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Important: Why California Courts Can Take Your Domains

by kindsvater
47 replies
  • OFF TOPIC
    • |
There is a new 9th Circuit Federal Court Opinion you should know about - Office Depot v. Zuccarini.

John Zuccarini is an Internet marketer in Florida with hundreds of domains. He was sued by Office Depot for registering offic-depot.com, and Office Depot naturally won.

Although there is an underlying domain / trademark dispute that is NOT why you need to pay attention.

When trying to collect the judgment against Zuccarini it was discovered that he had the hundreds of domains.

Here's what went down:

A lawsuit was filed in Northern California to take away and sell Zuccarini's domains to pay the judgment.

Zuccarini objected, saying he was in Florida and his domains were not registered in California, but instead he used registrars in other states, Germany, and Israel.

Zuccarini then lost his domains.

The court held that:

- Domain names are property.

- The official registry for .com and .net domains is Verisign, which is based in Silicon Valley.

- It doesn't matter where a domain registrar, such as GoDaddy is located.

- Judgment holders can sue in California to take away your .com and .net domains to satisfy a judgment because that is where Verisign is located.

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Impact: You live in New York, have a car accident in Manhattan, and a judgment is entered against you. You don't have much in the bank to pay the judgment, or maybe the plaintiff doesn't want to deal with bank levies, or maybe you can't be located. So the plaintiff files a collection action in California to take away all your domains on which you have your blogs, Adsense sites, affiliate sites, product sites, etc.

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#california #courts #domains #important
  • Profile picture of the author Dunder
    Wow, that sounds scary.

    Does that apply to other TLDs too?
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    • Profile picture of the author davezan
      I'm not a lawyer. But I think there's a couple of items that can rather be read
      and/or understood differently.

      Originally Posted by kindsvater View Post

      Domain names are property.
      Under California law. Some points were argued in that decision cited:

      First, we have already held that domain names are intangible property under California law. Kremen v. Cohen,337 F.3d 1024, 1030 (9th Cir. 2003). In Palacio Del Mar Homeowners Ass'n, Inc. v. McMahon, 174 Cal. App. 4th1386, 1391 (2009), a California Court of Appeal held that domain names do not constitute property subject to a turnover order because they cannot be taken into custody.
      For the interested folks, check out the Umbro case. Just that some folks might
      get the impression that domains are property for any and all purposes, and we
      are still a long way from that.

      If domain names are property, you can expect to lose them in many ways such
      as a divorce, amongst those fighting over your will, to the IRS, etc. Don't know
      how many would be interested in seeing that happen.

      Originally Posted by BlueSquares View Post

      I was under the impression that ICANN was responsible for all domains?
      Not really. ICANN essentially manages the system that allows us to register
      and manage domain names, yet they don't "absolutely police" them so to speak.

      As explained in the decision:

      A domain name is created when it is registered with the appropriate registry operator. A registry operator maintains the definitive database, or registry, that associates the registered domain names withthe proper IP numbers for the respective domain name servers.
      It's a bunch of contractual relationships, but VeriSign is contracted by ICANN
      to manage the authoritative registry database for .com and .net domains. It's
      got a lot of controversy if one reads a lot about it, but that's a different story
      outside of this discussion.

      One way to understand this is to think of ICANN as, say, a governing body to
      decide how and what cars are to be manufactured, while VeriSign makes 'em.
      But ICANN doesn't control how cars are to be used, or decide who owns a car
      if someone disputes its ownership.

      The analogy above is just an attempt to explain the relationship, and a bunch
      of others can be better used. But you probably get the idea.

      Originally Posted by daj View Post

      I wonder how this will be handled for other domain extensions, such as .co and .cm which could be seen as a typo of .com?
      Originally Posted by Dunder View Post

      Does that apply to other TLDs too?
      Those are handled under any applicable law where the authoritative database
      handling the domain extension is located. .UK domains can be disputed legally
      in the U.K. somewhere, .ASIA domains in Hong Kong, etc.

