Friday, April 17, 2015

Bankruptcy, Social Media and "Property of the Estate"

This post examines a recent opinion from the U.S. Bankruptcy Court in the Southern District of Texas in which the court analyzes a novel issue of law.  In re: CTLI, LLC, 2015 WL 1588085. The judge began his opinion by explaining that this case arose out of the
Chapter 11 reorganization of CTLI, LLC (the Debtor), which prior to bankruptcy was doing business as Tactical Firearms, a gun store and shooting range in Katy, Texas. The Debtor was formed in 2011 and was originally wholly owned by Jeremy Alcede and his then-wife Sarah Alcede. . . . Originally, the Debtor sold guns and ammunition but did not operate a firing range. . . . Later in 2011, Mr. Alcede recruited his wealthy friend, Steven Coe Wilson, to purchase a bigger building for the Debtor for $2.2 million in exchange for a 30% membership interest in the Debtor corporation. . . . . Wilson's entry enabled the Debtor to expand and open the `finest indoor firing range in the country.’ . . .
While the Debtor appeared to prosper, internal disputes between the owners began to fester. Mr. and Mrs. Alcede began divorce proceedings in November of 2012, . . . and relations between Mr. Alcede and Wilson deteriorated after Wilson began to suspect Mr. Alcede of diverting cash obtained through the sale of the used shells from the gun range. . . . Consequently, Wilson instituted a derivative action against Alcede in state court in November 2013, requesting that the Debtor be put in receivership. . . . The state court enjoined the Alcedes from diverting corporate assets or interfering with Mr. Wilson's management rights, but initially refused the request for receivership. . . .
The Debtor subsequently defaulted on several loans. . . . On June 10, 2014, Icon Bank of Texas, N.A., the major creditor of the Debtor, posted the Debtor's real property for foreclosure. . . . On June 26, 2014, the state court approved Mr. Wilson's request and ordered the appointment of a receiver for the Debtor. . . . The very next day, before a receiver could take control, Mr. Alcede caused the Debtor to file a Chapter 11 petition, . . . which in turn resulted in the automatic stay barring the receiver from taking control of the Debtor and allowed Mr. Alcede to remain in control.
In re: CTLI, LLC, supra.
The judge goes on to explain that in Bankruptcy Court,
Mr. Wilson quickly sought to have a trustee appointed to take control of the Debtor. . . . This Court did not appoint a trustee -- thereby allowing Mr. Alcede to remain in control of the Debtor -- but it did grant Mr. Wilson's request to terminate exclusivity so that he could propose a Chapter 11 plan of reorganization. . . . Mr. Wilson thereafter proposed a plan (the Plan), . . . which was confirmed on December 8, 2014. . . . Under the Plan, Wilson became the 100% owner of the reorganized Debtor. . . .

This Court's order confirming the Plan required Mr. Alcede to `deliver possession and control’ of `passwords for the Debtor's social media accounts, including but not limited to Facebook and Twitter’ to Mr. Wilson on behalf of the reorganized Debtor. . . . In a status conference held on December 11, 2014, this Court discovered that Mr. Alcede had failed to honor that instruction. Mr. Wilson's counsel filed a Certificate of Noncompliance on December 12, 2014. . . . In consequence, this Court found Mr. Alcede in contempt. . . .
In re: CTLI, LLC, supra.
The judge goes on to explain that, at a hearing he held on December 16, 2014, he heard
testimony and admitted evidence presented by Mr. Wilson and Mr. Alcede regarding the social media accounts. At this hearing, Mr. Alcede claimed that all social media accounts at issue belonged to him personally and not to the Debtor. . . . Further, Mr. Alcede argued that it would be impossible to share control of these accounts with the reorganized Debtor without violating his privacy. . . . This Court issued an initial ruling that a neutral third party court aide should be retained to sort the personal from the business content within the social media accounts. . . .Mr. Alcede stated on the record that he agreed with this approach. . . .
In re: CTLI, LLC, supra.
The judge, though, goes on to explain that when
Mr. Wilson's counsel filed a proposed order with this Court reflecting this initial ruling, Mr. Alcede objected to the proposed order. . . . On February 12, 2015, this Court held a hearing on Mr. Alcede's objection. After considering relevant legal authorities and the exhibits admitted and testimony adduced at the December 16, 2014 hearing and the February 12, 2015 hearing, against the background of all other testimony and filings in this Chapter 11 case, the Court now finds that the reorganized Debtor is entitled to direct control of 100% of one Facebook Page and one Twitter account, and that the assistance of an independent third party is not necessary.
In re: CTLI, LLC, supra.
Before the bankruptcy judge proceeded to “enter a final order adjudicating the dispute", he decided he had to determine if he had “the constitutional authority to enter a final order” resolving the dispute.  In re: CTLI, LLC, supra.  He began his analysis by explaining that, in Stern v. Marshall, 131 S.Ct. 2594 (2011), the U.S. Supreme Court held that
28 U.S. Code § 157(b)(2)(C) -- which authorizes bankruptcy judges to issue final judgments in counterclaims by a debtor's estate against entities filing claims against the estate -- is an unconstitutional delegation of Article III authority to bankruptcy judges, at least when the dispute being adjudicated is based solely on state common law and does not affect the claims adjudication process. 
Stern v. Marshall, supra.  In other words, when a bankruptcy court judge is adjudicating the issues in a bankruptcy, he or she cannot simply decide to resolve legal issues that arise under state law and that have nothing to do with the bankruptcy.
This judge went on to find that he did, indeed, have the Constitutional authority to decide the issue involving the social media accounts:
The dispute at bar is not a counterclaim of the Debtor, nor does it arise out of state law. Rather, the dispute at bar arises out of objections to the enforceability of the Confirmation Order, which requires Mr. Alcede to turn over estate property to the reorganized Debtor. The dispute thus arises from this Bankruptcy Court's authority under § 1142 to order third parties to cooperate in the consummation of a bankruptcy plan. State law has no equivalent to § 1142; it is purely a creature of the [Bankruptcy] Code.

