In re Ahmed

Page 34

359 B.R. 34

Shahidi AHMED, Debtor Yash Raj Films (USA), and Arclightz Films PVT Ltd,/Enzo Pictures Ltd., Plaintiffs, v. Shahidi AHMED, Defendant.

Bankruptcy No. 03-20307-CEC.

Adversary No. 03-1648-CEC.

United States Bankruptcy Court, E.D. New York.

October 6, 2005.

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William M. Poppe, Esq., Poppe & Bhouraskar, LLP, New York, NY, for Plaintiffs.

Dominic S. Rizzo, Esq., Brooklyn, NY, for Debtor.

DECISION

CARLA E. CRAIG, Bankruptcy Judge.

This is an adversary proceeding to determine the dischargeability under 11 U.S.C. § 523(a)(6) of debts owed by Shaihidi Ahmed, the debtor, to Yash Raj Films, (USA), Arclightz Films Pvt Ltd. and Enzo Pictures Ltd., based on judgments rendered in an action in the United States District Court for the Southern District of New York (the "District Court Action").

The plaintiffs have moved for summary judgment based on the doctrines of collateral estoppel and res judicata. For the reasons set forth below, the plaintiffs' motion for summary judgment based on collateral estoppel is granted.

Jurisdiction

This Court has jurisdiction over this core proceeding under 28 U.S.C. §§ 1334(b) and 157(b)(2)(I) and the Eastern District of New York standing order of reference dated August 28, 1986. This Decision constitutes the Court's findings of fact and conclusions of law to the extent required by Fed. R. Bankr.P. 7052.

Facts

On April 1, 2002, the plaintiffs commenced an action against the debtor for copyright infringement under 17 U.S.C. §§ 504(a)(1)-(2), 504(c), the Copyright Act, which alleged that the debtor infringed the plaintiffs' copyrights by offering and selling pirated copies of films to the public on eBay, an internet auction and marketplace.

On April 1, 2002, the District Court issued a temporary restraining order directing the debtor to turn over all of the films in his possession. The debtor complied with the order but did not answer the complaint.

The plaintiffs moved for summary judgment in the District Court Action, seeking statutory damages and attorney's fees. On October 2, 2002, the District Court granted the plaintiffs' summary judgment motion based on the debtor's default and referred the matter to Magistrate Judge Roanne L. Mann for a determination of damages.

On August 1, 2003, the Magistrate Judge issued a report and recommendation finding, among other things, that the debtor "offered and sold to the public unauthorized, pirated copies of the films [owned by the plaintiffs]." R & R at 2-4, 6-8.¹ The Magistrate Judge recommended enhanced statutory damages be cause the debtor's infringement was willful. R & R at 6, 8.

On August 5, 2003, the debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.

On September 2, 2003, the District Court adopted the Magistrate Judge's report and recommendation and on September 9, 2003, entered judgment in favor of the' plaintiffs.

On November 14, 2003, the plaintiffs brought this adversary proceeding seeking a determination that the judgment rendered in the District Court Action is nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code, which excludes from discharge debts from willful and malicious injury to persons or property. The plaintiffs moved for summary judgment.

In response, the debtor contended that questions of fact exist as to whether he acted wilfully and maliciously when he sold and distributed the plaintiffs' copyrighted films. The debtor also argued that the District Court's judgment was in violation of the automatic stay because it was rendered after he filed for bankruptcy.

On March 17, 2004, this Court granted relief from the automatic stay to allow the debtor to object to the Magistrate Judge's report and recommendation and, to allow the District Court Action to proceed to judgment. The debtor filed an objection to the report and recommendation on March 22, 2004. In his objection, the debtor asserted defenses on the merits, claiming, among other things, that he never received an official warning from the plaintiffs regarding his sale of the DVDs online and that the warnings he did' receive were from anonymous eBay users "who violated eBay's terms and conditions by creating different accounts just to post negative feedback." See Def.'s Objection to Mag. J.'s Report and Recommendation at 1, No. 02-01935 (E.D.N.Y.2004).

