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Domain Protection, LLC v. Sea Wasp, LLC

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

July 17, 2019

DOMAIN PROTECTION, LLC,
v.
SEA WASP, LLC, ET. AL.

          AMENDED MEMORANDUM OPINION AND ORDER [1]

          AMOS L. MAZZANT, JUDGE

         The procedural history in this case is needlessly complicated. Plaintiff Domain Protection, LLC filed a Motion for Preliminary Injunction (Dkt. #54), seeking to stop Defendant Sea Wasp, LLC from blocking its access to domain names in its possession. The corresponding response and reply were timely filed but a sur-reply was not. Sea Wasp subsequently filed two motions seeking leave to file a sur-reply (Dkt. #79; Dkt. #83) and one to file additional briefing (Dkt. #120). Domain Protection opposes these efforts, and moves to strike one of the motions for leave (Dkt. #81).

         While the Court does not appreciate Sea Wasp's failure to timely file its briefs, in the interest of justice, the Court will consider the late-filed briefs nevertheless. The Court has thus considered all pleadings filed in connection with the motion for preliminary injunction, which will be granted.

         BACKGROUND[2]

         The internet is “an electronic communications network that connects computer networks and organized computer facilities around the world.” Internet, Merriam-Webster, https://www.merriam-webster.com/dictionary/Internet (last visited July 11, 2019). To access a website, users must connect their home computer to the one hosting the site. This can be accomplished 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/ipaddress (last visited July 11, 2019) (listing “67.43.14.98” as an example). But IP addresses may be difficult to remember. As a result, website owners typically obtain an alpha-numeric “domain name” that users can also type to reach their website, 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 their domain names 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”). 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.

         A summary on how Domain Protection came into possession of the Domain Names may be helpful at this point. In 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. #54, Exhibit 15). 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. #54, Exhibit 13), 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 Names, until the dispute over control of the LLCs was resolved (Dkt. #54, Exhibit 14 at pp. 4-5 n.2; Dkt. #54, Exhibit 17). 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. #54, Exhibit 17). 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. #54, Exhibit 31 at p. 2). 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. #54, Exhibit 31 at p. 2). 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. #54, Exhibit 9; Dkt. #54, Exhibit 12). 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).[3] 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. #54 at p. 10). 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 interference with contract, civil conspiracy, conversion, and respective violations of the Texas Theft Liability Act and the Stored Communications Act. Domain Protection alleges that, by turning the lock back on, Sea Wasp is encroaching on its proprietary interests in the Domain Names since it cannot transfer them or update their nameserver records. 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 accredited with the Internet Corporation for Assigned Names and Numbers (“ICANN”). ICANN-registrars must comply with the Registrar Accreditation Agreement (the “Accreditation Agreement”), which instructs them to maintain the status quo once a dispute arises (Dkt. #54, Exhibit 2 at p. 5). According to Sea Wasp, this means that it cannot allow Domain Protection to transfer the Domain Names while a dispute is pending. Domain Protection counters that ICANN's dispute resolution policy requires registrars to transfer domain names on “written or appropriate electronic instruction from [the registrar] to take such action”-even after a dispute has started (Dkt. #54, Exhibit 2 at p. 5) (emphasis in original).

         Domain Protection now seeks a preliminary injunction, claiming it will suffer “irreparable harm” if it cannot sell or monetize the Domain Names. Domain Protection has $2, 000 in its account, cannot afford to pay renewal costs for all of the Domain Names, and cannot receive emails since the Domain Names are directed to a site hosted by Bidtellect-the Advertising Manager whose contract Domain Protection had terminated.

         LEGAL STANDARDS

         A party seeking a preliminary injunction must establish the following elements: (1) a substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any damage that the injunction might cause the defendant; and (4) that the injunction will not disserve the public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). “A preliminary injunction is an extraordinary remedy and should only be granted if the plaintiffs have clearly carried the burden of persuasion on all four requirements.” Id. Nevertheless, a movant “is not required to prove its case in full at a preliminary injunction hearing.” Fed. Sav. & Loan Ins. Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting Univ. of Tex. v. Comenisch, 451 U.S. 390, 395 (1981)). The decision whether to grant a preliminary injunction lies within the sound discretion of the district court. Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982).

         DISCUSSION

         I. The Status Quo

         Sea Wasp argues that the Court should deny Domain Protection's request for a preliminary injunction because it seeks to modify the status quo. As an initial matter, plaintiffs can seek a preliminary injunction that alters the status quo, even if such requests require a stronger showing. See Justin Indus., Inc. v. Choctaw Secs., L.P., 920 F.2d 262, 268 n.7 (5th Cir. 1990) (explaining that plaintiffs seeking such relief must “show[] a clear entitlement to the relief under the facts and the law”).

         But Domain Protection is not seeking to alter the status quo, regardless. The Fifth Circuit has long held that, for purposes of a preliminary injunction, the status quo refers to the “last uncontested status of the parties.” Yeargin Const. Co. v. Parsons & Whittemore Ala. Mach. & Servs. Corp., 609 F.2d 829, 831 (5th Cir. 1980) (citing Wash. Capitols Basketball Club, Inc. v. Barry, 419 F.2d 472, 476 (9th Cir. 1969)).[4] The Fifth Circuit's decision in Lake Charles Diesel, Inc. v. Gen. Motors Corp. is illustrative. 328 F.3d 192, 193-95 (5th Cir. 2003). There, the defendant terminated a contract for the sale of automotive repair parts, prompting the plaintiff to sue and move for a preliminary injunction. The Fifth Circuit found that the plaintiff's attempt to nullify the contract termination did not amount to a change in the status quo. Id. at 196. The Fifth Circuit reasoned that, by issuing the preliminary injunction, the district court was merely maintaining the status quo-the continuation of the contract. Id. That is, the Fifth Circuit recognized the last uncontested status of the parties' relations leading up to the suit as the status quo. See id.

         Domain Protection seeks to maintain the last uncontested status leading up to the dispute here. The Parties agree that: (1) the Domain Names were subject to an executive lock while the suits in Texas and Australia were pending; (2) the executive lock was removed for a (short) period after these suits were dismissed, which allowed Domain Protection to make certain changes to the Domain Names' nameserver records; (3) Sea Wasp reversed the changes and placed the lock back on after the Bankruptcy Court action was initiated; and (4) Domain Protection responded by filing this suit and motion. The last uncontested status, then, is the period in which no lock had been placed on the Domain Names. Because Domain Protection is not attempting to modify the “status quo, ” the Court will not apply the stricter standard applicable to motions for preliminary injunction seeking to do so.

         II. Substantial Likelihood of Success

         A plaintiff seeking a preliminary injunction must present a prima facie case of his substantial likelihood to succeed on the merits. Health Scis., LLC v. Vascular Health Scis., 710 F.3d 579, 582 (5th Cir. 2013) (citing Janvey v. Alguire, 647 F.3d 585, 595-96 (5th Cir. 2011)). This does not require the plaintiff to establish its entitlement to summary judgment. See Byrum v. Landreth, 566 F.3d 442, 446 (5th Cir. 2009). The plaintiff, instead, must only “present a prima facie case.” Daniels Health, 710 F.3d at 582.

         Domain Protection has met this standard as to its claim for violation of the Texas Theft Liability Act (the “TTLA”).[5] The TTLA provides a civil cause of action for theft, as defined by the Texas Penal Code. Tex. Civ. Prac. & Rem. Code ...


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