Further, this dispute requires this Court to enforce its own Confirmation Order, which is governed by federal common law, not state law. See, e.g., Chambers v. NASCO, 501 U.S. 32 (1991) (holding that federal courts have the inherent power to require `submission to their lawful mandates’). Accordingly, because the resolution of this dispute is not based solely on state common law, but rather is based upon a provision of the Code and federal common law, this Court has the constitutional authority to enter a final order.
In re: CTLI, LLC, supra.
The judge then returned to the legal issue in dispute:  “what social media property belongs to the reorganized corporate Debtor as opposed to Mr. Alcede, personally?” In re: CTLI, LLC, supra. As a preface to his analysis, he explained that
Mr. Alcede refers to his personal Facebook Profile as his `friends page’ and to the former Tactical Firearms Facebook Page as his `likes page.’ The Court finds these terms unhelpful for an understanding of Facebook. Therefore, the Court will refer to Mr. Alcede's personal Facebook Profile as his `Facebook Profile’ and to the former Tactical Firearms Page as the `Tactical Firearms Facebook Page,’ the `former Tactical Firearms Facebook Page,’ or the `Jeremy Alcede Entrepreneur Facebook Page.’
In re: CTLI, LLC, supra.
He then took up the task of deciding whether the Facebook and Twitter accounts at issue “were property of the Debtor's estate and are now property of the reorganized Debtor.” In re: CTLI, LLC, supra. He began his analysis by noting that the Bankruptcy Code defines
`property of the estate,’ with enumerated exceptions, as `all legal or equitable interests of the debtor in property as of the commencement of the case.’ 11 U.S. Code §541. `Section 541 is read broadly and is interpreted to include all kinds of property, including tangible or intangible property [and] causes of action. . . .’ In re Equinox Oil Co., Inc., 300 F.3d 614 (U.S. Court of Appeals for the 5th Circuit 2002). . . . For specific determinations of what constitutes property, bankruptcy courts look to the underlying state law. Butner v. U.S., 440 U.S. 48 (1979).

Unfortunately, no Texas state courts have considered whether social media accounts are property interests. In one conversion case, a federal district court, applying Florida law, held that the plaintiff did not have a property interest in the `likes’ on a Facebook Page. Mattocks v. Black Entm't Television LLC, 43 F.Supp.3d 1311 (U.S. District Court for the Southern District of Florida 2014). That court reasoned that because individual Fans can `unlike the Page at any time, the Page creator has no ownership interest in the likes.  Mattocks v. Black Entm't Television, supra. However, a federal bankruptcy court, applying New York law, has treated social media accounts as property, grouping them with subscriber lists. In re Borders Grp., Inc., 2011 WL 5520261 (U.S. Bankruptcy Court for the Southern District of New York 2011). Many courts, applying the law of their respective states, have also held that subscriber or customer lists are property interests. See, e.g., In re Alert Holdings, Inc., 148 B.R. 194, 203 (U.S. Bankruptcy Court for the Southern District of New York 1992).]

Given the above-referenced holdings, and with one eye cocked on the broad scope of § 541, this Court finds that business social media accounts are property interests. Like subscriber lists, business social media accounts provide valuable access to customers and potential customers. The fact that those customers and potential customers can opt out from future contact does not deprive the present access of value. Just as Facebook Users can `unlike’ a Page at any time, subscribers to email lists can also, by federal law, opt out at any time. CAN–SPAM Act of 2003, Pub.L. 108–187, § 2, Dec. 16, 2003. . . .
In re: CTLI, LLC, supra.
The judge then took up another issue – the “characterization of individual —as opposed to business—social media accounts as property”, which he found “much more difficult” to resolve. In re: CTLI, LLC, supra (emphasis in the original). He went on to explain that the
Facebook Page or Profile of a celebrity or other public figure is a different type of property, related to the interest known as a persona. A persona is `the interest of the individual in the exclusive use of his own identity, in so far as it is represented by his name or likeness, and in so far as the use may be of benefit to him or to others.’ Brown v. Ames, 201 F.3d 654 (U.S. Court of Appeals for the 5th Circuit 2000) (quoting Restatement (Second)of Torts § 652C (1977)).

