Pearson Education, Inc., et al v. Joel Thomas Almgren

Filing

OPINION FILED - THE COURT: DIANA E. MURPHY, RAYMOND W. GRUENDER and JOHN A. ROSS. Raymond W. Gruender, Authoring Judge (PUBLISHED) [3931470] [11-2723]--[Edited 07/13/2012 by LMT]

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

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No. 11-2723
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Pearson Education, Inc.; Cengage
Learning, Inc.; The McGraw-Hill
Companies, Inc.,
Appellants,
v.
Joel Thomas Almgren,
Appellee.

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Appeal from the United States
District Court for the
District of Minnesota.

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Submitted: March 14, 2012
Filed: July 13, 2012
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Before MURPHY and GRUENDER, Circuit Judges, and ROSS,1 District Judge.
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GRUENDER, Circuit Judge.
Textbook publishers Pearson Education, Cengage Learning, and The
McGraw-Hill Companies (collectively, “the publishers”) appeal the orders of the

1

The Honorable John A. Ross, United States District Judge for the Eastern
District of Missouri, sitting by designation.

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bankruptcy court2 striking their demand for a jury trial on the amount of damages and
denying an award of attorney’s fees with respect to their successful copyright
infringement claims against the bankruptcy estate of Joel Almgren. For the reasons
discussed below, we affirm.
I.

Background

Almgren, in the course of pursuing a master’s degree in business administration
at Augsburg College in Minneapolis, obtained unlicensed copies of the instructor’s
solutions manuals for some of his textbooks through sources on the internet. After
using the unlicensed manuals for his school work, he decided to make money by
obtaining and selling additional solutions manuals himself. He contacted each of the
appellant publishers in this case and represented himself as an Augsburg professor in
need of solutions manuals. The publishers provided the manuals, and Almgren sold
them through the same websites from which he had originally obtained such manuals
himself, realizing about $5,000 in gross profits.
Textbook publishers routinely police the internet for trafficking of unlicensed
copies of their solutions manuals, and it took only about a month for the publishers
in this case to identify Almgren. Rather than initially contacting him with a cease and
desist letter, the publishers filed a copyright infringement suit in federal district court
in the Southern District of New York, served process on Almgren, and sought, as the
bankruptcy court found, to “make an example of” him through litigation. Almgren
initially perjured himself by claiming in an affidavit and a deposition that a roommate
had contacted the publishers and sold the manuals, but he eventually recanted and
admitted his actions.

2

The Honorable Nancy C. Dreher, United States Bankruptcy Judge for the
District of Minnesota.
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The costs of participating in the litigation quickly rendered Almgren insolvent,
and he filed for Chapter 7 bankruptcy protection in the District of Minnesota. The
publishers filed proofs of claim and initiated an adversarial proceeding in the
bankruptcy court, seeking a declaration that any damages owed by Almgren on their
copyright claims were non-dischargeable in bankruptcy. After striking the publishers’
demand for a jury trial, the bankruptcy court made a finding of willful infringement
but nevertheless awarded the minimum $14,250 in statutory damages, deemed nondischargeable in bankruptcy.3 The bankruptcy court also denied the publishers’
motion for more than $90,000 in attorney’s fees, reasoning that the publishers could
have caused Almgren to cease his activities without spending $90,000 in litigation.
The publishers appealed the decision to the district court,4 and the district court
affirmed, finding that the publishers waived any right to a jury trial on copyright
liability and damages by filing proofs of claim in the bankruptcy proceeding and that
the bankruptcy court relied on appropriate factors in denying an award of attorney’s
fees. The publishers now appeal both issues.
II.

Discussion

“As the second court of appeal in a bankruptcy case, we apply the same
standard of review as the District Court, reviewing the Bankruptcy Court’s legal

3

A copyright owner may elect to recover statutory damages, rather than actual
damages and additional profits of the infringer, “in a sum of not less than $750 or
more than $30,000” for each copyright infringed. See 17 U.S.C. § 504(c)(1). If the
copyright owner proves that the infringement was willful, the maximum available
amount of statutory damages increases to $150,000 per copyright infringed. See id.
§ 504(c)(2). In this case, the district court awarded damages at the minimum of $750
for each of the nineteen copyrights infringed by Almgren, resulting in the $14,250
award.
4

The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
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conclusions de novo and its findings of fact for clear error.” In re Usery, 123 F.3d
1089, 1093 (8th Cir. 1997).
A.

