Kremen v. Cohen

325 F.3d 1035, 2003 WL 203143

• Court: Court of Appeals for the Ninth Circuit
• Decided: January 22, 2003
• Docket: 19-35460
• Status: Published

Opinions

ORDER

We certify to the California Supreme Court the question set forth in Part II of this order. All further proceedings in this case are stayed pending final action by the California Supreme Court, and this case is withdrawn from submission until further order of this court.

I

Caption and Counsel

Gary Kremen is deemed the petitioner in this request because he appeals from the district court’s adverse rulings on the issue certified. The caption of the case is:

GARY KREMEN, an individual, Plaintiff-Appellant, and ONLINE CLASSIFIEDS, INC., a Delaware Company, Plaintiff, v. No. 01-15899 D.C. No. CV-98-20718-JW Northern District of California, San Jose STEPHEN MICHAEL COHEN, an individual; OCEAN FUND INTERNATIONAL LTD., a foreign company; SAND MAN INTERNACIONAL LTD., a foreign company; SPORTING HOUSES MANAGEMENT CORPORATION, a Nevada company; SPORTING HOUSES OF AMERICA, a Nevada company; SPORTING HOUSES GENERAL INC., a Nevada company; WILLIAM DOUGLAS, Sir, an individual; VP BANK (BVI) LIMITED, a foreign company; ANDREW KEULS, an individual; MONTANO PROPERTIES LLC, a California Limited Liability Company; YNATA LTD., Defendants, and NETWORK SOLUTIONS, a Delaware company, Defendant-Appellee

The following is a list of counsel appearing in this matter:

Counsel for appellant Gary Kremen:

James M. Wagstaffe

100 Spear Street, Suite 1800

San Francisco, CA 94105

415-371-8500

Counsel for appellee Network Solutions, Inc.:

Kathryn E. Archer

401 B Street, Suite 2000

San Diego, CA 92101

619-699-4750

Other counsel appeared for the other-named parties in this appeal; those counsel are not listed here because the claims related to those parties were disposed of by separate disposition as set out in Part III of this order.

II

Question Certified

Pursuant to Rule 29.5(a) of the California Rules of Court, we respectfully request the California Supreme Court to exercise its discretion to adjudicate a question of California law related to Internet domain names and the tort of conversion. This particular case centers on the domain name “sex.com.” The decisions of the California appellate courts provide no controlling precedent regarding the certified question, the answer to which may be determinative of this appeal. We respectfully request that the California Supreme Court answer the certified question presented below. We acknowledge that your Court may decide to reformulate the question, and our phrasing of the issue is not intended to restrict your Court’s consideration of the case. We agree to follow the answer provided by the California Supreme Court.

We invoke the certification process only after careful consideration and do not do so lightly. The certification procedure is reserved for state law questions that present significant issues, including those with important public policy ramifications, and that have not yet been resolved by the state courts. We request certification not because a difficult legal issue is presented but because of deference to the state court on significant state law matters.¹ We have noted, in reference to Arizonans for Official English v. Arizona,2 520 U.S. 43, 62, , 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997), that “we have an obligation to consider whether novel state-law questions should be certified — and we have been admonished in the past for failing to do so.” Parents Involved in Community Schools v. Seattle School District, 294 F.3d 1085, 1086 (9th Cir.2002) (certifying question despite parties’ unanimous request not to certify) (oral arguments heard on certified question in Washington State Supreme Court on October 24, 2002).

Although we are quite capable of resolving the issue presented, we should not reach out to grab the question in the first instance simply because the case involves a novel and “sexy” issue. We are not, of course, unmindful of the burgeoning caseload of the California Supreme Court, and we recognize that the decision to accept certification lies solely within the discretion of your court. But it is not our role to pass advance judgment on the Court’s priorities. We would not presume to certify a run-of-the mill case to your Court nor would we use the certification process to sidestep our diversity jurisdiction. In a case such as this one that raises a new and substantial issue of state law in an arena that will have broad application, the spirit of comity and federalism cause us to seek certification. We accordingly invoke this procedure under the California Rules of Court.

The question of law to be answered is: Is an Internet domain name within the scope of property subject to the tort of conversion?

(a) For the tort of conversion to apply to intangible property, is it necessary that the intangible property be merged with a document or other tangible medium?