Although heretofore unrecognized by bankruptcy courts, in most states, including Texas, the persona is recognized as a property interest, and therefore that falls within the broad reach of `property of the estate.’ See Matthews v. Wozencraft, 15 F.3d 432 (U.S. Court of Appeals for the 5th Circuit 1994) (recognizing the persona as property under Texas law). The primary limitation on recognition of a persona as estate property is the 13th Amendment's prohibition on involuntary servitude. Just as a debtor may not assume contracts that would require any individual to perform personal services, 11 U.S. Code § 365(c); Matter of Tonry, 724 F.2d 467 (U.S. Court of Appeals for the 5th Circuit 1984) a debtor may not use estate property in a manner that would require any individual to perform personal services.
In re: CTLI, LLC, supra.
The judge then went on to explain that because the
value in a Facebook Page or Profile lies in the ability to reach Friends or Fans through future communications, the property interest in an individual Profile would likely not become property of the estate. See generally Smita Gautam, Reconsidering `Property’ to Determine the Role of Social Media in the Bankruptcy Estate, 31 Emory Bankr.Dev. J. 127, 127 (2014) (arguing that an individual debtor's interest in his social media accounts should be treated as a `liberty’ interest instead of a `property’ interest). However, the official Page of a celebrity or public figure that is managed by employees might be treated differently. See generally Melissa B. Jacoby & Diane Leenheer Zimmerman, Foreclosing on Fame: Exploring the Uncharted Boundaries of the Right of Publicity, 77 N.Y.U. L.Rev. 1322, 1347–57 (2002) (discussing how persona might be disentangled from personal services in general).
In re: CTLI, LLC, supra.
The judge then found that Mr. Alcede,
in his capacity as majority owner of the Debtor, created a Page for the Debtor and entitled it `Tactical Firearms.’ The fact that this was a Page (for `businesses, brands and organizations,’ not `individual people’) entitled `Tactical Firearms’ raises a presumption that it was the Debtor's Facebook Page, is now the reorganized Debtor's Facebook Page, and has never been Mr. Alcede's personal Facebook Page.
In re: CTLI, LLC, supra.  He explained that
[f]urther inquiry into the characteristics of the former Tactical Firearms Facebook Page cements this conclusion.

First, the former Tactical Firearms Facebook Page was directly linked to the Tactical Firearms web page. Second, Mr. Alcede used the former Tactical Firearms Facebook Page to post Status Updates on behalf of `Tactical Firearms’ relating to, among other subjects, guns. . . . Many of Mr. Alcede's posts were expressly business-related; for example, he advertised the store's Black Friday sale and new inventory, and he spoke for the store with phrases like, `on behalf of myself and the Tactical Firearms family.’ . . .

Mr. Alcede in fact admitted that he used the page for promoting Tactical Firearms business. . . .  He also granted access for a Tactical Firearms employee to post Status Updates to the Tactical Firearms Facebook Page directly through the business's Constant Contact account, an email marketing tool. . . . These Status Updates directly promoted Tactical Firearms's products and services. . . . Finally, Mr. Alcede shared his personal Facebook login information with a business associate so that this associate could post Status Updates to the Tactical Firearms Facebook Page promoting the company's products. . . . This particular use of the Tactical Firearms Facebook Page was clearly to generate revenues for the company, and confirms that this Page belongs to the reorganized Debtor.
In re: CTLI, LLC, supra. 
He also rejected Mr. Alcede’s argument that “he created the Tactical Firearms Facebook Page (which he has since re-named `Jeremy Alcede Entrepreneur’) because he reached Facebook's limit of 5,000 Friends on his personal Profile and thus his Friend requests were being automatically denied.”  In re: CTLI, LLC, supra.  The judge explained that even if Mr. Alcede
did indeed create the Tactical Firearms Facebook Page because he was approaching the Friend limit, it would not affect the character of the Tactical Firearms Facebook Page. It may be true that Mr. Alcede, like many small business owners, closely associated his own identity with that of his business, so closely that he entitled the Facebook Page `Tactical Firearms’ `for people to know it was me.’ . . .

Nonetheless, Mr. Alcede and the Debtor are -- and always have been -- two distinct legal entities, with separate and distinguishable property. The fact that the Tactical Firearms 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.
In re: CTLI, LLC, supra (emphasis in the original).
The judge also found that the "sole Twitter account" discussed at the
hearings has clearly been a business account. As with the former Tactical Firearms Facebook Page, the name assigned to the Twitter account was originally `Tactical Firearms’ and the Twitter Handle was `@tacticalfirearm’ (missing the `s’ due to Twitter's character limit for Handles). . . . The summary provided for the Twitter account was `We are a local gun store with the best prices, knowledge, and customer service available. We are now home of the finest indoor shooting range in the country.’ . . .

As of the time of this Opinion, the link on the Tactical Firearms web page still directs to,the former URL of the Tactical Firearms Twitter account. Mr. Alcede testified that he does not recall whether he changed the name on the Twitter account from `Tactical Firearms’ to `Jeremy Alcede.’ However, the Court finds that he did make this change based on its close inspection of Plan Agent's Exhibit 3. Exhibit 3, a screenshot of the Twitter account entitled `Jeremy Alcede’, shows a Tweet under what appears to be the former name `Tactical Firearms.’ Therefore, the Court finds that the Twitter account entitled `Jeremy Alcede’ is the same as the account formerly entitled `Tactical Firearms.’

