Court Opinion

ID: 2716434
Source: CourtListenerOpinion
Date Created: 2014-08-08 16:00:38.433903+00
Date Added: 2024-06-11T15:23:26.595229
License: Public Domain

United States Bankruptcy Appellate Panel
                                  For the Eighth Circuit
                       ___________________________

                               No. 14-6012
                       ___________________________

                     In re: Doug Walker; Carmen Walker

                              lllllllllllllllllllllDebtors

                            ------------------------------

  Sailor Music; Controversy Music; Innocent Bystander; Write Treatage Music;
     Universal Polygram International Publishing, Inc.; Hideout Records and
                  Distributors, Inc., (Gear Publishing Division)

                      lllllllllllllllllllll Plaintiffs - Appellees

                                           v.

                                   Doug Walker

                     lllllllllllllllllllll Defendant - Appellant
                                     ____________

                 Appeal from United States Bankruptcy Court
                 for the Eastern District of Missouri - St. Louis
                                 ____________

                            Submitted: July 17, 2014
                             Filed: August 8, 2014
                                 ____________

Before KRESSEL, SALADINO and SHODEEN, Bankruptcy Judges.
                          ____________
KRESSEL, Bankruptcy Judge.

       The debtor, Doug Walker, appeals the bankruptcy court’s1 order determining
that a debt arising from a civil judgment in favor of the appellees, Sailor Music,
Controversy Music, Innocent Bystander, Write Treatage Music, Universal
Polygram International Publishing, Inc. and Hideout Records and Distributors,
Inc., for copyright infringement was excepted from discharge under 11 U.S.C. §
523(a)(6). We affirm.

BACKGROUND
       The debtor was a managing member of Twister’s Iron Horse Saloon. He
was involved in various day-to-day operations such as maintaining inventory and
cash registers and making bank deposits. Under the debtor’s control, Twister’s
often played music and hosted musical performances. Some of the music played
or performed was included in the repertoire of the American Society of
Composers, Authors and Publishers. ASCAP is a professional membership
organization of song writers, composers and music publishers. In accordance with
Federal copyright law, ASCAP licenses and promotes the music of its members. It
also obtains compensation for the public performances of their works and
distributes the royalties based upon on those performances. The appellees granted
ASCAP a nonexclusive right to license public performance rights of their works.

       Twister’s did not hold a public performance license. ASCAP became aware
of this and promptly contacted the debtor to offer him a license. The debtor did not
respond to ASCAP’s offer. Thereafter, from May 2006 through September 2009,

1
    The Honorable Kathy A. Surratt-States, Chief Judge, United States Bankruptcy Court for the
Eastern District of Missouri.
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ASCAP unsuccessfully attempted to contact the debtor 44 times: twice in person,
14 times by mail and 28 times by telephone. The mail was sent to the debtor’s
attention at the address listed for Twister’s by the Missouri Secretary of State and
Alcohol Beverage Licensing. None of the mail was returned as undeliverable. The
phone calls were made on various days and at various times. Despite the fact that
the debtor was often present at Twister’s, ASCAP was unable to reach him.

      Receiving no response from the debtor, ASCAP sent an investigator to
Twister’s. On July 15, 2009, the investigator arrived at Twister’s and took note of
all the songs that were played during the time he was present. At least four
unauthorized performances of the appellees’ copyrighted material took place.

      In a letter dated September 17, 2009, ASCAP informed the debtor of the
violations and offered to settle. The letter was delivered to Twister’s return receipt
requested. The receipt was signed by the debtor and confirmed that delivery was
made on September 23, 2009. The debtor does not dispute that he signed the
receipt, however, he claims that he could not recall reading the letter.
Consequently, he did not accept the settlement offer.

      In June 2010, the appellees brought an action for copyright infringement
against the debtor and Twister’s in the United States District Court of the Eastern
District of Missouri. The debtor failed to comply with discovery and the district
court entered a default judgment against the debtor as to his liability as a sanction
for his willful failure to comply. On August 3, 2011, a final judgment was entered
against the debtor and Twister’s, jointly and severally, in the amount of $41,231.90
for violating Federal copyright law.

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      On November 16, 2011, the debtor filed a chapter 7 petition. Shortly
thereafter, the appellees filed this adversary proceeding to determine the
dischargeability of their judgment. The appellees argued that the debt was
nondischargeable pursuant to § 523(a)(6) because the debtor’s actions were willful
and malicious.