Jury trial

The publishers contend that they had a right to have a jury determine the
amount of their statutory copyright damages. As a general matter, “[t]he right to a
jury trial includes the right to have a jury determine the amount of statutory damages,
if any, awarded to [a] copyright owner.” Feltner v. Columbia Pictures Television,
Inc., 523 U.S. 340, 353 (1998). In this case, however, the publishers relinquished
their right to have a jury determine the amount of damages when they filed claims
against Almgren’s bankruptcy estate:
[I]n cases of bankruptcy, many incidental questions arise in the course
of administering the bankrupt estate, which would ordinarily be pure
cases at law, and in respect of their facts triable by jury, but, as
belonging to the bankruptcy proceedings, they become cases over which
the bankruptcy court, which acts as a court of equity, exercises exclusive
control. Thus a claim of debt or damages against the bankrupt is
investigated by chancery methods.
Katchen v. Landy, 382 U.S. 323, 337 (1966) (quoting Barton v. Barbour, 104 U.S.
126, 133-34 (1881)); cf. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 57-58 (1989)
(distinguishing Katchen where the petitioner had not submitted a claim to the
bankruptcy court).
The Supreme Court further explained the applicability of this rule in
Langenkamp v. Culp, 498 U.S. 42 (1990) (per curiam):
In Granfinanciera we recognized that by filing a claim against a
bankruptcy estate the creditor triggers the process of “allowance and
disallowance of claims,” thereby subjecting himself to the bankruptcy
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court’s equitable power. If the creditor is met, in turn, with a preference
action from the trustee, that action becomes part of the claims-allowance
process which is triable only in equity. In other words, the creditor’s
claim and the ensuing preference action by the trustee become integral
to the restructuring of the debtor-creditor relationship through the
bankruptcy court’s equity jurisdiction. As such, there is no Seventh
Amendment right to a jury trial.
Id. at 44-45 (internal citations omitted).
The publishers argue that this line of precedent is distinguishable because the
action at issue here is the creditors’ own action for non-dischargeability, rather than
a trustee’s action to recover a voidable preference to a creditor. We disagree. The
Supreme Court’s stated rationale in Langenkamp is not limited to preference actions,
and the publishers fail to explain why a creditor’s claim of non-dischargeability is any
less “integral to the restructuring of the debtor-creditor relationship” than the
preference action at issue in Langenkamp. Id. at 44. Our sister circuits that have
addressed the issue have applied Langenkamp to non-dischargeability actions. See In
re CBI Holding Co., 529 F.3d 432, 466 (2d Cir. 2008) (“In Langenkamp, the Supreme
Court held that if a creditor who has filed such a claim is met with an adversary
proceeding, the resolution of which affects the equitable restructuring of
debtor-creditor or creditor-creditor relations, then the creditor loses its right to a jury
trial even with regard to traditional legal claims.”); In re Kennedy, 108 F.3d 1015,
1018 (9th Cir. 1997) (holding that a bankruptcy court ruling on a creditor’s action for
non-dischargeability “may also render a money judgment in an amount certain without
the assistance of a jury” (quoting In re Devitt, 126 B.R. 212, 215 (Bankr. D. Md.
1991))); Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1249 (3d Cir.
1994) (“Langenkamp seems to formulate a bright-line rule, holding that creditors who
file proofs of claim against the estate are not entitled to a jury trial on matters affecting
the allowance of those claims.”); In re Hallahan, 936 F.2d 1496, 1505 (7th Cir. 1991)
(“Applying the Supreme Court’s teachings to this case, we conclude that Hallahan had

