Domain Prot., LLC v. Sea Wasp, LLC, Civil Action No. 4:18-cv-792

CourtUnited States District Courts. 5th Circuit. United States District Court of Eastern District Texas
Writing for the CourtAMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE
Citation426 F.Supp.3d 355
Parties DOMAIN PROTECTION, LLC, Plaintiff, v. SEA WASP, LLC, et. al. Defendants.
Docket NumberCivil Action No. 4:18-cv-792
Decision Date12 December 2019

426 F.Supp.3d 355

DOMAIN PROTECTION, LLC, Plaintiff,
v.
SEA WASP, LLC, et.
al. Defendants.

Civil Action No. 4:18-cv-792

United States District Court, E.D. Texas, Sherman Division.

Signed December 12, 2019


426 F.Supp.3d 363

Gary N. Schepps, Schepps Law Offices, Gary Nathan Schepps, Gary N. Schepps, Dallas, TX, for Plaintiffs.

Liane Aiko Janovsky, Janovsky & Associates, Frisco, TX, David A. Vinterella, Faia and Associates, LLC, Metairie, LA, James Michael Young, Roger D. Sanders, Sanders O'Hanlon, Motley & Young, Sherman, TX, Richard Mercer Abernathy, Charles Joseph Crawford, Lucas Christopher Henry, Abernathy Roeder Boyd & Hullett, PC, McKinney, TX, Mark Daniel Strachan, Robert L. Sayles, Bradley Arant Boult Cummings LLP, Jason P. Steed, Bell Nunnally & Martin LLP, Nathan M. Johnson, Spector & Johnson, PLLC, Howard Marc Spector, Attorney at Law, Dallas, TX, for Defendants.

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

MEMORANDUM OPINION AND ORDER

Pending before the Court is Plaintiff Domain Protection's First Motion for Partial Summary Judgment (Dkt. #123); Plaintiff Domain Protection's Motion for Leave to File One Page of Sur-Sur-Reply Briefing in Support of its First Motion for Partial Summary Judgment (Dkt. #185); Sea Wasp, LLC's Opposed Motion to Supplement its Response to Plaintiff's First Motion for Partial Summary Judgment (Dkt. #319); and Sea Wasp, LLC's Amended Motion to Supplement its Response to Plaintiff's First Motion for Partial Summary Judgment (Dkt. #327). Having considered the motion and the relevant pleadings, the Court finds that each Motion is GRANTED —save the portion of Domain Protection's First Motion for Partial Summary Judgment (Dkt. #123) relating to tortious interference with a prospective contract which is DENIED.

426 F.Supp.3d 364

BACKGROUND

The internet is "an electronic communications network that connects computer networks and organized computer facilities around the world." See Internet , MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/Internet (last visited November 24, 2019). To access a website, users must connect their home computer to the one hosting the site. This is done by typing the website's "Internet Protocol Address" (the "IP Address")—a string of numbers that identifies the computer where the website is housed—into Internet Explorer or another web browser. See IP Address , TECH TERMS COMPUTER DICTIONARY, https://techterms.com/definition/ip_address (last visited November 24, 2019) (listing "67.43.14.98" as an example). Because an IP address may be difficult to remember, website owners typically obtain an alpha-numeric "domain name" that users can type reach to their website and that might be easier to remember, such as "google.com." Put simply, an "IP address," is comparable to a nine-digit phone number and a "domain name" is comparable to the name saved on a cell phone for that number.

A party can secure the rights to use a particular domain name in one of two ways. It can register a brand-new domain name with a "registrar," the party responsible for maintaining the registration of domain names. Or, it can purchase an existing domain name from the party who has registered that name—also known as the "registrant" or "registered name holder." Registered name holders can earn money from the domain names in their possession by selling them or directing them to placeholder sites where ads are placed and monetized.

Domain Protection is the registered name holder for over 50,000 domain names (the "Domain Names") (Dkt. #123). Sea Wasp is the registrar over those names. This suit concerns whether Sea Wasp is encroaching on Domain Protection's proprietary interest in the Domain Names by turning the executive lock on them, which prevents Domain Protection from selling the Domain Names or updating their registration information. Sea Wasp insists that Domain Protection lacks any proprietary interest in the Domain Names in light of a dispute over their ownership (Dkt. #123, Dkt. #168).

A summary on how Domain Protection came into possession of the Domain Names may be helpful at this point. In February 2014, three parties filed suit in the Northern District of Texas against Jeffrey Baron and one of his companies for misappropriating their domain names. The court found Baron to be a vexatious litigator and, on this basis, appointed a receiver (the "Receiver") over his assets while the dispute was pending (Dkt. #192). The court also placed assets belonging to Novo Point, LLC ("Novo Point") and Quantec, LLC ("Quantec") (collectively, the "LLCs’ "), two limited liability companies with ties to Baron (Dkt. #168), in the Receiver's custody. The LLCs' assets included the Domain Names.

