November 20, 2018

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Pamela K. Chen found no due process violation by the government in taking brief control, for investigative purposes, of an established website that had been giving users anonymous access to child pornography. Judge Joseph F. Bianco affirmed two bankruptcy court decisions, one finding a particular debt non-dischargeable as arising from "willful and malicious injury," and one denying discharge entirely based on debtor's misstatements and failures of production. And Judge Arthur D. Spatt dismissed a copyright claim alleging unlawful copying of the design for a private residence.

'Outrageous' Conduct

In  United States v. Kim, 16 CR 191 (EDNY, Jan. 27, 2017), Judge Chen held that the government's operation for two weeks of a previously ongoing website in order to obtain evidence regarding possession of child pornography did not amount to outrageous conduct warranting the indictment's dismissal.

The indictment charged defendant with receiving and possessing child pornography. The charges arose from an FBI investigation into the "Playpen" website, which facilitated the accessing and sharing of child pornography by defendant and other users. A network called "Tor" gave users anonymous entry to the website, in part by concealing their Internet Protocol addresses. In its investigation the FBI administered the Playpen website for two weeks, implanting a Network Investigative Technique (NIT) that identified user addresses.

Chen described the essence of defendant's argument: "Because the FBI could have successfully conducted its investigation without allowing the actual distribution of child pornography to occur, its decision to allow the website to remain fully functional caused unnecessary harm to child victims and thus constituted outrageous governmental conduct."

As Chen observed, "courts that have considered the same due process challenge based on the NIT warrants have declined to dismiss the indictments..." Slip op. 7-8. The investigative methods used here are entitled to deference. While it is unfortunate that the FBI's operation of the website for two weeks allowed continued access to child pornography, this conduct was not outrageous. Slip op. 9-10. The FBI posted nothing to the website, but kept it operating to identify users and collect evidence. Continually assessing the relevant factors, the FBI ceased operations as soon as the costs appeared to outweigh the benefits. "More significantly, the FBI's actions were court-authorized-hardly the hallmark of egregious governmental conduct." Slip op. 10.

United States v. Chin, 934 F.2d 393 (2d Cir. 1991), does not call for a different result. There, at a Postal Inspector's suggestion, the defendant had traveled to Amsterdam to purchase child pornography. Upholding the conviction, the Second Circuit expressed "serious concerns" as to the victimized children, but made clear that, as a prerequisite for any successful claim relating to the rights of third parties, the defense had to prove that the governmental action caused defendant to commit a crime "that would otherwise not have been committed." 934 F.2d at 400. Such proof is lacking here, where the government did not induce new crimes, but rather allowed an ongoing crime to continue. Slip op. 14-18.

Discharge of Debts

In two bankruptcy appeals, Judge Bianco discussed exceptions to denial of discharge for debtors. In most cases, the Bankruptcy Code provides for the discharge of all debts to give "honest but unfortunate" debtors a fresh start. The decisions here demonstrate different remedies wronged creditors have to prevent discharge.

In  Townsend v. Ganci, 16 CV 2814 (EDNY, Feb. 27, 2017), Bianco affirmed the Bankruptcy Court decision that creditor Geralyn Ganci's state court judgment against debtor Raymond Townsend for employment discrimination in violation of Title VII was not dischargeable pursuant to 11 U.S.C. §523(a)(6). Ganci's Title VII judgment was based on claims of sexual harassment, hostile work environment and retaliation arising from Townsend's sexual assault of her, unwelcome text messages and voice mails, and attempts to compel sexual relations with her over an extended period. Following a state court jury verdict and entry of a judgment for compensatory damages, attorney fees and costs, Townsend filed a bankruptcy petition, and Ganci sought a determination that the judgment was a non-dischargeable debt resulting from "willful and malicious injury."

As Bianco noted, the injury was "willful" because the jury determined "that Townsend subjected Ganci to offensive acts or statements about sex; that Ganci did not invite or solicit such acts or statements; and that the acts or statements were so severe or pervasive that they materially altered the terms and conditions of Ganci's employment." Slip op. 5. These acts demonstrated intent. The jury also found "that Townsend either acted with intent to compel Ganci's resignation, or with the belief that such injury was substantially certain to result from his conduct." Slip op. 7. Townsend did not contest the finding of "malicious" conduct, meaning "wrongful and without just cause or excuse, even in the absence of personal hatred, spite or ill will." Slip op. 5.

