IN RE DEEREY

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Docket Number

Case No. 9:05-bk-06256-ALP, Adv. Proc. No. 9:05-ap-00537-ALP, Doc. No. 52.

Attorney(S)

Patricia J. Potter, Siesky, Pilon and Wood, Naples, FL, for Debtor.

Acts

Telecommunications — Wire Or Radio Communication — Miscellaneous Provisions — Unauthorized Publication Or Use Of Communications

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Smart Summary

Factual and Procedural Background

This case arises from a Chapter 7 bankruptcy liquidation of Daniel Scott Deerey (the Debtor) and involves a motion for summary judgment filed by DirecTV Inc. (DirecTV) against the Debtor. DirecTV seeks to except a debt owed by the Debtor from discharge under Section 523(a)(6) of the Bankruptcy Code, contending that the debt arose from a "willful and malicious injury." The underlying conduct relates to a piracy lawsuit previously adjudicated in the United States District Court for the Central District of California, where the Debtor and others were found to have willfully violated 47 U.S.C. § 605(e)(4) by manufacturing and selling devices used to intercept and pirate DirecTV's satellite signals. The District Court entered a Consent Judgment against the Debtor for $169,850,000 and issued a permanent injunction prohibiting further piracy-related conduct. DirecTV argues that these findings preclude the Debtor from re-litigating the issue of willful and malicious conduct in bankruptcy court under the doctrine of collateral estoppel.

Legal Issues Presented

Whether the debt owed to DirecTV by the Debtor is excepted from discharge under Section 523(a)(6) of the Bankruptcy Code as a result of willful and malicious injury.
Whether the doctrine of collateral estoppel bars the Debtor from contesting the willful and malicious nature of the injury in the bankruptcy dischargeability proceeding, based on the prior findings and Consent Judgment in the District Court piracy litigation.

Arguments of the Parties

DirecTV's Arguments

The District Court's findings that the Debtor willfully violated 47 U.S.C. § 605(e)(4) establish all operative elements of a claim under Section 523(a)(6) for willful and malicious injury.
The doctrine of collateral estoppel prevents the Debtor from re-litigating these issues in bankruptcy court, as they were already litigated and decided in the District Court.
Based on the prior judgment and findings, DirecTV is entitled to summary judgment declaring the debt non-dischargeable under Section 523(a)(6).

Debtor's Arguments

The opinion does not contain a detailed account of the Debtor's legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Bilzerian, 153 F.3d 1278 (11th Cir. 1993)	Elements required to apply the doctrine of collateral estoppel in bankruptcy discharge proceedings.	Used to outline the four-part test for collateral estoppel to determine if issues decided in prior litigation are binding in bankruptcy court.
Halpern v. First Georgia Bank, 810 F.2d 1061, 1064 (11th Cir. 1987)	Application and scope of collateral estoppel in bankruptcy proceedings.	Supported the Court's explanation of collateral estoppel requirements.
Scarfone v. Arab American Oil Co., 132 B.R. 470, 472 (Bankr. M.D. Fla. 1991)	Further elucidation of collateral estoppel principles in bankruptcy cases.	Reinforced the Court's framework for applying collateral estoppel.

Court's Reasoning and Analysis

The Court analyzed DirecTV's motion for summary judgment under the framework of collateral estoppel (issue preclusion). It identified the four necessary elements to apply collateral estoppel: identity of issues, actual litigation, critical necessity to the prior judgment, and comparable burdens of proof. While the District Court had found the Debtor liable for willfully violating 47 U.S.C. § 605(e)(4) and entered a Consent Judgment, the Court emphasized that the issue of dischargeability under Section 523(a)(6)—which requires a finding of willful and malicious injury—was not actually litigated or decided in the prior proceeding. Specifically, the District Court's finding did not require a finding of malice, which is an essential element for non-dischargeability under the Bankruptcy Code. Because the malice element was neither litigated nor necessary to the prior judgment, collateral estoppel did not apply. Consequently, the Debtor was not barred from contesting the willful and malicious nature of the injury in the bankruptcy proceeding. Accordingly, the Court denied DirecTV's motion for summary judgment and set the matter for trial.

Holding and Implications

Holding: DirecTV Inc.'s Motion for Summary Judgment as to Count I of the Adversary Complaint is DENIED.

Implications: The denial means that the issue of whether the debt is non-dischargeable under Section 523(a)(6) due to willful and malicious injury must be determined at trial. The Court clarified that the doctrine of collateral estoppel does not preclude the Debtor from litigating the dischargeability of the debt, as the malice element was not previously adjudicated. This decision affects only the parties involved and does not establish new precedent beyond the application of existing collateral estoppel principles in the bankruptcy context.

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In re: DANIEL SCOTT DEEREY, Debtor, DIRECTV INC., a California Corporation Plaintiff, v. DANIEL SCOTT DEEREY, Defendant.

ORDER ON DIRECTV, INC.'S MOTION FOR SUMMARY JUDGMENT AS TO COUNT I OF ADVERSARY COMPLAINT

ALEXANDER L. PASKAY, Bankruptcy Judge.

