Home Instead Senior Care of Oregon v. Treon, Adv. No. 07-03159
From In re Jamie Lynn Treon; Case No. 07-31112-elp7
PUBLISHED opinion, by Judge Elizabeth Perris
January 4, 2008
Although a debtor breached a Non-Compete Agreement with her former employer, Judge Perris held that this employer did not prevail in its nondischargeability complaint against debtor under § 523(a)(6) because it failed to prove either of the necessary prongs of the 9th Circuit’s test: that debtor committed an intentional tort, and that her conduct caused willful and malicious injury. Attorney fees under the Agreement were not awarded to the employer because it did not prevail in establishing nondischargeabilty; but debtor also did not get attorney fees because it breached the Non-Compete Agreement upon which the right to attorney fees was based.
Even though this case is fact intensive, it is worthwhile reading for Judge Perris’ discussion of the 9th Circuit case law on § 523(a)(6) and its application to Oregon law, specifically the tort of intentional interference with an economic relationship.
Consistently the 9th Circuit has held that § 523(a)(6) claims must establish that 1) debtor’s conduct was tortious, and 2) caused willful and malicious injury.
Debtor’s conduct here was not tortious because the evidence did not establish 3 of the 6 necessary elements under Oregon law for the tort of intentional interference with an economic relationship: 1) a valid business relationship that debtor interfered with, 2) her intentional interference with that relationship, and 3) a causal effect between this interference and the damage to the economic relationship. As Judge Perris applied the facts: 1) At the time debtor started working for a former customer of the former employer that customer had already independently terminated its contract with the employer, so there was no business relationship for the debtor to interfere with. 2) There was no interference because the customer contacted debtor, not the other way around, and any interference would have been unintentional because debtor understood that the customer no longer had a relationship with her former employer and so did not believe she was interfering with any such relationship. And 3) there was no causal relationship between any possible interference by debtor and any economic damage because there was an independent reason the former customers no longer worked with the employer--these customers could no longer could afford the employer’s services and indeed had in the interim hired another private caregiver.
Willfulness is defined in the 9th Circuit as intending the consequences or injury resulting from an act and not just intending the act itself, or at least believing that that the consequence or injury is substantially certain to occur from the conduct. Debtor did not act willfully because she accepted employment with a former customer of her prior employer only after learning that this customer had earlier cancelled the contract with the employer and after getting legal advice that she could work for former but not ongoing customers of the employer.
Debtor’s conduct in working for a former customer of employer was not malicious in that it was 1) not done intentionally in that the Agreement did not explicitly forbid contracting with the employer’s former customers, debtor had limited education, and thus reasonably relied on her attorney’s advice about this issue, and 2) was done with a just cause or excuse in, again, her reasonable reliance on her attorney’s advice.
The attorney fee discussion is enlightening, both for its rationale in holding that the ostensible prevailing party, the debtor-defendant, was NOT entitled to contractual attorney fees, and for its valuable dicta about the 2007 U.S. Supreme Court case which had overturned a 9th Circuit opinion about attorney fees in dischargeability litigation.
First as to Judge Perris’ ruling against allowing debtor’s attorney fees, the Non-Compete Agreement provided for attorney fees to employer if it were to “prevail in a legal proceeding to remedy a breach . . . of this Agreement.” This clause was made reciprocal to debtor-defendant through ORS 20.096(1), but that statute by its language limits that reciprocal right to the party prevailing “on the claim”, the claim which “is made based on a contract.” So the contractual “claim” upon which debtor-defendant had to prevail was the breach of the Agreement. But because Judge Perris ruled that she DID indeed breach the Agreement, by working within 90 days of the end of her employment with a prior and potentially future customer of the employer, she was not entitled to attorney fees even though otherwise completely prevailing on the nondischargeability claim.
And second, the U.S. Supreme Court case Judge Perris cited is Travelers Cs. & Surety Co. of Am. V. Pac. Gas & Elec. Co., 127 S.Ct. 1199 (2007), which had overturned the 9th Circuit’s disallowance of a creditor’s contractual attorney fee claim. The 9th Circuit had disallowed that attorney fee claim on the argument that the attorney’s services pertained strictly to federal bankruptcy law and not to contractual law. Although Judge Perris makes clear that she doesn’t have to dig into the impact of Travelers here because debtor-defendant’s breach of the Agreement did not make her even potentially eligible for attorney fees, the judge is warning the bar to be aware of this Supreme Court opinion’s potential impact in future cases.