On appeal, Baron argued that the court lacked jurisdiction to enter the receivership order, and the Fifth Circuit agreed. This prompted the district court to unwind the receivership (the "Unwind Order") (Dkt. #54, Exhibit 17). Assets held in Baron's name would be returned to him. But it was not immediately apparent whom to return the LLCs' assets to in light of a dispute over who could properly act for them. Without resolving the dispute, the court directed the Receiver to return the Domain Names to Lisa Katz, the Local Operations Manager for the LLCs. Katz was entrusted to manage the LLCs' assets, including the Domain

426 F.Supp.3d 365

Names, until the dispute over control of the LLCs was resolved (Dkt. #123; Dkt. #168). Baron-affiliates Mike Robertson and David McNair (the "Baron Affiliates") tried to induce the registrar over the Domain Names, Fabulous.com ("Fabulous"), into giving them control of the Domain Names anyway. But the Receiver intervened, instructing Fabulous to handover the Domain Names to Katz, pursuant to the Unwind Order (Dkt. #123). Katz then assumed control over the Domain Names.

Katz explains that the LLCs had racked up substantial debt while they were under receivership, prompting creditors to threaten to place the LLCs in bankruptcy for liquidation (Dkt. #123). To prevent this, Katz assigned the Domain Names to Domain Protection, a company where she is also manager. The plan was for Domain Protection to liquidate the Domain Names as needed to pay off the LLCs' debts (Dkt. #123). But Baron had contemporaneously filed suits in Texas and Australia challenging Katz's possession of the LLCs' assets. This prompted Fabulous to place an "executive lock" on the Domain Names while these actions were pending, which prevented Domain Protection from liquidating the Domain Names during the duration of the suits.

Neither suit was successful (Dkt. #123). In August 2017, after the suits had been dismissed, Domain Protection asked Fabulous to restore its access to the Domain Names. Sea Wasp purchased Fabulous roughly at the same time. While the Parties dispute what immediately followed, they agree that, "[a]t least between January 28, 2018 to February 11, 2018, there was not an ‘Executive Lock’ on the [D]omain [N]ames." (Dkt. #42 at p. 1). Domain Protection began managing the affairs over the Domain Names shortly after. It started by replacing Bidtellect as the advertisement revenue manager (the "Advertising Manager") for the Domain Names on receipt of a "concerning" letter from Bidtellect (Dkt. #123). Bidtellect was apparently exasperated with the series of disputes over the Domain Names and proposed certain non-negotiable terms to continue their contractual relationship. Domain Protection responded by terminating its contract with Bidtellect, contracting with a new Advertising Manager, and updating the registration information for the Domain Names accordingly. This involved updating the Domain Names' "nameserver records," which ensured that, when a user typed a Domain Protection domain name in a web browser, the user would be directed to a placeholder website hosted by the new Advertising Manager.

By late February 2018, two or three weeks after the lock was removed, Baron filed another suit (the "Underlying Dispute") challenging Katz's authority to transfer the Domain Names. See In re Payne , No. 16-04110 (Bankr. E.D. Tex. 2018). Domain Protection believes that Baron filed this suit simply to lock the Domain Names indefinitely, citing correspondence to that effect from Baron's attorneys (see Dkt. #54, Exhibit 28). Sure enough, Sea Wasp responded by reverting the changes Domain Protection had made to the Domain Names' nameserver records and turning the executive lock back on. Domain Protection notes that Robertson, one of the Baron Affiliates who tried to take control of the Domain Names in violation of the Unwind Order, is now a principal or "key person" at Sea Wasp (Dkt. #54, Exhibit 31 at pp. 3–4).

Domain Protection has brought claims against Sea Wasp for tortious interference, civil conspiracy, conversion, and respective violations of the Texas Theft Liability Act and the Stored Communications Act (Dkt. #1). Domain Protection alleges that, by turning the lock back on, Sea Wasp is

426 F.Supp.3d 366

encroaching on its proprietary interests in the Domain Names since it cannot transfer them or update their nameserver records (Dkt. #1). Sea Wasp, however, insists that it can and must place a lock on the Domain Names while a dispute is pending, citing its obligations as a registrar...

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    ...Masters Educ. Servs., Inc. , 401 S.W.3d 95, 97 (Tex. App.—Houston [14th Dist.] 2011, no pet.).22 Domain Prot., LLC v. Sea Wasp, LLC , 426 F. Supp. 3d 355, 389 (E.D. Tex. 2019) ("Conversion does not apply to purely intangible property."), aff'd , 23 F.4th 529 (5th Cir. 2022).23 Id.24 In re T......
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