      Also note that this decision's purpose wasn't really to declare domain name as
      property, but to find some place to satisfy DSH's judgment against Zuccarini
      and seize his domain assets. If anything, it goes to show anyone can pull off
      something like this if one's really that determined.
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  • Profile picture of the author Always-A-Warrior
    Can we get the link to this article?. Thanks.
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  • Profile picture of the author kindsvater
    Here is the link to the court opinion (pdf format):

    http://www.ca9.uscourts.gov/datastor...6/07-16788.pdf

    .
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  • Profile picture of the author Jamesyfws
    Is there no Justice in the Justice System anymore?
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  • Profile picture of the author cashcow
    If he had setup a corporation and the corporation owned the domains, would they still be able to take them?
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    • Profile picture of the author kindsvater
      Originally Posted by cashcow View Post

      If he had setup a corporation and the corporation owned the domains, would they still be able to take them?
      No, so long as the corporation and person have been treated as separate legal entities.

      However, this is something most people miss ==>> if someone is going after your personal assets, one of those assets is the ownership of the corporation. So what happens is you can lose control not just of your domains, but your entire company.

      .
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      • Profile picture of the author TimGross
        (Later edit/add: I'm not a lawyer and this is not legal advice, but it seems to me...)

        This guy John Zuccarini is a dirt bag who registered sites associated with kid's products like Looney Toons, Harry Potter, Scooby Doo, and Disneyland, then used mouse-trapping popup tricks to force kids to see porn who were looking for those topics.

        He's a royal asshole and went to jail for it. If a court confiscated his domains to help pay off a judgment against him, to some degree it was a unique circumstance.

        Disney-porn hook-up sends typosquatter to jail | Networks | silicon.com

        http://news.findlaw.com/cnn/docs/cyb...ni82903cmp.pdf

        Since this is pretty much a unique case, of all the things that marketers here need to worry about, this is pretty low on the list, I believe.
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        • Profile picture of the author kindsvater
          Tim, you're making a big mistake confusing a dirtbag desperate enough let something like this result in an appellate opinion, with the legal reasoning. The legal opinion has NOTHING to do with whether the defendant was a slime or Mother Teresa.

          I guarantee you my law office will be using this. There are people, and businesses, every day who try to avoid paying judgments, drag their heels, and have an endless supply of excuses.

          To be clear, so there is no misinformation to anyone reading your post, this is not a "unique case" that is only interesting for academics. Collecting judgments is a huge business. Instead of trying to track someone down, leaving phone messages that are never returned, letters that are ignored, etc., if the debtor has a domain they now have a significant risk, regardless of where they may be.

          That said, yeah, it is nice to see someone like that lose their domains. My office has sued pornographers using that mousetrapping technique.

          .
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          • Profile picture of the author TimGross
            Originally Posted by kindsvater View Post

            To be clear, so there is no misinformation to anyone reading your post, this is not a "unique case" that is only interesting for academics. Collecting judgments is a huge business.
            Well first off, my mistake in not starting my first post off with a, "I'm not a lawyer and this isn't legal advice but it seems to me..." which is what I usually do. (In fact, maybe I'll edit/add that to the beginning of my original post.)

            With that said, are there other examples of this same thing happening to other people other than this extreme example? (Having their domains taken to satisfy a court judgment.) And are there examples of people having their domains taken to satisfy a judgment that did not originally have anything to do with domain registration/internet?
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            • Profile picture of the author LB
              I don't understand why this surprises someone.

              Imagine this: You're hit by a drunk driver, you end up with thousands of dollars of medical bills, pain and suffering, a totaled car, etc. Your life is turned upside down.

              Drunk guy has no assets- no home, no valuables, no cash in the bank.

              It just so happens that drunk guy has a couple valuable 3-letter domains.

              Should you be able to get them if you get a judgement against him? HELL YES.

              Scenario 2: Copyright thief operating out of Asia steals your content and is using it to scam people. He hosts the site in China and they don't respond to DMCA notices.

              Your name is tarnished by his behavior and it hurts your business. You sue.

              Should you be able to take his domains as judgement. HELL YES. (and in this case it might be all you can get from them)
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            • Profile picture of the author kindsvater
              Tim, you ask are there other examples? Not that I'm aware of - but I have not looked and, more importantly, the opinion was issued without mentioning prior precedent from other courts.

              I think it is new law - which is why I posted it here so at least you would know about it.

              Yesterday, I would have assumed that even attempting to use, or take, someone's domain because they owed money required legal action where that person lived, or maybe where the domain registrar is located.

              In many cases, that would be the end of the line, with registrars being worldwide and in places not economically accessible except to only large corporations.

              Today, I now know there is an easier and more inexpensive method.

              Ask again in a year to see if there are other examples. I'm guessing that not only will there be plenty, but the local federal courts may be a tad upset about becoming magnets for collection actions. That is when the law may change, because federal judges are not going to want to see their dockets fill-up with collection levies.

              .
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              • Profile picture of the author TimGross
                Originally Posted by kindsvater View Post

                I think it is new law - which is why I posted it here so at least you would know about it.

                Yesterday, I would have assumed that even attempting to use, or take, someone's domain because they owed money required legal action where that person lived, or maybe where the domain registrar is located.

                In many cases, that would be the end of the line, with registrars being worldwide and in places not economically accessible except to only large corporations. Today, I now know there is an easier and more inexpensive method
                Well summarized, thanks.
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              • Profile picture of the author MichaelHiles
                Originally Posted by kindsvater View Post

                Tim, you ask are there other examples? Not that I'm aware of - but I have not looked and, more importantly, the opinion was issued without mentioning prior precedent from other courts.

                I think it is new law - which is why I posted it here so at least you would know about it.

                Yesterday, I would have assumed that even attempting to use, or take, someone's domain because they owed money required legal action where that person lived, or maybe where the domain registrar is located.

                In many cases, that would be the end of the line, with registrars being worldwide and in places not economically accessible except to only large corporations.

                Today, I now know there is an easier and more inexpensive method.

                Ask again in a year to see if there are other examples. I'm guessing that not only will there be plenty, but the local federal courts may be a tad upset about becoming magnets for collection actions. That is when the law may change, because federal judges are not going to want to see their dockets fill-up with collection levies.

                .

                Well the upside to this is that it will be easier for US based intellectual property producers to sue foreign pirates and hosts that conspire with them to distribute stolen works right here in domestic courts in absentia and seize their domains.
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        • Profile picture of the author bocephus
          Originally Posted by TimGross View Post

          (Later edit/add: I'm not a lawyer and this is not legal advice, but it seems to me...)

          This guy John Zuccarini is a dirt bag who registered sites associated with kid's products like Looney Toons, Harry Potter, Scooby Doo, and Disneyland, then used mouse-trapping popup tricks to force kids to see porn who were looking for those topics.

          He's a royal asshole and went to jail for it. If a court confiscated his domains to help pay off a judgment against him, to some degree it was a unique circumstance.
          Yeah. This is a guy who probably made millions by mousetrapping. Low end scum. Nothing about how he earned that money could be considered legitimate and in most of his pop-up barrages he included the original site that the viewer probably intended get to in the first place. This naturally annoyed the "real" site owners. So they sued and won, but couldn't collect damages. So what would you go after to receive satisfaction? How about the only asset the scumbag has... the very same asset he uses to make his money. From what I can tell, he had his day in court (many many times) and lost (many many times). Seems like he might have taken the hint the first ten lawsuits or so.

          I have no problem with this. When you can cite a single incident in which an innocent party is relieved of their domain names... then I'll worry.
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  • Profile picture of the author Underground SEO
    ah well, I think you would have to be pretty unlucky for that to happen to you - as in the car crash example. I haven't heard of any documented cases of that occurring.
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    • Profile picture of the author kindsvater
      Originally Posted by fryerben View Post

      ah well, I think you would have to be pretty unlucky for that to happen to you - as in the car crash example. I haven't heard of any documented cases of that occurring.
      The car crash is an example to highlight how the law can be used.

      If you want a documented case, you have it, read the Office Depot case. As I said, although the underlying dispute was a domain, that is completely irrelevant to what later happened. The underlying dispute could have been a car crash. It could have been anything that resulted in a judgment.

      The reason you don't read too many cases like this is because these issues almost always settle or get resolved.

      Here's what happens ... someone thinks something like this never happens. Then an attorney puts a huge squeeze on them. Suddenly, money appears to pay the judgment.