(b) If the answer to Question (a) is “yes,” does the tort of conversion apply to an Internet domain name, or, more specifically, is an Internet domain name merged with a document or other tangible medium?

Ill

Statement of Facts

This action stems from Gary Kremen’s (“Kremen”) suit against Network Solutions, Inc. (“NSI”) for the fraudulent transfer of his properly-registered Internet domain name, “sex.com,” to a third party.

A short background regarding the Internet will assist in putting this case in context. The Internet has been described as “a vast system of interconnected computers and computer networks.” See Name. Space, Inc. v. Network Solutions, Inc., 202 F.3d 573, 576 n. 1 (2d Cir.2000). Each computer that is connected to the Internet has a unique Internet Protocol (“IP”) number that functions as a kind of Internet address. Id. An IP number consists of four sets of numbers separated by periods. Id. at 576. Early Internet innovators created the Domain Name System (“DNS”), a system designed to relate easily-remembered domain names with difficult-to-remember IP numbers. Domain names are comprised of alphanumeric fields separated by dots — e.g., <www.courtin-fo.ca.gov> — where the field farthest to the right (“.gov” in the example) is the Top Level Domain (“TLD”). Id. at 577. The field second from the TLD is the Second Level Domain; and the field third from the TLD is the Third Level Domain. Id.

Under a cooperative agreement entered into with the National Science Foundation (“NSF”) on January 1, 1993, NSI became the exclusive registrar for various TLDs, including “.com”. By accepting the role of registrar, NSI took “primary responsibility for ensuring the quality, timeliness and effective management of the registration services provided” under the agreement. The agreement expired on September 30, 1998; thereafter other entities have shared the role of domain name registrar. From April 1993 until September 1995, NSI provided its registration service to the public at no cost. During this period, NSF paid NSI a fixed fee and costs for registering domain names.

Under its agreement with NSF, NSI undertook responsibility to “compile and maintain an authoritative, reliable, and up-to-date database” of registered domain names in addition to the conversion tables that index registered domain names to IP numbers.

On May 9, 1994, Kremen registered the domain name “sex.com” with NSI. Kremen did so by filling out and electronically submitting a short registration form. No payment was necessary in order to effect the registration. Kremen registered sex.com under his d/b/a “Online Classifieds, Inc.” (“OCI”) and listed himself as the administrative and technical contact person. Kre-men did not use the domain name for any significant purpose during the 18 months that it was registered to OCI.

In October 1995, NSI received a letter on OCI letterhead and putatively signed by OCI’s president. The letter was addressed to Stephen Cohen (“Cohen”) and purportedly authorized him to notify NSI on OCI’s behalf that NSI should delete the sex.com domain name from its database, thereby terminating OCI’s registration. The letter further stated that OCI had no objection to Cohen’s registering sex.com in his own name.

Upon receipt of the letter, NSI deleted OCI’s registration of sex .com and re-registered it to Sporting Houses Management, Inc., one of Cohen’s alter ego corporations, with Cohen listed as the administrative contact. Cohen proceeded to use the sex.com domain name as a platform upon which to build a lucrative Internet-based pornography business. As it turned out, the so-called authorization letter was a forgery concocted by Cohen or at his behest. NSI claims that there was no evidence to question the authenticity of the letter, although Cohen disputes that characterization.

Approximately eight months after NSI registered sex.com in Cohen’s name, Kre-men demanded that NSI reinstate his registration of sex.com. NSI informed him that it would not do so absent a court order. In October 1998, Kremen brought suit against Cohen and NSI seeking in-junctive relief and damages. Kremen alleged, among other things, that by honoring Cohen’s fraudulent instruction to transfer the sex.com registration, NSI was liable in tort for conversion and as a bailee. Kremen also brought other state law claims that are not at issue in this certification request.

Judge Ware, of the District Court for the Northern District of California, granted summary judgment in favor of NSI, concluding that there was “no evidence establishing that a domain name, including sex.com, is ‘merged in or identified with’ a document or other tangible object.... Thus, under the traditional precepts governing the tort of conversion, a domain name is not protected intangible property.” In the district court’s view, extending the tort of conversion to include Internet domain names involves a complex policy question that is more appropriately the subject of legislation. The district court also expressed concern that because the tort is one of strict liability, extending the tort to include domain names would “essentially scrap any requirement of tangibility consistently associated with the tort,” and, in its view, “there are methods better suited to regulate the vagaries of domain names.” The court rejected the bailment claim on the basis that “NSI’s mere registration of names does not convert its function to a bailee.”

