In the Matter of Antonio BARBOZA; Lucia Albarran, Debtors. Antonio Barboza; Lucia Albarran, Appellants, v. New Form, Inc., Appellee.
No. 06-56319
United States Court of Appeals, Ninth Circuit
Argued and Submitted April 11, 2008. Filed Sept. 23, 2008.
Before: WILLIAM C. CANBY, JR. and JAY S. BYBEE, Circuit Judges, and ROGER HUNT,* Chief District Judge.
HUNT, District Judge:
I. OVERVIEW
Lucia Munguia Albarran (“Albarran“) and her husband, Antonio Barboza (“Barboza“) (collectively “Appellants“), were found liable after a jury trial in District Court for willful infringement of New Form, Inc.‘s (“Appellee“) copyright for certain Spanish language films. The District Court instructed the jury that “willful infringement” required a showing by a preponderance of the evidence that Appellants “knew that they were infringing the [Appellee‘s] copyrights or that they acted with reckless disregard as to whether they were doing so.” After judgment was entered, Appellants filed for bankruptcy and sought to discharge the judgment award. The Bankruptcy Judge held on summary judgment that the judgment award was nondischargeable under
The BAP affirmed and held that a statutory award of damages for willful copyright infringement is a debt for a “categorically harmful activity,” which is nondischargeable under
We now REVERSE and REMAND for further consideration because: (1) there is a genuine issue of material fact as to whether the infringement was a “willful” injury within the meaning of
II. FACTS AND PROCEEDINGS BELOW
Appellants operated a business for the duplication, distribution, and sale of Spanish language films. This case concerns ten films known as the India Maria Pictures. On May 15, 1999, Appellee acquired the exclusive rights to manufacture, sell, and distribute the India Maria Pictures. Before Appellee acquired its exclusive rights, Appellants purchased a large amount of inventory of India Maria Pictures from Million Dollar Video Corp. (“Million Dollar Video“).
In late summer 1999, Appellee learned that Appellants were selling the India Maria Pictures. Appellee sent Appellants a letter, dated September 3, 1999, advising them of Appellee‘s exclusive right to duplicate and sell the India Maria Pictures. After receiving this letter, Appellants allegedly ordered 500 VHS tape copies of
Albarran responded to Appellee by letter, on September 17, 1999, stating that Appellants: (1) did not know about Appellee‘s exclusive rights prior to receiving the September 3 letter; (2) were selling inventory of India Maria Pictures legally purchased from Million Dollar Video; and (3) were willing to commence business negotiations with Appellee.
Appellee sent a final warning letter on December 9, 1999. Appellants continued to sell the India Maria Pictures until March 20, 2002, when Appellee filed a lawsuit against Appellants in the U.S. District Court for the Central District of California for willful copyright infringement (the “District Court Action“). The complaint in the District Court Action alleged that Appellants willfully infringed Appellee‘s copyright in the India Maria Pictures beginning on or after May 15, 1999, and ending in 2002. However, the evidence presented at the trial concerned only the September 9, 1999, duplication immediately following the Appellee‘s first warning letter to Appellants.
A jury trial was held in April 2004, on the infringement by duplication issue.1 The jury was instructed on “willful” infringement as follows:
To prove willful infringement, the Plaintiff must prove by a preponderance of the evidence that the Defendants knew that they were infringing the Plaintiff‘s copyrights or that they acted with reckless disregard as to whether they were doing so. If you conclude that the Defendants reasonably and in good faith believed that they were not infringing the Plaintiff‘s copyrights, then you may not find that they willfully infringed those copyrights.
The jury returned special verdicts finding that both Albarran and Barboza had willfully infringed Appellee‘s copyright in each of the India Maria Pictures, and that Appellee should be awarded statutory damages of $75,000 per video. Judgment was entered on May 10, 2004, for $750,000, plus costs and attorney‘s fees; the final judgment amount was fixed at $893,077.11.
Appellants filed a bankruptcy petition on May 28, 2004. Appellee timely filed a complaint seeking to have the entire judgment debt declared nondischargeable as a debt resultant from a “willful and malicious” injury under
Appellee subsequently moved for partial summary judgment on the issue of subjective intent without presenting any new evidence to the Bankruptcy Court. Appellants filed an opposition, supported by affidavits, stating that someone else ordered the duplication of the India Maria Pictures, and that someone else received and diverted the finished product. Appellants did not dispute the date of duplication or their knowledge of Appellee‘s copyright on or after September 3, 1999. Alternatively, they argued that the copyright violation was merely “technical” because there was no evidence that they sold the unlawfully duplicated copies rather than the inventory they had legally purchased from Million Dollar Video.