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no Seventh Amendment right to a jury trial on his dischargeability claim” because
“[d]ischargeability proceedings, like actions to recover preferential or fraudulent
transfers, are core proceedings.”).5
The publishers also contend that the Supreme Court’s decision in Stern v.
Marshall, 564 U.S. ---, 131 S. Ct. 2594 (2011), casts doubt on the continued viability
of Katchen and Langenkamp. We again disagree. In Stern, the Court held that a
bankruptcy court, as a non-Article III court, lacked constitutional authority to enter
final judgment on a counterclaim by the debtor against a creditor, even though the
creditor had filed a claim in defamation against the bankruptcy estate, because “there
was never any reason to believe that the process of adjudicating [the creditor’s] proof
of claim would necessarily resolve [the debtor’s] counterclaim.” 131 S. Ct. at 2617.
The Court expressly distinguished Katchen and Langenkamp as cases in which
resolution of the ensuing action was “part of the process of allowing or disallowing
claims.” Id. at 2616. Likewise, in this case, a determination of the amount of the
damages award is part of the process of allowing or disallowing the publishers’ claims
for copyright infringement.
As a result, the bankruptcy court did not err in striking the publishers’ demand
for a jury trial on the amount of statutory damages associated with their nondischargeability claim.
B.

Attorney’s fees

As part of the remedy in a copyright infringement action, “the court may also
award a reasonable attorney’s fee to the prevailing party.” 17 U.S.C. § 505. The trial
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While the Fifth Circuit has held that a creditor seeking a declaration of nondischargeability is “entitled to a jury trial on the issues of liability and amount,” In re
Merrill, 594 F.2d 1064, 1068 (5th Cir. 1979), we note that Merrill was decided prior
to both Granfinanciera and Langenkamp.
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court’s “equitable discretion” to award attorney’s fees to a prevailing party under
§ 505 is “to be exercised in an evenhanded manner by considering factors such as
whether the lawsuit was frivolous or unreasonable, the losing litigant’s motivations,
the need in a particular case to compensate or deter, and the purposes of the Copyright
Act.” Action Tapes, Inc. v. Mattson, 462 F.3d 1010, 1014 (8th Cir. 2006) (citing
Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 & n.19 (1994)). We review for an abuse
of that discretion, which occurs “when a relevant factor that should have been given
significant weight is not considered; when an irrelevant or improper factor is
considered and given significant weight; [or] when all proper factors, and no improper
ones, are considered, but the court, in weighing those factors, commits a clear error
of judgment.” Fair Isaac Corp. v. Experian Info. Solutions, Inc., 650 F.3d 1139, 1152
(8th Cir. 2011) (quoting Kern v. TXO Prod. Corp., 738 F.2d 968, 970 (8th Cir. 1984)).
In this case, the publishers sought approximately $90,000 in attorney’s fees, but
the bankruptcy court found that an award of attorney’s fees would be inappropriate
because (1) the publishers likely could have stopped Almgren’s conduct prior to any
litigation, at minimal cost, with a simple cease-and-desist letter, (2) the publishers
filed suit “in the busiest, largest, and furthest away court they could find” in an effort
to scare Almgren, (3) the publishers resisted the bankruptcy court’s efforts to
encourage settlement before litigating the adversarial action, and (4) the publishers’
spare-no-expenses litigation strategy was unreasonable in light of the absence of “any
real damages.” The publishers argue that the bankruptcy court abused its discretion
by discounting their need to act forcefully to deter willful infringement by others and
leaving them “at a financial loss from enforcing their rights against a willful infringer
who purposely, and fraudulently, prolonged the litigation” by fabricating a story about
a roommate using his name.
To be sure, the publishers were free to make an example of Almgren by
litigating their claims against him fully, within the bounds of the statutory scheme
provided by Congress; they were under no obligation to employ a minimum-impact
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cease-and-desist strategy. However, the publishers never were guaranteed that the
attorney’s fees generated by their strategy of choice would be compensated. See
Fogerty, 510 U.S. at 534 (rejecting a proposed construction of § 505 that would result
in an automatic recovery of attorney’s fees by the prevailing party). While a different
court might have weighed the factors in this case differently, we cannot say that the
bankruptcy court committed a clear error of judgment in finding that an award of
attorney’s fees would not “advance considerations of compensation and deterrence”
in these “particular circumstances.” See id. at 534 n.19. Accordingly, we affirm the
denial of attorney’s fees.
III.

Conclusion

For the foregoing reasons, we affirm the orders striking the demand for a jury
trial on the amount of damages and denying an award of attorney’s fees.
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