In  Bordonaro v. Fido's Fences, 16 CV 414 (EDNY, Jan. 20, 2017), Bianco affirmed the Bankruptcy Court decision denying debtor James Bordonaro's discharge, pursuant to both 11 U.S.C. §727(a)(3), for failing to produce required business documents without justification, and §727(a)(4)(A), for intentionally making materially false statements on his original petition. Creditor Fido's Fences obtained a state court money judgment against the debtor and his company. Creditor then filed an execution of judgment against debtor's property in Bay Shore, N.Y., which was scheduled for auction on Jan. 21, 2014. Debtor filed his petition on January 20. In the petition and its schedules debtor made a series of false or misleading statements and omissions. For example, he asserted that there were no secured claims on the Bay Shore property; he did not list Fido's Fences as a creditor; he misstated his earnings; he claimed that none of his property had been attached, garnished or seized within the prior twelve months; and he denied any ownership interest in a business. Debtor also produced redacted bank statements obscuring amounts and identities of payors and payees and never produced a cash log. Debtor explained first that he made the redactions to protect trade secrets, then claimed that he paid personal expenses from his business account and it was those expenses that he redacted. Given debtor's failure to provide an adequate explanation for his false statements or to produce business records, Bianco saw no reason to disturb the Bankruptcy Court's decision.

Copyright-Home Design

In  Fortgang v. Pereiras Architects Ubiquitous, 16 CV 3754 (EDNY, Jan. 20, 2017), Judge Spatt dismissed an action alleging copyright violations in the construction of a private residence.

Plaintiffs' colonial-style home in the Village of Lawrence, Nassau County, was built in 2005 from a custom design. According to the complaint, defendants pulled the plans for plaintiffs' home from the Lawrence Building Department and planned to build a substantially similar home in the nearby Village of Cedarhurst. Plaintiffs secured the rights to their home's design from their own architect, obtained a registration certificate from the United States Copyright Office, and sued for injunctive and monetary relief under the federal Copyright Act of 1976, 17 U.S.C. §101, et seq. Defendants moved to dismiss.

Spatt found the first two elements of a copyright claim-ownership of a valid copyright, and actual copying-to be adequately pleaded. The "crux of the parties' dispute" was whether plaintiffs had pleaded "substantial similarity" sufficient to establish wrongful copying of protected elements. Slip op. 6. Spatt found they had not.

In assessing "substantial similarity" between two works, courts in the Second Circuit generally apply the "ordinary observer" test-"whether the ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard their aesthetic appeal as the same.'" Slip op. 7, quoting  Zalewski v. Cicero Builder Dev., 754 F.3d 95, 102 (2d Cir. 2014). Where a work contains both protectable and non-protectable elements, the "ordinary observer" inquiry "entails not a piecemeal comparison of each of the protectable elements with its putative imitation, but rather a careful assessment of the 'total concept and feel' of the works at issue, after the non-protectable elements have been eliminated from consideration." Slip op. 7, quoting  Silberstein v. Fox Entm't Grp., 424 F. Supp. 2d 616, 631 (S.D.N.Y. 2004), aff'd 242 F.App'x 720 (2d Cir. 2007) (emphasis in slip op.).

"'[I]deas, concepts and processes are not protected from copying'" under the copyright laws; thus, "'generalized notions of where to place functional elements, how to route the flow of traffic, and what methods of construction and principles of engineering to rely on' are 'ideas that may be taken and utilized by a successor without violating the copyright of the original 'author' or designer.'" Slip op. 8, quoting  Attia v. Society of the N.Y. Hosp., 201 F.3d 50, 55, 57 (2d Cir. 1999).

While "the two structures have some readily-observable similarities," Spatt found that those "generally concern attributes of all colonial-style homes that fall well short of the type of expressive content entitled to copyright protection." The differences between the homes-defendants' was larger, had an additional story and an additional wing, was asymmetrical (plaintiffs' home was symmetrical), had an additional dormer window, and featured different elements in the steps and doorway-were "far more consequential" for purposes of copyright analysis. Slip op. 10-12.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan.