CRS Recovery, Inc. v. Laxton
2010 WL 1292174, 2010 U.S. App. LEXIS 7050, 600 F.3d 1138 (2010)
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Rule of Law:
Under California law, which treats domain names as intangible property, a subsequent purchaser's liability for conversion depends on whether the domain name was originally lost to a third party through theft, which creates a void title, or through fraud, which creates a voidable title that can be perfected by a bona fide purchaser for value.
Facts:
- In 1995, Dale Mayberry, a Virginia citizen, registered the domain name 'rl.com' with Network Solutions.
- Mayberry designated 'dale@mat.net' as the administrative contact email, which controlled both 'rl.com' and another domain, 'mat.net'.
- In 2001, Mayberry's company 'mat.net' ceased operations, but he failed to update the administrative contact email for 'rl.com'.
- On December 19, 2003, after Mayberry's registration for 'mat.net' lapsed, a man named Li Qiang registered 'mat.net' for himself.
- Using his new control over the 'dale@mat.net' email address, Qiang initiated a transfer of 'rl.com' to himself, which Network Solutions processed, believing the request came from Mayberry.
- Qiang subsequently transferred 'rl.com' to Barnali Kalita.
- In May 2005, John Laxton, a California citizen, purchased 'rl.com' from Kalita for $15,000 after checking for ownership disputes with the World Intellectual Property Organization and finding none.
- Mayberry later discovered the loss of 'rl.com' and assigned his interest to CRS Recovery, Inc. to pursue its recovery from Laxton.
Procedural Posture:
- Dale Mayberry and CRS Recovery, Inc. sued John Laxton and others in a federal district court for claims including conversion and sought a declaratory judgment affirming their right to the domain name 'rl.com'.
- Both plaintiffs and defendants filed cross-motions for summary judgment.
- The district court granted summary judgment in favor of the plaintiffs, Mayberry and CRS, ordering Laxton to transfer the domain name to them.
- Laxton, the defendant, appealed the district court's summary judgment ruling to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Under California law, is summary judgment for conversion of a domain name appropriate where there are disputed issues of material fact as to whether the original owner was dispossessed by theft (creating void title) or by fraud or abandonment (creating a voidable title or waiving rights), which would impact the rights of a subsequent innocent purchaser?
Opinions:
Majority - Hawkins, J.
No, summary judgment is not appropriate because disputed issues of material fact exist. First, applying California's 'governmental interest' analysis, California law governs because California has a strong interest in applying its conversion law to a resident defendant, and Virginia has no countervailing interest. Second, under California law, the distinction between theft and fraud is critical. An owner dispossessed by theft retains title against the world (void title), while an owner dispossessed by fraud retains a claim only against the fraudster, not against a subsequent innocent purchaser for value (voidable title). Here, the circumstances of how Qiang gained control of 'rl.com' are 'not entirely clear.' Whether Mayberry's loss of control was due to an unauthorized 'seizure' (theft), a fraudulent exploitation of his carelessness, or his 'abandonment' of the domain by failing to update his contact information are all material questions of fact that must be resolved at trial, making summary judgment improper.
Dissenting - Noonan, J.
Yes, summary judgment was appropriate. The undisputed facts establish that Mayberry was the rightful registrant of 'rl.com' until July 2005, and Qiang transferred the domain to himself before that registration expired without Mayberry's authorization. This constitutes theft. Laxton's good faith is irrelevant, as an innocent purchaser of stolen property does not acquire good title and must return it to the true owner. Laxton presented no evidence that Qiang obtained the domain name by fraud, only assertions of his own innocence. The majority's suggestion of abandonment is a guess without foundation; abandoning a contact email is not the same as abandoning the valuable asset it controls.
Analysis:
This case is significant for extending traditional common law principles of property, specifically the tort of conversion, to the modern context of internet domain names. It affirms that under California law, domain names are intangible property. Crucially, the decision highlights that the rights of a subsequent bona fide purchaser depend entirely on the nature of the original dispossession. By distinguishing between void title (from theft) and voidable title (from fraud), the court ensures that disputes over digital assets are subject to the same nuanced, fact-intensive inquiries as disputes over tangible property, preventing summary disposition where the original owner's conduct or the usurper's methods are unclear.
