In re Deerey, Bankruptcy No. 9:05-bk-06995-ALP.

• Decision Date: 25 January 2007
• Docket Number: Adversary No. 9:05-ap-00548-ALP.,Bankruptcy No. 9:05-bk-06995-ALP.
• Parties: In re Arthur Joseph DEEREY, Jr., Debtor. DirecTV, INC., Plaintiff, v. Arthur Joseph Deerey, Jr., Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

371 B.R. 525

In re Arthur Joseph DEEREY, Jr., Debtor DirecTV, INC., Plaintiff, v. Arthur Joseph Deerey, Jr., Defendants.

Bankruptcy No. 9:05-bk-06995-ALP.

Adversary No. 9:05-ap-00548-ALP.

United States Bankruptcy Court, M.D. Florida, Fort Myers Division.

January 25, 2007.

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Benjamin C. Iseman, Douglas C. Spears, J. Richard Young, III, Stump Callahan Dietrich & Spears PA, Orlando, FL, Edwin G. Rice, Glenn Rasmussen Fogarty & Hooker PA, Tampa, FL, John H. Jamnback, Michael Rosenberger, Scott T. Wilsdon, Yarmuth Wilsdon Calfo PLLC, Seattle, WA, for Plaintiff.

Richard Johnston, Jr., Kiesel Hughes & Johnston, Fort Myers, FL, for Defendants.

FINDINGS OF FACT, CONCLUSION OF LAW AND MEMORANDUM OPINION

ALEXANDER L. PASKAY, Bankruptcy Judge.

THE MATTER under consideration in this Chapter 7 liquidation case of Arthur Joseph Deerey, Jr. (Debtor) in the above-captioned Adversary Proceeding is a multiple-count First Amended Complaint filed by DirecTV, Inc. (DIRECTV) against the Debtor.

In the Complaint, DIRE CTV alleges in Counts IA and IB that a certain debt owed to DIRECTV, Inc. by the Debtor is nondischargeable pursuant to Sections 523(a)(6) and 523(a)(4) of the Bankruptcy Code. The Claim in Count II is based on the contention that the Debtor committed a fraudulent transfer in violation of Florida Statutes § 726.105. DIRECTV further alleges in Count III of its Complaint that they have an equitable lien and/or constructive trust in the funds the Debtor used to purchase certain real property, and the stated equitable lien and/or constructive trust in favor of DIRECTV is to the exclusion of any and all other creditors. In Count IV, DIRECTV also alleges that the Debtor committed a fraudulent transfer in violation of Florida Statutes § 726.105. In Count V of the Complaint DIRECTV alleges that they have an equitable lien and/or constructive trust in the funds used by the Debtor to finance the Debtor's IRAN and his company's Employee Stock Ownership Plan (ESOP), and that the equitable lien and/or constructive trust is to the exclusion of any and all creditors.

In response to DIRE CTV's Complaint, the Debtor contends that DIRE CTV cannot as a matter of Florida law obtain an equitable lien or constructive trust against the Debtor's home located at 1401 King Sago Court, Naples, Florida, since DIRECTV's claim does not fall within any of the categories of the Florida Constitution which authorize a lien against homestead property. The Debtor also contends that DIRECTV's claim to establish an equitable lien or constructive trust upon the Debtor's Home and ESOP are time barred pursuant to the applicable statutes of limitation set forth in Sections 95.11(3) and 95.031(1) of the Florida Statutes.

Furthermore, the Debtor contends that the present claim of nondischargeability is based on the Debtor's consent to the entry of a Consent Judgment, which provided for an injunction and a monetary judgment in the amount of $500 million pursuant to 47 U.S.C. § 605(e). The Debtor, while he does not dispute his liability to DIRECTV under the Consent Judgment, contends that there were no findings made in the District Court that support DIRECTV's claims of nondischargeability under Section 523(a)(4) or 523(a)(6) of the Code.

Judgment was granted in favor of the Debtor on Counts II and IV of the Complaint on March 2, 2006. (Doc. Nos. 56, 57). Prior to the conclusion of this matter, DIRECTV chose not to pursue its claims against the funds in Debtor's IRA, and an Order granting Judgment in Part to the Debtor on Court V of the Complaint was entered December 11, 2006. (Doc. No. 120).

On July 19, 2006, at the duly scheduled and noticed final evidentiary hearing on the Complaint, this Court heard argument of counsel for DIRECTV and for the Debtor. In addition, this Court has considered the record, including testimony of witnesses and all documentary evidence offered and admitted into evidence and now makes the following findings and conclusions based on the record.

BACKGROUND

Prior to the commencement of this Chapter 7 case of the Debtor, DIRECTV filed suit in the United States District Court, District of California against various defendants. On July 3, 2001, DIRECTV filed its Second Amended Complaint for Compensatory, Statutory and Other Damages, and for Injunctive Relief in the District Court of California, case number CV 01-370DOC(ANx), DirecTV, Inc. v. Derek E. Trone d/b/a Whiteviper Technologies; Art Deerey; TDBAM, Inc. et al. (California Litigation). The Second Amended Complaint added the Debtor as a defendant to an existing lawsuit against manufacturers and distributors of satellite signal theft devices. The case was transferred to the Central District of California, and the case number assigned to the transferred case changed to CV 02-5194PA(RCx).