Further, the Court finds that the Twitter account admitted as Plan Agent's Exhibit 3, bearing the Twitter Handle `@tacticalfirearm’, is the same as the account that, as of the time of this Opinion, bears the Handle `@jeremyalcede.’ The Court so holds after comparing the accounts and observing that the five most recent photos, visible in Exhibit 3, perfectly match five chronological photos still visible at ; and also observing that the number of `followers’ and `following’ Twitter users is strikingly close (7,880 following and 7,352 followers shown in Exhibit 3 compared with 7,863 following and 7,205 followers shown at as of the date of this writing).
In re: CTLI, LLC, supra. 
And, finally, the judge held that the social media accounts of Tactical Firearms were,
pre-confirmation, property of the estate, and there is no reason not to treat them as the Court would treat any other assets belonging to the estate. Accordingly, because the social media accounts were property of the estate, and because the Plan vested all assets of the estate with the reorganized Debtor, this Court holds that the reorganized Debtor should have full control over these social media accounts.
In re: CTLI, LLC, supra. 

The news story you can find here explains that after the bankruptcy judge ordered Mr. Alcede to “turn over the passwords” for the social media accounts to “the new owner of Tactical Firearms” Mr. Alcede refused, so the judge held him in contempt until he complied with the judge’s order.  The stories you can find here and here provide more information about this case and the contempt order.  

Wednesday, April 15, 2015

The DDoS Attack, the Credit Card Data and Employer Notification

In 2010, police officers discovered David Rezendes
sitting behind the wheel of a parked car in Larimer County, Colorado. Rezendes admitted he had been drinking and he was charged with driving while ability impaired. Although Rezendes entered a guilty plea, he believed the County had acted unfairly in prosecuting him because he was not actually operating the vehicle. On July 10, 2010, Rezendes was sentenced to one year probation.
U.S. v. Rezendes, 2015 WL 1475306 (U.S. Court of Appeals for the 10th Circuit 2015).
A few months later, on September 22, 20105, Rezendes
initiated a computer attack, known as a distributed denial of service attack, against the Larimer County website. During the attack, a number of computers directed packets of data containing vulgar and derogatory messages toward the county's servers. The volume of these data packets was such that it overwhelmed the servers, disrupting county operations. County employees were unable to access email, court records, and other internet-enabled functions. In addition, the public was unable to access the Larimer County website for a period of time due to the attack.

Authorities traced the attack to computers owned by Rezendes and obtained a search warrant for his residence. During the search, officers seized several computers, flash drives, and recordable discs. The subsequent examination of these computers and memory devices revealed that computers owned by Rezendes had remotely controlled other vulnerable computers and directed them to perpetrate the attack. Authorities determined that Rezones’ computers also scanned these vulnerable computers for credit card information and login credentials.
U.S. v. Rezendes, supra.  You can read more about the DDoS attack in the press release you can find here. You can read more about how Rezendes was identified as the person responsible for the attack in this story.
The authorities’ search of Rezendes’ computer
uncovered text files containing credit card data pertaining to 137 accounts. Rezendes also possessed images and schematics of gas station credit card readers and a device designed to capture credit card information at gas pumps. And authorities discovered images of federal and state identification documents, a tutorial on how to create false identification documents, and an identification card printer during the search.
U.S. v. Rezendes, supra. 
He eventually pled guilty to
one count of intentionally damaging protected computer equipment in violation of 18 U.S. Code § 1030(a)(5)(A), (c)(4)(B) and one count of possessing unauthorized access devices in violation of 18 U.S. Code § 1029(a)(3), (c)(1)(A)(i). He was sentenced to eighteen months' imprisonment, to be followed by three years' supervised release.

The court imposed both standard and special conditions on Rezones’ supervised release. Relevant to this appeal, standard condition 13 required Rezendes to `notify third parties of risks that may be occasioned by [his] criminal record or personal history or characteristics’ and also authorized the parole officer to make such notifications.
U.S. v. Rezendes, supra. 
Once he began serving his
term of supervised release in February 2014, Rezendes moved to modify and clarify several of the conditions imposed by the district court, including Condition 13. In particular, Rezendes objected to his probation officer's interpretation of Condition 13 as requiring Rezendes to notify prospective employers of the nature of his conviction.

Rezendes asked the court to clarify that it had not intended Condition 13 to require employer notification. As support for his interpretation of Condition 13, Rezendes noted that the district court had not entered the express findings that would have been required if it had intended to impose an occupational restriction.
U.S. v. Rezendes, supra. 
The prosecution argued, in response to Rezendes’ contentions, that
employer notification was necessary and proposed that Condition 13 be modified accordingly. But the Government agreed with Rezendes that a condition of employer notification is an occupational restriction that must be supported by particularized findings as described in section 5F1.5 of the U.S. Sentencing Guidelines (Guidelines).