At the August 22, 2005, hearing on the motion for partial summary judgment, the Bankruptcy Court concluded that there was uncontroverted evidence that Appellants knew of Appellee‘s copyright, and in combination with the jury finding of willful infringement, that the infringement constituted a willful injury within the meaning of
The BAP affirmed the Bankruptcy Court. The BAP implied “maliciousness” from the Bankruptcy Court‘s finding of willfulness. The BAP reasoned that “an award of statutory damages based on willful copyright infringement is a debt for an injury to the owner‘s property interest.” Accordingly, the BAP reasoned that “[t]he only remaining proof required was that Debtors were aware of Appellee‘s copyright at the time they infringed it.” The BAP also found that the September 3, 1999, letter gave Appellants actual knowledge that their infringement was “substantially certain” to cause harm to Appellee.
III. ANALYSIS
We review decisions of the BAP de novo, applying the same standard of review that the BAP applied to the bankruptcy court‘s ruling. Wood v. Stratos Prod. Dev. (In re Ahaza Sys., Inc.), 482 F.3d 1118, 1123 (9th Cir. 2007). Whether a claim is nondischargeable presents mixed issues of law and fact and is also reviewed de novo. Murray v. Bammer (In re Bammer), 131 F.3d 788, 791-92 (9th Cir. 1997) (en banc).
1. Willful and Malicious Injury Under 11 U.S.C. § 523(a)(6)
This case comes on appeal as a result of a summary judgment entered by the Bankruptcy Court. We review a grant of summary judgment de novo. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998).
i. Summary Judgment Standard
In adversary proceedings before the bankruptcy court, the familiar summary judgment standard established in
In response to a properly submitted summary judgment motion, the burden shifts to the opposing party to set forth specific facts showing that there is a genuine issue for trial. Henderson v. City of Simi Valley, 305 F.3d 1052, 1055-56 (9th Cir. 2002). The nonmoving party “may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists.” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991).
A court “generally cannot grant summary judgment based on its assessment of the credibility of the evidence presented.” Agosto v. INS, 436 U.S. 748, 756, 98 S.Ct. 2081, 56 L.Ed.2d 677 (1978). “[A]t the summary judgment stage the judge‘s function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249.
We find that in viewing all facts and drawing all inferences in the light most favorable to the Appellants, there is a genuine issue of material fact as to whether Appellants acted willfully within the meaning of
ii. Analysis
The term “willful” as used in copyright infringement cases is not equivalent to “willful” as used in determining whether a debt is nondischargeable under the bankruptcy code. The jury in the District Court Action found that the Appellants willfully infringed Appellee‘s copyright. As our sister circuits have clearly recognized, a finding of “willfulness” in this context can be based on either “intentional” behavior, or merely “reckless” behavior. See In re Seagate Tech., LLC, 497 F.3d 1360, 1370 (Fed. Cir. 2007) (en banc); Island Software & Computer Serv., Inc., v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005); Superior Form Builders, Inc., v. Dan Chase Taxidermy Supply Co., 74 F.3d 488, 496 (4th Cir. 1996);
Even though recklessness is sufficient for a finding of willful copyright infringement, the Supreme Court has clearly held that injuries resulting from recklessness are not sufficient to be considered willful injuries under
a. Summary Judgment in Bankruptcy Court
Appellee filed its first motion for summary judgment in the Bankruptcy Court (“First Summary Judgment Motion“) on February 11, 2005, to determine whether the statutory award for “willful” copyright infringement, from the District Court Action, was nondischargeable. At the hearing on the First Summary Judgment Motion, the Bankruptcy Judge recognized the potential question of fact that the jury verdict in the District Court Action presented, and therefore discussed with counsel how to prepare just “the intent issue, for trial.” In discussing why the issue of intent would be set for trial, rather than determined on the First Summary Judgment Motion, counsel for the Appellee asked: “The fact that through even her [Albarran‘s] testimony that she received this [September 3] letter, and thereafter on September 17th, provided that response; that, just for clarification, doesn‘t provide you what is necessary with respect to her intent?” The court responded clearly and correctly: “Not in the current context, no.”
The September 3, 1999, letter referenced by Appellee‘s counsel informed Appellants that Appellee was asserting an exclusive right to duplicate and sell the films in question. Appellants’ response letter dated September 17, 1999, acknowledged Appellee‘s assertion of exclusive rights to duplicate and sell the videos in question. However, the Bankruptcy Judge wisely found at the hearing on the First Summary Judgment Motion that, given the facially ambiguous jury finding, a finding of the requisite intent could not be determined based on the knowledge of the letter alone.
