Judgment on Willful And Malicious Trade Secret Claim Is Not Dischargeable In Bankruptcy

Summary of the case.  La Bella Dona Skin Care, Inc. obtained a $207,000 judgment in a Virginia state court against its ex-employee Harton for conduct that the court held to be willful and malicious misappropriation of La Bella Dona’s trade secrets.  Thereafter, she filed a voluntary petition for a Chapter 13 bankruptcy adjudication.  In the bankruptcy proceeding, La Bella Dona filed an adversary proceeding seeking a determination that the judgment debt was not dischargeable in bankruptcy.  After Harton answered the adversary complaint, admitting most of the salient facts but asserting that the debt was dischargeable, La Bella Dona moved for judgment on the pleadings.  The motion argued that the doctrine of res judicata precluded her from challenging the state court holding that the misappropriation was willful and malicious, and that such conduct is not dischargeable under the Bankruptcy Code.  Last week, the bankruptcy court granted the motion and held that the findings made and judgment entered by the state court could not be re-litigated by Harton in the bankruptcy court.  In re Harton (La Bella Dona Skin Care, Inc. v. Harton), Ch. 13 Case No. 12-36221-KRH (Adversary Proceeding No. 13-3028-KRH) (Bkrcy Court, E.D. Va., Oct. 1, 2013).

To read this blog post click here