Lead Opinion
This case requires application of traditional choice-of-law, tort, and property principles to an increasingly common factual setting, a dispute over the ownership of an Internet domain name. John Laxton
I. BACKGROUND
A. Background Facts
On July 23, 1995, Mayberry, a citizen of Virginia, registered the domain name “rl.сom”. The registration was effected by a contract with domain name registrar Network Solutions, Inc., a Delaware corporation headquartered in Herndon, Virginia. Network Solutions is one of the largest domain name registrars in the world and for a $100 fee registers a client’s domain name with the Internet Corporation for Assigned Names and Numbers, commonly referred to as ICANN. Mayberry’s registration of rl.com was renewable for $50 per year. After the initial registration, May-berry renewed the domain name periodically, last doing so on July 23, 2002, when he paid in advance for three years so that the registration would expire on July 24, 2005.
Mayberry’s contract with Network Solutions identified the administrator of the website as Micro Access Technologies, Inc. (“MAT”), a company owned by Mayberry. Specifically, Mayberry made MAT, through “mat.net”, the administrative contact for both domain names, mat.net and rl.com. He thus exercised administrative control over both websites through the email address “dale@mat.net”. In 2001 mat. net ceased operation. Mayberry failed to notify Network Solutions that mat.net was no longer operаtive.
The parties dispute the precise circumstances of Mayberry’s loss of mat.net and, therefore, the loss of rl.com. Laxton asserts that Mayberry let the registration expire by its terms, but Mayberry contends he attempted to renew the domain name. Laxton’s expert claimed that May-berry is “incorrect” in insisting the registration still belonged to Mayberry on December 19, 2003, and that Mayberry “abandoned Mat.net by letting it expire on its own terms on October 2.” At his deposition, Mayberry stated that he was still the registrant of mat.net on December 19, 2003, a claim Laxton vigorоusly contested both at the district court and on appeal. The district court concluded that “[t]he circumstances surrounding the transfer of mat.net are not entirely clear.”
Despite these unresolved factual issues, we can establish the following from the record. On December 19, 2003, a new registration of mat.net was made by a man named Li Qiang (“Qiang”). The registration was made on Beijing Sinonets Network & Telecom Co. Qiang’s control of mat.net permitted him to designate his email address as dale@mat.net and to receive e-mail at this address in plaсe of Mayberry. Using this e-mail address,
Mayberry, meanwhile, discovered that he had lost control of both domain names. He assigned his interest in rl.com to CRS, a Virginia corporation, in exchange for an undisclosed sum of cash and the company’s promise to help him recover the lost names. Contact was made with Laxton, who, having just spent thousands of dollars successfully defending rl.com from a WIPO action brought by Rаlph Lauren, declined to surrender his control over the domain name. This lawsuit followed.
B. Procedural History
On October 30, 2007, Mayberry and CRS filed their second amended complaint against Laxton, Kalita, Qiang, and others, charging them with theft of the two domain names. Count 1 charged conversion of the domain names and conspiring to convert them. Count 2 charged the defendants with interference with Mayberry’s contracts with Network Solutions. Count 3 charged unfair competition. Count 4 asked for declaratory relief under 28 U.S.C. § 2201, affirming the plaintiffs’ right to control the identity of the registrants of the two domain names. The plaintiffs prayed for a return of the domain names and disgorgement of the defendants’ profits from them. Each side moved for summary judgment. After hearing and argument, the district court granted judgment for the plaintiffs on Counts 1 and 4 and ordered the defendants to turn over rl.com. The plaintiffs voluntarily dismissed their other causes of action.
The district court saw the primary question before it as a choice of law: Virginia’s or California’s. Laxton, a California defendant, urged application of Virginia law. Mayberry, a Virginia plaintiff, wanted California law to govеrn. Under Virginia law, the defendants claimed, the plaintiffs had only a contract. Under California law, all parties agree, the plaintiffs’ domain names were intangible personal property. The court conducted a government interest analysis, concluding California had the “greater interest” and giving judgment for the plaintiffs. On appeal, Laxton alleges this choice of California law was error.
II. ANALYSIS
A. Standard of Review
The parties are diverse. The amount in controversy exceeds $75,000, according to the plaintiffs’ expert who estimates rl.com to be worth $85,000. The judgment is final. Our review is de novo. Lovell v. Chandler,
B. Choice of Law
The parties dispute whether California or Virginia law applies in this case. When a federal court sits in diversity to hear state law claims, the conflicts laws of the forum state — here California — are used to determine which state’s substantive law applies. 389 Orange Street Partners v. Arnold,
The government interest analysis consists of three steps:
First, the court examines the substantive law of each jurisdiction to determine whether the lаws differ as applied to the relevant transaction. Second, if the laws do differ, the court must determine whether a “true conflict” exists in that each of the relevant jurisdictions has an interest in having its law applied. If only one jurisdiction has a legitimate interest in the application of its rule of decision, there is a “false conflict” and the law of the interested jurisdiction is applied. On the other hand, if more than one jurisdiction has a legitimate interest, the court must move to the third stage of the analysis, which focuses on the “comparative imрairment” of the interested jurisdictions. At this stage, the court seeks to identify and apply the law of the state whose interest would be the more impaired if its law were not applied.