It therefore asked the court to make the required findings and to modify Condition 13 to state expressly that Rezendes must `notify 3rd parties (including employers) of risks involving computers and credit card information that may be occasioned by the defendant's criminal record.’
U.S. v. Rezendes, supra. 
The District Court Judge who had the case held a hearing on the modification issue and
agreed to modify the condition, but declined to adopt the Government's proposed language. The court concluded the term `3rd parties’ in the Government's proposal made little sense when the condition was aimed at employers. It also determined the term `risks’ as used in the Government's proposal was too vague. Accordingly, the court modified Condition 13 to read:

`[F]or two years after this date, the defendant shall notify employers of his conviction and the nature of his conviction involving computers and credit card information that may be occasioned by the defendant's criminal record or personal history or characteristics and shall permit the probation officer to make such notifications and to confirm the defendant's compliance with such notification requirement.’
U.S. v. Rezendes, supra. 
Rezendes appealed, arguing that “the district court's findings at the modification hearing do not satisfy the requirements of U.S.S.G. § 5F1.5.” U.S. v. Rezendes, supra. The Court of Appeals began its analysis of Rezendes’ argument on appeal by explaining that
[i]f a defendant objects to a condition of supervised release at the time it is imposed, we review for abuse of discretionU.S. v. Mike, 632 F.3d 686 (U.S. Court of Appeals for the 10th Circuit 2011). But if the defendant fails to object, we review only for plain error.  U.S. v. Mike, supra. In this case, Rezendes raised no objection to the district court's findings during the modification hearing.
U.S. v. Rezendes, supra.  The Court of Appeals therefore applied the plain error standard of review.  U.S. v. Rezendes, supra. 
It began its analysis of Rezendes’ argument by noting that “plain error” occurs      
`when there is (1) error, (2) that is plain, which (3) affects the defendant's substantial rights, and which (4) seriously affects the fairness, integrity, or public reputation of judicial proceedings.’ U.S. v. Mendoza–Lopez, 669 F.3d 1148 (U.S. Court of Appeals for the 10th Circuit 2012). As explained below, even assuming the district court erred, any such presumed error was not plain. . . .
U.S. v. Rezendes, supra. 
The Court of Appeals went on to point out that U.S. District Court Judges have
broad discretion to impose conditions of supervised release, but this discretion must be exercised in accordance with 18 U.S. Code §§ 3583(d) and 3563(b), as well as applicable provisions of the [U.S. Sentencing] Guidelines. U.S. v. Wittig, 528 F.3d 1280 (U.S. Court of Appeals for the 10th Circuit 2008). 

Section 3583(d) authorizes the court to impose `any condition set forth as a discretionary condition of probation in section 3563(b).’ In turn, § 3563(d)(5) allows the court to order that the defendant `refrain . . . from engaging in a specified occupation, business, or profession bearing a reasonably direct relationship to the conduct constituting the offense, or engage in such a specified occupation, business, or profession only to a stated degree or under stated circumstances.’ Section 5F1.5 of the Guidelines implements these statutory provisions. . . .
U.S. v. Rezendes, supra. 
The Court of Appeals goes on to explain that Section 5F1.5 of the Guidelines
permits the imposition of occupational restrictions only if the court determines that:
(1) a reasonably direct relationship existed between the defendant's occupation, business, or profession and the conduct relevant to the offense of conviction; and(2) imposition of such a restriction is reasonably necessary to protect the public because there is reason to believe that, absent such restriction, the defendant will continue to engage in unlawful conduct similar to that for which the defendant was convicted.
U.S.S.G. § 5F1.5(a).  Section 5F1.5 further requires that `the court shall impose the [occupational restriction] for the minimum time and to the minimum extent necessary to protect the public.’ Section 5F1.5(b).`Thus, an occupational restriction, such as an employer notification requirement, may only be imposed if the district court finds that all three of these criteria are met.’ U.S. v. Souser, 405 F.3d 1162 (U.S. Court of Appeals for the 10th Circuit 2005).
U.S. v. Rezendes, supra. 
It goes on to explain that “[i]n response” to the prosecution’s request at the 
modification hearing for specific findings related to the § 5F1.5 factors, the district court stated, with our emphasis,
`What the facts in this case demonstrate to this Court, of particular relevance now, are two things: first, that Mr. Rezendes is a very skilled and resourceful computer literate, technical type person who can do things with and through computers that the average person cannot do. He's perfectly capable of hacking into a computer or computer system and has demonstrated that he can do that.’ `And secondly, the case demonstrated that he was ready, willing, and able to use that skill to accomplish harm to a third party, in that case Larimer County.’ `The responsibility of the Court extends to the protection of the community, and that would include employers. The fact that Mr. Rezendes has not used his skills nefariously vis-à-vis an employer does not give me confidence that he cannot or will not do that if, for example, the employer rubs him the wrong way. I hope that that is not his intent, but it is a concern that the probation office had, it is a concern that the Court had and has, and a concern that the Court feels a responsibility to act upon.’
U.S. v. Rezendes, supra (emphasis in the opinion).
The Court of Appeals noted that Rezendes argued that the findings above “are plainly inadequate under § 5F1.5”, but it was “not convinced.”  U.S. v. Rezendes, supra.  The court went on to explain that
Rezendes argues the findings do not indicate the district court had a reason to believe he would re-offend, absent the restriction; instead, they merely reflect the court's concern he might re-offend. According to Rezendes, this is insufficient to meet the requirements of § 5F1.5. 
U.S. v. Rezendes, supra (emphasis in the opinion).
The Court of Appeals then pointed out that the modification hearing transcript
does not support Rezones’ claim that any presumed deficiency in the findings was plain. The court first invoked its responsibility to protect the public, including employers, and then indicated it did not have confidence Rezendes would refrain from a cyber attack on his employer if angered. The court went on to state that this risk of another cyber attack `is a concern that the Court had and has, and a concern that the Court feels a responsibility to act upon.’

