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MarketGraphics Research Group Inc. v. Berge

United States District Court, M.D. Tennessee, Nashville Division

March 24, 2017

MARKETGRAPHICS RESEARCH GROUP, INC., Appellant,
v.
DAVID PETER BERGE, Appellee.

          MEMORANDUM AND ORDER

          WAVERLY D. CRENSHAW, Jr. UNITED STATES DISTRICT JUDGE.

         MarketGraphics 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.

         I. FACTS AND PROCEDURAL HISTORY

         Donald 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.” Id.

         In 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).

         On 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.

         On 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).

         On 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).

         On 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.)

         II. STANDARD OF REVIEW

         The 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).

         III. ANALYSIS

         The 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 judgment ...


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