In re Nance
556 F.2d 602 (1977)
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Rule of Law:
An assignment of fully earned but deferred compensation is not an assignment of "future wages" subject to state wage assignment statutes. A debtor's knowing retention of such assigned funds, after representing they would be turned over to the creditor, constitutes a willful and malicious injury to property, rendering the debt non-dischargeable in bankruptcy.
Facts:
- James S. Nance, a professional football player for the New England Patriots, was significantly in debt to the Coolidge Bank and Trust Co.
- In September 1970, Nance executed an 'Assignment of Contract' to the bank, purporting to assign his current and deferred compensation for the 1970-1972 seasons as collateral for his loans.
- By the end of the 1971 season, Nance had fully earned the deferred compensation at issue in the case.
- In October 1972, after he was no longer with the Patriots, Nance executed a new demand note that consolidated his debts and listed as collateral an 'Assignment of Revocable Trust on monies owed to James Nance by the New England Patriots,' which the court found constituted a new assignment of the earned funds.
- Nance and his agent repeatedly assured the bank that they would pay the debt from the deferred compensation and requested the bank not notify the Patriots to avoid jeopardizing settlement negotiations.
- In late 1973 and early 1974, Nance received a settlement of $29,000.09 from the Patriots for his deferred compensation.
- Nance paid the bank only $5,000 from the settlement funds, retaining the remaining $24,000.09 for himself.
- Nance subsequently filed a petition for bankruptcy.
Procedural Posture:
- Coolidge Bank and Trust Co. petitioned the bankruptcy judge to declare a debt owed by James S. Nance non-dischargeable.
- The bankruptcy judge found the debt non-dischargeable, ruling that Nance had willfully and maliciously converted the bank's property.
- Nance, as appellant, appealed the bankruptcy judge's ruling to the U.S. District Court.
- The district court reversed the bankruptcy judge's decision, holding that the underlying assignment of wages was invalid under a Massachusetts state statute.
- Coolidge Bank and Trust Co., as appellant, appealed the district court's reversal to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does a debtor's retention of fully earned but deferred compensation, which was previously assigned to a creditor as collateral, constitute a non-dischargeable debt for willful and malicious injury to property under the Bankruptcy Act, when a state statute regulates the assignment of 'future wages'?
Opinions:
Majority - Levin H. Campbell, Circuit Judge.
Yes, the debtor's retention of the assigned funds creates a non-dischargeable debt for willful and malicious injury to property. The court first determined that while the initial 1970 assignment of 'future wages' was invalid under Mass.Gen.Laws Ann. ch. 154 for non-compliance, the 1972 note and trust documents constituted a new, valid equitable assignment. This later assignment was not subject to the Massachusetts 'Assignment of Wages' statute because, by 1972, Nance had fully earned the compensation; it was merely deferred, not 'future wages.' The court reasoned that the statute's purpose and requirements—such as protecting a wage earner's weekly income and requiring employer consent—are designed to apply prospectively to wages yet to be earned and make no sense when applied to an already-vested right to payment from a former employer. Having established the bank's property right in the funds, the court then held that Nance's actions constituted a 'willful and malicious injury' under the Bankruptcy Act. Nance's knowledge of the assignment, his representations that he would turn over the proceeds, and his subsequent conversion of the funds for his own use amounted to a 'willful disregard' of his known duty to the bank. This standard does not require special malice, only that the act is done deliberately and intentionally in knowing disregard of another's rights.
Analysis:
This decision provides a crucial clarification on the scope of state wage assignment statutes, distinguishing between 'future wages' (unearned income) and 'deferred compensation' (earned but unpaid income). It establishes that protective statutes aimed at preventing workers from encumbering their future livelihood do not apply to vested, earned property rights like deferred salary. The ruling also reinforces a broad interpretation of 'willful and malicious injury' in bankruptcy, confirming that a debtor's knowing and intentional conversion of a creditor's collateral can prevent the discharge of the associated debt. This precedent strengthens the position of creditors who take assignments of earned income as collateral, making it harder for debtors to evade such obligations through bankruptcy.
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