The Texas bankruptcy court recent decision in a petition for Chapter 11 reorganization (In re: CTLI, LLC) serves as an important reminder of the value of social media accounts; and the importance of who owns them.
The debtor, Tactical Firearms, was a gun shop and shooting range in Katy, Texas. Tactical was owned by Messrs. Alcede and Martin. When Tactical ran into financial troubles and internal management conflicts, Martin filed a bankruptcy petition and reorganization plan that included the transfer of all ownership interest in Tactical to Martin. Martin claimed that Tactical’s Facebook and Twitter accounts – containing valuable customer lists – developed by Alcede belonged to the reorganized Tactical entity. Alcede disagreed and attempted to prevent Tactical from continuing to use these accounts. The bankruptcy court determined that the Facebook and Twitter accounts belong to the reorganized Tactical and not Alcede.
The Court focused primarily on three questions:
- Was the social media account created in the name of the business?
- Was the social media account linked to the business’s web page?
- Was the social media account used for business purposes?
In rendering its decision, the Court found that the answer to these question was “yes;” and that Alcede had effectively transferred any individual goodwill he might have had in the social media accounts to the business.
The Tactical Firearms case in another example of the growing judicial recognition that social media accounts are a valuable, almost indispensable business asset. Businesses, including accounting firms, should take steps to ensure that there is no question that the business, and not the individual employee, owns the social media accounts used in the business and the related goodwill. The best place to address this ownership issue is in a well drafted employment agreement.