First Weber Group, Inc. v. Horsfall

The circuit court affirmed the district court's ruling, but not without comment. The appeal was on several grounds, but this summary focuses on the primary 523(a)(6) analysis, which includes lengthy discussion of the interplay between state and bankruptcy court evidentiary rulings. The circuit court found that both courts erred in failing to properly apply issue preclusion to the first and third elements of section 523(a)(6) - injury and maliciousness. In finding conversion and damages, the state court necessarily concluded that First Weber had been injured on the intentional tort claims, had interfered with First Weber's contractual rights, and that Horsfall acted maliciously by through conscious disregard of his duties and First Weber's rights. The circuit court disagreed, however, that the issue of "willfulness" was fully litigated because the state law claims did not require a finding of "intent" to injure. Therefore, there was no issue preclusion. On that issue, the circuit court reviewed the record and concluded that the bankruptcy court did not err in finding that Horsfall credibly demonstrated that he did not intend to harm his former agency, and as a result, the debt was not excepted from discharge under section 523(a)(6).
Procedural context:
On appeal from the United States District Court for the Western District of Wisconsin (Case no. 11-cv-506) (William M. Conley, Chief Judge).
Defendant Horsfall, a Wisconsin real estate agent for plaintiff First Weber, brokered an offer from a buyer prior to the expiration of First Weber's exclusive right to sell contract with seller. The offer was not accepted, and Horsfall left First Weber to form his own agency. Under the seller's listing contract, First Weber retained the right to the commission on the property for a year from the date of contract if the deal closed between this buyer and seller. After leaving First Weber, Horsfall resurrected the transaction through his new agency, and the sale closed well within the year of exclusivity under the First Weber listing agreement. Horsfall's company took the commission from the seller. Later, First Weber sued Horsfall and seller for the commission asserting breach of contract, tortious interference, and unjust enrichment under Wisconsin law. Seller had discharged his debts in a prior chapter 7 proceeding, and assigned his claims and defenses to First Weber. The Wisconsin trial court entered summary judgment against Horsfall on all counts in the amount of $10,978.91, finding without elaboration that Horsfall had "converted" First Weber's property. Horsfall filed chapter 7, First Weber filed a section 523(a)(6) action asserting willful and malicious injury, arguing on summary judgment that the state court judgment against Horsfall was preclusive. The bankruptcy court disagreed, held a trial, and found that Horsfall believed his obligation to First Weber had ended when he left First Weber and did not intend to defraud First Weber. First Weber appealed. The district court affirmed the bankruptcy court's ruling.
Wood, Manion, and Tinder (Circuit Judges).

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