On Kremen’s claims against Cohen regarding the transfer letter and the appropriated domain name, the district court found that the purported transfer letter was a forgery and that the transfer of the domain name was void and a nullity. The court restored registration of sex.com to Kremen, and rendered a judgment in favor of Kremen for $65 million, a judgment that Kremen has had very limited success in enforcing due to Cohen’s fugitive status.

On appeal to our court, Kremen argued, among other claims, that the district court erred in concluding that no cause of action for conversion or bailment exists against NSI for its unauthorized registration of sex.com to Cohen. Consideration of Kre-men’s claims against NSI are stayed pending this certification request. We resolved the remaining claims between Kremen and Cohen and related entities in an unpublished memorandum disposition in which we affirmed the district court’s judgment in favor of Kremen. Kremen v. Cohen, 45 Fed.Appx. 746 (9th Cir.2002). Neither Cohen nor any of his related entities are parties to the remaining proceedings, including this certification request.

IV

Statement of Reasons for Certification

We respectfully request that the California Supreme Court provide an authoritative answer to the certified question for the following reasons:

The certified question presents an issue of significant precedential and public policy importance. Although both California state courts and the federal courts have broadly considered conversion in connection with intellectual property, such as trade secrets, neither has specifically considered the state law tort of conversion in the context of an Internet domain name. With the growing ubiquity and importance of the Internet and the number of domain names increasing exponentially — -there are now some 30 million domain names³ — clarity in the application of California state law to domain names presents an important question for resolution. The scope of state law claims relating to domain names extends not only to the relationship between a domain name holder and a domain registrar, but also to the relationship between domain name holders and other third parties. Your Court has counseled that courts should be cautious in imposing new tort duties where novel legal claims implicate serious public policy considerations. Moore v. The Regents of the Univ. of Cal., 51 Cal.3d 120, 142, 271 Cal.Rptr. 146, 793 P.2d 479 (1990) (noting, in holding that patient did not hold ownership interest in cells after they left his body, that “the novelty of Moore’s claim demands express consideration of the policies to be served by extending liability rather than blind deference to a complaint alleging as a legal conclusion the existence of a cause of action”) (citations omitted). We believe that regulation of the Internet under state law presents such considerations, and consequently that this issue should be addressed in the first instance by your Court.

Following is a discussion of the background regarding the tort of conversion, as well as a summary of the parties’ arguments and the relevant case law with respect to the application of conversion to Internet domain names. Appropriately, this recitation does not take the form of an advocacy memorandum. Instead, our role as the requesting court is to provide the California Supreme Court with the relevant legal landscape. We reference only California cases because California law is at issue.⁴ Although we acknowledge that reasonable arguments exist on both sides of the issue, we do not advocate for a particular resolution to the question presented.

The parties do not dispute that domain names are a kind of property. This proposition appears to be consistent with California’s broad definition of “property.” See Cal. Civ.Code §§ 654 & 655(property includes “all inanimate things which are capable of appropriation or of manual delivery”). The parties disagree, however, whether a domain name like sex.com is the kind of intangible property that can support a claim for conversion. At issue is whether such intangible property constitutes a sufficiently definite right and whether such intangible property must also be merged into a document or other writing.

Historically, the tort of conversion exclusively protected rights in tangible property. At least one commentator has called the tangibility requirement a “hoary limitation” without “valid and essential reason.” Val D. Ricks, The Conversion of Intangible Property: Bursting the Ancient Trover Bottle With New Wine, 1991 BYU L.Rev. 1681, 1682 (1991) (quoting Prosser and Keeton on the Law of Torts 91-92(W. Page Keeton, ed., 5th ed.1984)). California courts have, however, long extended the tort to certain forms of intangible property such as stocks, bonds, notes, recorded performances, and warehouse receipts. See, e.g., A & M Records, Inc. v. Heilman, 75 Cal.App.3d 554, 570, 142 Cal. Rptr. 390 (1977) (recorded performances); Ralston v. The Bank of California, 112 Cal. 208, 213, 44 P. 476 (1896) (stock and dividends); Payne v. Elliot, 54 Cal. 339, 341-42 (1880) (stock); see also 5 Witkin Summary Cal. Law (9th ed. 1988) Torts, § 613.

