Here, the debtor was unable to discharge his liability for
violation of ACPA, trademark infringement, and false advertising, because of
the collateral estoppel effect of judge and jury findings in the underling
cause of action. The judge granted
summary judgment on the false advertising claim, while the jury found Butler (and
other defendants) liable for trademark infringement and cybersquatting. The jury found, by clear and convincing
evidence, that the infringement and false advertising were willful. The district court awarded attorneys’ fees,
emphasizing the defendants’ “seeming disregard for the people they harmed or
the reputation they sullied....” and that exceptionality can come from
willfulness, which the jury had found.
While the Ninth Circuit reversed the district court’s punitive doubling
of the jury’s award of actual damages, it did not touch the underlying factual
findings. Plaintiff’s proof of claim in
the bankruptcy case was therefore diminished but still in the multimillion-dollar
range.
Exceptions to discharge are construed narrowly, but debts incurred
by “willful and malicious injury by the debtor to another entity or to the
property of another entity” are nondischargeable. The question was the collateral estoppel
effect of the earlier proceedings. ACPA
violations require both bad faith and an absence of safe harbor protection for
a reasonable belief in fair/lawful use.
Thus, a finding of liability for cybersquatting requires an intent to
cause harm and constitutes “willful and malicious injury,” and the debtor was
collaterally estopped from asserting dischargeability.
The court reasoned similarly on the trademark infringement
and false advertising claims, though intent is not a required element on
those. The jury specifically found that
the trademark infringement was willful; though the verdict by itself didn’t
specify whether the acts themselves were willful or they were willfully done
with intent to cause harm, “intentional infringement is tantamount to
intentional injury under bankruptcy law” because “the intent to infringe and
the intent to deprive the mark’s owner of the value and benefit of his property
are opposite sides of the same coin.” Also, even in the absence of record evidence
on the defendant’s intent to cause harm, the trial court’s additional findings
on the need for attorney’s fees answered the question.
The trial court’s finding took the damages award, as well as
the fee award, into the nondischargeable category.
The same logic applied to the false advertisng claims: the
jury found willfulness and injury is an element of false advertising (note that
it isn’t for trademark, apparently!). “Therefore,
a defendant could not willfully commit false advertising without intending to
cause harm.” The trial court found that
defendants falsely claimed to own skydiving centers in various locations where
they didn’t and unfairly used plaintiff’s photos on their own website. Combined
with the court’s finding of exceptionality, this was enough for collateral
estoppel to kick in.
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