In re Wright

• Citation: 355 B.R. 192
• Decision Date: 24 October 2006
• Docket Number: Adversary No. RS 05-01301 PC.,Bankruptcy No. RS 05-13967 PC.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
• Parties: In re Scott William WRIGHT, Debtor. Choice Hotels International, Inc., Plaintiff, v. Scott William Wright, Defendant.

355 B.R. 192

In re Scott William WRIGHT, Debtor Choice Hotels International, Inc., Plaintiff, v. Scott William Wright, Defendant.

Bankruptcy No. RS 05-13967 PC.

Adversary No. RS 05-01301 PC.

United States Bankruptcy Court, C.D. California, Riverside Division.

October 24, 2006.

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Jim Husen, Riverside, CA, for Debtor.

MEMORANDUM DECISION

PETER H. CARROLL, Bankruptcy Judge.

Plaintiff, Choice Hotels International, Inc. ("Choice Hotels") seeks a summary judgment against Defendant, Scott William Wright ("Wright") declaring its debt nondischargeable under § 523(a)(6) of the Code.¹ The court, having considered the pleadings, evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law² pursuant to Fed.R.Civ.P. 52, as incorporated into adversary proceedings in bankruptcy cases by Fed. R. Bankr.P. 7052.

I. STATEMENT OF FACTS

Choice Hotels, a Delaware corporation, is one of largest hotel franchise companies in the world. Choice Hotels' franchisees own and operate over 4,500 hotels, inns and resorts in 45 countries under various names, including COMFORT INN®, COMFORT SUITES®, QUALITY INN®, CLARION®, SLEEP INN®, RODEWAY INN®, ECONO LODGE® and MAINSTAY SUITES®. With respect to its COMFORT® inns, hotels and suites, Choice Hotels owns certain trademarks (collectively, "the COMFORT® marks") which are registered with the United States Patent and Trademark Office and used by Choice Hotels in advertising and marketing its COMFORT® accommodations and services.³ Choice Hotels provides its franchisees with reservation services. COMFORT® customers can make a reservation with any of Choice Hotels' franchisees either on the Internet⁴ or by using one of Choice Hotels' toll-free telephone numbers.⁵

Sometime in 1988, Wright began working with his father, Elmer Clifford Wright, manufacturing and selling footwear under the name "Happy Feet — The World's Most Comfortable Shoe" ("Happy Feet"). At the time, Happy Feet was operated by Dreamco International, d/b/a Dreamco International, Inc. ("Dreamco"), a California corporation, with its principal place of business in Corona, California.⁶ In 1990, Dreamco acquired the right to use the toll-free number 1-800-266-3678, or "1-800-COMFORT," in conjunction with Happy Feet. Wright boasted that the telephone number was placed on "every pair of shoes we made and every piece of literature" concerning their business.⁷ Immediately after acquiring the toll-free number, Wright began receiving telephone calls from COMFORT® customers seeking hotel reservations.⁸ Initially, Wright simply advised the COMFORT® customers that they had reached an incorrect number. As the volume of calls increased, however, Wright decided to diversify his business interests and seek opportunities in the travel service industry.

In 1996, Wright struck a deal with ANZ Travel ("ANZ"), an independent travel agent, pursuant to which ANZ would make reservations for COMFORT® customers calling the "1-800-COMFORT" number. In consideration therefor, Wright was paid a portion of the 10% commission received by ANZ under an existing travel service agreement with Choice Hotels. Wright contends that ANZ booked approximately $1.2 million in room reservations with Choice Hotels for COMFORT INN® and COMFORT SUITES® properties by September 1997, using the "1-800-COMFORT" number.

On September 12, 1997, Choice Hotels terminated its travel service agreement with ANZ for "unauthorized use of the Choice COMFORT® trademark" in the telephone number "1-800-COMFORT" used to promote ANZ's travel services.⁹ On October 27, 1997, Choice Hotels learned directly from Wright that Dreamco, not ANZ, owned the "1-800-COMFORT" telephone number. On December 2, 1997, Choice Hotels rejected Wright's overtures concerning use of the "1-800-COMFORT" number under an independent travel service agreement between Choice Hotels and Dreamco, and demanded that Wright, Dreamco and ANZ permanently cease using the 1-800-COMFORT number for travel industry related services.

For the next fourteen months, Wright continued to pursue an agreement with Choice Hotels for use of Dreamco's 1-800-COMFORT telephone number in conjunction with Choice Hotels' COMFORT® reservation services. During such period, Wright limited his use of Dreamco's 1-800-COMFORT number to shoe sales through Happy Feet.¹⁰ Wright persisted despite the fact that his efforts to negotiate a deal were repeatedly rejected by Choice Hotels.