BOTTOM LINE: This is an excellent source for 9th Circuit law under § 523(a)(6), Oregon law of intentional interference with an economic relationship, and about contractual attorney fees in adversary proceedings. It is worth spending 15 minutes to read this opinion, for sure before dealing with any §523(a)(6) claim or with any attorney fee issue in a nondischargeability case.
by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.comEven though this case is fact intensive, it is worthwhile reading for Judge Perris’ discussion of the 9th Circuit case law on § 523(a)(6) and its application to Oregon law, specifically the tort of intentional interference with an economic relationship.
Consistently the 9th Circuit has held that § 523(a)(6) claims must establish that 1) debtor’s conduct was tortious, and 2) caused willful and malicious injury.
Debtor’s conduct here was not tortious because the evidence did not establish 3 of the 6 necessary elements under Oregon law for the tort of intentional interference with an economic relationship: 1) a valid business relationship that debtor interfered with, 2) her intentional interference with that relationship, and 3) a causal effect between this interference and the damage to the economic relationship. As Judge Perris applied the facts: 1) At the time debtor started working for a former customer of the former employer that customer had already independently terminated its contract with the employer, so there was no business relationship for the debtor to interfere with. 2) There was no interference because the customer contacted debtor, not the other way around, and any interference would have been unintentional because debtor understood that the customer no longer had a relationship with her former employer and so did not believe she was interfering with any such relationship. And 3) there was no causal relationship between any possible interference by debtor and any economic damage because there was an independent reason the former customers no longer worked with the employer--these customers could no longer could afford the employer’s services and indeed had in the interim hired another private caregiver.
Willfulness is defined in the 9th Circuit as intending the consequences or injury resulting from an act and not just intending the act itself, or at least believing that that the consequence or injury is substantially certain to occur from the conduct. Debtor did not act willfully because she accepted employment with a former customer of her prior employer only after learning that this customer had earlier cancelled the contract with the employer and after getting legal advice that she could work for former but not ongoing customers of the employer.
Debtor’s conduct in working for a former customer of employer was not malicious in that it was 1) not done intentionally in that the Agreement did not explicitly forbid contracting with the employer’s former customers, debtor had limited education, and thus reasonably relied on her attorney’s advice about this issue, and 2) was done with a just cause or excuse in, again, her reasonable reliance on her attorney’s advice.
The attorney fee discussion is enlightening, both for its rationale in holding that the ostensible prevailing party, the debtor-defendant, was NOT entitled to contractual attorney fees, and for its valuable dicta about the 2007 U.S. Supreme Court case which had overturned a 9th Circuit opinion about attorney fees in dischargeability litigation.
First as to Judge Perris’ ruling against allowing debtor’s attorney fees, the Non-Compete Agreement provided for attorney fees to employer if it were to “prevail in a legal proceeding to remedy a breach . . . of this Agreement.” This clause was made reciprocal to debtor-defendant through ORS 20.096(1), but that statute by its language limits that reciprocal right to the party prevailing “on the claim”, the claim which “is made based on a contract.” So the contractual “claim” upon which debtor-defendant had to prevail was the breach of the Agreement. But because Judge Perris ruled that she DID indeed breach the Agreement, by working within 90 days of the end of her employment with a prior and potentially future customer of the employer, she was not entitled to attorney fees even though otherwise completely prevailing on the nondischargeability claim.
And second, the U.S. Supreme Court case Judge Perris cited is Travelers Cs. & Surety Co. of Am. V. Pac. Gas & Elec. Co., 127 S.Ct. 1199 (2007), which had overturned the 9th Circuit’s disallowance of a creditor’s contractual attorney fee claim. The 9th Circuit had disallowed that attorney fee claim on the argument that the attorney’s services pertained strictly to federal bankruptcy law and not to contractual law. Although Judge Perris makes clear that she doesn’t have to dig into the impact of Travelers here because debtor-defendant’s breach of the Agreement did not make her even potentially eligible for attorney fees, the judge is warning the bar to be aware of this Supreme Court opinion’s potential impact in future cases.
BOTTOM LINE: This is an excellent source for 9th Circuit law under § 523(a)(6), Oregon law of intentional interference with an economic relationship, and about contractual attorney fees in adversary proceedings. It is worth spending 15 minutes to read this opinion, for sure before dealing with any §523(a)(6) claim or with any attorney fee issue in a nondischargeability case.
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