Specifically, the district court stated, `The fact that Rezendes has not used his skills nefariously vis-à-vis an employer does not give me confidence that he cannot or will not do that if, for example, the employer rubs him the wrong way.’ Although the district court could have stated its finding more clearly, they can be reasonably interpreted to express a belief that if angered, Rezendes will reoffend. And Rezendes has pointed us to nothing in our precedent which should have made it obvious to the district court that its findings were plainly erroneous.
U.S. v. Rezendes, supra. 
Finally, the Court of Appeals went on to explain that the District Court Judge
acknowledged that Rezones’ offense was not against an employer. But the court went on to explain that, because Rezendes committed his crime in retaliation for treatment he perceived to be unfair, the court was concerned Rezendes would commit similar acts against an employer if he perceived that the employer had treated him unfairly. The court observed that its duty to protect the public, including employers, justified the requirement that Rezendes notify future employers of the nature of his conviction. . . .

[T]he district court found that it was not convinced that Rezendes `cannot or will not’ use his computer skills nefariously against an employer. . . . Accordingly, the district court did not plainly err in imposing the occupational restriction at issue.
U.S. v. Rezendes, supra.  The Court of Appeals therefore affirmed the District Court Judge’s imposition of the occupational restriction.  U.S. v. Rezendes, supra.  

Monday, April 13, 2015

Ectodermal Displasia, the Basketball Player and Invasion of Privacy

This post examines an opinion recently issued by a U.S. District Court Judge who sits in the U.S. District Court for the Eastern of Michigan.  Binion v. O’Neal, 2015 WL 1505673 (2015).  He begins the opinion by explaining that
Jahmel Binion (Plaintiff) is suing Shaquille O'Neal (O'Neal), Alfonso Clark `Trey’ Burke (Burke), and Juaquin Malphurs (Malphurs) (collectively, Defendants) claiming that Defendants posted mocking and ridiculing photographs of him on social media websites. 
Binion v. O’Neal, supra.  He also noted that the Complaint Binion filed to initiate the suit alleged four different causes of action: invasion of privacy, intentional infliction of emotional distress, defamation and general negligence. Binion v. O’Neal, supra. 
According to one news story, this is how the suit arose:
A disabled man is suing former NBA great Shaquille O'Neal and two other celebrities for ridiculing his appearance in an online post. 

Jahmel Binion, 23, claims he suffered emotional distress after O’Neal posted a picture on Instagram of his own contorted faced next to Binion's with the caption 'Smile Today'.  The April post gained more than 14,000 likes, with basketball player Trey Burke and rapper Waka Flocka Flame joining in on the teasing.

Following a public backlash, the post was deleted and Shaq and Burke apologized to Binion. 

However, the Michigan man has filed a lawsuit in Macomb County alleging that O’Neal, Burke and Waka Flocka Flame intentionally inflicted emotional distress, invaded his privacy and defamed him, Macomb Daily reported. In the lawsuit, Binion claims the mocking photos 'constituted a public disclosure of embarrassing private facts about the plaintiff' and 'placed plaintiff in a false light in the public eye.'

Binion was diagnosed with hypohidrotic ectodermal dysplasia as a baby, a disorder which causes sparse hair growth, missing teeth and facial deformities.  He said he struggles to hold down a job and can't work in hot conditions.
You can, if you are interested, see some of the photos mentioned in the article above here.  And you can find another story about the case here.
The suit was filed in a U.S. District Court, which means that the litigation process was governed by the Federal Rules of Civil Procedure.  As Wikipedia explains, under the Federal Rules, which apply when a plaintiff files a complaint and thereby initiates a lawsuit against the defendant or defendants, the latter can strike back by filing a motion to dismiss the plaintiff’s suit under Rule 12(b).
Rule 12(b) gives a defendant several choices as to the basis for filing a motion to dismiss, but O’Neal chose only one:  lack of personal jurisdiction".  Binion v. O’Neal, supra.  As Wikipedia also explains, “personal jurisdiction” refers to a court’s
jurisdiction over the parties to a lawsuit, as opposed to subject-matter jurisdiction, which is jurisdiction over the law and facts involved in the suit.