DIRE CTV's Second Amended Complaint against the Debtor in the Central District of California included claims for Compensatory, Statutory and other Damages, and for Injunctive Relief for violations of: the Communications Act of 1934, as amended, 47 U.S.C. § 605; the Digital Millennium Copyright Act, 17 U.S.C. §§ 1201-1205; the Electronic Communication Privacy Act (Federal Wiretap Laws), 18 U.S.C. §§ 2510-2521; California Penal Code §§ 593d and 593e, California Civil Code §§ 3426-3426.11 (Trade Secret Act); California Business and Professional Code §§ 17200 et seq.; and California common law. (Second Amended Complaint).¹

In the California litigation, the Central District of California Court granted DIRECTV's Motion for Partial Summary Judgment against the Debtor and others based on the Civil Minutes in which the Central District of California Court made certain findings.² In addition to granting the Money Judgment to DIRECTV, the Central District of California Court also granted a Permanent Injunction against the Debtor.

On April 13, 2005, the Debtor filed his voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. DIRECTV filed its original Complaint in the abovecaptioned Adversary Proceeding on July 18, 2005, setting forth five (5) separate claims. On November 7, 2005, DIRE CTV filed a Motion for Summary Judgment as to Count I of Adversary Complaint (Doc. No. 20). On the same date, the Debtor filed a Motion for Summary Judgment on all Counts of the Adversary Complaint (Doc. No. 23). On December 22, 2005, this Court entered its Order denying DIRECTV's Motion for Summary Judgment as to Count I of the Adversary Complaint and also denied Defendant's Motion for Summary Judgment (Doc. No. 30). On March 2, 2006, this Court entered its Orders Granting Judgment in Favor of the Debtor as to Counts II and IV of the original Complaint on the grounds that the Plaintiff lacked standing to pursue those claims (Doc. Nos. 56 and 57).

On April 24, 2006, DIRECTV filed its Motion for Leave to File First Amended Complaint (Doc. No. 75). On June 6, 2006, this Court entered its Order Granting DIRECTV's Motion to Amend Complaint and First Amended Complaint Attached to the Motion is Deemed Filed. (Doc. No. 84). The First Amended Compliant embellishes the original Complaint filed by DIRECTV, in that, it includes a new theory that the Debtor's actions in violation of the Communication Act which resulted in the Judgment in the amount of $500 million against the Debtor constituted larceny of the Plaintiffs proprietary broadcast. Therefore, it is DIRECTV's contention that the debt arising from the Debtor's violation of the Communication Act is excepted from discharge pursuant to Section 523(a)(4) of the Bankruptcy Code.

On June 16, 2006, the Defendant timely filed his Answer and Affirmative Defenses to First Amended Complaint. (Doc. No. 88). On the same date, DIRECTV filed its Partial Motion for Summary Judgment and to Except Debt from Discharge on Count IA and Count IB of the First Amended Complaint. (Doc. No. 89). On July 6, 2006, the Debtor filed his Motion for Summary Judgment on Count IA, Count IB, Count III, and Count V of the First Amended Complaint. (Doc. No. 98). On July 13, 2006, this Court entered its Order denying DIRECTV, Inc.'s Motion for Partial Summary Judgment and also denied the Defendant's Motion for Summary Judgment. (Doc. No. 101). In addition to denying both Motions, this Court scheduled a Final Evidentiary Hearing on the First Amended Complaint on Counts IA, IB, III and V for July 19, 2006.

The facts upon which the First Amended Complaint is based appear from the record and are as follows:

DIRECTV is a nationwide provider of direct broadcast satellite programming, including movie channels, sports, major cable networks, and local channels. DIRECTV contracts and pays for the right to distribute the programming to the subscribers, and holds license rights under the Copyright Act. DIRECTV offers various subscription packages to their customers. In addition to the subscription packages, DIRECTV also offers pay-per-view to their monthly subscribers. To guard against unauthorized access, DIRECTV encrypts, that is, electronically scrambles its satellite transmissions through the use of equipment and technology specifically designed for DIRECTV by News Datacom Limited, NDS Americas, Inc., and NDS Limited (NDS). In addition to the above, NDS also developed various Access Cards which authorize subscribers to view its selected television programming in a decrypted, that is, descrambled format, once the Access Card is activated by DIRECTV.

A standard DIRECTV package consists of a small satellite dish (Dish), DIRECTV integrated receiver/decoder (IRD), and a DIRECTV Access Card, also known as a "smart card." The Dish connects to the IRD, which in turn connects to the subscriber's television. The Access Card is inserted into the IRD, and allows the IRD to process the incoming signals. Essentially, the Access Card acts as a reprogrammable "key" that allows the IRD to decrypt the programming purchased by the subscriber, while at the same...