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In re Ward

filed*fn*: April 14, 1994.

IN RE RONALD L. WARD, DEBTOR; RICHARD HOVDESTAD, PLAINTIFF-APPELLEE,
v.
RONALD L. WARD, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the District of Arizona. D.C. No. CIV-92-102-ACM. Alfredo C. Marquez, District Judge, Presiding

Before: Reinhardt, Leavy, Circuit Judges, and McLAUGHLIN, District Judge.*fn*

MEMORANDUM

I. INTRODUCTION

This case involves the question whether an Arizona state-court declaratory judgment is sufficient to establish that a $535,000 slander judgment is a debt for a "willful and malicious injury" within the meaning of Section 523(a)(6) of the United States Bankruptcy Code. 11 U.S.C. § 523(a) (6) ("Section 523(a)(6)"). If so, the debt is not dischargeable. Id.*fn1 The district court below held that the declaratory judgment was sufficient to establish a "willful and malicious injury" and thus the debt was not dischargeable. We affirm.

II. STATE PROCEEDINGS

On January 8, 1986, Debtor Ronald L. Ward ("Ward") called the Air Force Office of Special Investigations from a Tuscon saloon.*fn2 He told them that, as an enlisted man, Creditor Richard Hovdestad ("Hovdestad") had sold military secrets acquired aboard a United States Navy nuclear submarine. Ward's accusations were false, and he retracted them after being questioned by the FBI. Ward had made up the accusations because he blamed Hovdestadt for the recent break-up of his marriage and because he wanted to get Hovdestad's "butt chewed" by his employer.

Hovdestad sued Ward in Arizona state court for slander per se. He claimed that Ward's accusations resulted in harm to his career and lost earnings. After a three-week trial, the state trial court granted a directed verdict in Hovdestad's favor. The court found that "no reasonable jury could conclude other than a slander per se was committed by the defendant." The jury awarded him $535,000 in damages. The state appellate court later affirmed the judgment in all respects.

Ward unsuccessfully sought indemnification from his insurance company, State Farm Fire & Casualty Company ("State Farm"). State Farm argued it had no duty to indemnify Ward because his action was an "intentional act" that was excluded from coverage. In a state-court declaratory action (initiated by State Farm against both Ward and Hovdestad), the trial court agreed and granted summary judgment in State Farm's favor. The state appellate court affirmed, holding that Ward's actions were intentional and that he "sought to harm Hovdestad when he falsely accused him of dealing in military secrets with a foreign power."

III. FEDERAL PROCEEDINGS

Ward declared bankruptcy and sought to have the slander judgment discharged. Hovdestad disagreed, arguing that the judgment was for a "willful and malicious injury" and thus was non-dischargeable under Section 523(a)(6). The Bankruptcy Court entered judgment in favor of Ward and discharged the debt. The court reasoned that because a slander judgment did not require a finding of intentional harm under Arizona law, Ward's act could not have been "willful and malicious" within the meaning of Section 523(a)(6). The court also reasoned that because the declaratory judgment was "considered only in the context of insurance coverage and policy exclusions," it could not be used to show "willful and malicious injury" within the meaning of Section 523(a)(6).

The District Court reversed. It held that, under the Arizona doctrine of collateral estoppel, the Bankruptcy Court was bound by the State Farm declaratory judgment. Because the declaratory judgment found that Ward had "sought to harm" Hovdestad, the District Court concluded that Ward's actions amounted to "willful and malicious injury" within the meaning of Section 523(a)(6). Accordingly, the court held that Hovdstad's slander judgment was non-dischargeable. Ward filed a timely appeal to this court.

IV. ANALYSIS

Section 523(a)(6) of the Bankruptcy Code provides that all debts for "willful and malicious injury" to another entity are not dischargeable.*fn3 Under Ninth Circuit law, a creditor can establish "willful and malicious injury" by showing that the debtor acted with a "specific intent to injure." In re Cecchini, 780 F.2d 1440, 1443 (9th Cir. 1986). We agree with the district court that the Arizona state-court declaratory judgment established that Ward acted with a "specific intent to injure" Hovdestad. We ...


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