After hearing oral argument on the debtor's objection on July 1, 2004, the District Court reviewed the Magistrate Judge's report and recommendation de novo and found that "it is a thorough consideration of the relevant facts and a precise application of the law." See Order at 2, No. 02-01935 (E.D.N.Y. July 1, 2004). The District Court also held that the debtor's objections were without merit and adopted the report and recommendation in its entirety.

The plaintiffs' summary judgment motion in this, adversary proceeding asserts that, pursuant to the principles of collateral estoppel, the factual issues determined in the District Court Action are sufficient to fully adjudicate the non-dischargeability of the District Court judgment under 11 U.S.C. § 523(a)(6). Thus, the plaintiffs assert that there are no material facts in dispute and that they are entitled to judgment as a matter of law pursuant, to Fed. R. Bank. P. 7056(b).

In opposing summary judgment, the debtor argues that "substantial questions of fact remain as to whether debtor acted willfully and maliciously toward plaintiffs." See Mem. of Law in Opp'n to Pl.'s Mot. for Summ. J. at 6.

Discussion

A Summary Judgment

Summary judgment is appropriate the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Bankr.P. 7056(c)(2005); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court's function is not to resolve disputed issues of fact, but only to determine whether there is a genuine issue to be tried. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In making this determination, the court is required to, view the evidence in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). After a movant makes a properly supported summary judgment motion, the nonmovant has the burden of setting forth specific facts showing the existence of a genuine issue of fact for trial by setting forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e)(2005). The nonmovant "may not rest upon the mere allegations or denials of its pleadings." Id. The non-moving party must show more than "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Where the, record taken as a whole could not lead, a rational trier of fact to find in favor of the nonmoving party, there is no genuine issue of material fact requiring a trial and a grant of summary judgment is proper. Id. at 587, 106 S.Ct. 1348; see also Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (stating that no genuine issue exists "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable ... or is not significantly probative ... summary judgment may be granted.").

B. Collateral Estoppel

The debtor asserts that collateral estoppel is inapplicable in the instant case because the District Court did not make a finding that the debtor's actions were malicious, which is necessary to find that the plaintiffs' judgment is nondischargeable under § 523(a)(6).

The plaintiffs assert, and the debtor does not deny, that if this Court determines that the District Court's decision, which adopted the Magistrate Judge's report and recommendation in its entirety, contains sufficient findings of fact to satisfy § 523(a)(6)'s "willful" and "malicious" standard, then collateral estoppel applies and the plaintiffs' motion for summary judgment must be granted.

Collateral estoppel is applicable in dischargeability actions. Bundy Am. Corp. v. Blankfort (In re Blankfort), 217 B.R. 138, 142 (Bankr.W.D.N.Y.1998)(citing Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). Preclusive effect will be given to a prior decision finding willful and malicious injury in determining whether a debt is nondischargeable under § 523(a)(6). See Marine Midland Bank v. Huber (In re Huber), 171 B.R. 740 (Bankr.W.D.N.Y.1994).

"[When] the issues sought to be precluded were decided by a federal court, as in the case at bar, the Bankruptcy Court must apply the theoretically uniform federal common law of collateral estoppel." Fed. Trade Comm'n v. Wright (In re Wright), 187 B.R. 826, 832 (Bankr.D.Conn.1995)(citing Blonder-Tongue Laboratories, Inc. v. Univ. of Ill. Found., 402 U.S. 313, 324 n. 12, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971)).

In Grogan v, Garner, the Supreme Court endorsed the formulation of the collateral estoppel doctrine as expressed by the Second Restatement of Judgments. Grogan, 498 U.S. at 284, 111 S.Ct. 654. "The Restatement (Second) of. Judgments articulates the general rule of collateral estoppel as follows: `When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.'" In re Wright, 187 B.R. at 832. This rule has been reduced to a four-pronged test by various courts. Davidcraft Corp. v. Baer (In re Baer), 161 B.R. 334, 337 (Bankr. E.D.N.Y.1993). A typical formulation of this test states that collateral estoppel will be...