Social Media Assets In Bankruptcy: Facebook And Twitter Accounts Subject To Reach Of Creditors

Social media accounts can be "property of the estate" in a bankruptcy case of a business, and thus belong to the business, even when the contents of the accounts are intermingled with personal content of managers and owners. This principle was recently confirmed by the Bankruptcy Court for the Southern District of Texas in In re CTLI, LLC (Bankr. S.D. Tex. Apr. 3, 2015), which featured a battle among equity holders over Facebook and Twitter accounts promoting a business called Tactical Firearms.

Tactical Firearms was a gun store and shooting range. Prior to filing for bankruptcy, the business had used Facebook and Twitter accounts in its marketing. The original majority shareholder and managing office, Jeremy Alcede, had mixed his quasi-celebrity personal activities and personal politics with the promotion of the business, frequently taking to Facebook and Twitter for both personal purposes and for the promotion of the business. When the company filed for bankruptcy, Alcede ultimately lost ownership and control of the company to another investor through a Chapter 11 plan of reorganization.

Despite the loss of the business, Alcede fought to retain control over the Facebook and Twitter accounts. However, although he had changed the names of the accounts to reflect his personal name rather than that of the company, the Bankruptcy Court held that the accounts belonged to the business. The court applied Bankruptcy Code § 541, which provides that a bankruptcy estate includes "all legal or equitable interests" of a debtor, in holding that the social media accounts belonged to the debtor and thus constituted property of the bankruptcy estate.

As the court recognized, Alcede had originally created the Tactical Firearms business, and the accompanying social media accounts, as "an extension of his personality" and, "like many small business owners, closely associated his own identity with that of his business." The court, however, rejected Alcede's definitions of "personal" versus "business related" media posts, finding that the best marketing for business through social media is "subtle" and can involve the use of celebrities to promote the business.

The core results of the CTLI decision were as follows:

Rejecting Alcede's property and privacy arguments, the court determined that the social media accounts were property of the bankruptcy estate, much like subscriber or customer lists, despite some intermingling with Alcede's personal social media...