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Summarizing by Amir Shachmurove

First American Title Insurance v. Michael Smith

Case Type:
Case Status:
BAP No. UT-19-035 (10th Circuit, Aug 18,2020) Published
A willful and malicious injury, for purposes of § 523(a)(6), requires proof that the injury was both willful and malicious. To be willful, the injury must result from a deliberate or intentional action that leads to injury that the debtor intended to cause harm. To be malicious, the debtor must act (i) in a wrongful manner (i.e., negligence is not sufficient) and (ii) intending to cause harm or understanding that harm is "substantially certain" to result from a debtor's action.
Procedural context:
The debtor appealed the bankruptcy court's order finding that a judgment entered after a trial in federal court was nondischargeable under §523(a)(6).
Michael Smith, the debtor, is an attorney who worked for a title insurance company (Equity Title Insurance Company) for 22 years. At Equity, Smith became the Chief Operating Officer and the General Counsel. Smith signed an employment agreement that included a non-compete clause and prohibited Smith from soliciting Equity's employees upon Smith's separation from Equity. First American Title Insurance Company and First American Title Company, LLC (“First American”), purchased a controlling interest in Equity and merged with Equity. First American changed Smith’s role to underwriting counsel. As an attorney for the First American, Smith owed First American a fiduciary duty. In 2015, Smith resigned from First American and, with three other individuals, opened a competing title insurance company, Northwest Title. Northwest hired 27 former First American employees, who brought their clients with them. First American sued Smith and Northwest in federal court and obtained a multimillion dollar judgment against both Smith and Northwest. At trial, it was found that Smith breached his non-solicitation agreement with Equity, which was enforceable by First American, and that Smith's breach of his fiduciary duty to First American was willful and malicious or with knowing and reckless indifference. Smith filed a chapter 7 bankruptcy petition. First American sought to have its judgment against Smith excepted from discharge under § 523(a)(6). The bankruptcy court made numerous findings of fact, including a finding that Smith intentionally concealed his involvement with Northwest from First American while he was still an attorney employed at First American and that Smith knew that his actions were inconsistent with his legal and ethical duties to First American.
MICHAEL, SOMERS, and JACOBVITZ, Bankruptcy Judges

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