Between October 2001 and April 2002, Wright registered the domain names "comfortcallcenter.com" and "1-800-comfort.com." On August 7, 2002, Wright incorporated Comfort Call Center, Inc. ("CCC") under the laws of the State of Nevada,¹¹ and drafted a business plan for CCC aimed at profiting from the COMFORT® marks through his new websites and reservation hotline. CCC's business plan provided, in pertinent part:

Paragraph 1.0, under the heading "Executive Summary:" "The Comfort Call Center will be a full service Contact and Reservation center.... Our primary focus will be the hotel industry with Comfort Inns and Comfort Inns & Suites." Paragraph 1.2, under the heading "Mission:" "Comfort Call Center ... will function primarily as a Contact/Reservation center for the owners and sole proprietors of Comfort Inns and Comfort Inns & Suites...." CCC's "[m]ain objective is to build our brand name 1-800-COMFORT."

Paragraph 1.3, under the heading "Keys to Success" and subheading "Solid Customer Base:" Choice Hotels has "1,800 hotels in full operation and another 400 under construction" under the COMFORT INN® and COMFORT INN & SUITES® marks.

Paragraph 1.3, under the subheading "Online Presence:" CCC states its intent to use the "1-800-COMFORT.COM" mark and domain name "to direct thousands of people to our website...."

Paragraph 4.0, under the heading "Market Analysis Summary:"`COMFORT INN® and COMFORT INNS & SUITES®' are "our primary target."¹²

In December 2002, CCC registered the following domain names: "1-888-comfort.com," "comfortgoldcard.com," "comfortsilvercard.com," "comfortbronzecard.com" and "comfortowners.com." The domain names registered by Wright and CCC provided access to two websites authored and designed by Wright which specifically referred to Choice Hotels' COMFORT® marks, COMFORT INNS® and COMFORT INNS & SUITES®. By 2003, Wright and CCC were soliciting business directly from Choice Hotels' franchisees for the call center and websites. Wright admits sending approximately 2,000 facsimile solicitations to owners of COMFORT INNS® and COMFORT INNS & SUITES®, asking that they visit his websites and utilize CCC's call center and reservation services using the 1-800-COMFORT number and CCC domain names and marks (collectively, the "Infringing marks" or "Infringing domain names"). At no time did Choice Hotels consent to use of the COMFORT® marks or the Infringing marks by either Wright, Dreamco or CCC.

On May 29, 2003, Choice Hotels filed a complaint against Wright, Dreamco and CCC in Case No. CV-03-3785-RGK, styled Choice Hotels International, Inc. v. Scott Wright, et. al., in the United States District Court, Central District of California, seeking an injunction and damages for their unauthorized use of its Comfort® marks. Wright, who was represented by counsel, filed an answer to the complaint on June 19, 2003. On August 19, 2003, the district court entered a preliminary injunction enjoining Wright, Dreamco and CCC from using the COMFORT® marks and advertising or marketing the 1-800-COMFORT number. On August 27, 2003, the court set the matter for a jury trial to begin on May 11, 2004.

On February 25, 2004, after a discovery period of approximately seven months,¹³ Choice Hotels filed a motion for summary judgment. On April 6, 2004, Choice Hotel's motion was taken under submission by the court. Wright waited until April 9, 2004, to file a response and supporting declaration in opposition to Choice Hotels' motion for summary judgment. Choice Hotels objected to Wright's response as untimely, but its motion to strike was denied on April 14, 2004. On April 20, 2004, the district court entered an order granting Choice Hotels' motion for summary judgment. On May 11, 2004, the district court entered a judgment against Wright, Dreamco and CCC, jointly and severally, permanently enjoining the defendants from using the COMFORT® marks and the Infringing marks, and awarding Choice Hotels the sum of $45,720 in royalty fees for their unauthorized use of the COMFORT® marks and statutory damages totaling $525,000 pursuant to the Anticybers-quatting Consumer Protection Act ("ACPA").¹⁴

On April 21, 2005, Wright filed a voluntary petition under chapter 7 of the Code. Choice Hotels was listed in Schedule F as the holder of an unsecured, non-priority claim in the amount of $570,720 by virtue of the judgment entered in the district court. On July 25, 2005, Choice Hotels timely commenced this adversary proceeding seeking a determination that the federal district court judgment for $570,720, plus interest, is excepted from discharge pursuant to § 523(a)(6) of the Code.

II. DISCUSSION

This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is appropriate in this court. 28 U.S.C. § 1409(a). To prevail under § 523(a)(6), the plaintiff must establish the allegations of the complaint by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Jett v. Sicroff (In re Sicroff), 401 F.3d 1101, 1106 (9th Cir.2005). Objections to the dischargeability of a debt are to be literally and strictly construed against the objector and liberally construed in favor of the debtor. See Quarre v. Saylor (In re Saylor), 108 F.3d 219, 221 (9th Cir.1997); Hayhoe v. Cole (In re Cole), 226 B.R. 647, 653 (9th Cir. BAP1998).

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