Abogados v. AT & T, Inc.,
As a default, the law of the forum state will be invoked, and the burden is with the proponent of foreign law to show that the foreign rule of decision will further the interests of that state. See Hurtado v. Superior Court,
Like the majority of states to have addressed the issue, California law recognizes a property interest in domain names. As we explained in Kremen v. Cohen, domain names are intangible property subject to conversion claims.
Laxton argues that a garnishment case from the Supreme Court of Virginia, Network Solutions, Inc. v. Umbro International, Inc. (“Umbro ”),
Umbro tells us only about how Virginia law treats domain names in garnishment actions. Particularly given the majority of states’ justifiable coalescence around understanding domain names as intangible property, we decline Laxton’s invitation to read Umbro more broadly than its text requires.
This understanding of Umbro’s holding as a narrow one is buttressed by the observation that California law, despite recognizing that domain names are intangible personal property subject to a common law action for conversion, see Kremen,
On our narrow understanding of Umbro, California law applies. Under California choice-of-law rules, the party seeking application of foreign law bears the burden to show that the law of a foreign state should apply. See McGhee v. Arabian Am. Oil Co.,
Evеn if Laxton was correct in asserting Virginia treats domain names as contract rights for all purposes, however, at best his claim presents only a classic “false conflict.” The district court accepted Lax-ton’s reading of Umbro, concluding Virginia’s treatment of domain names as contract rights in all instances reflected a policy of providing domain name purchasers “with a predictable limitation for their liability.”
On appeal, Laxton argues this characterization of Virginia’s interest was incorrect, again returning to the claim that Umbro demоnstrates “Virginia’s policy to control the characterizations of domain names that are acquired in that state” by Virginia citizens. Thus, whether under the district court’s or Laxton’s understanding of Virginia’s interest, neither of which we are persuaded necessarily follows from Umbro, Virginia is concerned with protecting Virginia residents who purchase domain names from property claims, not from asserting property claims. Yet the defendant-purchaser, Laxton, is from California, not Virginia.
California’s policy in treating domain names as property is thus accurately characterized as protecting the rightful holders of domain names, encouraging investment in and development of that property. Such a policy would protect plaintiffs in suits alleging conversion of a domain name, not a defendant who allegedly converts a domain name. Further, “when the defendant is a resident of California and the tortious conduct ... occurs [in California], California’s deterrent policy of full compensation is clearly advanced by application of its own law.” Hurtado,
Thus, even if we accept Laxton’s characterization of Umbro, which we do not, California law would apply because this would be a case of a false conflict, since Virginia does not have an interest in its law applying given how the parties are situated with Laxton as a defendant and Mayberry as a plaintiff. See Ins. Co. of N. Am. v. Fed. Express Corp.,
C. California Conversion Law
Having decided California law applies, we turn to whether Mayberry should have prevailed on summary judgment. Like the choice-of-law analysis, we must accommodate faсts arising from Internet transactions within traditional legal doctrines.
The parties do not dispute that a domain name is intangible property, subject to an action for conversion under California law. Kremen,
1. Innocent Purchaser Defense
Under California law, “[c]on-version is generally described as the wrongful exercise of dominion over the personal property of another.” Fremont Indem. Co. v. Fremont Gen. Corp.,
California does, however, recognize an innocent purchaser defense. “ ‘As a general rule, an innocent purchaser for value and without actual or constructive notice that his or her vendor has secured the goods by a fraudulent purchase is not liable for conversion.’” Express Media Group, LLC v. Express Corp., No. C 06-03504,
The district court found that Mayberry was “not lawfully dispossessed” of his right to rl.com “by Qiang’s seizure of the domain name without Mayberry’s authorization, and thus it was not possible for Defendants to acquire a right to the domаin superior to Mayberry’s by virtue of Lax-ton’s purchase.” Therefore, the court held, Laxton was “prima facie liable for conversion.”
Laxton argues that Mayberry voluntarily parted with rl.com and, at most, the transfer to Qiang was obtained by fraud, leaving Laxton an innocent purchaser for value. In support of this argument Lax-ton offered his declaration, in which he claimed that “[t]here was nothing to suggest that this purchase [of rl.com] was anything other than an honest transaction. Prior to the purchase, I checked the domain name with the World Intellectual Property Organization just to make sure that there were no disputes involved with the domain name and there were none.” He also offered an expert who explained inconsistencies in the evidence regarding the dates and circumstances surrounding Mayberry’s loss of mat.net. Laxton’s expert further explained that “CRS offers no explanation as to how Qiang might have transferred the registration away from Mayberry without his consent.”
