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A man who sexually harassed an employee can escape liability through bankruptcy because there is no proof that his conduct, although “deplorable,” was intended to cause psychological or economic harm, a Northern District judge in New York has found. Bankruptcy Judge Robert E. Littlefield Jr. said that his finding of law in discharging a $430,232 debt results in a “grave injustice” that seemingly will “add insult to injury.” He said the outcome was dictated by the 1998 U.S. Supreme Court decision Kawaauhau v. Geiger, 523 US 57. In Geiger, the Supreme Court applied �523(a)(6) of the Bankruptcy Code to a medical malpractice case. The section says debts arising from “willful and malicious injury by the debtor” are not dischargeable in bankruptcy. Geiger held that a medical malpractice award predicated on negligent or reckless conduct does not meet the standard for denying discharge. Therefore, a doctor facing a medical malpractice judgment could eliminate that debt in bankruptcy. Several bankruptcy courts have applied Geiger to Title VII discrimination cases, wrestling with the question of whether sexual harassment is necessarily willful and malicious conduct, or whether a plaintiff must actually prove that the debtor intended harm. Judges around the country, including in other districts in New York, have concluded that a Title VII finding of sexual harassment automatically fulfills the “willful and malicious” standard (see In re Clifford F. Smith, 270 B.R. 544 [Bankr. D. Mass 2001]; In re Kelly, 238 B.R. 156 [Bankr. E.D. Mo 1999]; and In re Tompkins, 290 B.R. 194 [Bankr.W.D.N.Y., 2003]). Therefore, they found, damages arising from Title VII violations are not dischargeable in bankruptcy. Littlefield went the other way in In re Busch, 02-18149. Busch arose from a Chapter 7 bankruptcy that an Albany, N.Y., businessman, David Busch, apparently filed primarily to escape a default judgment in a sexual harassment matter, according to the court. Records show that in June 2000, Jacqueline Sanger, an employee of Busch at Albany Air Systems Inc., accused him of subjecting her to persistent propositions, lewd comments and offensive physical contact. Sanger alleged that Busch exposed himself to her on one or more occasions and condoned sexually harassing behavior directed toward her by other employees. As a result of his behavior, she said, she required counseling, lost out on unemployment insurance because she quit her job, and sacrificed medical and retirement benefits. She had trouble finding another job, she said, and was reluctant to leave her house at night for fear that Busch would try to kill her. Busch ignored the suit, and U.S. District Judge David N. Hurd entered a default judgment on liability. A jury awarded compensatory and punitive damages totaling $400,000, and the court added $30,232 for attorney’s fees and expenses. After abandoning an appeal, Busch filed a Chapter 7 bankruptcy to avoid that verdict, the court said. With Littlefield’s decision, he succeeded. RELIANCE ON ‘GEIGER’ The case turned on Geiger, and the U.S. Supreme Court’s holding that a debtor can be denied discharge under �523 only for conduct intended to injure. At the bankruptcy proceeding, Busch unequivocally denied sexually harassing Sanger. She did not testify, relying on a transcript of her testimony in the Title VII case. “Thus, this court did not have the benefit of hearing testimony, assessing the credibility, and observing the demeanor of the plaintiff,” Littlefield said. Littlefield said that while malice is inherent in a sexual harassment finding, intent to injure is not. He said that notwithstanding the “deplorable nature of the conduct for which the Debtor was held liable,” the issue for the court was whether he intended to injure Sanger. “Even if the acts of sexual harassment occurred exactly as alleged � there is no evidence that the Debtor ever intended to cause any of the injuries recounted by the Plaintiff in the District Court Action,” Littlefield said. Littlefield predicted that, as a result of Geiger, “Title VII claimants who seek to except their liquidated sexual harassment judgments from debtors’ discharges will inevitably face the difficult challenge of proving that their harassers intended to cause their actual injuries.” The plaintiff’s attorney, L. John Van Norden, formerly of Parisi & Saccocio in Schenectady, N.Y., said his client has lost interest and will not appeal, leaving the law unsettled in the 2nd Circuit. With conflicting trial court decisions and no appellate authority, it remains unclear whether sexual harassment is inherently an intentional tort covered by the �523 exception for willful and malicious injury, Van Norden said. Littlefield’s rationale “is sound, although I am not sure it is correct,” said Van Norden, now Schenectady’s deputy corporation counsel. “His analysis is good. I’m not sure it would have necessarily won the day on appeal. But I can’t say it wouldn’t have either.” The debtor’s attorney, Michael Jude O’Connor of O’Connor, O’Connor, Bresee & First in Albany was not immediately available for comment.

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