Opinion
08 Civ. 7413 (GBD) (KNF).
November 24, 2009
REPORT AND RECOMMENDATION
INTRODUCTION
In their amended complaint, the plaintiffs, Pearson Education, Inc., John Wiley Sons, Inc., Cengage Learning, Inc., and The McGraw-Hill Companies, Inc. (collectively, "the plaintiffs"), allege Edgar Bobadilla ("Bobadilla" or "the defendant"), engaged in copyright infringement, in violation of 17 U.S.C. § 501. The plaintiffs contend they publish college textbooks and "instructors' solutions manuals," and the defendant "reproduced and sold electronic copies of plaintiffs' instructors' solutions manuals through online sales at [web]sites," for works on which the plaintiffs hold registered copyrights, "grant[ing] them the exclusive rights of reproduction and distribution in the United States."
On February 27, 2009, the parties signed a document styled "final judgment and permanent injunction by consent," through which the defendant agreed to: (a) entry of a permanent injunction barring him from infringing the plaintiffs' copyrights; and (b) pay $50,000 to the plaintiffs, as damages. The parties seek the court's approval of the terms and conditions under which they have agreed to resolve their dispute. Your Honor referred the matter to the undersigned for an assessment of the settlement; it is analyzed below.
BACKGROUND
In the amended complaint, it is alleged that the defendant infringed 192 copyrights, registered to the plaintiffs, by reproducing and selling copies of the plaintiffs' works. Specifically, the plaintiffs maintain that Bobadilla, through the use of different usernames, reproduced and sold electronic copies of their instructors' solutions manuals via online sales at sites such as "Google Groups," "mathforum.org," "sparknotes.com," "sci.tech-archive.net," "Gunle.com," "www.mathkb.com," "studentdump.com," "talkabouteducation.com," and "rapidshare.com." The plaintiffs allege "[p]rofessors are less likely to select a textbook if the instructors' solutions manuals are freely and/or widely available." The plaintiffs assert the defendant's actions were willful and caused them irreparable harm. Accordingly, the plaintiffs sought: (a) preliminary and permanent injunctions, prohibiting the defendant from infringing the plaintiffs' copyrights; (b) an award of their actual damages and the defendant's profits, or statutory damages; (c) costs, including reasonable attorney's fees; and (d) punitive damages.
As noted above, on February 27, 2009, the parties agreed to, and executed, a document styled "final judgment and permanent injunction by consent" to resolve the instant action. Through that document, the parties agreed, in relevant part, that the defendant would: (1) be enjoined permanently from infringing the plaintiffs' registered copyrights, which are listed in Schedules A through D to the amended complaint, and any other copyrights registered to the plaintiffs; (2) pay the plaintiffs $50,000; (3) be unable to discharge his payment, via any foreign or domestic bankruptcy law; (4) disclose fully, to the plaintiffs, the source, if known, of the instructors' solutions manuals he sold; and (5) destroy all copies, including electronic copies, of the instructors' solution manuals he possesses. Thereafter, the parties submitted the "final judgment and permanent injunction by consent" to the court for its review and approval.
DISCUSSION
"Lawsuits ended by agreement may either be dismissed by stipulation, . . . or may culminate in a judgment." Janus Films, Inc. v. Miller, 801 F.2d 578, 582 (2d Cir. 1986) (internal citation omitted). In a lawsuit dismissed by stipulation, a judge is not involved in the formation or review of the agreement, see id., and the only penalty for not complying with the agreement is another lawsuit. See United States v. City of Miami, Florida, 664 F.2d 435, 439-440 (5th Cir. 1981). However, if the action is dismissed by judgment, then the agreement has "the force of res judicata," and may be "enforced by judicial sanctions," if a party does not abide by the terms of the agreement. Id.; see e.g., Eros Entertainment, Inc. v. Melody Spot, L.L.C., No. 99 CV 1157, 2005 WL 4655385, at *3 (E.D.N.Y. Oct. 11, 2005). The judgment, though, "is not equivalent to a judicial decision on the merits." City of Miami, Florida, 664 F.2d at 440; Janus Films, Inc., 801 F.2d at 582 (stating that, with a consent judgment, "[t]he court makes no determination of the merits of the controversy or of the relief to be awarded."). In a consent judgment, the parties have agreed on "all of the relief to be provided by the judgment and all of the wording to effectuate that relief." Janus Films, Inc., 801 F.2d at 582.
The Second Circuit Court of Appeals has stated that courts generally have a "limited role" in deciding whether to approve consent judgments, noting that, while "the judge does not merely sign on the line, . . . he or she normally makes only the minimal determination of whether the agreement is appropriate to be accorded the status of a judicially enforceable decree." Id. (internal quotations and citations omitted). Therefore, the court should ensure the agreement is "not only . . . a fair settlement but also that it does not put the court's sanction on and power behind a decree that violates Constitution, statute, or jurisprudence." City of Miami, 664 F.2d at 441.
In the instant case, the parties have asked the court to enter a consent judgment, in order for their agreement to become enforceable. The parties, independent of the court, negotiated and drafted the final judgment and permanent injunction, by consent. The document memorializes the relief agreed upon by the parties. Therefore, the court does not have to review the agreement to adjust or modify the agreed upon relief. The court's only function is to ensure the agreement is appropriate and fair.