Thereafter, Appellee filed a subsequent motion for partial summary judgment (“Second Summary Judgment Motion“), which focused on the intent issue. At the hearing on that motion, the Bankruptcy Judge admitted the difficulty of coming to a decision concerning the matter: “Well, I have wrestled with this and gone back and forth.” As to whether the willfulness found by the jury was based on reckless disregard or intentional conduct the Bankruptcy Judge stated:
The Jury verdict doesn‘t tell me which one they‘re looking at [reckless disregard or intentional], but the evidence is uncontroverted that [Appellants] knew, the letter, the April 19th [sic]2 And I have to take the jury finding that the copying occurred and combine that with the uncontroverted evidence of the knowledge. Now whether, as Mr. Quinton says, they [Appellants] ultimately never received them, the copies were diverted from [R]eel [P]ictures. Whether it was Miguel who really did it, I don‘t know the answer to that. But based upon all of this and my review, and although I think it‘s got some interesting questions in it, I believe that summary judgment should be granted for the [Appellee] ... and I‘ll sign an order to that effect.
b. Question of Fact Remains as to Willfulness
The Bankruptcy Judge clearly erred by inferring from the jury‘s finding of willful infringement that Appellants had actually ordered the copying themselves. As principals in the company, Appellants could be held liable for infringement simply for failing to prevent copyright infringement. See Atl. Recording Corp. v. Chin-Liang Chan (In re Chin-Liang Chan), 325 B.R. 432, 448 (Bankr. N.D. Cal. 2005). For that reason, the jury was instructed in the District Court Action that: “A person is liable for copyright infringement by another if the person has a financial interest and the right and ability to supervise the infringing activity whether or not the person knew of the infringement.” Appellants asserted in the District Court Action that they did not order the copies but that the infringing videos were ordered by Albarran‘s brother, Miguel, who made it appear that the videos were ordered by the Appellants. As such, the jury in the District Court Action could have found that the Appellants were liable for copyright infringement because they failed in their supervisory role, that their failure to supervise was reckless, and therefore that the infringement was willful. Such a scenario would dictate that the injury was not a “willful injury” under
Moreover, the Appellants presented evidence to the Bankruptcy Court that directly spoke to the issue of willfulness for purposes of dischargeability. Albarran submitted a declaration describing the business dispute that she had with her brother, Miguel, how Miguel submitted the orders for the disputed videos under the name of the Appellants’ business, and how the Appellants did not order the disputed
This explanation for what happened has some obvious room for factual development, and the bankruptcy court should not have weighed the evidence at the summary judgment stage. See, e.g., Anderson, 477 U.S. at 249; Lippi v. City Bank, 955 F.2d 599, 613 (9th Cir. 1992) (“[T]he district court appears to have weighed the evidence before it; this role is inappropriate at the summary judgment stage.“). The evidence adduced by the Appellants demonstrates that there is a genuine issue of material fact concerning whether the debt arising from the copyright violation was willful under
Appellee cites In re Chin-Liang Chan wherein the bankruptcy judge found on summary judgment that Chan, the CEO of Media Group, Inc. (“Media Group“), committed a willful injury within the meaning of
The Appellants presented evidence in the District Court Action which supported the theory that Miguel was actually the person who ordered the videos. The jury‘s finding of liability for the copyright violation in the District Court Action thus may have been based on the jury‘s conclusion that the Appellants’ conduct was merely reckless. The Appellants prof-
B. Was the Conduct Malicious?
In re Su established that the malicious injury requirement of
i. Reversible Error by the Bankruptcy Court
The Bankruptcy Court in this case made no rulings as to the “malicious” prong of
ii. Reversible Error by the BAP
Relying on Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420, 434 (9th Cir. BAP 2002), the BAP, perhaps in an attempt to remedy the Bankruptcy Court‘s lack of discussion and findings concerning the “malicious” prong, found that malice could be implied from willfulness. Although there may be some overlap between the test for “willfulness” and the test for “malice,” see Transamerica Commercial Finance Corp. v. Littleton (In re Littleton), 942 F.2d 551, 554 (9th Cir. 1991) (per curiam) (“[M]alice may be inferred from the nature of the wrongful act.“), the overlap does not mean that the Bankruptcy Court can ignore entirely the malice inquiry. We require a separate analysis for each of the “willful” and “malicious” prongs. See In re Sicroff, 401 F.3d at
IV. CONCLUSION
We conclude that there is a question of material fact as to whether the infringement was willful within the meaning of