The 2nd Circuit Court of Appeals has ruled that a "defense costs" sanction against an attorney is not dischargeable in the attorney's bankruptcy. James Jay Ball, the debtor/attorney, had represented two plaintiffs in a lawsuit brought against A.O. Smith Corporation in Louisiana federal court. The Judge in the Louisiana case, Judge Tucker L. Melancon, granted summary judgment for A.O. Smith based on limitations, after which A.O. Smith moved for sanctions. After a two-day sanctions hearing, Judge Melancon found that sanctions were justified under 28 U.S.C. ?1927 and Rule 11 of the Federal Rules of Civil Procedure because the plaintiffs' claims were "so obviously [barred] that under the circumstances it was unreasonable to bring the suit in the first place." Ball filed for bankruptcy in February 2002, and A.O. Smith sought to have the sanctions judgment declared nondischargeable under Bankruptcy Code ?523(a)(6), which requires a willful and malicious injury by the debtor. The Supreme Court has determined that malice under this section means "wrongful and without just cause or excuse." The 2nd Circuit reasoned that by imposing sanctions pursuant to ?1927, Judge Melancon found Ball's conduct to have been both unreasonable and for an improper purpose. Because conduct that is undertaken "without just cause or excuse" (malice under ?523(a)(6)) is "unreasonable" (Judge Melancon's finding) and "acts that are performed for an improper purpose" (malice under ?523(a)(6)) are "wrongful" (Judge Melancon's finding), the 2nd Circuit concluded that Judge Melancon's findings satisfied the Code's malice requirements. Therefore, applying collateral estoppel, the sanctions judgment was nondischargeable. The Court did not discuss the "willful" element of ?523(a)(6) nor opine on whether or not willfulness is required (in addition to malice) for a debt to be determined nondischargeable under this section. The full opinion can be found on the Court's website at http://www.ca2.uscourts.gov/ Leslie Copyright © All Rights Reserved