Case Summary:
Creditor filed adversary proceeding alleging that a state court judgment and criminal restitution award were nondischargeable.  Both the judgment and the restitution award stemmed from the same conduct – the debtor’s alleged conversion or embezzlement of funds, which the plaintiff alleged was nondischargeable under either 11 U.S.C. § 523(a)(4) or (a)(6).

The court concluded that the restitution award was entitled to preclusive effect under principles of collateral estoppel.  Despite the fact that the debtor pled guilty without admitting any wrongdoing, the state court record was replete with additional factual findings which mandated preclusive effect.  The jury verdict in the civil suit, however, did not establish that the debtor’s conduct was willful and malicious, in that the jury could have concluded that the debtor was guilty of mere “reckless” conduct.  Summary judgment was entered under § 523(a)(4) and denied under § 523(a)(6).

Statue/Rule References:
11 U.S.C. § 523(a)(4) -- Nondischargeability - Embezzlement
11 U.S.C. § 523(a)(6) -- Nondischargeability - Willful and Malicious Injury

Key Terms:
Collateral Estoppel
Embezzlement
Willful and Malicious