"...the landscape of social media is yet mostly unchartered in bankruptcy."
A bankruptcy judge for the Southern District of Texas (In re CTLI, LLC, Case No. 14-33564) recently wrote a 30-page opinion – and sent a man to jail for failure to comply with it – over a modern and unlikely issue: his Facebook page.
Jeremy Alcede, the majority owner of gun shop and shooting range Tactical Firearms, maintained a Facebook page and a Twitter account which shared the shop’s name. He used the accounts to advertise sales or gun shows to the shop’s customers, and often to post photos of the shop’s outdoor sign outfitted with political slogans and attacks on President Obama.
In June, Mr. Alcede put Tactical Firearms into a chapter 11 bankruptcy to avoid the appointment of the receiver and a foreclosure by its secured lender. The lender moved to terminate exclusivity, and then filed and had its own plan of reorganization confirmed. The plan required Mr. Alcede to "deliver possession and control" of "passwords for the Debtor’s social media accounts" including Facebook and Twitter, for the reorganized debtor’s continued use. Mr. Alcede has, so far, refused, claiming that all Tactical Firearms social media sites belonged to him personally.
The Court disagreed, deciding that business social media accounts fall within the Bankruptcy Code’s definition of "property of the estate." Section 541, which defines property of the bankruptcy estate, is usually read broadly to include all kinds of property in which the Debtor has a legal or equitable interest, both tangible and intangible. 11 U.S.C. § 541. Courts look to underlying state law for determinations of what constitutes property.
Here, the Court found a business Facebook page – which customers or other Facebook users may "like" to receive notifications or "unlike" to stop receiving notifications – analogous to a subscriber or customer list, which courts have found to be property interest of the debtor. The fact that Mr. Alcede often referenced himself personally on the Facebook page did not convert it into a personal account, the Court found. Instead, the primary purpose of the Facebook page was to generate revenues for the gun shop and range, and though Mr. Alcede never gave another person "administrator" privileges for the page, not only was that option available, but he did allow other employees and a marketing firm to occasionally access the page through his own account.
As for the shop’s Twitter handle, @tacticalfirearm, the Court found that was also a business account and therefore property of the estate, and not a personal account of Mr. Alcede. The fact that the Twitter account was named after the business, included a description of the business, and was linked to the business’s webpage all supported this conclusion. Although Mr. Alcede authored the vast majority of the tweets posted, the Court found that he was simply an employee contributing goodwill to the value of the social media account for the value of the business.
The Court acknowledged in the opinion that he was breaking new ground with his opinion, writing that "the landscape of social media is yet mostly unchartered in bankruptcy." So would the result be the same in Virginia? Maybe not. In a fairly recent case, In re Alexandria Surveys Intern., LLC, 500 B.R. 817 (E.D.Va. 2013), a District Court judge reversed an Order approving the sale of certain assets of a bankruptcy estate, including the Debtor’s web site address, phone number and fax number. The Court relied on the Virginia Supreme Court case of Network Solutions, Inc. v. Umbro International, Inc., 259 Va. 759, 529 (2000) for the proposition that these items are essentially contract rights with the service providers, not personal property in which the Debtor has an ownership interest. Social network accounts – where users may register for free, but are subject to terms of service agreements with the network providers – could be considered analogous under Virginia’s precious few instructive cases on the subject.
[Andrea Davison is an associate attorney at law firm Bean, Kinney & Korman practicing in the areas of bankruptcy, creditors' rights and financial restructuring.]