USCA Ninth Circuit, September 23, 2008

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In this case the Ninth Circuit held that 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.

A jury had found that Antonio Barboza and Lucia Munguia Albarran willfully infringed the copyrights of New Form, Inc., by making copies of ten Spanish language films. The jury awarded New Form $75,000 in statutory damages for each of the films, plus costs and attorney’s fees.

Barboza and Albarran filed for bankruptcy, and New Form timely filed a complaint seeking to have the entire judgment debt declared nondischargeable as a debt resulting from a "willful and malicious" injury as defined under the Bankruptcy Code (11 U.S.C. § 523(a)(6)). The Bankruptcy Judge held on summary judgment that the judgment award was nondischargeable under § 523(a)(6) as a "willful and malicious injury" based upon the jury's finding of willful infringement and uncontroverted evidence of Barboza’s and Albarran’s knowledge of New Form's copyright interest (expressed in a cease and desist letter). The Bankruptcy Appellate Panel affirmed.

The Ninth Circuit reversed and remanded explaining that 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 because the "malicious" requirement was not addressed separately from the "willfulness" requirement.

The Ninth Circuit noted that 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. In the copyright infringement context, "willfulness" can be based on either "intentional" behavior or merely "reckless" behavior. The jury was instructed that that the infringement was willful if Barboza and Albarran "knew that they were infringing [New Form’s] copyrights or that they acted with reckless disregard as to whether they were doing so."

Although the jury found that the defendants acted willfully, the Ninth Circuit explained that the Bankruptcy Court had no way to determine whether the jury found the willful infringement based on a reckless disregard or a knowing violation of New Form's copyright. According to the Ninth Circuit, the Supreme Court has clearly held that injuries resulting from recklessness are not sufficient to be considered willful injuries under § 523(a)(6) of the Bankruptcy Code and are therefore insufficient to merit an exemption to dischargeability. In addition, Barboza and Albarran submitted evidence that they did not authorize the copying of the films and this could have led the jury to find that they acted recklessly. “Because there was evidence that could have led the jury in the District Court action to determine that the infringement was reckless, the judgment in that action cannot sustain a summary judgment that the infringement was willful within the meaning of the Bankruptcy Code.”

The court also held that the bankruptcy court failed to separately consider the “malicious” factor as required by Ninth Circuit precedent. 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." Although the bankruptcy court addressed the issue of willful injury, there was nothing in the record indicating that the bankruptcy court addressed the issue of malicious injury.