      A trial was held and the bankruptcy court issued a written opinion holding
that the debtor had willfully failed to obtain an ASCAP license and maliciously
disregarded the rights of ASCAP’s members and Federal copyright law. As such,
the debt was excepted from discharge and a judgment to that effect was entered.
The debtor filed a timely notice of appeal.

STANDARD OF REVIEW
      We review the bankruptcy court’s factual findings for clear error and legal
conclusions de novo. Johnson v. Fors (In re Fors), 259 B.R. 131, 135 (B.A.P. 8th
Cir. 2001) (citing Snyder v. Dewoskin (In re Mahendra), 131 F.3d 750, 754 (8th
Cir. 1997)). “‘The bankruptcy court’s determination of whether a party acted
willfully and maliciously inherently involves inquiry into and finding of intent,
which is a question of fact.’” Id. (quoting Eldridge v. Waugh (In re Waugh), 95
F.3d 706, 710 (8th Cir. 1996)).

LAW
   Section 523(a)(6) of the Bankruptcy Code provides:
   (a) A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this
       title does not discharge an individual debtor from any debt –
               (6) for willful and malicious injury by the debtor to another entity or
               to the property of another entity.

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      A plaintiff must prove nondischargeability by a preponderance of the
evidence. See Fischer v. Scarborough (In re Scarborough), 171 F.3d 638, 641 (8th
Cir. 1999). It is well established in the Eighth Circuit that the elements of ‘malice’
and ‘willfulness’ must be separately analyzed. Barclays American/Bus. Credit,
Inc. v. Long (In re Long), 774 F.2d 875 (8th Cir. 1985); see also Johnson v. Miera
(In re Miera), 926 F.2d 741 (8th Cir. 1991); In re Fors, 259 B.R. 131.

      “The word ‘willful’ in (a)(6) modifies the word ‘injury,’ indicating that
nondischargeability takes a deliberate or intentional injury, not merely a deliberate
or intentional act that leads to injury…” Kawaauhua v. Geiger, 523 U.S. 57, 61
(1998). The ‘willful’ element is a subjective one. Blocker v. Patch (In re Patch),
526 F.3d 1176, 1180 (8th Cir. 2008). “If the debtor knows that the consequences
are certain, or substantially certain, to result from his conduct, the debtor is treated
as if he had, in fact, desired to produce those consequence.” Id.

      Malice requires more than just reckless behavior by the debtor.
Scarborough, 171 F.3d at 641 (citing In re Miera, 926 F.2d at 743). The defendant
must have acted with the intent to harm, rather than merely acting intentionally in a
way that resulted in harm. Id. “‘Circumstantial evidence of the debtor’s state of
mind [can] be used to ascertain whether malice existed.’” In re Fors, 259 B.R. at
139 (quoting In re Miera, 926 F.2d at 744).

      “‘If the debtor was aware of the plaintiff-creditor’s right under law to be free
of the invasive conduct of others (conduct of the sort redressed by the law on the
underlying tort) and nonetheless proceeded to act to effect the invasion with
particular reference to the plaintiff, willfulness is established. If in so doing the
debtor intended to bring about a loss in fact that would be detrimental to the
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plaintiff, whether specific sort of loss the plaintiff actually suffered or not, malice
is established.’” Sells v. Porter (In re Porter), 375 B.R. 822, 828 (B.A.P. 8th Cir.
2007) aff’d, 539 F.3d 889 (8th Cir. 2008) (quoting KYMN, Inc. v. Langeslag (In re
Langeslag), 366 B.R. 51, 59 (Bankr. D. Minn 2007)).

ANALYSIS
      The debtor argues that the bankruptcy court erred in determining that
maliciousness and willfulness had been established by a preponderance of the
evidence. He maintains that he could not have intentionally injured the appellees
because he was unaware that Twister’s needed a public performance license.
According to the debtor, he did not receive any of ASCAP’s attempted contact and
the first time he was aware of any possible copyright violation was when the
appellees filed suit against him in Federal district court. One of the problems with
the debtor’s argument is his failure to distinguish between the concepts of injury
and harm. His argument also flies in the face of the factual findings of the
bankruptcy court.

Willfulness
      The Supreme Court in Geiger analyzed willfulness in terms of injury. Injury
is the “invasion of any legally protected interest of another.” Restatement (Second)
of Torts § 7(1). Under § 523(a)(6), a judgment debt cannot be exempt from
discharge unless it is based on an intentional tort, which requires the actor to intend
“the consequences of the act rather than the act itself.” Restatement (Second) of
Torts § 8A, comment a, at 15; Geiger, 523 U.S. at 61. In effect, Geiger requires
that the debtor intend the injury. See also Allstate Ins. v. Dziuk (In re Dziuk), 218
B.R. 485 (Bankr. D. Minn. 1998); In re Porter, 375 B.R. 822.

