Texas bankruptcy court shootout over social media accounts

May 15, 2015

facebook law practiceWhen a company files for bankruptcy, its social media accounts are property of the bankruptcy estate subject to distribution under the Bankruptcy Code.

That’s what Chief Bankruptcy Judge Jeff Bohm held in a bitterly contested and controversial case that went against Jeremy Alcede, the former owner of Tactical Firearms in Katy, Texas.

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Judge Bohm concluded in In re CTLI LLC, 2015 WL 1588085, 60 BCD 243 (Bankr. S.D. Tex. Apr. 3, 2015), that the Facebook and Twitter accounts at issue were business accounts, not personal accounts, and ordered Alcede to transfer administrative privileges to the accounts to the reorganized Chapter 11 debtor.

To date, there is little case law on this topic.

As noted by attorney Christopher J. Hopkins of Weil Gotshal & Manges LLP in his blog post:

“The decision helps clarify the boundary between accounts that actually belong to the business — and therefore would constitute property of the estate in the event of a bankruptcy filing — and those that belong to individuals.  Potential debtors seeking to preserve the accumulated goodwill and value of their social media accounts postpetition should take care to ensure that their accounts would be deemed ‘business accounts of the debtor’ following the commencement of a bankruptcy case.”

Alcede’s company CTLI LLC, d/b/a Tactical Firearms, started out as a gun store, but Alcede wanted to expand operations to include a shooting range. To that end, he brought in Steven Wilson, who purchased a larger building in exchange for a 30 percent interest in the company.

Wilson later suspected that Alcede was diverting cash and obtained a state-court order that a receiver be appointed.  But Alcede caused CTLI to file bankruptcy before the receiver could take control.

Ultimately, the bankruptcy court confirmed a plan of reorganization that made Wilson the 100 percent owner of the reorganized debtor.  Judge Bohm’s confirmation order required Alcede to deliver possession and control of the social media passwords to Wilson.  Alcede fired back that all of the social media accounts belonged to him personally, and not to the debtor.

The judge held further hearings and again ruled against Alcede, finding that an order requiring him to transfer the passwords would not violate any of his claimed privacy rights.

“The evidence is utterly insufficient to overcome the presumption that the Facebook Page entitled ‘Tactical Firearms’ at the time of the plan confirmation was anything other than what it appeared to be: a business Facebook page for the business known as Tactical Firearms,” Judge Bohm said.

While Alcede was in charge of the store, it frequently received news coverage for its outside marquee which displayed messages such as “I like my guns like Obama likes his voters: undocumented” or “Does one of Obama’s family members have to be beheaded for ‘change’ to happen?”

Postscript: Alcede chose to go to jail rather than comply with Judge Bohm’s order.