Where a defendant filed a Chapter 7 petition after being held liable in state court for misclassifying two plaintiffs as independent contractors rather than employees, the judgment debt is not excepted from discharge by virtue of 11 U.S.C. §523(a)(6), as the plaintiffs failed to establish that the defendant debtor acted with the intent to willfully and maliciously injure them.
“A construction jobsite accident soured the business relationship between the appellants, Julio Simões and Eduardo Pereira, and the appellee, Nicholas Sivieri. After the accident, Simões and Pereira maintained that they had been employees of Sivieri’s company. They jointly pursued two distinct sets of claims in different forums: workers’ compensation insurance claims and wage law claims. Addressing those claims, Sivieri expressed divergent beliefs about whether Simões and Pereira had been employees or independent contractors.
“The parties’ current dispute stems only from the wage law claims. Simões and Pereira invoked two strict liability statutes under Massachusetts wage law to assert that they had been misclassified as independent contractors and, in turn, deprived of an employee entitlement to overtime pay. A state court agreed and entered judgments against Sivieri and his company, awarding mandatory multiple damages to Simões and Pereira.
“Nearly eight years later, Sivieri filed a petition under chapter 7, seeking to eliminate his debts, including the debts owed to Simões and Pereira. They then sought a determination that the debts were excepted from discharge by virtue of 11 U.S.C. §523(a)(6). That is, although their judgments were awarded under strict liability statutes without regard to Sivieri’s intent, they contended that Sivieri had willfully and maliciously injured them, rendering the debts immune from Sivieri’s discharge. They thus needed to prove, among other factors, that Sivieri had acted with the requisite intent. We agree with the bankruptcy court that they failed to do so. …
“As indicated, the outcome of this appeal turns on whether the bankruptcy court erred in concluding that Simões and Pereira failed to meet their burden of proving that Sivieri had the requisite intent. More precisely, it turns on whether they established that Sivieri knew or believed enough about worker classifications — employee versus independent contractor — at the relevant time, such that he could have deliberately misclassified Simões and Pereira as independent contractors, depriving them of a legal right to overtime pay. As is often the case when a defendant’s knowledge, state of mind, or intent is in question, the court’s determination is based largely on circumstantial evidence and reasonable inferences from it. Our analysis focuses on Simões and Pereira’s arguments of error relating to this knowledge piece of the intent question. Because we conclude that the bankruptcy court committed no reversible error in determining that Simões and Pereira failed to meet their burden of proving intent, we find it unnecessary to reach certain unrelated arguments raised by Simões and Pereira. …
“To show that Sivieri caused injury more than negligently or recklessly, Simões and Pereira needed to show that Sivieri was aware, before their business arrangement ended, that he was misclassifying them as independent contractors and that he at least knew about injurious consequences under wage law that would be substantially certain to result (namely, the deprivation of a right to overtime pay to which employees may be entitled).
“… Whatever the path, Simões and Pereira generally needed to show, by a preponderance of the evidence, that Sivieri believed that they were ‘employees’ but then nevertheless misclassified them as independent contractors, intentionally depriving them of wage law protections. …
“Having recounted some of the bankruptcy court’s findings, we come to an important juncture and observe something that was missing: there was no factual finding that Sivieri knew the first thing about the Massachusetts independent contractor statute when the appellants worked with him. And the record does not compel any such finding. …
“In sum, we see no clear error here. The bankruptcy court’s factual findings related to intent are supported by the record. To recap, the findings and record support that Sivieri classified Simões and Pereira as independent contractors while perceiving that such a classification could be advantageous to his business and that it came with some risk of being disputed. Such a perception would not be inherently suspect. As discussed, wage law recognizes the possibility of legitimate independent contractor arrangements, which can be to businesses’ advantage, while also creating risk for businesses through the employee presumption, if the arrangement is ever disputed. The record does not permit a reasonable inference that Sivieri targeted Simões and Pereira, based on immigrant status and related factors, to deliberately deprive them of employee protections under wage law. Likewise, the thin and conclusory evidence of business success does not permit a reasonable inference that financial motivations prompted a deliberate misclassification. Further, regardless of the degree to which Sivieri controlled or supervised the work, it would not suggest deliberate misclassification without first some evidence that he was aware that control could affect a worker’s independent contractor status. The findings and record also support that, at some point after the jobsite accident, Sivieri perhaps realized that classifying Simões and Pereira as employees instead might have been more advantageous for workers’ compensation insurance purposes. Finally, the findings and record support that Sivieri’s taking of a self-serving position for insurance purposes damaged his credibility, but they do not prompt the conclusion that he deliberately misclassified Simões and Pereira before any claims arose. …
“Simões and Pereira suggest that, based on his extensive credibility issues, Sivieri is not the ‘honest but unfortunate debtor’ that bankruptcy is intended to benefit. Maybe they are correct. The bankruptcy court observed — and seemingly for good reason — that Sivieri’s testimony was implausible and inconsistent with his testimony in other proceedings. But a general lack of credibility does not amount to intent to injure. The appellants may have succeeded in proving that they were employees for purposes of Massachusetts wage law, something that was already established by the state court. They may also have succeeded in painting Sivieri as a person who ignored certain legal and business formalities and who was willing to change his ‘story’ to suit his needs. That success is not a proxy for the type of intent finding that was necessary for them to except their debts from discharge under §523(a)(6). We agree with the bankruptcy court that the evidence here, in what must be a fact-intensive inquiry, is insufficient to require that Sivieri face his debts to Simões and Pereira indefinitely.”
Concurring judge’s comments
Lamoutte, J. “Although my assessment of the totality of the circumstances may have resulted in a finding that the appellants met their burden to demonstrate that Sivieri acted willfully, the ‘clearly erroneous rubric’ controls review of this case. … Application of that standard requires endorsement of the result below. While I might have weighed the evidence differently, I cannot say the bankruptcy court’s view of the evidence was either impermissible or implausible. … I am also mindful that I am required to defer to the bankruptcy court’s credibility assessments. … For these reasons, I concur with the ultimate decision to affirm.”
In Re: Sivieri, Nicholas Anthony III (Lawyers Weekly No. 03-003-24) (35 pages) (Fagone, J.) (Lamoutte, J., concurring) Appealed from a decision by Panos, J., in the U.S. Bankruptcy Court for the District of Massachusetts. Peter Cole on brief for plaintiffs-appellants Júlio A. Simões and Eduardo S. Pereira; Lane N. Goldberg on brief for the debtor (BAP NO. MB 22-036) (March 5, 2024).
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