Restructuring

Contributed by Christopher Hopkins
It’s nothing new in 2015 to say that social media has become a valuable part of any company’s marketing and public relations strategy.  Companies now rely on sites like Facebook and Twitter to communicate with customers, advertise products, build brands, and shape public opinion.   Despite the obvious value such accounts provide, however, it is not always clear what rights, if any, a company may have in a social media account associated with its businesses or brands. 
The Twitter account of Richard Branson, the billionaire founder of Virgin Group, provides a useful example of this dilemma.  Mr. Branson frequently uses a Twitter account bearing his name to promote Virgin Group’s various businesses and often shares hyperlinks to pages on Virgin’s official website.  With over 5 million followers, Mr. Branson’s Twitter account undoubtedly represents a lucrative marketing tool for Virgin Group.  But who “owns” the account, Virgin Group or Mr. Branson?  Does Virgin Group have a protectable property interest in the account? If Mr. Branson and Virgin Group were ever to part ways (an admittedly unlikely proposition), would Mr. Branson or Virgin Group retain the right to continue “tweeting” to those 5 million potential customers?
The United States Bankruptcy Court for the Southern District of Texas recently shed light on this issue in In re CTLI, LLC., where the court, addressing an issue of first impression, held that a debtor’s social media accounts are property of the estate under section 541 of the Bankruptcy Code.  In CTLI, LLC, the court first addressed whether the social media accounts at issue were “business accounts” that belonged to the debtor, as opposed to “personal accounts” belonging to the individual responsible for the creation and maintenance of the account.  After concluding that each social media account was in fact a business account that belonged to the debtor, the court ordered the individual to transfer administrative rights to the accounts to the reorganized debtor.
In re CTLI, Inc.
CTLI, LLC was as a firearms dealer and indoor shooting range operating under the name Tactical Firearms.  Prepetition, Jeremy Alcede, the debtor’s founder and majority owner, created and personally maintained two social media accounts on the debtor’s behalf:  a Facebook “Page” and a Twitter account.  Each account was maintained under the “Tactical Firearms” name and was directly linked to the debtor’s official website.  Alcede used these accounts to disseminate posts and “tweets” related to the debtor’s business among the accounts’ followers.
Alcede subsequently began diverting cash from the debtor’s operations for his personal use and caused the debtor to default on certain loans.  Facing foreclosure proceedings from certain of the debtor’s lenders, Alcede caused the debtor to commence a chapter 11 case.
Although Alcede remained in control of debtor’s business postpetition, the court terminated exclusivity to allow Alcede’s business partner to propose his own chapter 11 plan.  The partner’s proposed plan, which granted the partner ownership of 100% of the reorganized debtor, was subsequently confirmed by the court.  To effectuate the transfer of ownership, the Confirmation Order required Alcede to “deliver possession and control” of “passwords for the Debtor’s social media accounts, including but not limited to Facebook and Twitter” to the reorganized debtor.  Alcede refused to provide the reorganized debtor the passwords to the social media accounts, however, arguing that the accounts constituted his personal property.  Alcede then filed an objection to the reorganized debtor’s proposed order compelling Alcede to transfer administrative rights in accordance with the Confirmation Order.  Following a hearing to consider the objection, the court concluded that the social media accounts were property of the debtor’s estate and ordered Alcede to transfer administrative rights to the accounts to the reorganized debtor.
A Debtor’s Social Media Accounts are Property of the Estate
The court first addressed whether a debtor’s social media accounts constitute proprety of the estate under Section 541 of the Bankruptcy Code.  Section 541 defines “property of estate” to include “all legal or equitable interests of the debtor in property as of commencement of the case.”  Bankruptcy courts typically look to applicable state law to determine the nature of the interest, if any, a debtor has in specific property.  The court had no state law on which it could rely, however, because no Texas state court had addressed whether ownership of a social media account constitutes an interest in property.
Instead, the court looked to decisions of “[m]any courts, applying the law of their respective states,” that held that subscriber or customer lists constitute an interest in property.  The court reasoned that, like subscriber or customer lists, the value of a business’s social media accounts is that they “provide valuable access to customers and potential customers.”  Accordingly, the court held that a business’s social media accounts constitute property of the estate under section 541 of the Bankruptcy Code because ownership of such accounts constitutes a valuable property interest.  In reaching this conclusion, the court also cited an asset sale order entered by the United States Bankruptcy Court for the Southern District of New York that treated the debtor’s social media accounts as estate property for the purposes of the sale and grouped the accounts with the debtor’s subscriber lists.
