## Facts

- Lawrence Ormsby owned a Nevada escrow and title business that competed with First American Title Company of Nevada (FATCO).
- FATCO maintained proprietary “title plants,” compiled historical real-property records created and maintained at substantial expense.
- Ormsby purchased rights only to a limited title plant covering 2000 to the present and did not purchase rights to FATCO’s older title plants.
- A Nevada state court found Ormsby hired a FATCO employee and encouraged and assisted the employee in taking FATCO’s older title plants.
- Ormsby duplicated the title plants using a copy service and used them for his competing business.
- The Nevada state court characterized the conduct as willful, wanton, and reckless misappropriation and conversion, awarding compensatory and punitive damages, plus costs, prejudgment interest, and attorney’s fees based on willful and malicious conduct.
- After judgment, Ormsby filed Chapter 7; FATCO brought an adversary proceeding to except the debt from discharge under 11 U.S.C. § 523(a)(4) and § 523(a)(6).
- The bankruptcy court granted summary judgment for FATCO; the district court affirmed.

## Issues

1. Whether the state-court findings established “larceny” under 11 U.S.C. § 523(a)(4), making the judgment debt nondischargeable.
2. Whether the same conduct constituted “willful and malicious injury” under 11 U.S.C. § 523(a)(6), independently making the debt nondischargeable.
3. Whether the bankruptcy court properly applied Nevada issue-preclusion law to treat the state court’s findings as established in the nondischargeability proceeding.

## Decision

- The Ninth Circuit affirmed the judgment determining the debt nondischargeable.
- The court held the bankruptcy court properly gave issue-preclusive effect to the Nevada state court’s factual findings.
- The court concluded Ormsby’s conduct satisfied the federal common-law definition of larceny under § 523(a)(4).
- The court further held Ormsby’s conduct constituted a willful and malicious injury under § 523(a)(6).

## Legal Principles

- Federal courts apply the rendering state’s law of issue preclusion to determine the preclusive effect of a state-court judgment in a bankruptcy nondischargeability action.
- For § 523(a)(4), “larceny” is defined by federal common law as a felonious or wrongful taking of another’s property with intent to convert it or deprive the owner of it.
- For § 523(a)(6), “willful” requires a deliberate or intentional injury, shown by a subjective motive to injure or subjective belief that injury is substantially certain to result.
- For § 523(a)(6), “malicious” requires a wrongful act, done intentionally, that necessarily causes injury, and is done without just cause or excuse.
- Detailed state-court findings supporting punitive damages and fee awards for intentional wrongdoing may establish the mental-state elements required for nondischargeability under §§ 523(a)(4) and (a)(6).

## Conclusion

The Ninth Circuit held that a debtor who intentionally arranged the taking and copying of a competitor’s proprietary title records incurred a judgment debt that could not be discharged in Chapter 7 because the conduct amounted to larceny under § 523(a)(4) and, independently, a willful and malicious injury under § 523(a)(6), with the state court’s findings given preclusive effect.


Ormsby v. First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d 1199 (9th Cir. 2010)