      Tip: if you are ever unlucky enough to be the subject of a collection again and there is an asset hearing, do not have any cash in your wallet, and leave all watches, jewelry, etc., at home. Depending on your jurisdiction, that type of property can be seized on the spot. It happens a lot - every day.

      .
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  • Profile picture of the author Tron2k
    wow this is scary stuff! c-corp or LLC should take care of this though?
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    • Profile picture of the author DogScout
      Originally Posted by Tron2k View Post

      wow this is scary stuff! c-corp or LLC should take care of this though?
      if it is a single owned corp, every state in the US except for Nevada has a ruling on file that the protection part of the corporation does not apply, even for a single owned LLC!

      A blind trust set up in St Kitts or even Canada would protect you

      (This according to my lawyer, I have not verified it)
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      • Profile picture of the author SageSound
        Originally Posted by DogScout View Post

        if it is a single owned corp, every state in the US except for Nevada has a ruling on file that the protection part of the corporation does not apply, even for a single owned LLC!

        A blind trust set up in St Kitts or even Canada would protect you

        (This according to my lawyer, I have not verified it)
        What makes Nevada different in this case? Just no rulings? Or something about Nevada Corp laws?

        BTW, I hear that Nevada recently altered their Corp laws so that Corps are now subject to charging orders on judgements in the same way as LLCs.

        -David
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        • Profile picture of the author DogScout
          Originally Posted by SageSound View Post

          What makes Nevada different in this case? Just no rulings? Or something about Nevada Corp laws?

          BTW, I hear that Nevada recently altered their Corp laws so that Corps are now subject to charging orders on judgements in the same way as LLCs.

          -David
          So far, no judge has had the gumption to overturn the corporate laws on the books. Some judge in every other state apparently has. (doesn't mean eventually some judge won't)
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  • Profile picture of the author dbperry
    That's why I live in Canada!
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  • Profile picture of the author System Wide Solutions
    This is why it's more important than EVER to get a nevada corporation started, and create an LLC in your state owned by said corporation. then buy / transfer all your domains to the ownership of that LLC.

    **** people who try to take what isn't theirs.
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    • Profile picture of the author Jesus Perez
      Originally Posted by ThePassiveIncomeBlog View Post

      This is why it's more important than EVER to get a nevada corporation started, and create an LLC in your state owned by said corporation. then buy / transfer all your domains to the ownership of that LLC.

      **** people who try to take what isn't theirs.
      If I'm reading this correctly, it doesn't matter how you incorporate, where you incorporate or even if you're corporate or personal.

      Any .com or .net can be snatched by initiating and winning a lawsuit in California.
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  • Profile picture of the author Jesus Perez
    This is extremely disturbing news for domain name holders everywhere.

    Who exactly gave VeriSign this god-like title of ".com and .net" holder? I was under the impression that ICANN was responsible for all domains?
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  • Profile picture of the author MichaelHiles
    Well it's not like the 9th doesn't have a spotty track record of decisions that are ultimately overturned by SCOTUS on further appeal. They tend to be fairly activist from the bench out there.
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  • Profile picture of the author daj
    I wonder how this will be handled for other domain extensions, such as .co and .cm which could be seen as a typo of .com?
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  • Profile picture of the author HeySal
    There are hundreds of laws on the books that allow the gov to take your property of all sorts and not give it back - even if you are deemed innocent of wrong-doing. Everything you own is always in jeopardy in the US, but most people never have problems until they get into illegal stuff --- or unless they buy an nice piece of property that the gov decides they want to own. There is a new legislation up for vote that will make life hell for independent contractors, however, so we might just be seeing the beginning of some real problems for small business owners.
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  • Profile picture of the author SageSound
    Originally Posted by Hyphen View Post

    That is ridiculous...
    Why? It simply lays out a mechanism allowing judgement creditors to seize domain names owned by a judgement debtor and liquidate them to satisfy some or all of the judgement.

    I think the moral of the story is that if you've ended up with a judgement against you from some credit card company or mortgage company and you own any domain names, then you probably want to effectively sell those domain names to some business entity that is out of reach of this sort of action.

