In re Barboza

• Citation: 545 F.3d 702
• Decision Date: 23 September 2008
• Docket Number: No. 06-56319.,06-56319.
• Parties: In the Matter of Antonio BARBOZA; Lucia Albarran, Debtors. Antonio Barboza; Lucia Albarran, Appellants, v. New Form, Inc., Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

545 F.3d 702

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 September 23, 2008.

Colin W. Wied, C.W. Wied Professional Corporation, San Diego, CA, for the appellants.

Richard L. Weiner and Paul J. Laurin, Weiner & Laurin, LLP, Encino, CA, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Pappas, Marlar, and Smith, Bankruptcy Judges, Presiding. BAP No. C-05-01398-MaSPa.

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") (collectivel "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 11 U.S.C. § 523(a)(6) as a "willful and malicious injury" based upon the jury's finding of willful infringement and uncontroverted evidence of Appellants' knowledge of Appellee's copyright interest.

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 § 523(a)(6) "if the Bankruptcy Court determines that the infringer had the requisite subjective intent to injure another's property interest." The BAP held that the uncontroverted evidence of knowledge of the creditor's copyright interest at the time of infringement was proof of their "substantial certainty" of resultant harm.

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 § 523(a)(6) of the Bankruptcy Code; and (2) the "malicious" requirement was not addressed separately from the "willfulness" requirement as required by our precedent.

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 the India Maria Pictures be made by Reel Picture Productions, LLC ("Reel Picture") on or about September 9, 1999.

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 11 U.S.C. § 523(a)(6). Appellee promptly moved for summary judgment, and requested that the Bankruptcy Court take judicial notice of the record and judgment in the District Court Action. In resolving the motion, the Bankruptcy Court held that the District Court's findings would be binding in the Bankruptcy Action. The Bankruptcy Court stated that Albarran was bound by the fact that she ordered the duplication of the India Maria Pictures. However, because the jury instruction defined "willful" infringement as either "knowing" or "reckless" conduct, it was irreconcilably ambiguous as to whether the award fell within § 523(a)(6)'s meaning of "willfulness." Therefore, the Bankruptcy Court reserved for trial the issue of whether Appellants had the "subjective intent to injure [Appellee] or its property, or subjective knowledge that injury [was] substantially certain to result."

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 § 523(a)(6). A judgment of nondischargeability was therefore entered in the sum of $893,077.11. Appellants timely appealed the order and judgment to the BAP.

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)

Section 523(a)(6) of the Bankruptcy Code provides that an individual debtor may not discharge a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." (emphasis added). The malicious injury requirement is separate from the willful injury requirement. Carrillo v. Su (In re Su), 290 F.3d 1140, 1146-47 (9th Cir.2002) (conflating the two requirements is grounds for reversal); see also Jett v. Sicroff (In re Sicroff), 401 F.3d 1101, 1105 (9th Cir.2005) ("We analyze the willful and malicious prongs of the dischargeability test separately."). A "willful" injury is a "deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) (emphasis in original). "A `malicious' injury involves' (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.'" In re Su, 290 F.3d at 1146-47 (quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001)).

A. Willfulness

This case comes on appeal as...