Bankruptcy court holds that social media accounts are property of the bankruptcy estate and former owner is held in contempt (and jailed) for refusing to deliver the passwords

On April 3, 2015, the Bankruptcy Court of the Southern District of Texas found that the social media accounts are property of the company’s bankruptcy estate, and ordered the former owner to transfer immediately administrative privileges to the reorganized debtor. With the opinion, the court addressed issues arising from the refusal of the former owner of a Chapter 11 corporate debtor to relinquish control of the debtor’s social media accounts to the bankruptcy estate.

The case arose out of a Chapter 11 reorganization of a Texas company, wholly owned by Mr. Alcede and his wife. After a reorganization plan, the Bankruptcy Court ordered the transfer of the company’s ownership to a creditor, requiring the debtor to “deliver possession and control of password for the Debtor’s social media accounts, including but not limited to Facebook and Twitter”. The court later discovered that Mr. Alcede failed to honor that instruction, and found him in contempt. Mr. Alcede claimed that all social media accounts belonged to him personally and not to the Debtor. He argued that “it would be impossible to share control of these accounts with the reorganized debtor without violating his privacy”.

Even though no Texas State Courts had yet considered whether social media accounts were property interests, the court held that social media accounts did fall within the Bankruptcy Code’s broad definition of “Property of the Estate”. “Like subscriber lists, business social media accounts provide valuable access to customers and potential customers. The fact that those customers or potential customers can opt out from future contact does not deprive the present access of value.”

In addition, the court determined that the Facebook page and the Twitter account at issue are “a business page of the Reorganized Debtor and not a personal page of Mr. Alcede”. The evidence brought by Mr. Alcede that he started the Facebook page “for personal reasons, used it to publish personal posts, and accessed it through his personal profile is insufficient to establish it as his personal property”. On the contrary, the court found that the fact that the “Facebook Page was created in the name of the business, was linked to the business’s web page, and was used for business purposes places it squarely in the category of property of the Debtor’s estate (and now property of the reorganized Debtor) and not personal property of Mr. Alcede”. “The fact that other people were responsible for some business-related posts strengthens the conclusion that the tactical Firearms Facebook page has always been a business page”.

In addition, the court found that Mr. Alcede waived his privacy expectation. “Given that the social media accounts were named for the Debtor and were used for business purposes, Mr. Alcede should have been aware that the accounts were property of the Debtor and thus that he did not have any personal privacy interest therein. …

Mr. Alcede’s waiver of privacy in the instant dispute can also be analogized to a client’s waiver of attorney/client privilege when the client communicates with his attorney in the presence of third parties”.

The Court concluded that the social media accounts should be transferred under the complete control of th reorganized debtor.

The opinion is available at http://online.wsj…

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(As of April 28, 2015, Mr. Alcede refused to give up the passwords to social media accounts and is being held in jail.)

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