THE MATTER under consideration in this Chapter 7 liquidation case is a Motion for Summary Judgment filed by DirecTV Inc. (DirecTV) (Doc. No. 52). The Motion is directed to Count I of a multiple count Complaint filed by DirecTV against Daniel Scott Deerey (the Debtor). Specifically, the Motion is based on the contention of DirecTV that a debt owed to them should be excepted from discharge pursuant to Section 523(a)(6) of the Bankruptcy Code because the debt arose from a "willful and malicious injury". The alleged willful and malicious conduct occurred in connection with a piracy suit, which was filed prior to the commencement of the Debtor's bankruptcy. It should be noted at the outset that this Court adopts verbatim the specific facts relating to the suit that was filed against the Debtor and his brother, Arthur Joseph Deerey, Jr. in the United States District Court, Central District of California (District Court), and the findings of the District Court. Therefore, it is unnecessary to reiterate the facts set forth by this Court in its Order denying Summary Judgment in the case of Arthur Deerey.

In the California Litigation, the District Court granted DirecTV's Motion for Partial Summary Judgment against the Debtor and others based on findings set forth in its Civil Minutes. On April 23, 2003, the District Court upon the Stipulation of the parties entered an Order based on the findings set forth in the Civil Minutes which found that the Debtor and others willfully violated the provisions of 47 U.S.C. § 605(e)(4). Thereafter, on May 1, 2003, the Debtor consented to the entry of a money judgment in favor of DirecTV in the amount of $169,850,000.00. (Consent Judgment). In addition to granting the Money Judgment to DirecTV, the District Court also granted a Permanent Injunction prohibiting the Debtor from further manufacturing or selling the devices, which according to the District Court were primarily used for intercepting and pirating electronic signals and unlawfully decrypted DirecTV's satellite system. According to DirecTV, the findings of the District Court in the Civil Minutes established all the operative elements of a viable claim under Section 523(a)(6) of the Code and, therefore, under the doctrine of collateral estoppel the Debtor is prohibited from re-litigating the issue of willful and malicious conduct because it was already litigated in the District Court. DirecTV further contends that, based on the findings of the District Court, it is entitled to a judgment in its favor, as a matter of law, determining that the Debtor's liability based on the Consent Judgment is a non-dischargeable obligation pursuant to Section 523(a)(6) of the Code.

Plaintiff's Exhibit "A", United States District Court Central District of California, Civil Minutes — General, Case No.: CV 02-05194 PA (RCx), February 10, 2003, Page 4 of 4.

Plaintiff's Exhibit "C", United States District Court of Central District of California, Case No.: CV 020-5194 PA (Rcx), Stipulation and Order, Page 2.

DirecTV's Motion is supported by the following documents, which are attached to the Declaration of Michael Rosenberger, Counsel of record for DirecTV in the California litigation: Exhibit A, Civil Minutes entered on February 12, 2003; Exhibit B, Stipulation and Order, entered on April 23, 2003; Exhibit C, Consent to Judgment and Permanent Injunction by Defendant Daniel S. Deerey, executed on May 1, 2003; Exhibit D, Judgment Re; Dan Deerey, entered on June 2, 2003. Based on these documents and the controlling law, it is the contention of DirecTV that the Debtor is barred from re-litigating the issues, and therefore, DirecTV is entitled to Summary Judgment in its favor as a matter of law.

The doctrine of collateral estoppel or issue preclusion prevents a debtor from re-litigating issues that have already been determined in a litigation. To apply the Doctrine the record must establish the following:

(1) the issue in the prior litigation and the issue in the discharge proceeding must be identical.

(2) the bankruptcy issue must have been actually litigated in the prior proceeding.

(3) the prior determination must have been a critical and necessary part of the prior Judgment.

(4) the burden of proof in the discharge proceeding must not be significantly heavier then the burden of proof applied in the initial action.

In re Bilzerian, 153 F.3d 1278 (11^th Cir. 1993); Halpern v. First Georgia Bank, 810 F.2d 1061, 1064 (11^th Cir. 1987);Scarfone v. Arab American Oil Co., 132 B.R. 470, 472 (Bankr. M.D. Fla. 1991). It cannot be gainsaid that the Consent Judgment in California established with finality the Debtor's liability by the entry of a Consent Judgment. However, it is equally true, that the dischargeability vel non of the claim asserted against the Debtor in California was not litigated and could not have been litigated in the District Court by virtue of Section 523(c)(1).

This is so because a claim of non-dischargeability under 523(a)(6) is exclusively within the jurisdiction of the bankruptcy court where the case is pending. Moreover, the underlying basis for the claim asserted against the Debtor in this Court (i.e., that the liability is based on a willful and malicious injury to DirecTV) was not a critical and necessary part of the prior judgment. In order to establish liability under 47 U.S.C. 605(e)(4), it is not necessary to find malice. Conversely, malice is an indispensable element of a viable claim of non-dischargeability under 523(a)(6). Based on the foregoing it is evident that the doctrine of collateral estoppel does not apply and does not bar the Debtor from defending against DirecTV's claim that the Consent Judgment is a liability which is within the exception to discharge under Section 525(a)(6). Accordingly, it is

ORDERED, ADJUDGED AND DECREED that DirecTV's Inc.'s Motion for Summary Judgment as to Count I of Adversary Complaint (Doc. No. 52) be, and the same is hereby, denied. It is further

ORDERED, ADJUDGED AND DECREED that Count I shall be set for trial on April 12, 2006 beginning at 11:00 a.m. at the United States Bankruptcy Courthouse, Fort Myers, Federal Building and Federal Courthouse, Room 4-117, Courtroom D, 2110 First Street, Fort Myers, Florida.

DONE AND ORDERED.