Analysis of Consent Judgment 1. Injunction, Destruction of Copies, and Damages
Under the Copyright Act, 17 U.S.C. § 101 et seq., a plaintiff is entitled, upon establishing copyright infringement on the part of a defendant, to the following relief: (i) an injunction(s), temporary and permanent; (ii) the impoundment and disposition of infringing articles; and (iii) an award of the plaintiffs' actual damages and the defendant's profits, or statutory damages. See 17 U.S.C. §§ 502- 504. Here, the parties agreed to: (a) an injunction barring the defendant permanently from infringing the plaintiffs' registered copyrights; (b) the destruction of all copies of the plaintiffs' works, made or used in violation of the plaintiffs' exclusive rights; and (c) an award to the plaintiffs of $50,000 in damages. The relief agreed to be provided to the plaintiffs, by the defendant, is consistent with the remedies prescribed by the Copyright Act for copyright infringement. Accordingly, the Court finds that this relief, agreed to by the parties, is fair and appropriate.
2. Non-dischargeability of Debt
The consent judgment provides that the defendant's obligation to pay damages of $50,000 to the plaintiffs may not be discharged, via any foreign or domestic bankruptcy law, since Bobadilla's infringement of the plaintiffs' copyrights constituted "injury," as contemplated by 11 U.S.C. § 523(a)(6). A debt may not be discharged in bankruptcy if the debtor caused "willful and malicious injury . . . to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6); see In re Akhtar, 368 B.R. 120, 127-28, 130-32 (E.D.N.Y. 2007) (explaining the terms "willful" and "malicious" in the context of 11 U.S.C. § 523[a][6]); In re Krautheimer, 210 B.R. 37, 47-48 (S.D.N.Y. 1997) (same).
"The willfulness element may be satisfied if the debtor had actual knowledge that he or she was violating the law and the intent to bring about injury." Akhtar, 368 B.R. at 127-28; see also Krautheimer, 210 B.R. at 47 (defining willful injury as "the injury to the creditor which must have been intentional — not the action of the debtor which caused the [injury]") (emphasis and citations omitted). The plaintiffs' amended complaint includes a claim for relief from the defendant's willful infringement of their copyrights. By signing the consent judgment, Bobadilla agreed that "the payments . . . to which [the defendant] has consented, are in satisfaction of valid claims of [the plaintiffs] . . . for copyright infringement." Accordingly, through this concession, the "willfulness" requirement is satisfied.
In the amended complaint, the plaintiffs did not allege, specifically, "malicious" infringement by the defendant. However, in the Second Circuit, malice may be implied "by the acts and conduct of the debtor in the context of [the] surrounding circumstances." Krautheimer, 210 B.R. at 48 (internal quotations and citations omitted). "[A] court may find malice when anyone of reasonable intelligence knows that the act in question is contrary to commonly accepted duties in the ordinary relationships among people, and injurious to another." Ahktar, 368 B.R. at 132 (internal quotations and citations omitted). The defendant sold copyrighted materials that infringed 192 copyrights registered to the plaintiffs. It is permissible to infer that a reasonably intelligent person would know that the defendant's conduct was "contrary to commonly accepted duties" and "injurious to another." In any event, by signing the consent judgment, Bobadilla has agreed that his conduct constitutes "malicious injury," under 11 U.S.C. § 523(a)(3). Therefore, barring the defendant's debts from being discharged in bankruptcy is fair and appropriate.
3. Disclosure of Known Sources
Under the terms of the consent judgment, the defendant has agreed to reveal "the source of each instructors' solutions manual that [he] sold." In light of the Copyright Act's purpose: protecting "original works of authorship," the provision of the parties' agreement, requiring the defendant to disclose the source of the infringing material, is fair and appropriate. 17 U.S.C. § 102(a); see, e.g., S.E.C. v. Randolph, 736 F.2d 525, 527, 530 (9th Cir. 1984) (approving consent judgment which included a provision requiring the defendant to "cooperate in the SEC's continuing investigation of other insider trading").
4. Remainder of the Consent Judgment
The remaining terms of the consent judgment provide for: (i) mutual releases of all claims, except claims arising from a party's failure to comply with the terms and conditions of the parties' negotiated final judgment and permanent injunction; and (ii) retention, by the court, of jurisdiction to enforce the negotiated final judgment and permanent injunction. In addition, the parties have included procedures, in the consent judgment, for curing any payment default by the defendant. These provisions are fair and appropriate. They are the types of provisions typically found in consent judgments and settlement agreements.See Salerno v. City University of New York, No. 99 Civ. 11151, 2005 WL 578944, at *3-4 (S.D.N.Y. Mar. 10, 2005) (approving a settlement judgment containing provisions for mutual releases and for the court to retain jurisdiction to enforce the settlement);see also Atlantic States Legal Foundation, Inc. v. Onondaga Dep't of Drainage and Sanitation, 899 F. Supp. 84, 86 (N.D.N.Y. 1995) (discussing the case's procedural history, which included granting a motion that penalties stipulated in a consent judgment be imposed, upon a defendant's violation of the terms of the consent judgment).
RECOMMENDATION
Based on the record, as a whole, the Court finds that the "Final Judgment and Permanent Injunction by Consent," proposed by the parties, is fair and appropriate; it should be approved.
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The plaintiffs shall serve the defendant with a copy of this Report and Recommendation, with copies of all unpublished decisions to which citation has been made, and submit proof of service to the court.FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable George B. Daniels, 500 Pearl Street, Room 630, New York, New York, 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Daniels. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Am, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Reynoso, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).