The key determination was thus whether Mayberry lost control of rl.com as the result of theft or fraud. To be sure, if the title were voidable Mayberry could pursue a sеparate action against Qiang for the fraud, as could Laxton if the title were void. However, because of the likely inability of either party to collect a judgment
2. Abandonment
At the district court, Laxton also claimed Mayberry’s actions resulted in Mayberry’s abandonment of his right to possess rl.com. The district court rejected this argument, holding that “a defendant must show a ‘clear, unequivocal, and decisive act’ demonstrating a waiver of the plaintiffs property rights.” See Hopson v. Nat’l Union of Marine Cooks & Stewards,
While this court correctly states the standard of abandonment under California law, in Ananda Church of Self-Realization v. Massachusetts Bay Ins. Co., a California appellate court upheld an abandonment defense to a conversion action where the plaintiff had discarded documents in an outdoor trash barrel, reasoning that “ ‘[a] thing is abandoned when the owner throws it away, or leaves it without custody, because he no longer wishes to account it as his property.’ ”
The district court noted that it could “divine no intent to abandon rl.com from Mayberry’s failure to update his contact information with [Network Solutions] once he lost access to the email address, dale@ mat.net. It is not clear when Mayberry first learned that he no longer could access his email, and only four days passed between matnet’s transfer to Qiang and the theft of rl.com. In any event, Mayberry’s failure to change the contact information ... cannot be interpreted as an affirmative abandonment of his rights to the domain.” We are not so sure.
The factual disputes regarding the loss of mat.net prevent disposing of this case on summary judgment. Laxton did allege an act that, he says, is unequivocal and indicates decisive intent to abandon rl.com: the abandonment of mat.net. Laxton claims Mayberry abandoned mat.net, letting its registration expire, and based on Mayberry’s extensive knowledge of the system for registering domain names, this was also an abandonment of rl.com. May-berry disputed the facts underlying his intent. The record, in the district court’s words, is “not clear” on the facts surrounding Mayberry’s loss of mat.net. These “not clear” facts are material as to Mayberry’s intent regarding rl.com. See Trevaskis v. Peard,
Finally, we note that the issue of “fraud” versus “theft,” as well as the claim that
In short, we cannot decide the issue of whether Qiang obtained rl.com by “theft” on the “not entirely clear” record before us. Under the circumstances alleged by Laxton, it is unclear whether “theft” or “fraud” is the appropriate understanding of the method through which Mayberry lost control of mat.net and rl.com. See People v. Moses,
III. CONCLUSION
For the aforementioned reasons, we affirm the district court’s decision to apply California law but reverse the grant of summary judgment, concluding Laxton raised contested issues of material fact. We therefore remand for further proceedings consistent with this Opinion.
AFFIRMED in part, REVERSED in part, and REMANDED. Each party to bear its own costs of appeal.
Notes
. While the dissent argues that finding any abandonment on this record is impossible, abandonment is a question of intent to be determined upon all the facts and circumstances. Martin v. Cassidy,
. Laxton also argues rl.com is located in Virginia and thus any alleged tort occurred in Virginia as well. Cf. Office Depot Inc.,
. Prosser, for example, once wrote, “The hand of history lies heavy upon the tort of conversion.” William L. Prosser, The Nature of Conversion, 42 Cornell L.Q. 168, 169 (1957). Indeed, disputes structured like this one have proven vexatious for centuries. See Richard A. Epstein, The Roman Law of Cyberconversion, 2005 Mich. St. L.Rev. 103, 105-06 (describing “one of the most rudimentary challenges to any legal system,” where B wrongfully acquires property to which A has the right, resells it to an unwitting buyer, C, and then flees the jurisdiction, leaving a legal dispute between A and C).
Dissenting Opinion
dissenting:
I agree that California law governs and that the рrimary question is whether possession of the domain name rl.com was acquired by theft or fraud. A secondary question is its alleged abandonment.
Undisputed facts established that May-berry held the domain name rl.com registered through July 25, 2005. Undisputed facts established that Li Qiang transferred the domain name to himself before the registration to Mayberry had expired. No facts were presented to the court showing or even suggesting that Li Qiang had obtained the domain name by fraud rather than by theft.
The majority notes that Laxton checked the registry and found nothing suspicious. That fact establishes his innocence and good faith; it does not establish that Li Qiang had gotten hold of the domain name by fraud. Laxton was in the position of any innocent purchaser of stolen property. He had to return the property to the owner.
No reason exists to remand to the district court to find facts when the relevant facts were undisputed. The only factual challenge made by Laxton on this appeal is his assertion that the transfer to Li Qiang “was not tortious.” Brief for Appellant, p. 20. This assertion of nontortiousness is unsupported by citation to the record. It
Defendants have not pointed to any evidence that Mayberry voluntarily transferred the title of rl.com to Qiang as a result of fraud. To the contrary, all of the evidence suggests otherwise.
Thе majority draws from the record the possibility that Mayberry deliberately abandoned mat.net by leaving it to a “virtual trash bin” of available domain names. There is no evidence that Mayberry abandoned rl.com in this way. The majority guesses that the abandonment of mat.net might have been the abandonment of both domain names. Its guess is without foundation. It is as though Mayberry had thrown away a bank statement that had on it the numbers and codes necessary to access a bank account. He surely would have meant to abandon the statement. It could not be reasonably inferred that he meant to abandon the account itself.