Kremen analogizes the domain name to a stock interest or warehouse receipt, thus putting the domain name firmly within the scope of property covered by the tort of conversion. NSI argues that the domain name, as a reference point in a computer database, does not rise to the level of a definite or certain property right.

In Payne, your Court stated that the tort “no longer exists as it did at common law, but has been developed into a remedy for the conversion of every species of personal property.” 54 Cal. at 341. The question then arises as to the scope of coverage for intangible property. Years after Payne, the California Court of Appeals stated that the language in Payne was “too broad a statement as to the application of ... conversion.” Olschewski v. Hudson, 87 Cal.App. 282, 288, 262 P. 43(Cal.Ct.App.l927) (concluding that conversion exists only for “property which is specific enough to be identified, and not to such indefinite, intangible and uncertain property rights as the mere goodwill of a business, or trade secrets”). The fact that Payne has stood the test of time provides little comfort in this situation as the case does not answer the question at hand— namely, the application of Payne to an Internet domain name that is categorized as intangible property. This area would thus greatly benefit from certification by your Court.

Question (a):

An analysis of the scope of intangible rights requires answering whether the rights must be reflected in some documentary form.

The Restatement of Torts provides that

(1) Where there is conversion of a document in which intangible rights are merged, the damages include the value of such rights.

(2) One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted.

Restatement (Second) of Torts § 242. .At least one California Court of Appeal has favorably viewed the Restatement’s approach. In Thrifty-Tel, Inc. v. Bezenek, 46 Cal.App.4th 1559, 1565, 54 Cal.Rptr.2d 468 (1996), the court suggested that tangible and intangible property may be treated differently for purposes of conversion.⁵ The application of the language in Thrifty-Tel is unclear, however, because the court decided not to answer the question of “[wjhether ... [an] intangible computer access code, which was never reduced to paper or reflected on a computer disk ... could be the subjectf ] of conversion.” Id. at 1565-66, 54 Cal.Rptr.2d 468.

Two California Court of Appeals cases touch on the subject of documentary merger in connection with customer lists but do not address the issue presented in this certification. See Kieberk Corp. v. Palm-Springs-La Quinta Dev. Co., 46 Cal. App.2d 234, 240, 115 P.2d 548 (Cal.Ct.App. 1941) (concluding that destroying “tangible personal property consisting of a cabinet of lead cards containing the names and valuable information regarding prospective and- actual” customers was conversion); Olschewski, 87 Cal.App. at 286, 262 P. 43(finding no cause of action in conversion “for the unlawful interference with a laundry route, or any similar property” because “there is nothing definite or tangible in the character of the ordinary list of laundry customers”).

Thus, there do not appear to be any California cases squarely addressing whether the “merged with” requirement is a part of California law, nor have we been able to locate any cases from your Court indicating whether California follows the Restatement’s approach.

Question (b):

If your Court determines that, for purposes of conversion, intangible property must be merged with or reflected in a document or something tangible, we will then have to address a secondary question: whether the tort of conversion applies to an Internet domain name.

California courts have recognized a cause of action for intangible goods that have been merged with various kinds of tangible media. See Thrifty-Tel, 46 Cal.App.4th at 1565, 54 Cal.Rptr.2d 468 (trade secrets on a floppy disk); A & M Records, 75 Cal.App.3d at 569-70, 142 Cal.Rptr. 390 (recordings); Payne, 54 Cal. at 341(stoek certificates). Nonetheless, we have been unable to locate any cases addressing whether a domain name is sufficiently merged with tangible media to give rise to a claim for conversion. Although the parties’ briefs detail the intricacies of the DNS database and competing arguments as to the appropriate portion or registry at issue, we do not take any position at this juncture. The positions of the parties serve to juxtapose the argument on both sides.

