s t a b lis h e s a "willful and malicious injury" that, under 11 U.S.C. § 523(a)(6), bars discharge of the judgment in Cantu's bankruptcy. For the fo llo w in g reasons, we AFFIRM. I. BACKGROUND I n May 2007, Guerra & Moore, LTD, LLP, a law firm, filed a lawsuit a g a in s t Marco A. Cantu, a rival lawyer, in Texas state court. Guerra & Moore a lle g e d that Cantu had, inter alia, tortiously interfered with both a contract and a prospective contract that Guerra & Moore had with clients. See Cantu v. G u e r r a & Moore, LLP, -- S.W.3d --, --, 2009 WL 3460321 at **1­2 (Tex. A p p .-- S a n Antonio 2009, no pet.). Following trial, the jury made findings in fa v o r of Guerra & Moore and awarded $1.6 million in actual damages. Id. at *2. Specifically, the jury found that: (1) "Mark Cantu intentionally interfere[d] with G u e r r a & Moore[']s contract with [a client]"; (2) "Mark Cantu intentionally in t e r fe r e [d ] with the reasonable probability that Guerra & Moore . . . would have e n te r e d into a contractual relationship with [a client], by committing an u n la w fu l act that was a substantial factor in preventing the relationship from o c c u r r in g " ; and (3) an award of $1.6 million would "fairly and reasonably c o m p e n s a te Guerra & Moore . . . for its damages . . . proximately caused by [C a n t u 's ] intereference." See id. However, the jury did not answer whether it " f[o u ]n d by clear and convincing evidence that the harm to Guerra & Moore . . . r e s u lt e d from malice," where malice was defined to mean "a specific intent by [ ] Cantu to cause substantial injury to Guerra & Moore." See id. Before the state court could enter judgment, Cantu filed a Chapter 11 b a n k r u p t c y petition on May 6, 2008, in the Bankruptcy Court for the Southern D is t r ic t of Texas. The bankruptcy court granted relief from the automatic stay t o enable the state court to enter judgment in favor of Guerra & Moore, which 2

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No. 09-41084 t h e state court did on August 4, 2008. The same day, Guerra & Moore initiated a n adversary proceeding in the bankruptcy court, contending that the state court ju d g m e n t was excepted from discharge under 11 U.S.C. § 523(a)(6)1 because it e s t a b lis h e d a "willful and malicious injury." Guerra & Moore moved for

s u m m a r y judgment, arguing that the jury's finding of intentional interference w it h its contract was sufficient to establish an exception to discharge under § 523(a)(6) and that collateral estoppel prevented Cantu from relitigating the ju r y 's findings. In a thoughtful opinion, the bankruptcy court considered Guerra & M o o r e 's arguments and denied summary judgment, concluding that the state c o u r t judgment did not, by itself, establish a "willful and malicious injury." Following this ruling, Guerra & Moore stipulated that it would submit no f u r t h e r evidence of "willful and malicious injury" beyond the state court ju d g m e n t , and, given this stipulation, the bankruptcy court entered final ju d g m e n t in favor of Cantu. Guerra & Moore appealed to the District Court for t h e Southern District of Texas, which (also in a thoughtful opinion) similarly c o n s id e r e d and rejected its contentions, entering final judgment in favor of C a n t u . Guerra & Moore now appeals. II. LEGAL STANDARDS " W e apply the same standard of review as the district court, reviewing the b a n k r u p t c y court's findings of fact for clear error and conclusions of law de novo."

Section 523 provides, in relevant part: (a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-- ... (6) 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).

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No. 09-41084 L a u g h lin v. Nouveau Body & Tan, LLC (In re Laughlin), 602 F.3d 417, 421 (5th C ir . 2010) (quotation marks omitted). "The debtor's entitlement to a discharge m u s t be determined by federal, not state, law." Id. (quotation marks omitted). "The exceptions [to discharge] are construed strictly against the creditor and lib e r a lly in favor of the debtor." Id. (quotation marks omitted). "We . . . review d e novo a court's decision to give full faith and credit to a state court judgment." Miller v. J.D. Abrams Inc. (In re Miller), 156 F.3d 598, 601 (5th Cir. 1998) (q u o ta t io n marks omitted); accord Raspanti v. Keaty (In re Keaty), 397 F.3d 264, 2 6 9 (5th Cir. 2005) ("A bankruptcy court's decision to give preclusive effect to a s t a t e court judgment is [reviewed] de novo."). I I I . DISCUSSION T h e parties disagree as to whether the state court judgment conclusively e s t a b lis h e s the requisite elements to except discharge under § 523(a)(6). Specifically, Guerra & Moore argues that "[t]he injury in this case is the in t e r fe r e n c e with the contract, not the money damages awarded to compensate fo r same" and that this "injury," found by the jury to be intentional, "establishes t h a t [Cantu]'s conduct was willful and malicious."2 We disagree. A . Willful and Malicious Injury "S ection 523(a)(6) of the Bankruptcy Code excepts from discharge any debt in c u r r e d for willful and malicious injury by the debtor to another entity." Keaty, 3 9 7 F.3d at 269. We have "aggregated `willful and malicious' into a unitary c o n c e p t" and held that "`an injury is "willful and malicious" where there is either a n objective substantial certainty of harm or a subjective motive to cause harm.'" I d . at 270 (quoting Miller, 156 F.3d at 606); accord Williams v. IBEW Local 520

