Opinion ID: 3053354
Heading Depth: 6
Heading Rank: 2

Heading: Question of Fact Remains as to Willfulness

Text: [4] 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.” [5] 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 § 523(a)(6), even though it was “willful” for purposes of the copyright violation. Given the possibility that the jury found Appellants liable for willful copyright infringement based on recklessness, there was no basis in the record for the Bankruptcy Court to conclude that the jury verdict in the District Court Action established that the Appellants willfully violated the Appellee’s copyright for purposes of § 523(a)(6). 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. Moreover, the Appellants presented evidence to the Bankruptcy Court that directly spoke to the issue of willfulness for IN THE MATTER OF BARBOZA 13425 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 videos or receive them. The Appellants also submitted a declaration from their nephew, Francisco Albarran, which stated that Miguel made the orders for the videos, that Francisco signed for the videos when they were delivered to the Appellants’ residence in such a way to indicate that they were received by the Appellants’ business, and that Francisco then delivered the disputed videos to Miguel. Francisco also declared that Miguel gave him a box of tapes to give to Reel Pictures for duplication and that those tapes were picked up from the Appellants’ residence. [6] 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 § 523(a)(6), which precludes summary judgment on the issue of nondischargeability. 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 § 523(a)(6) because he did not install certain measures to prevent the unauthorized copying of copyrighted material. 325 B.R. at 448-49 (Bankr. N.D. Cal. 2005). However, In re Chin-Liang Chan is easily distinguished from the case before us. The In re Chin-Liang Chan court made its decision only after a thorough and exhaustive analysis of the evidence, and after showing that substantial 13426 IN THE MATTER OF BARBOZA evidence was uncontroverted, such as: (1) as CEO of Media Group, Chan was well aware of the infringement that was occurring, and he was not doing anything to prevent it; (2) Media Group admitted that it had reproduced copyrighted material; (3) the Recording Industry Association of America (“RIAA”) provided evidence to Media Group of its past infringements as a result of a failure to implement basic safeguards; (4) the RIAA provided Media Group a toll free number to call if there was any question concerning a customer’s right to order copies of certain products; (5) Media Group had been trained on three separate occasions by the RIAA on how to avoid future infringements; and (6) despite all this, Media Group made no change in its production procedures. Id. at 444-49. Given that the abundant evidence in the In re ChinLiang Chan case was uncontroverted, the bankruptcy court found that there were no genuine issues of material fact, and that Chan’s infringement was done intentionally or with substantial certainty that harm would occur. Id. at 448. In the instant action, in contrast, the Appellants have disputed who ordered the copies and who caused them to be ordered, and the jury verdict in the District Court Action could have been based on a finding that Appellants were merely reckless. In re Chin-Liang Chan thus provides no support for Appellee’s contention that the District Court Action conclusively established that the copyright violation was done willfully for purposes of § 523(a)(6). [7] 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 proffered that same evidence to the Bankruptcy Court, and the Bankruptcy Court should have considered it when ruling on the summary judgment motion. Because the evidence concerning whether Miguel was the person who actually ordered the tapes establishes a genuine issue of material fact as to the IN THE MATTER OF BARBOZA 13427 element of willfulness for purposes of § 523(a)(6), we reverse the grant of summary judgment and remand to the Bankruptcy Court for further proceedings.