According to Kremen, a domain name is a unique functional object that serves to access the corresponding IP address. Kremen argues that a domain name is merged with and identified with a document, namely the DNS database or a portion thereof. The DNS database is described as a decentralized but hierarchical database that correlates a domain name with the appropriate IP address. America Online, Inc. v. Huang, 106 F.Supp.2d 848, 851-52 (E.D.Va.2000). Kremen characterizes the database as akin to a sophisticated compilation of several documents, albeit in electronic form. Kremen likens the embodiment of the domain name in the database to the right to possess property which is embodied by a warehouse receipt.

NSI counters that the DNS database is not like a warehouse receipt. Relying principally on the description in America Online, NSI notes that although the DNS matches domain names with IP numbers, “this simple description incorrectly suggests that the DNS is a central database to which other computers may refer, when the DNS is instead a decentralized, albeit hierarchal, process for correlating a domain name with the appropriate IP address.” 106 F.Supp.2d at 851. NSI instead likens a domain name to a phone number or address, not the type of property subject to conversion. See Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980(9th Cir.1999) (characterizing NSI’s registration and routing services as service rather than product). NSI relies on the fact that “there is no master directory of domain names and IP addresses to which a computer refers!;]” instead, “the domain database is distributed across the Internet, on a multitude of name servers, each responsible for correlating the IP addresses and domain names of computers with its particular ‘zone’ of the domain name space.” 106 F.Supp.2d at 852. NSI argues that the DNS, which consists of multiple servers distributed around the globe, does not qualify as the type of document necessary for embodiment.

Again, our development of tort law on this novel issue would benefit from your Court’s elucidation of the proper treatment of domain names under California tort law. We advance no legal position on the competing arguments but simply offer a neutral characterization of the competing positions. The dissent’s discussion of the details of the .com registry and Internet architecture provides a useful backdrop but only serves to highlight the merits of the question and goes beyond the judicial dialogue central to the certification process.

V

The clerk of this court shall forward a copy of this order, under official seal, to the California Supreme Court, along with copies of all briefs and excerpts of record that have been filed with this court. The parties shall notify the clerk of this court within 14 days of any decision by the California Supreme Court to accept or to decline certification. If the California Supreme Court accepts certification, the parties shall file a joint report six months after the date of acceptance and every six months thereafter advising us of the status of the proceedings. The parties shall notify the clerk of this court within 14 days of the issuance of an opinion by the California Supreme Court.

IT IS SO ORDERED.

1 . Certification "strengthens the primacy of the state supreme court in interpreting state law by giving it the first opportunity to rule on an undecided or unclear issue.... Allowing federal courts to defer to state courts in such cases reinforces the federal judiciary's acknowledgment of state sovereignty and fosters values of federalism and comity in a way beneficial to state interests.” Jerome I. Braun, A Certification Rule for California, 36 Santa Clara L.Rev. 935, 940 (1996).

2 . Although the Arizonans case involved a constitutional question, neither the California rule nor practice requires that the issue be a constitutional one. Indeed, the procedure is designed to let the California Supreme Court decide whether it wants to have the first crack at a significant state-law issue and the majority of certifications that your Court has accepted have not involved a constitutional question. See e.g., Cadence Design Sys., Inc. v. Avant! Corp., 253 F.3d 1147 (9th Cir.2001) (trade secret question); Marin Tug & Barge, Inc. v. Westport Petroleum, Inc., 238 F.3d 1159 (9th Cir.2001) (tort question); Blue Ridge Ins. Co. v. Jacobsen, 197 F.3d 1008 (9th Cir.1999) (insurance question); and Asmus v. Pac. Bell, 159 F.3d 422 (9th Cir.1998) (employment question).

3 . See Mylene Mangalindan, Renew It or Lose It: Companies Often Forget to Renew Their Domain Names, Wall St. J. (July 15, 2002), available in 2002 WL-WSJ 3400519.

4 . We recognize that cases from other jurisdictions may be instructive, but they are not controlling. Likewise, citation to Ninth Circuit cases interpreting California law does not provide a definite interpretation from a California court. See, e.g., Bancroft & Masters, Inc. v. Augusta Nat’l, Inc., 223 F.3d 1082 (9th Cir.2002).

5 . "Courts have traditionally refused to recognize as conversion the unauthorized taking of intangible interests that are not merged with, or reflected in, something tangible."