If a court does not have personal jurisdiction over a party, its rulings . . . cannot be enforced upon that party. . . . A court that has personal jurisdiction has both the authority to rule on the law and facts of a suit and the power to enforce its decision upon a party to the suit. . . .
(emphasis in the original). The District Court Judge therefore wrote the opinion this post examines to explain why he was ruling the way he was on O’Neal’s motion to dismiss under Rule 12(b)(2).  Binion v. O’Neal, supra. In his motion, O’Neal argued that “not subject to personal jurisdiction in Michigan by merely posting images of [Binion] on his Instagram and Twitter accounts.” Binion v. O’Neal, supra.
The judge began his opinion with a review of the “background” of the case, the initial installments of which dealt with social media:
Instagram is a social media website that describes itself as a `fun and quirky way to share your life with friends through a series of pictures.’ (FAQ, INSTAGRAM. COM,, (last visited Mar. 5, 2015)) Every Instagram user is advised that `[a]ll photos are public by default which means they are visible to anyone using Instagram or on the website.’ FAQ, INSTAGRAM. COM, supra. However, Instagram allows users to `make [their] account private’ such that `only people who follow [the user] on Instagram will be able to see [their] photos.’ FAQ, INSTAGRAM. COM, supra. If the Instagram user fails to make his/her account private, `anyone can subscribe to follow [their] photos.’ FAQ, INSTAGRAM. COM, supra.

Instagram's privacy policy states that `[b]y using our Service you understand and agree that we are providing a platform for you to post content, including photos, comments and other materials (“User Content”), to the Service and to share User Content publicly. This means that other Users may search for, see, use, or share any of your User Content that you make publicly available through the Service.’ (Privacy Policy, INSTAGRAM. COM., https:// (last visited Mar. 5, 2015)) The privacy policy further states, `[a]ny information or content that you voluntarily disclose for posting to the Service, such as User Content, becomes available to the public, as controlled by any applicable privacy settings that you set. . . . Once you have shared User Content or made it public, that User Content may be re-shared by others.’ Privacy Policy, INSTAGRAM. COM., supra.
Binion v. O’Neal, supra.
The judge went on to further explain that,
[l]ike Instagram, Twitter is a social media website that allows users to post `Tweets,’ which are described as `an expression of a moment or idea. It can contain text, photos, and videos. Millions of Tweets are shared in real time, every day.’(The Story of a Tweet: What Is a Tweet, TWITTER.COM, (last visited March 12, 2015)). As with Instagram, Twitter allows users to `share photos, in real time, with everyone or with the people [they] choose.’ (So Much More than Words,TWITTER.COM, (last visited March 12, 2015)). Twitter users can also `follow’ other users, so that others' Tweets will appear in the user's Twitter feed. Finally, Twitter allows users to re-post or `Retweet’ content from other users' Twitter feeds to be shared with their own followers. (The Story of a Tweet: What Is a Tweet, supra. . . .
Binion v. O’Neal, supra.
Before the judge began his analysis of O’Neal’s motion to dismiss, he outlined the essential facts in the case:
Because the Court is responding to O'Neal's Motion to Dismiss, the facts alleged in the Complaint . . . are accepted as true and are summarized below.

[Binion] is an individual who resides in Macomb County, Michigan. [He] suffers from a rare genetic condition called ectodermal dysplasia, which causes cosmetic abnormalities in the hair, nails, sweat glands, and teeth. O'Neal is a former professional basketball player residing in Florida and Massachusetts.

In April of 2014, when [Binion] was approximately 23 years old, [he] posted a number of photographs of himself on his public Instagram account. O'Neal obtained a photograph of [Binion] and posted it on his Instagram and Twitter accounts, side-by-side with a photograph of O'Neal mockingly contorting his face to look like [Binion’s]. O'Neal has an estimated half-million Instagram followers and 8.46 million Twitter followers.
Binion v. O’Neal, supra.
The judge then took up the personal jurisdiction issue, noting that a federal court’s
`exercise of personal jurisdiction in a diversity of citizenship case must be both (1) authorized by the law of the state in which it sits, and (2) in accordance with the Due Process Clause of the 14th Amendment.’ Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883 (U.S. Court of Appeals for the 6th Circuit 2002) . . . In this case, [Binion] is not invoking general jurisdiction under Michigan's general jurisdiction statute, [Michigan Compiled Laws] § 600.711, but limited jurisdiction under Michigan's `Long Arm’ statute[Michigan Compiled Laws] § 600.705 .

