Sanders v. Vaughn

• Court: Court of Appeals for the Tenth Circuit
• Decided: March 29, 2000
• Docket: 99-6396
• Status: Unpublished

Opinion

F I L E D United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS MAR 29 2000 TENTH CIRCUIT PATRICK FISHER Clerk

In re: JAMES H. SANDERS, JR.,

Debtor. _______________

JAMES H. SANDERS, JR., No. 99-6396 (D.C. No. CIV-98-1765-T) Appellant, (Western District of Oklahoma) v.

ROBERT M. VAUGHN, JR.,

Appellee.

ORDER AND JUDGMENT *

Before BALDOCK, HENRY and LUCERO, Circuit Judges.

James H. Sanders, Jr., appearing pro se, challenges the district court’s

affirmance of a decision of the bankruptcy court not to exempt Sanders’s debt to

plaintiff-appellee Robert M. Vaughn, Jr., from discharge pursuant to 11 U.S.C.

* The case is unanimously ordered submitted without oral argument pursuant to Fed. R. App. P. 34(a)(2) and 10th Cir. R. 34.1(G). This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. § 523(a)(6). Exercising jurisdiction pursuant to 28 U.S.C. §§ 158(d) & 1291, we

affirm the judgment of the district court.

In March 1994 Sanders hired Vaughn as his attorney on a contingency basis

to represent him before the Internal Revenue Service (“IRS”) for the purpose of

securing a tax refund for the years 1988-1990. The agreement between Sanders

and Vaughn gave Vaughn the power of attorney in the refund action and

stipulated that refund checks would be sent to Vaughn as Sanders’s attorney.

After learning the IRS was willing to offer him $30,000 in settlement of the

refund dispute, in February 1995 Sanders wrote a letter to the IRS informing the

agency that he was revoking Vaughn’s power of attorney. Several days later,

after calling the IRS regarding Sanders’s refund action, Vaughn was informed by

IRS revenue agent Kathy Bird that Sanders had revoked his power of attorney and

that she could not speak with him.

On March 10, 1995, the IRS sent a refund checks in the amount of

$35,927.34 to Sanders, care of Vaughn. On April 5, 1995, Sanders completed a

“Taxpayer Statement Regarding Refund”, stating he did not receive the refund

checks sent by the agency. The IRS thereupon stopped payment on the checks

sent to Vaughn and issued replacement checks, sending those checks directly to

Sanders.

-2- On April 10, 1995, in a telephone conversation between the two, Sanders

told Vaughn he owed him nothing and was not going to pay Vaughn’s

contingency fee. Vaughn filed suit against him in the District Court of Oklahoma

County three days later, seeking an attorney’s lien with interest and costs. The

court entered judgment for Vaughn. Seeking to collect the debt Sanders—who

had by now filed for bankruptcy—owed him as a result of the judgment, Vaughn

instituted an adversary proceeding in the United States Bankruptcy Court for the

Western District of Oklahoma in April 1998 under 11 U.S.C. § 523(a)(6), and a

trial was held on the narrow issue of whether Sanders’s debt fell under that

statute. 1

The bankruptcy court, after trial, found Sanders “learned that the refunds

were forthcoming and decided to beat Vaughn out of the fee by canceling the

power of attorney and retaining the full amount of the refunds to himself.”

Vaughn v. Sanders (In re Sanders), Adversary Proceeding 98-1157-BH, at 2

(Bankr. W.D. Okla. Oct. 14, 1998). The court held that, because this was “an act

deliberately intended to harm Vaughn by avoiding his contractual right to the

contingent fee,” it was “willful” and “malicious” under 11 U.S.C. § 523(a)(6),

thereby exempting Sanders’s debt to Vaughn from discharge.

1 Vaughn also relied on 11 U.S.C. § 523(a)(4). The court tried that claim as well, but ultimately rested its holding on 11 U.S.C. § 523(a)(6).

-3- Sanders appealed to the district court, alleging six claims of error, to the

effect that the bankruptcy court erroneously found “willful and malicious injury”

under 11 U.S.C. § 523(a)(6) in light of the facts before it. The district court

affirmed the judgment of the bankruptcy court, and this appeal followed.

“We review legal determinations by the bankruptcy court de novo, while we

review its factual findings under the clearly erroneous standard.” Osborn v.

Durant Bank & Trust Co., 24 F.3d 1199, 1203 (10th Cir. 1994) (citation omitted).

“It is especially important to be faithful to the clearly erroneous standard when

the bankruptcy court’s findings have been upheld by the district court.” Id.

(citation omitted).

Sanders argues that under Kawaauhau v. Geiger, 523 U.S. 57 (1998), he did

not cause Vaughn “willful and malicious injury” pursuant to 11 U.S.C.

§ 523(a)(6). In support of that contention, he first argues, as a factual matter, that

he did not have the intent to injure Vaughn’s proprietary interest in receiving his

contingency fee and that he could not have intended to bilk Vaughn of his interest

in an attorney’s lien because such a lien did not exist until Vaughn filed suit

against him in the District Court of Oklahoma County. Rather, Sanders claims, he

fired Vaughn because the latter failed to appear at a meeting scheduled between

Sanders and the IRS, and the bankruptcy court committed reversible error by not

crediting Sanders’s version of events.

