Mike Nifong has filed for protection under title 11 of the US Code. His bankruptcy petition and schedules are here.
Nifong lists assets (a house and a car) totalling about $244,000. He lists liabilities of over $180 million. Insolvent? Yes. I think so. The $180 million takes into account the pending claims of six Duke lacrosse players who each filed prosecutorial misconduct suits against him for around $30 million a pop. None of the Duke players' claims have been reduced to judgment. But that doesn't matter for bankruptcy. A debtor has to list all claims against him or his property in a bankruptcy petition. And "claim," under the Bankruptcy Code, means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent . . . ."
Nifong's bankruptcy filing invokes an "automatic stay"-- which enjoins creditors (including the Duke players) from taking any act to collect on a "claim." The automatic stay enjons all six civil cases against Nifong. The bankruptcy court will decide whether to lift the stay and let the litigation proceed. But first, the bankruptcy court will likely decide whether the players' claims against Nifong will survive his bankruptcy or be "discharged."
The point of filing of filing a chapter 7 petition for a guy like Nifong is to give him something to live for (financially speaking). He's lost his law license for professional misconduct. He might be able to scrape out a living working retail. But if the Duke six get judgments, he'll be working for them-- unless he can get a discharge of those debts from a bankruptcy court.
Discharge is bankruptcy jargon for forgiveness. Not everybody can earn their way out of debt problem. Official forgiveness of indebtedness in bankruptcy yields a social value we all enjoy--insurance coverage against financial failure. Creditors whose claims are discharged provide the coverage in the form of debt forgiveness. We all pay the premiums. Creditors charge us all a little bit more to cover the risk that a subset of us will default and discharge debt.
The trick is to provide just enough and the right kind of debt forgiveness but not too much. If a person can run to bankruptcy court for debt forgivness, why should he try to live within his means and avoid overwhelming liability in the first place? Putting the same problem another way, finding the optimal scope of bankruptcy discharge is another example of the endlessly fascinating problem of dual causation. Both debtor and creditor have a hand in preventing hopeless financial failure, just the same as both the drug dealer and user are 'responsible' for or 'cause' drug addition. We need discharge policy that encourages creditors to make good underwiting decisions and at the same time encourages debtors to live within their means.
Blowing by a lot of detail, the Bankruptcy Code purports to extend discharge to the "honest and unfortunate debtor" but withhold it from the dishonest, conniving, or undeserving debtor. First, not everyone qualifies for bankruptcy relief. Second, those who qualify cannot discharge all claims against them.
Here's where Nifong has to worry. The Bankruptcy Code excludes from claims for which an individual can obtain a discharge, those "for willful and malicious injury by the debtor to another entity . . . ." The idea is that if you hurt someone intentionally and you cause injury, you're the cheaper avoider of the loss and you don't qualify for the social insurance coverage. The phrase "willful and malicious" is a holdover from the Bankrutpcy Act of 1898. The Restatement of Torts and modern tort rhetoric talks about intentional, reckless and negligent acts-- but makes no mention of "willful and malicious" injury. Bankruptcy lawyers will be watching to see whether this discharge issue is actually litigated in Nifong's case or goes away in a global settlement in the shadow of a discharge. If the parties do litigate, we'll be watching to see whether Nifong will argue that his prosecutorial misconduct was willful but not malicious, or more inscrutably, malicious but not willful. Either way, if Naifong can show that the exception to discharge does not apply, he'll get debt forgiveness and the Duke players will walk away with nothing. That's his only hope of forgiveness, at least on this earth.