Future World Elecs., LLC v. Schnell (In re Bart Arek Schnell XXX-Xx-2968 & Stephanie Marie Schnell XXX-Xx-6365)

IN RE: BART AREK SCHNELL xxx-xx-2968

and STEPHANIE MARIE SCHNELL xxx-xx-6365 DebtorsFUTURE WORLD ELECTRONICS, LLC Plaintiff v. BART AREK SCHNELL Defendant

Case No. 14-41478

Adversary No. 14-4081

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

July 27, 2015

Chapter 7

MEMORANDUM OF DECISION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT¹

ON THIS DATE the Court considered the Motion for Summary Judgment filed by the Plaintiff, Future World Electronics, L.L.C. ("Plaintiff"), in the above-referenced adversary proceeding. The Plaintiff's adversary complaint seeks a determination that the debt owed to it by the Defendant-Debtor, Bart Arek Schnell (the "Defendant"), is excepted from the scope of his Chapter 7 discharge pursuant to 11 U.S.C. § 523(a)(6), which excepts from discharge a debt "for willful and malicious injury by the debtor toanother entity or to the property of another entity." According to the Plaintiff, the determinations issued by the United States District Court for the Northern District of Texas that resulted in the entry of a judgment against the Defendant and his affiliated company for willful copyright infringement, establish the elements necessary to render that judgment debt nondischargeable as a matter of law under § 523(a)(6). Upon due consideration of the pleadings, the proper summary judgment evidence submitted by the parties, and the relevant legal authorities, the Court finds that the Plaintiff has demonstrated that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law that the debt owed to it by the Defendant is nondischargeable under § 523(a)(6).²

Factual and Procedural Background³

The Plaintiff, Future World Electronics, L.L.C., is a Louisiana limited liability company that creates advertising materials for use in the automotive direct marketing industry. As a result of its enterprise, it has created several successful direct-mail advertising pieces, some of which have become protected copyrighted materials. On July 3, 2012, Plaintiff brought suit for copyright infringement and other causes against theDefendant, Bart A. Schnell, and his solely-managed Texas limited liability company, Over Drive Marketing, L.L.C. ("Over Drive"), and other parties, in the United States District Court for the Northern District of Texas, Dallas Division, the Hon. Jane J. Boyle, presiding (the "District Court"), under cause no. 3:12-cv-2124. The Plaintiff's suit against the Defendant in Dallas sought to impose personal liability upon the Defendant for his personal actions taken through the auspices of Over Drive to infringe upon the Plaintiff's copyright protections, thereby subjecting him and his company to various legal remedies outlined in 17 U.S.C. §501 et. seq., including the assessment of actual and/or statutory damages⁴ and liability for costs and attorneys' fees.⁵

After the District Court granted four separate requests for extension of time to answer by the Defendant and Over Drive, they filed an answer on September 15, 2012.⁶ In April 2013, the Defendant's counsel withdrew because the Defendant ceased communicating with him.⁷ The District Court subsequently entered default against Over Drive for its failure to obtain counsel for a corporate entity. On November 5, 2013, in the context of granting a default judgment and permanent injunctive relief against Over Drive,⁸ the District Court found that the Plaintiff's request for the assessment of statutorydamages against the Defendant and Over Drive required an actual hearing on the damages claims and it ordered all parties to attend such a hearing to be conducted on November 22, 2013.⁹

Despite the Court's order, neither the Defendant nor Over Drive appeared at the November 22 hearing.¹⁰ At and after the November 22 hearing, the Plaintiff tendered various pieces of evidence in support of its requests for statutory damages and an assessment of attorneys' fees and costs.¹¹ On December 3, 2013, the District Court entered a final judgment against Over Drive for its repeated willful infringement of the Plaintiff's copyrighted materials which awarded the Plaintiff $82,500 in statutory damages pursuant to 11 U.S.C. §504(c)(2) and $70,980.60 in attorneys' fees and costs pursuant to 11 U.S.C. §505 based upon a lodestar analysis.¹² It declined to award pre-judgment interest, but awarded post-judgment interest based upon the stated federal rate.