Guerra & Moore focuses its arguments on the state court's finding of tortious interference with its contract and not on the judgment for tortious interference with its prospective relationship, though it contends that the analysis is similar. We similarly focus our analysis on the tortious interference with a contract judgment and use "interference with contract" to refer to both actions, except as noted or made apparent from context.

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No. 09-41084 (I n re Williams), 337 F.3d 504, 509 (5th Cir. 2003) (discussing these standards). "To prevail under § 523(a)(6), a creditor must prove by a preponderance of the e v id e n c e that the debt is not dischargeable." Keaty, 397 F.3d at 270. "[P]arties may invoke collateral estoppel in certain circumstances to bar r e litig a t io n of issues relevant to dischargeability [and] collateral estoppel can p r o v id e an alternate basis to satisfy the elements of § 523(a)(6)." Id. (quotation m a r k s and alterations omitted). Here, because the judgment was rendered by a Texas state court, we apply Texas rules of issue preclusion. See Miller, 156 F .3 d at 601. "Under Texas law, collateral estoppel bars relitigation of any u lt im a te issue of fact actually litigated and essential to the judgment in a prior s u it , regardless of whether the second suit is based upon the same cause of a c t io n ." Id. (quotation marks omitted). We first note that the fact that "tortious interference with contract" is an in t e n t io n a l tort is not dispositive of our § 523(a)(6) analysis. See Williams, 337 F .3 d at 509 ("Despite similarities in the language used to describe an injury u n d e r Section 523(a)(6) and intentional torts, Section 523(a)(6) creates a n a r r o w e r category of tortious conduct."). Indeed, we have noted that "[m]erely b e c a u s e a tort is classified as intentional does not mean that any injury caused b y the tortfeasor is willful." Miller, 156 F.3d at 604. Illustrating this distinction, w e recognized in Miller that, under Texas law, "misappropriation of proprietary in fo r m a t io n and misuse of trade secrets [we]re wrongful [acts] regardless of w h e t h e r injury is substantially certain to occur." Id. However, we declined to fin d that the wrongfulness of those intentional acts itself established the "injury" r e q u ir e d by § 523(a)(6). See id. ("Misuse of trade secrets is not precisely like s t e a lin g funds from a till, because the tortfeasor's gain is not inevitably a loss to t h e legal owner of the secret."). We have similarly declined to find the requisite " in ju r y " on the sole basis of a tortious act in other contexts, instead asking w h e t h e r there was either an objective substantial certainty of harm or a 5

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No. 09-41084 su bjectiv e motive to cause harm that established a "willful and malicious injury." See Texas v. Walker, 142 F.3d 813, 823­24 (5th Cir. 1998) (negligence, breach of c o n t r a c t, and conversion torts do not necessarily involve an intentional injury); a c c o r d Keaty, 397 F.3d at 274 (looking to the state court's specific findings to d e t e r m in e whether debtor's "motive in filing [a] frivolous claim was to injure [the c r e d it o r ]" in determining whether a court-ordered sanction was dischargeable); s e e also Rain Bird Corp. v. Milton (In re Milton), 355 B.R. 575, 581­82 (Bankr. N .D . Miss. 2006) (relying on findings that debtor's actions were "willful, in t e n t io n a l, and malicious" and "calculated to cause damage to [creditor's] b u s in e s s " when assessing whether tortious interference with a contract under M is s is s ip p i law established a "willful and malicious injury"). We think that Cantu's tortious "interference" with Guerra & Moore's c o n t r a c t is not, by itself, a sufficient "injury" for purposes of the § 523(a)(6) a n a ly s is . Thus, though the jury found that Cantu intentionally interfered with G u e r r a & Moore's contract, that finding, standing alone, does not establish a " w illfu l and malicious injury" so as to except the state court judgment from d is c h a r g e . Instead, we must look to "the particularized findings of the jury," in o r d e r to determine whether Guerra & Moore has shown that Cantu's tortious in t e r fe r e n c e with its contract entailed "either an objective substantial certainty o f harm or a subjective motive to cause harm." Miller, 156 F.3d at 602. 1. Objective Substantial Certainty of Harm We first consider whether Cantu's "acts were substantially certain to r e s u lt in injury to [Guerra & Moore]." See Miller, 156 F.3d at 604. Under Texas la w , "A party alleging tortious interference must prove four elements to sustain it s claim: (1) that a contract subject to interference exists; (2) that the alleged act o f interference was willful and intentional; (3) that the willful and intentional a c t proximately caused damage; and (4) that actual damage or loss occurred." ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997). 6