    One thing I'm curious about that isn't addressed is what about the hosting attached to the domains? A receiver could make a good argument that, in order to satisfy the judgement, it would be more profitable in many cases to leave the sites up and attach the earnings of the sites, rather than simply seize the domain names and auction them off.

    In particular, for domains owned by foreign entities and also hosted within the US, a receiver could argue that the entire website should be subject to seizure, thereby allowing a US-based judgement creditor to tap into any cashflow produced from it by redirecting the payment accounts (paypal, Amazon, Clickbank, AdSense, etc.) to new accounts owned by the receiver.

    As they say, "To be forewarned is to be forearmed"

    -David
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  • Profile picture of the author Mohammad Afaq
    Hey I'm moving back to Pakistan so that I can easily do some Internet Marketing
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    • Profile picture of the author SageSound
      Originally Posted by mohammad111 View Post

      Hey I'm moving back to Pakistan so that I can easily do some Internet Marketing
      I think you're misinterpreting things here. Where YOU are located is irrelevant!

      According to this ruling, your .com and .net domain names fall within the jurisdiction of the Northern California District because that's where the .com and .net REGISTRY (VeriSign) is located. Their opinion seems to rely mainly on the wording of the ACPA, and the fact that no other laws or precedent exist to suggest otherwise.

      I'm not a lawyer, but reading the ruling, it appears fairly straightforward to me.

      At the end, they also say there's no reason that the domain names cannot also be considered to lie within the jurisdiction of the REGISTRAR as well, if that helps anything.
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  • Profile picture of the author marcdonovan
    This is done all the time and there is nothing really wrong with the process. Someone wins a money judgment and they go after assets. The time to protest was during the trial that you lost, not during asset discovery. The judge determined that you owe the money and anything that you own is fair game.

    Now if you don't own, but only control, different picture, but that's another ballgame altogether.
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    • Profile picture of the author kindsvater
      Originally Posted by marcdonovan View Post

      This is done all the time and there is nothing really wrong with the process. Someone wins a money judgment and they go after assets. The time to protest was during the trial that you lost, not during asset discovery. The judge determined that you owe the money and anything that you own is fair game.
      Yep. What is interesting, and the reason I used the New York example, is that if you're sitting in New York you wouldn't expect a levy to be filed 3000 miles away in California that can destroy your business faster than an FTC action.

      .
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      • Profile picture of the author bocephus
        Originally Posted by kindsvater View Post

        Yep. What is interesting, and the reason I used the New York example, is that if you're sitting in New York you wouldn't expect a levy to be filed 3000 miles away in California that can destroy your business faster than an FTC action.
        Nor is that likely... unless you have been sued... in excess of 50 times... and lost nearly every lawsuit, and failed to pay. Then the extraordinary measure could be taken to seize the only apparent asset you have left.

        Are you suggesting that we are all in danger of having random levies filed against us in California to seize our domain names for no reason whatsoever?
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  • Profile picture of the author debra
    It is my opinion, as I was told by an attorney in general conversation, that if a domain name was surrendered for liquidation in a law suit that...that doesn't neccessarily mean that they own the content hosted on that site. Only the domain name itself. And...it doesn't mean that they can gain legal possession of the hosting account either.

    So...I don't see where it would be very adventagous to accept a domain name as a settlement to a law suit personally. It can take years for a domain name to sell...if it even sells at all. Plus, it save the property rights you would have to be willing to take on the costs of ownership by paying the fees every year.

    It seems to me that copyright laws would be infringed if they present the sale to include the content...which is federal not governed by state. And unless clearer laws exist, I don't think a state court order could be enforced to assume the hosting account.

    Accepting domain names as part of a court settlement that is not directly associated with your brand, in my opinion, is not very smart.
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  • Profile picture of the author timpears
    I don't understand why anyone is surprised at this. There is a name for this, which I forget right now, but if I remember right, there are laws against doing this type of thing. No one in their right mind would register a domain like office-depot.com, or similar well known names, or even lesser known names for that matter, and not expect to get a legal notice of a pending law suit.
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  • Profile picture of the author kindsvater
    Debra:

    You're right. There are multiple potential assets and I would consider a domain name a separate asset from the content on the website.