Importantly, the court qualified its ruling with respect to social media accounts that arguably belong to an individual, as opposed to the debtor.  Comparing an individual’s social media account to a “persona,” which is “the interest of the individual in the exclusive use of his own identity” and a recognized property interest under applicable state law, the court cautioned that accounts belonging to an individual would probably not become property of the estate.  The court reasoned that just as the 13th Amendment’s prohibition on involuntary servitude prevents a debtor from assuming a contract that would require an individual to perform personal services, a debtor would be unable to appropriate an individual’s “liberty interest” in his or her own social media accounts.
The “Tactical Firearms” Accounts were Business Accounts That Belonged to the Debtor
Because the court concluded that only business accounts, and not individual accounts, constitute estate property, the court had to determine whether the “Tactical Firearms” accounts belonged to the debtor or were Alcede’s personal accounts.  The court analyzed the Facebook Page and Twitter account separately, but ultimately concluded that each account was a business account that belonged to the debtor and, therefore, constituted property of the debtor’s estate.
The court’s reasoning with respect to the debtor’s Facebook Page requires an understanding of the difference between a Facebook “Page” and Facebook “Profile.”  Facebook Profiles “are for non-commercial uses and represent individual people.”  In contrast, Facebook Pages, though similar to Profiles in appearance, are designed specifically for businesses, brands, and organizations.  Pages offer unique tools to businesses and are not subject to certain restrictions that apply to Profiles.  Before a Page may be created, however, an official representative of the brand, business, or organization must first create his or her own personal Profile.  Once the individual creates the Page, he or she may then designate various administrative rights to other “Friends” of the business’s Page.
Alcede created the Tactical Firearms Page through his personal individual Profile, as required by Facebook’s terms and conditions.  The court held that the creation of the Tactical Firearms account as a “Page” – an account specifically designed solely for businesses, brands, and organizations – created a presumption that the account belonged to the debtor.  The court found it immaterial that the Page was created through Alcede’s personal profile because Facebook requires that every Page be established by an official representative of the business through that individual’s personal Profile page.   Moreover, the court rejected Alcede’s arguments that the Tactical Firearms Page was his personal account because Alcede routinely posted “on behalf of” the debtor and the posts were clearly targeted to promote the debtor’s business.  The court also noted that Alcede granted certain administrative privileges to the debtor’s employees, going so far as to share his personal Facebook Profile’s login information with a business associate to enable that individual to post status updates to the Tactical Firearms Page.  The court concluded that because the Facebook Page was created in the debtor’s name, was linked to the debtor’s official web page, and was used for business purposes it was clearly a business account of the debtor.
The court’s analysis of the Tactical Firearms Twitter account was less complicated because unlike Facebook, Twitter does not distinguish between accounts for businesses and individuals.  The court concluded that the Twitter account was a business account of the debtor because, like the Tactical Firearms Facebook Page, the account was named after the debtor’s business, included a description of the debtor’s business in the account’s profile description, included a link to the debtor’s official webpage, and was used almost exclusively to promote the debtor’s business.
Because each account was deemed to be a business account belonging to the debtor, the court concluded that both accounts constituted property of the debtor’s estate.  Accordingly, the court ordered Alcede to provide the reorganized debtor with the password information for each account and issued an immediate injunction barring Alcede from using the accounts for any purpose other than to effectuate the transfer of administrative rights to the reorganized debtor.
Conclusion
Although the court’s conclusion that the Tactical Firearms accounts were property of the debtor’s estate is not surprising given the importance of social media to a business’s marketing and public relations strategy, the decision provides useful guidance to debtors concerned about their continued access to and reliance on these valuable assets in the bankruptcy context.  Further, the decision helps clarify the boundary between accounts that actually belong to the business – and therefore would constitute property of the estate in the event of a bankruptcy filing – and those that belong to individuals.  Potential debtors seeking to preserve the accumulated goodwill and value of their social media accounts postpetition should take care to ensure that their accounts would be deemed “business accounts of the debtor” following the commencement of a bankruptcy case.