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Defendant’s Bankruptcy Discharge Does Not Enjoin Plaintiff from Suit on Subsequent Infringing Acts

February 09, 2006

Decision icon Decision

Last Month at the Federal Circuit - March 2006

Judges: Judges: Lourie, Clevenger (author), Bryson

In Hazelquist v. Guchi Moochie Tackle Co., No. 05-1446 (Fed. Cir. Feb. 9, 2006), the Federal Circuit reversed the district court’s dismissal of Hazelquist’s claims.

Hazelquist sued Yamaguchi and Guchi Moochie Tackle Company (“Guchi Moochie”), of which Yamaguchi was the operator and sole owner, for infringement of his design patent. After Yamaguchi dismissed his attorneys and new counsel for Guchi Moochie failed to appear, the district court granted Hazelquist’s motion for default against Guchi Moochie and dismissed with prejudice Guchi Moochie’s counterclaims.

Yamaguchi then filed for bankruptcy and the infringement suit was stayed. Meanwhile, the court denied Hazelquist’s motion for default judgment against Guchi Moochie despite its earlier entry of default because judgment against Guchi Moochie would “in substance” be judgment against Yamaguchi and the court was barred from entering judgment on Yamaguchi until resolution of the bankruptcy petition.

Once Yamaguchi obtained discharge of his debts, the district court lifted the stay and ordered Hazelquist to show cause why the case should not be dismissed, as it appeared that the case was included in Yamaguchi’s discharged debts and liabilities. In response, Hazelquist alleged that Yamaguchi continued to infringe after the bankruptcy discharge. The district court, however, dismissed the claims, relying on 11 U.S.C. § 524(a), which states that “the discharge of a debtor’s liabilities in bankruptcy ‘operates . . . against the commencement or continuation of an action, . . . to collect, recover, or offset any such debt as a personal liability of the debtor.’” Slip op. at 3. The district court noted that, although Hazelquist argued that his case should continue because Yamaguchi admitted to the continued sale of allegedly infringing fishing lures, Hazelquist had not cited any supporting legal authority. Thus, the court also denied Hazelquist’s motion for reconsideration.

On appeal, the Federal Circuit reversed the dismissal because the district court erred in treating a discharge in bankruptcy as an injunction against a plaintiff asserting a claim for a cause of action that arose after the date of bankruptcy. Section 524 only applies to debts that arose before the date of discharge, and the Court’s case law “clearly states that each act of patent infringement gives rise to a separate cause of action.” Id. at 5. Thus, the Court held that Hazelquist has a cause of action arising after the bankruptcy discharge and is not enjoined by § 524.