                                            6
      The debtor argues that to prevail on the willfulness element, the appellees
must prove that they actually made contact with him so he could develop the
requisite knowing intent to injure appellees. According to the debtor, absent proof
that the appellees made contact, it is too speculative for the court to conclude that
the appellant had the actual intent to harm the appellees.

      The debtor’s position is both unpersuasive and clearly contrary to the record.
It was the debtor’s duty, and within the scope of his professional authority, to
obtain the proper license. As the managing member, it was also his responsibly to
ensure that Twister’s was complying with the applicable laws. In this case, the
debtor blatantly failed to comply with Federal copyright law.

      In a span of three years, ASCAP attempted to contact the debtor an
astounding 44 times. ASCAP mailed letters, telephoned the debtor and attempted
to contact him in person. In fact, ASCAP even mailed a settlement offer return
receipt requested, which the debtor himself signed. Based on these facts, the
bankruptcy court found that the debtor had intentionally ignored ASCAP’s
correspondence and thwarted ASCAP’s attempts to contact him. The court clearly
did not believe that he had not received any of the messages or read the letters.
The bankruptcy court’s finding is not clearly erroneous.

       “The bankruptcy court’s impression of the credibility of the witnesses is
entitled to great weight.” In re Fors, 259 B.R. at 140 (citing Commonwealth Land
Title Insurance Co. v. Barber (In re Barber), 95 B.R. 684, 688 n. 14 (Bankr. W.D.
Mo. 1988)). “Due regard must be given to the opportunity of the bankruptcy judge
to assess the credibility of the witnesses.” Id. (citing Walters v. Occidental
Petroleum Corp. (In re Fin. Corp.), 1 B.R. 522, 525 (W.D. Mo. 1979), aff’d, 634
                                           7
F.2d 404 (8th Cir. 1980); See also Fed. R. Bankr. P. 8013. The bankruptcy court
did not believe that all 44 attempts at contact somehow slipped by the debtor.
ASCAP’s attempted communication was thorough and unrelenting. In this case,
even the most unorganized and incompetent management staff would be hard
pressed to convince the bankruptcy court of the debtor’s obliviousness.

       The debtor intentionally invaded the appellees’ legally protected rights
under Federal copyright law and thus intended the injury to the appellees. These
actions go beyond mere recklessness and are willful.

Maliciousness
      In Long, the Eighth Circuit analyzed maliciousness in terms of harm. Long,
774 F.2d at 881. Harm is the “existence of loss or detriment in fact of any kind to
a person resulting from any case.” Restatement (Second) of Torts § 7(2).

      In this case, the debtor’s actions were malicious because he intended to harm
the appellees. The debtor did not obtain a public performance license yet he
continued to play music covered by the license. The district court for the Eastern
District of Missouri found the debtor to be in violation of Federal copyright law
and entered judgment against him. The Eighth Circuit has held that the bankruptcy
court may consider a violation of a statute as evidence of malicious intent. In re
Fors, 259 B.R. at 139. And, one court has held that the debtor’s intentional
violation of a Federal copyright law was an aggravating feature which evinces a
voluntary willingness to inflict injury. Knight Kitchen Music v. Pineau (In re
Pineau), 149 B.R. 239 (D. Me. 1993).

                                          8
      For the same reasons that the bankruptcy court found that the debtor knew
he was violating the appellees’ legal rights, it found that he knew they were
entitled to be paid royalties which the debtor was avoiding by not obtaining a
license. As a consequence, he intended to harm the appellees, making his actions
malicious.

      At trial, the debtor admitted that he had some general knowledge of Federal
copyright law and royalties. With this general knowledge, the debtor knew or
should have known that the natural consequence of a failure to obtain a license is
financial harm to the appellees. Considering the district court’s finding and the
debtor’s admitted knowledge of Federal copyright law, we agree with the
bankruptcy court and conclude that the debtor intended to bring about the loss that
the appellees suffered.

CONCLUSION
      The debtor’s actions were both willful and malicious, therefore, the
appellee’s claim is excepted from discharge under § 523(a)(6). The judgment of
the bankruptcy court is affirmed.
                             _____________________

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