Social media accounts can be “property of the estate” in a bankruptcy case of a business, and thus belong to the business, even when the contents of the accounts are intermingled with personal content of managers and owners. This principle was recently confirmed by the Bankruptcy Court for the Southern District of Texas in In re CTLI, LLC (Bankr. S.D. Tex. Apr. 3, 2015), which featured a battle among equity holders over Facebook and Twitter accounts promoting a business called Tactical Firearms.

Tactical Firearms was a gun store and shooting range. Prior to filing for bankruptcy, the business had used Facebook and Twitter accounts in its marketing. The original majority shareholder and managing office, Jeremy Alcede, had mixed his quasi-celebrity personal activities and personal politics with the promotion of the business, frequently taking to Facebook and Twitter for both personal purposes and for the promotion of the business. When the company filed for bankruptcy, Alcede ultimately lost ownership and control of the company to another investor through a Chapter 11 plan of reorganization.

Despite the loss of the business, Alcede fought to retain control over the Facebook and Twitter accounts. However, although he had changed the names of the accounts to reflect his personal name rather than that of the company, the Bankruptcy Court held that the accounts belonged to the business. The court applied Bankruptcy Code § 541, which provides that a bankruptcy estate includes “all legal or equitable interests” of a debtor, in holding that the social media accounts belonged to the debtor and thus constituted property of the bankruptcy estate.

As the court recognized, Alcede had originally created the Tactical Firearms business, and the accompanying social media accounts, as “an extension of his personality” and, “like many small business owners, closely associated his own identity with that of his business.” The court, however, rejected Alcede’s definitions of “personal” versus “business related” media posts, finding that the best marketing for business through social media is “subtle” and can involve the use of celebrities to promote the business.

The core results of the CTLI decision were as follows:

  1. Rejecting Alcede’s property and privacy arguments, the court determined that the social media accounts were property of the bankruptcy estate, much like subscriber or customer lists, despite some intermingling with Alcede’s personal social media rights. The court then exercised various remedies and contempt powers to protect the successor-owned business from Alcede’s further interference and to assure that the successor could take control of the assets, including requiring delivery of possession and control of passwords for the accounts.
  2. The court concluded that the “likes” that the Facebook page received belonged to the bankrupt entity, even though Alcede had registered as a Facebook user and page administrator with his personal Facebook profile. The court noted that Tactical Firearms had a Facebook page that was (a) directly linked to the Tactical Firearms web page, (b) used by Alcede and certain employees to post status updates for promoting the business, and (c) created in the name of the business rather than (until it was later improperly changed) in the name of the individual. Personal content interjected into the business page content did not change that result. Additionally, business messages to customers were communicated through the Facebook page and business-related posts.
  3. The court noted that, while the business content on Tactical Firearms’ Facebook page had to be accessed through Alcede’s personal Facebook profile, which he had created as the registered administrator, that fact was not controlling. The business pages could be managed by multiple individuals with their profiles, and access to personal information was not necessary to manage those business pages.
  4. The court also held that the Twitter account belonged to the business, given that the Twitter handle was “@tacticalfirearm” and that the account description included a description of the business.
  5. The court also rejected Alcede’s privacy concerns by analogizing to cases finding that parties had waived the attorney-client privilege by sharing privileged information with non-clients, or to cases where an employee used the employer’s computer system and thereby waived privacy rights as to personal emails. Because the social media accounts were for the benefit of the business, Alcede lost any personal privacy right in his content and was forbidden to modify either the Facebook or Twitter account by adding or deleting any material.

Therefore, the court ordered Alcede to transfer control of the account to the new owner of the reorganized business.

The decision is noteworthy because disputes regarding social media assets, like many other rights newly created in the digital age, have generally been addressed below the public radar in bankruptcy cases and other commercial settings. This is changing, and parties in bankruptcy cases and related proceedings are increasingly focused on capturing the value of these kinds of assets.

CTLI also highlights the need to properly structure and document the various rights associated with social media accounts, as is customarily done with the intellectual property rights of inventors, authors and other creators of content or employees who are providing innovation to the business that employs them. The decision illustrates that equity holders and managers should discuss and plan for how to deal with their separate assets in advance of bankruptcy or other litigation.

Even if an individual wishing to preserve and shield his or her personal social media assets from related business entities has properly structured the use of the assets, a variety of other issues may arise in that individual’s personal bankruptcy. In such a case, most of his or her personal social media assets would be subject to the bankruptcy and could be lost in sales for the benefit of creditors. Other social media issues that arise in bankruptcy cases of individuals are also worth considering. For example:

  • Exempt Assets. Only individuals (as opposed to business entities) can have personal assets that are exempt from the reach of creditors in bankruptcy. A social media account or blog and its copyrighted material could be argued to be a “tool of the trade” for a blogger and thus be exempt; however, even if that argument were to succeed (perhaps unlikely), most exemptions in bankruptcy are capped at a very low value, and the statutory exemptions are usually narrow and predate more modern classes of assets. Exemptions are thus unlikely to protect these accounts.
  • Automatic Stay. When a bankruptcy case is filed, all acts against a debtor or its assets, including litigation against a debtor or efforts to take control of its property, are automatically stayed. However, secured lenders, who often have blanket liens on all of a borrower’s assets (including social media assets), may have the ability to get relief from the automatic stay in order to foreclose on assets or pursue other remedies.
  • Rights of Publicity. In a bankruptcy of a high-profile individual, his or her social media assets will become part of the bankruptcy estate and may be sold. However, the individual may still be able to use his or her “persona,” or in the words of the CTLI court, “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 others.” While that “persona” interest, particularly of celebrities in states like California, has value as a type of intellectual property, there are questions as to the extent to which the assets could be marketed, particularly at the exclusion of the individual from using his or her own name and likeness in the future. Additionally, it will be inherently awkward for both the buyer and that person to compete using the same assets. Nevertheless, those assets may have strategic value to the debtor’s adversaries.

As social media assets become increasingly valuable, such assets will mean more to both the owner and to the owner’s creditors. Valuable assets are always in play in bankruptcy cases. A bankrupt debtor may face significant challenges in starting over without the use of those social media assets in which so much was invested. These assets will increasingly be a source of disputes and will require close scrutiny.