    How valuable might a domain be? Depends on the name, traffic, PR, age, etc. Could be nothing. Could be a lot. But those a different issues.

    .
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  • Profile picture of the author armadin
    Wow, that sucks! I assume if domains are not in private name ie. corporation owned then they cannot do the same thing but in any case, shows how much justice you have.
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    • Profile picture of the author timpears
      Originally Posted by armadin View Post

      Wow, that sucks! I assume if domains are not in private name ie. corporation owned then they cannot do the same thing but in any case, shows how much justice you have.
      Don't assume. That will only make an ass our of u and me. ass-u-me

      I don't see why holding the domain names in a corporation would make any difference. Corporations as well as private persons can be taken to court and win or lose a judgment. I am not a lawyer, so don't take this as legal advice.
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      • Profile picture of the author SageSound
        Originally Posted by timpears View Post

        Don't assume. That will only make an ass our of u and me. ass-u-me

        I don't see why holding the domain names in a corporation would make any difference. Corporations as well as private persons can be taken to court and win or lose a judgment. I am not a lawyer, so don't take this as legal advice.
        The whole idea of setting up a business entity and putting your assets into it is that if you personally become subject to a legal judgement, then unless you screw up with the paperwork on the business entity, the assets in it will be protected. That's the general idea, anyway.
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        • Profile picture of the author MikeHumphreys
          Brian,

          I'm not a lawyer so I don't know the exact answer to my question but it seems like more of a common sense thing.

          My understanding of judgements against was that it doesn't have to be a complete seizure of any and all assets. Can't there be a court-dictated payment plan for the judgement set up? I would think as long as the payments are made regular and timely, it wouldn't be an issue.

          After all, some of these billion dollar judgements against Big Tobacco, etc. could have sunk some of these companies that weren't cash rich.

          I would also think that getting regular payments vs. trying to liquidate a business's assets (or domains) for pennies on the dollar would be more appealing.

          Can you clarify?

          Thanks,

          Mike
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  • Profile picture of the author Stallion
    Am I the only one that doesn't see a problem with this? He lost in court, owed money and his assets were liquidated to pay for them. What exactly is the problem?
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  • Profile picture of the author Adam Roy
    Do they auction these sites after they take them?

    If so, where?
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    • Profile picture of the author Tina Golden
      Am I the only one that doesn't see a problem with this? He lost in court, owed money and his assets were liquidated to pay for them. What exactly is the problem?
      The OP is just alerting us to this possibility. This is the first time, that I'm aware of, that domain seizure has been part of an asset seizure. No one denies that particular defendant deserves whatever he gets.

      Picture the future, should this law stay and spread. When you get a divorce, you'll need to list every single one of your domains and may have to split them all. And that's just one example.

      I believe that is what the OP is trying to make us aware of.

      Tina
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    • Profile picture of the author seasoned
      Originally Posted by friend View Post

      Do they auction these sites after they take them?

      If so, where?
      trademark infringement is illegal, so they can't resell those.
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  • Profile picture of the author seasoned
    Originally Posted by kindsvater View Post

    The official registry for .com and .net domains is Verisign, which is based in Silicon Valley.
    EXACTLY! BESIDES, domain squatting is ILLEGAL, and evidence of bad faith which puts you on the wrong side ANYWAY!

    HOW can ANYONE POSSIBLY believe that they can somehow register a domain ANYWHERE and have it affect all systems all over the planet? The answer is YOU CAN'T! ICANN(an AMERICAN agency licensed by the US government) has control of the entities that can register .com/.net/.org and other domain names. Verisign is the one for .com/.net now.

    The other companies just ACT like it, and are basically ordering from verisign at wholesale. They keep ONLY contact info. But that means you are subject to verisign's and icanns rules.

    One of icann's rules is NO typo trademark infringements!

    Steve
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  • Profile picture of the author HeySal
    Actually, I'm thinking in this instance the domains might have been taken BECAUSE of trademark infringement. Everything else might just be circumstantial.
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    Sal
    When the Roads and Paths end, learn to guide yourself through the wilderness
    Beyond the Path

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