A salon owner’s attempt to escape a seven-figure civil judgment through the use of a Chapter 11 filing failed when the U.S. Bankruptcy Court for the Southern District of Florida ruled that the judgment debt was not dischargeable under the bankruptcy code. 11 USC 523(a)(6) makes it impossible to discharge damages arising from the debtor’s willful and malicious injury to the property of another. The debtor’s acts of trademark infringement and cyber-squatting met those criteria, and the judgment arising from that misconduct could not be discharged.
The original case involved a chain of hair and nail salons operated under the name “Tipsy”. Thanh and Luong Nguyen, owners of the Tipsy salons, sold their Wellington location to Barry Biondo. The parties’ agreement allowed Biondo to run his salon under the Tipsy name for up to one year while he transitioned the business, but Biondo never changed the name of the Wellington salon.
The Nguyens subsequently sued him, accusing him of trademark infringement, trademark dilution, and cyber-squatting. The Nguyens won a judgment against Biondo for more than $1 million. Biondo later filed for Chapter 11 bankruptcy and listed his debt to the Nguyens in that filing. The Nguyens objected to the judgment’s inclusion, arguing that the debt was not dischargeable.
The bankruptcy court agreed with the Nguyens. Section 523 of the bankruptcy code lists several exceptions to a discharge of debts under Section 727. Section 523(a)(6) specifically names “willful and malicious injury by the debtor to another entity or to the property of another entity” as an exception to dischargeability. The court explained that, within the confines of Section 523(a)(6), “willful and malicious injury” means that the harmful act was undertaken wrongfully, or without just cause, and with the intent to cause injury or in a situation when the injury was inevitable or almost certainly inevitable. With financial injuries such as the ones at issue in Biondo’s bankruptcy, the judgment creditors must show that the debtor actually knew that harm was “substantially certain to result.”
The debtor’s conduct clearly met these criteria. The courts had already found him guilty of intentionally infringing the Nguyens’ trademark, which undeniably met the standard for an act that was wrongful or without just cause. In fact, the court noted that it could not imagine a scenario in which an infringer of intellectual property did so with just cause. Additionally, someone who intentionally infringes on another’s trademark rights or commits cyber-squatting engages in an activity that is necessarily damaging, meaning that the infringer’s bad intent is inherent within the charge itself. “Intentional infringement does not have uncertain or variable outcomes—it always results in harm,” the court opined.
Further damaging Biondo’s position was the detailed findings the federal district court made in the Nguyens’ trademark infringement and cyber-squatting case. That court issued an in-depth ruling determining that Biondo intended to infringe on the Nguyens’ property, that he knew what he was doing would damage the Nguyens, and that he had no justification for his actions. Biondo received multiple opportunities to argue his case in both the trial court and the appeals court, and, in each outcome, the court concluded that he acted maliciously and with intent to do harm.
Based on these conclusions, the court determined that the Nguyens’ judgment was not dischargeable in accordance with Section 523(a)(6).
Whether you are a debtor filing bankruptcy or a creditor whose debtor has filed, one important way to protect your interests is to seek out the counsel of an experienced Florida bankruptcy attorney. For clear, helpful advice, consult the Florida bankruptcy attorneys at Stok Folk & Kon. Our attorneys can help you make the best choice for your business needs.
Contact us online or by calling (954) 237-1777 to schedule your consultation.
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