-4- We disagree. “A finding of fact is not clearly erroneous unless it is without

factual support in the record, or if the appellate court, after reviewing all the

evidence, is left with the definite and firm conviction that a mistake has been

made.” Southern Colo. MRI, Ltd. v. Med-Alliance, Inc., 166 F.3d 1094, 1099

(10th Cir. 1999) (internal quotations and citation omitted). Moreover, “when a

trial judge’s finding is based on his decision to credit the testimony of one of two

or more witnesses, each of whom has told a coherent and facially plausible story

that is not contradicted by extrinsic evidence, that finding, if not internally

inconsistent, can virtually never be clear error.” Anderson v. Bessemer City, 470

U.S. 564, 575 (1985) (citations omitted). In the present case, the bankruptcy

court determined that Sanders’s proffered explanations for his actions were not

credible. The court stated,

Frankly, it looked like [Sanders] figured out he was going to get these refunds, about $30,000. ‘Well before I get them, I’m going to beat the lawyer out of his fees.’ That’s what it looks like.

(II R. at 57.) That is a credibility determination we may not disturb on appeal.

See Anderson, 470 U.S. at 575. Whether or not the attorney’s lien came into

being before Vaughn filed suit, the evidence before the bankruptcy court was

amply sufficient to conclude Sanders was attempting to bilk Vaughn out of the

contingency fee to which Vaughn was entitled for successfully pursuing the

-5- refund action against the IRS. It was not clear error for the bankruptcy and

district courts to so determine.

In addition to challenging the lower courts’ factual findings, Sanders claims

that, even if the courts’ factual conclusions were true, there would be no grounds

for finding “willful and malicious injury” under 11 U.S.C. § 523(a)(6). He argues

first that Geiger expressly excludes “knowing breach of contract” from “willful

and malicious injury.” Geiger, 523 U.S. at 62. However, that is a misreading of

Geiger, which stands rather for the proposition that an injury must be “desired

[]or in fact anticipated by the debtor.” Id. The debtor must intend to cause

injury, not merely commit “a deliberate or intentional act that leads to injury.” Id.

at 61; see also Mitsubishi Motors Credit of Am., Inc. v. Longley (In re Longley),

235 B.R. 651, 657 (B.A.P. 10th Cir. 1999) (holding “[w]illful injury may also be

established indirectly by evidence of both the debtor’s knowledge” of the

creditor’s rights and “the debtor’s knowledge that the conduct will cause

particularized injury”) (citation omitted). Contrary to Sanders’s interpretation,

nothing in Geiger indicates the Supreme Court’s intention to immunize debtors

under 11 U.S.C. § 523(a)(6) for “willful and malicious” breaches of contract. Cf.

Texas v. Walker, 142 F.3d 813, 823-24 (5th Cir. 1998) (holding breach of

contract may be “willful and malicious injury” under § 523(a)(6)), cert. denied,

119 S. Ct. 865 (1999); N.I.S. Corp. v. Hallahan (In re Hallahan), 936 F.2d 1496,

-6- 1501 (7th Cir. 1991) (holding willful breach of contract qualifies under

§ 523(a)(6)). The lower courts committed no error of law by determining that

Sanders’s deliberate attempt to bilk Vaughn out of his contingency fee constituted

a “willful and malicious injury” under 11 U.S.C. § 523(a)(6).

Finally, Sanders argues the district court judge should have recused himself

from this matter because he presided at a previous criminal trial in which Sanders

was defendant and is a judge in the same judicial district as the bankruptcy court.

We have grave doubts as to the timeliness of this claim. “Although this circuit

has not attempted to define the precise moment at which a [28 U.S.C.] § 455(a)

motion to recuse becomes untimely, our precedent requires a party to act promptly

once it knows of the facts on which it relies in its motion” in order to “conserve[]

judicial resources and alleviate[] the concern that it is motivated by adverse

rulings or an attempt to manipulate the judicial process.” United States v.

Pearson, No. 97-3268, — F.3d —, 2000 WL 201169, at *32 (10th Cir. Feb 22,

2000) (citations omitted). We find no record that Sanders ever filed such a

motion with the district court. However, even if this claim passes muster on

grounds of timeliness, there is nothing in the facts cited by Sanders—i.e., the

district court judge presided over Sanders’s previous criminal case and sat in the

same judicial district—that raises the specter of impropriety. Without more, the

fact that a judge presided in a previous criminal matter is not a valid ground for

-7- recusal. As for Sanders’s contention of impropriety arising from the common

location of the district and bankruptcy courts, we likewise fail to see how that fact

presents a conceivable basis for recusal.

The judgment of the district court is AFFIRMED.

The mandate shall issue forthwith.

ENTERED FOR THE COURT

Carlos F. Lucero Circuit Judge

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