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No. 09-41084 " I n t e n t io n a l interference does not require intent to injure, only that the actor d e s ir e s to cause the consequences of his act, or that he believes that the c o n s e q u e n c e s are substantially certain to result from it." Sw. Bell Tel. Co. v. J o h n Carlo Tex., Inc., 843 S.W.2d 470, 472 (Tex. 1992) (quotation marks o m itte d ). "Consequence," in this context, refers to the "interference," not

n e c e s s a r ily the injury. See id. (noting that "jury did not find that [defendant] d e s ir e d to interfere with [plaintiff's] contract or believed that interference was s u b s t a n t ia lly certain to result from it" (emphasis added)).3 H e r e , the jury found that Cantu intentionally interfered with Guerra & M o o r e 's contractual relations and that this interference "proximately caused" d a m a g e s of $1.6 million. However, the jury's determination that the "willful and in t e n t io n a l act proximately caused [Guerra & Moore's] damages" does not e s t a b lis h that the "acts were substantially certain to result in injury to [Guerra & Moore]" for the purposes of the § 523(a)(6) analysis. Miller, 156 F.3d at 604 (" [T h e debtor's] conduct, however, could still be `willful' under the objective s t a n d a r d , if his acts were substantially certain to result in injury to [the c r e d it o r ]. The state court jury determined only that injury was proximately c a u s e d by [the debtor's] acts, a less demanding standard than `substantial c e r t a in t y .'" (emphasis added)). As such, Guerra & Moore, by failing to produce

The elements of a claim for tortious interference with prospective contract are similar and do not require specific examination for the purposes of our inquiry here. The elements of a claim for tortious interference with prospective contract are: (1) a reasonable probability that the parties would have entered into a contractual relationship; (2) an "independently tortious or unlawful" act by the defendant that prevented the relationship from occurring; (3) the defendant did such act with a conscious desire to prevent the relationship from occurring, or it knew that the interference was certain or substantially certain to occur as a result of the defendant's conduct; and (4) the plaintiff suffered actual harm or damage as a result of the defendant's interference. "Independently tortious" means conduct that would violate some other recognized tort duty. Johnson v. Baylor Univ., 188 S.W.3d 296, 304 (Tex. App.--Waco 2006, pet. denied) (citations omitted).

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No. 09-41084 e v id e n c e beyond the state court record of judgment, has not shown by a p r e p o n d e r a n c e of the evidence that Cantu's conduct met the objective prong of t h e "willful and malicious injury" inquiry. See id. at 606 (remanding for

fa c t fin d in g s to determine whether "[the debtor's] actions were at least s u b s t a n t ia lly certain to result in injury to [the creditor]," despite the state jury's fin d in g s that the debtor's actions proximately caused injury to the creditor). 2. Subjective Motive to Cause Harm S im i l a r ly , Guerra & Moore has not established "that [Cantu] had the s u b je c t iv e motive to cause harm." Id. at 606. The state court jury declined to a n s w e r whether Cantu acted with "malice," defined to mean "a specific intent by . . . Cantu to cause substantial injury to Guerra & Moore." As such, the state c o u r t judgment, by itself, does not establish that Guerra & Moore acted with the " s u b je c t iv e motive to cause harm." Cf. id. at 604 ("If the subjective standard a lo n e were the standard, issue preclusion would give [the debtor] victory because t h e jury found that he did not act with `malice.'"). Because Guerra & Moore s t ip u la t e d that the record of the state court judgment was its sole evidence c o n c e r n in g "willful and malicious injury," we are compelled to conclude that G u e r r a & Moore has not "prove[n] by a preponderance of the evidence" that C a n t u 's conduct met the subjective standard. See Walker, 142 F.3d at 824 (r e m a n d in g for a factfinding to determine whether debtor met the subjective s t a n d a r d when the state court judgment did not establish the fact). I I I . CONCLUSION A c c o r d in g ly , given that the record of the state court judgment established n e ith e r the "objective" nor the "subjective" prong of the "willful and malicious in ju r y " inquiry, Guerra & Moore has not shown that its judgment against Cantu fo r tortious interference with contract should be excepted from discharge under § 523(a)(6). We AFFIRM the judgments of the bankruptcy and district courts. AFFIRMED. 8