Would Joel Tennenbaum’s Napster Fine be Dischargeable in Bankruptcy?

23 May Would Joel Tennenbaum’s Napster Fine be Dischargeable in Bankruptcy?

Yesterday, May 22, 2012, the Supreme Court declined to hear the appeal of the large damage award levied against Boston University student Joel Tennenbaum for downloading and sharing 30 songs on Napster. Wikipedia’s summary of the case can be read here.

First of all, this post is in the nature of a thought experiment; it is not legal advice for Mr. Tennenbaum nor anyone else. However, as a bankruptcy lawyer, the problem piqued my interest. The damage award against Mr. Tennenbaum for copyright infringement totaled $675,000 and, at the time, Mr. Tennenbaum was only an undergraduate student doing what tens of thousands of other college students had been doing at the time–using illegal file-sharing services to download and distribute music. As the jury found in Mr. Tennenbaum’s case, these actions, despite their rampant popularity, violated federal copyright laws and, among other things, vested the music-industry plaintiff with the right to recover sizable statutory damages. Statutory damages under copyright laws are, for each act of infringement, $750 to $30,000 for non-willful infringements, and a range of $750 to $150,000 for willful infringements. In Mr. Tennenbaum’s case, the jury was convinced to award damages of $22,500 for each infringement, for a total of $675,000.

While Mr. Tennenbaum received a doctorate in statistical physics last week, he quite-understandably claims not to have the free cash to pay the judgment. So, could he file bankruptcy and discharge the judgment?

Generally speaking, judgments are dischargeable in bankruptcy. However, creditors in bankruptcy have the basic right to object to a debtor’s discharge or the dischargeability of a particular debt. Here, Sony and Warner Brothers would likely object to the dischargeability of Mr. Tennenbaum’s debt in bankruptcy. Would they succeed?

The primary basis for objection to the dischargeability of a copyright infringement judgment is Section 523(a)(6) of the Bankruptcy Code, which excepts from discharge claims “for willful and malicious injury by the debtor to another entity or to the property of another entity.” When applicable, creditors attempt to use copyright awards for willful infringement as the basis for a nondischargeability ruling under Section 523(a)(6). However, the bottom line is that Mr. Tennenbaum would likely get another bite of the apple in a bankruptcy case and the chance to convince a bankruptcy judge that the infringement was not willful and malicious within the meaning of Section 523(a)(6) of the Bankruptcy Code. A finding of maliciousness is a separate and independent requirement under the Bankruptcy Code, while it is not a requirement under copyright law. As one of the courts in a seminal case put it (when reversing the nondischargeability finding of the lower court):

(1) there is a genuine issue of material fact as to whether the infringement was a “willful” injury within the meaning of § 523(a)(6) of the Bankruptcy Code; and (2) the “malicious” requirement was not addressed separately from the “willfulness” requirement as required by our precedent.

In re Barboza, 545 F. 3d 702, 704 (9th Cir. 2008).

The First Circuit BAP recently cited Barboza positively, noting the requirement that both willfulness and malicious be proven in the bankruptcy context in order for a debt to be held nondischargeable. In re Bradley, Case No. 10-16021-WCH (1st Cir. BAP 2012) (footnote 9). Assuming Mr. Tennenbaum stays in the Boston area, any bankruptcy filing would be governed by First Circuit law, and as the Bradley panel noted:

It is clear that an act in reckless disregard of the rights of others does not constitute willful and malicious conduct for the purposes of § 523(a)(6).

In the bankruptcy context, Mr. Tennenbaum’s pursuers would have to deal with the need to prove maliciousness. It is possible that Mr. Tennenbaum would win that fight and clear himself of the sizable judgment looming over his future.

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