United States District Court, M.D. Tennessee, Nashville Division
MEMORANDUM AND ORDER
WAVERLY D. CRENSHAW, Jr. UNITED STATES DISTRICT JUDGE.
Research Group, Inc. (“MarketGraphics”) appeals
the United States Bankruptcy Court for the Middle District of
Tennessee's ruling that David Peter Berge's debt to
MarketGraphics is dischargeable under Chapter 7 of the
Bankruptcy Act. The sole issue on appeal is whether the
injury Berge caused MarketGraphics was
“malicious” within the meaning of 11 U.S.C.
§ 523(a)(6). The Court has reviewed the record and
determined that oral argument is not necessary because
“the facts and legal arguments are adequately presented
in the briefs and record, and the decisional process would
not be significantly aided by oral argument.” Fed. R.
Bank. P. 8019(b)(3); LR 81.01(b). For the following reasons,
the judgment of the Bankruptcy Court is AFFIRMED IN PART and
VACATED IN PART, and this case is REMANDED to the Bankruptcy
Court for further proceedings.
FACTS AND PROCEDURAL HISTORY
Berge, with the assistance of his son David Berge, worked as
a licensee for MarketGraphics from 1997 to 2012.
MarketGraphics Research Grp., Inc. v. Berge, No.
3:13-cv-00001, 2014 WL 2155009, at *1 (M.D. Tenn. May 22,
2014). During this period, Donald Berge had “access to
confidential information related to MarketGraphics'
business, he received specialized training in
MarketGraphics' proprietary systems, and Memphis-area
customers came to associate him with MarketGraphics'
business.” Id. MarketGraphics had “(1) a
valid, enforceable, and registered copyright in the Memphis
Works (reports to Memphis-area customers), and (2) a
protectable business interest in its Memphis clients.”
September 28, 2012, Donald and David Berge left
MarketGraphics and opened a competing business that provided
essentially the same services as MarketGraphics. Id.
As a result of actions by the competing business,
MarketGraphics filed suit against Donald and David Berge, as
well as other defendants, alleging (1) copyright infringement
of the Memphis Works; (2) copyright infringement of website
images; (3) trademark infringement; (4) cybersquatting as to
marketgraphics.net; (5) cybersquatting as to
marketgraphicsofmemphis.com; (6) unfair competition; (7)
breach of contract; (8) breach of covenant not to compete;
(9) breach of covenant of good faith and fair dealing; (10)
violation of the Tennessee Consumer Protection Act; (11)
interference with business relations; and (12) conspiracy.
MarketGraphics Research Grp., Inc. v. Berge, No.
3:13-cv-00001, ECF No. 1 (M.D. Tenn. Jan. 2, 2013).
August 22, 2013, the Honorable Aleta A. Trauger entered
judgment in favor of MarketGraphics against David Berge in
the amount of $332, 314.94, jointly and severally with three
other defendants. MarketGraphics Research Grp., Inc. v.
Berge, No. 3:13-cv-00001, ECF No. 64 (M.D. Tenn. Aug.
22, 2013). The court found that David Berge “willfully
or knowingly violated the Tennessee Consumer Protection
Act.” Id. at 2. It further found that David
Berge's copyright infringement was “willful.”
Id. at 8.
August 30, 2013, David Berge filed for Chapter 7 bankruptcy.
In re David Peter Berge, No. 3:13-bk-07626, ECF No.
1 (Bankr. M.D. Tenn. Aug. 30, 2013). In order to collect its
judgment, on October 22, 2013, MarketGraphics filed an
adversarial suit in the United States Bankruptcy Court for
the Middle District of Tennessee, alleging that David
Berge's debt to it is nondischargeable under 11 U.S.C.
§ 523(a)(6). MarketGraphics Research Grp., Inc. v.
Berge, No. 3:13-ap-90400, ECF No. 1 (Bankr. M.D. Tenn.
Oct. 22, 2013).
August 11, 2014, MarketGraphics moved for summary judgment in
the adversarial case, alleging that all elements are issue
precluded by Judge Trauger's judgment. Id. at
ECF No. 49 (Aug. 11, 2014). On September 30, 2014, the
Bankruptcy Court denied the motion. Id. at ECF No.
61 (Sept. 30, 2014). It found that Judge Trauger's
judgment determined that David Berge “willfully”
caused an injury, but did not make any finding of malice.
Id. at 6. MarketGraphics appealed that ruling to
this District, which the Honorable William J. Haynes, Jr.
dismissed. MarketGraphics Research Grp., Inc. v.
Berge, No. 3:14-cv-02027, ECF No. 11 (M.D. Tenn. Feb.
20, 2015). MarketGraphics attempted to appeal to the United
States Court of Appeals for the Sixth Circuit, but the court
dismissed its appeal. MarketGraphics Research Grp., Inc.
v. Berge, No. 15-5477, ECF No. 8 (May 8, 2015).
March 31, 2016, the Bankruptcy Court conducted a trial in the
adversary proceeding. (Doc. No. 14.) On May 19, 2016, the
Bankruptcy Court dismissed the action, finding David
Berge's debt to be dischargeable. (Doc. No. 1-3.) The
court found that “the only issue at trial was whether
the debtor acted with malice.” (Doc. No. 1-2 at 3.) The
court found David Berge to be “very credible” and
that he was “merely a son who worked for his father and
believed what his father told him.” (Id.)
Thus, the court found no “malicious intent in that . .
. not all the elements of 11 U.S.C. § 523(a)(6) have
been proven.” (Id.) MarketGraphics appeals
that finding to the Court. (Doc. No. 1.)
STANDARD OF REVIEW
Court reviews the Bankruptcy Court's conclusions of law
de novo, and examines its findings of fact for clear error.
In re Dilworth, 560 F.3d 562, 563 (6th Cir. 2009)
(citing In re Copper, 426 F.3d 810, 812 (6th Cir.
2005)). The factual finding that an obligation constitutes a
nondischargeable debt is reviewed for clear error. Sorah
v. Sorah (In re Sorah), 163 F.3d 397, 400 (6th Cir.
1998). Discharge exceptions are narrowly construed in favor
of the debtor, and the creditor must prove by a preponderance
of the evidence that a discharge exception applies.
Meyers v. I.R.S. (In re Meyers), 196 F.3d 622, 624
(6th Cir. 1999).
Bankruptcy Court held that “the only issue at trial was
whether the debtor acted with malice.” (Doc. No. 1-2 at
3.) MarketGraphics argues that the Bankruptcy Court used the
incorrect standard in determining whether David Berge acted
with malice. (Doc. No. 15 at 46.) It further argues that the
David Berge's trial testimony conclusively shows that he
acted with malice, and the Court therefore should enter