Because the individual Defendant ignored its directive to attend the November 22 damages hearing, the District Court issued an order on that date, directing the Defendant to show cause by December 6, 2013 why he failed to comply with the Court's order and warning the Defendant that any further failure to comply would result in the granting of adefault judgment against him.¹³ The Defendant also ignored this show cause order. The District Court subsequently found that the Defendant had failed to participate in the case since the withdrawal of his counsel in April 2013, including his failure to respond to the Plaintiff's Motion for Partial Summary Judgment against him and his repeated failures to abide by the Court's orders to appear.¹⁴ The District Court further found that there was no evidence that the Defendant's noncompliance was due to a good faith mistake or excusable neglect¹⁵ and that it was more properly characterized as "outright defiance."¹⁶ Nevertheless, the District Court examined whether, despite such defiance, the Defendant should be held personally liable for the willful copyright infringement. The District Court found, on the basis of the evidence submitted, including the Defendant's own concessions, that the individual Defendant was the "sole member, manager, president, and director of Over Drive" and that the Defendant "knew of and controlled" his company's "creation, copying, distribution, and use of the Infringing Work."¹⁷ It further found that the individual Defendant "had the authority and influence within the corporation to expose himself to liability for Over Drive's act of infringement."¹⁸ Thus, the DistrictCourt, in a final judgment entered against the Defendant on December 9, 2013, held the individual Defendant jointly and severally liable for the $82,500 in statutory damages and the $70,980.60 in attorneys' fees and costs, plus accrued interest, as a joint tortfeasor responsible for the willful copyright infringement (the "Federal Court Judgment").¹⁹ No appeal of the Federal Court Judgment was prosecuted.

Seven months later, on July 10, 2014, Defendant filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in this Court. The underlying bankruptcy case was assigned to the Honorable Brenda T. Rhoades. Three months later, on October 7, 2014, Plaintiff filed its adversary complaint to determine the nondischargeability of the debt memorialized by the Federal Court Judgment (hereafter "Plaintiff's Complaint"). On or about May 7, 2015, Plaintiff filed the motion for summary judgment under present consideration (hereafter "Plaintiff's Motion"), seeking a determination that the Federal Court Judgment should be declared nondischargeable under § 523(a)(6) as a "willful and malicious injury."²⁰ Relying on principles of issue preclusion, Plaintiff alleges therein that the factual issues underlying its cause of action for nondischargeability were actually litigated in the federal district court in Dallas and that, in light of the entry of the Federal Court Judgment, this Court is precluded from deciding those issues again. The Defendant has filed a response in opposition to the Plaintiff's Motion and the Plaintiff has presented a reply to that response.

Discussion

Summary Judgment Standard

The Plaintiff brings its Motion for Summary Judgment in this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56, which provides that summary judgment shall be rendered "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a).²¹ "The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses." Chishty v. Texas Dept. of Aging and Disability Services, 562 F. Supp. 2d 790, 800 (E.D. Tex. 2006).

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). As a movant, a party asserting that a fact cannot be genuinely disputed must support that assertion by:

(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or

(B) showing that the materials cited do not establish the . . . presence of a genuine dispute, or that an adverse party cannot produce admissibleevidence to support the fact.

FED. R. CIV. P. 56(c).

The manner in which the required summary judgment showing can be made depends upon which party will bear the burden of persuasion at trial. If, as in this instance, the burden of persuasion rests on the moving party, "that party must support its motion with credible evidence - using any of the materials specified in Rule 56(c)- that would entitle it to a directed verdict if not contraverted at trial." Celotex, 477 U.S. at 331. Upon a prima facie showing by the movant of entitlement to judgment as a matter of law, the non-movant may not rest upon the mere allegations or denials in its pleadings, but rather must demonstrate in specific responsive pleadings the existence of specific facts constituting a genuine issue of material fact for which a trial is necessary. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57 (1986); Bayle v. Allstate Ins. Co., 615 F.3d 350, 355 (5th...