Michigan's limited jurisdiction provisions permit the exercise of jurisdiction to the extent limited by due process requirements; thus, `[w]here the state long-arm statute extends to the limits of the due process clause, the two inquiries are merged and the court need only determine whether exercising personal jurisdiction violates constitutional due process.’ Bridgeport Music, Inc. v. Still N the Water Pub., 327 F.3d 472 (U.S. Court of Appeals for the 6th Circuit 2003).
Binion v. O’Neal, supra.
He went on to explain that the court’s jurisdiction “comports with” due process
`when defendant has sufficient minimum contacts such that traditional notions of fair play and substantial justice are not offended.’ Intera Corp. v. Henderson, 428 F.3d 605 (U.S. Court of Appeals for the 6th Circuit 2005). The Sixth Circuit uses a three-part test in determining whether, consistent with due process, a court may exercise limited personal jurisdiction: (1) the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence to occur there; (2) the cause of action must arise from the defendant's activities in the forum state; and (3) the defendant's acts or the consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over him reasonable. So. Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374 (U.S. Court of Appeals for the 6th Circuit 1968). There is an inference that the exercise of jurisdiction is reasonable where the first two elements have been satisfied. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (U.S. Court of Appeals for the 6th Circuit 1996).
Binion v. O’Neal, supra.
The judge also noted that in order to establish “purposeful availment,” the defendant
must perform some act whereby the defendant purposefully avails himself of the privilege of doing business in the forum state. Burger King v. Rudzewicz, 471 U.S. 462 (1985). There must be a substantial connection between the defendant's conduct and the state such that the defendant `should reasonably anticipate being hauled into court there.’ Burger King v. Rudzewicz, supra.  As the Supreme Court recently stated, `[t]he principal inquiry in cases of this sort is whether the defendant's activities manifest an intention to submit to the power of a sovereign. J. McIntyreMach., Ltd. v. Nicastro, 131 S.Ct. 2780 (2011).
Binion v. O’Neal, supra.
The District Court Judge then went on to explain that in a tort case involving
defamatory content posted on an internet website, courts in the 6th Circuit have used two different tests to determine if purposeful availment has been established. First, the `Zippo test’ considers how interactive the website is with the people in the forum state. See Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 (U.S. District Court for the Western District of Pennsylvania 1997). Second, the `Calder test’ considers whether the `effects’ of the defendant's intentional tortious conduct, which the defendant could expect to be felt in the forum state, was sufficient for the forum's courts to exercise jurisdiction over him. Lifestyle Lift Holding Co. v. Prendiville, 768 F.Supp.2d 929 (U.S. District Court for the Eastern District of Michigan 2011).
Binion v. O’Neal, supra.
The judge then explained that under the Zippo test, a defendant “`purposefully avails itself of the privilege of acting in a state through its website if the website is interactive to a degree that reveals specifically intended interaction with residents of the state.’” Binion v. O’Neal, supra.  He also noted that courts which, like the Eastern District of Michigan, are part of the U.S. Court of Appeals for the 6th Circuit, have held that social media sites
`do not lend themselves’ to the Zippo test because the defendants do not own or operate the websites, but is merely a visitor or an account holder; in addition, the websites are generally not used primarily to conduct business. See, e.g., Hyperbaric Options v. Oxy-Health, LLC, 2013 WL 5449959 (U.S. District Court for the Eastern District of Michigan 2013). Other courts have applied the Zippo test to social media websites and held that personal jurisdiction is not established by merely posting content on websites such as Facebook: although `slightly more interactive’ because of the ability to `like,’ share, or comment on postings, the site `lack[s] a commercial nature, and additional interactivity [is] absent.’ Thomas v. Barrett, 2012 WL 2952188 (U.S. District Court for the Western District of Michigan 2012).

A similar result is necessary here. Although highly offensive, O'Neal's posts on Instagram and Twitter were little more than the posting of information on social media websites, which became accessible to users in Michigan and elsewhere. The websites are not owned or operated by O'Neal, were minimally interactive, and the postings were not intended to conduct business.
Binion v. O’Neal, supra.
He also explained that under the Calder “effects” test, a plaintiff must establish that
`(1) the defendant intentionally committed a tortious action which was expressly aimed for dissemination in the forum state, and (2) the brunt of the effects of the actions are felt within the forum state.’ Hyperbaric Options v. Oxyhealth, supra. . . . However, `injury to a forum resident is not enough, and the Calder test has not been read to authorize personal jurisdiction in a plaintiff's home forum in the absence of “something more” to demonstrate that the defendant directed this activity toward the forum state.’ Hyperbaric Options v. Oxyhealth, supra. . . .
Binion v. O’Neal, supra.  The judge then found that in this case, Binion could not
establish that O'Neal's posts were `expressly aimed for dissemination’ in Michigan. Nor is there any allegation that O'Neal took affirmative steps to direct the posts to a Michigan audience. Instead, O'Neal's posts were meant for a national or even international audience. Here, the only connection to Michigan is Plaintiff's injury. This, without `something more’ is insufficient to establish personal jurisdiction over O'Neal under the `effects’ test.
Binion v. O’Neal, supra. 
Binion argued, in attempting to establish that the court did have personal jurisdiction over O’Neal, that O’Neal
has several business contacts in Michigan that render him subject to personal jurisdiction in the state. [Binion] says O'Neal has organized comedy performances at local theaters, owns restaurant franchises and other business interests in Michigan, and endorses or has endorsed many products that are distributed in Michigan. [Binion] also says O'Neal's posts were part of his multimedia campaign to promote his own brand image. [Binion] suggests that such questions should survive O'Neal's motion to dismiss and proceed to jurisdiction-related discovery.
Binion v. O’Neal, supra. 
The judge did not agree, holding that the arguments were
unavailing. Although O'Neal may have several business connections to Michigan, [Binion] cannot show that his cause of action arises from O'Neal's activities here. [Binion] was not injured by O'Neal's business dealings in the state, and [his] cause of action is independent of any such business connection. Therefore, [Binion] has not established a sufficient factual basis to support the exercise of personal jurisdiction over O'Neal.

Binion v. O’Neal, supra.  The judge therefore dismissed Binion’s lawsuit.  Binion v. O’Neal, supra. Binion can re-file the suit in a court in a state in which O’Neal (and the other defendants) are subject to personal jurisdiction.  Binion v. O’Neal, supra.